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Volume XI, Number 338

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“Where’s My Refund” – In Defense of Colleges and Universities Sued for the Return Fees and Tuition

Class action lawsuits have been filed against more than a dozen major universities for their failure to offer refunds for tuition, room and board, and on-campus services no longer available after the universities shifted to online learning. With the initial filings underway, the strategies now turn to the response. As discussed below, there are numerous arguments and defenses to the class allegations as well as the merits of the claims. The threats to educational institutions may be as novel as the virus, but the defense will require innovative approaches as well.

Class actions have been filed against a number of public university systems, including those in Arizona, California, Michigan, Indiana, and Vermont, as well as private schools such as Cornell University, Columbia University, Liberty University, and Drexel University, among others. The proposed class members have most often brought claims for breach of contract or unjust enrichment, citing to students’ enrollment agreements that provide the university with a contractual obligation to provide specific educational services, meal plans, activity fees, and housing to students. Other class actions have referred to promises set forth in a school’s bulletins, circulars, handbooks, and promotional materials, which some courts have previously held to establish the existence of an implied contract. Almost all class actions have cited the equitable concern of asking students to “bear the brunt” of the financial burden imposed by various state and local government orders to close businesses. Even schools that provided a partial refund have been subject to recently filed class actions, as proposed class members argue that the compensation provided is not enough to cover their financial losses.

If Class Actions are the Mechanism, What Strategies Can be Employed to Counter Them?

Universities likely have a number of defenses available at both the class action certification and merits stages. Engaging a firm with experience defending class actions to guide the institution is critical because it can help plan and execute the right strategies each step along the way.

Class certification requires similarity in class members’ experiences. A court will examine whether common evidence exists so that issues can be resolved in one fell swoop. Using a case-by-case approach in responding to situations may be useful in defending the commonality or predominance of the claims. A number of arguments are available:

  • Universities should look closely at how the classes are defined. If a single proposed class is alleged, it may be too broad and could be subject to a motion to strike. If drawn too narrowly, then the plaintiff may plead herself out of a class action. The class definition could also include such variables so as to constitute a fail-safe class if the class can only be defined after determining the merits.

  • The relevant enrollment agreements may be subject to class action waivers or mandatory arbitration clauses or that would bar potential plaintiffs from bringing a class action.

  • Relief provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act may impact commonality. Under the CARES Act, universities receive $6 billion to provide direct economic aid for students facing financial hardships resulting from Covid-19, which can to cover course materials, technology, food, and healthcare. The CARES Act also permits institutions to make federal work study payments through the end of the academic year even if students cannot work due to campus closures. Because of the varied types of relief under the CARES Act, plaintiffs may have difficulty establishing a common financial injury among large classes of affected students.

  • Universities should also look for facts and arguments reflecting that the proposed class members’ claims have meaningful individual variations resulting in a lack of commonality as required under class action rules. For example, how much any student has used university facilities (whether the fees been used and how much), whether there are real differences in online versus classroom teaching and that may vary by major or curriculum, whether students are living on or off campus, how much of the food services have been used, were students studying abroad, what was the value of the coursework and instruction (and does it vary according to the particular student, class, or instructor), how much has the student participated in the online coursework, and many others. Relatedly, certain areas of study may be more amenable to online study than other areas; coursework, for example, that requires access to laboratories, in-person training, or particular equipment might be less effective online

  • Students’ tuition, meal plans, extracurricular fees, residencies, and financial aid arrangements also vary, potentially requiring proposed class members to bring different claims for different damages.

With respect to the merits, the primary claims are based upon contract and equitable theories. Universities should consider a number of possible defenses:

  • Consider an early motion if the complaint is not drafted properly.  Federal courts follow a plausibility standard of pleading, so universities should consider whether the elements of the claim were properly pleaded, whether there are there sufficient facts to support the claims, and whether there defenses unique to the claim against the university as a matter of law.

  • Potential standing issues may apply, depending upon the injury alleged by the particular class of plaintiffs. Students, parents, and other financiers of students’ educations may be impacted differently by the university’s campus closure and may not have suffered the specific injury alleged in the class action complaint.

  • Enrollment agreements should be examined for force majeure clauses, which allocate the risk of loss if performance becomes impossible or impracticable, and refund provisions, which may limit potential plaintiffs’ abilities to recover certain types or amounts of refunds.

  • Common law doctrines of impossibility, impracticability, or economic frustration may also apply, so universities should consult relevant state law for potential defenses.

  • Public universities should also consider the potential application of immunity legislation depending on the nature of the claims alleged. Such provision may protect state entities unless the state has waived the immunity. If the class action seeks monetary damages and does not allege a waiver of sovereign immunity, the complaint could be dismissed if within the scope of the statute. 

  • Universities may be able to protect themselves by posturing these class actions as “educational malpractice” claims, as courts are often hesitant to second-guess university teaching methods. In this posture, plaintiffs would need to show how online classes fail to provide the bargained-for educational experience.

  • Damages may present another opportunity to inquire whether the plaintiffs are due any refunds. Universities should consider a counterclaim or setoff if there are possible amounts the school is still owed by any potential class members. 

The Institutions’ Responses Must be Deliberate and Prudent

While the claims that the plaintiffs have asserted in these cases may be ordinary contractual or equitable claims, the potential consequences for educational institutions are much more complicated. Many colleges and universities are dependent on the fees, tuition, and other income for their operating budgets. A substantial refund could be crippling in terms of the ability to educate students in the future. In addition, there are ramifications regarding whether grants, loans, or scholarships were used for any portions of the amounts sought for refunds. Refunding amounts to students or parents could be an unintended windfall. The fact that courses were switched to online instruction is one factor, but another is whether students received what they were planning to receive in terms of access to and use of the collegiate experience and facilities. University task forces and officials should also stay informed on protections that may be afforded by legislative or executive authorities. The coronavirus pandemic has unquestionably impacted all sectors of the economy, and education is not left out. But a deliberate and thoughtful strategy to the defense of a class action along with an empathetic approach to the impact that the upheaval created for students is essential. Reputational harm could be equivalent or greater than the economic loss.

Conclusion

The outbreak of commercial class action lawsuits against educational institutions presents complex and unique issues for systems designed to provide services and impart knowledge, not answer in litigation. The response to protect the university’s reputation and economic standing is likely multifaceted. There are a number of potential strategies, and engaging counsel experienced in class action laws and rules is critical. 

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 127
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About this Author

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Mark Olthoff looks for solutions. Whether it is help resolving a commercial dispute, responding to a financial services claim, or counseling on a corporate governance issue, Mark’s experience and knowledge guides clients to the best possible result. He has extensive litigation experience with class actions, consumer protection, banking and securities laws, and all manner of business disputes. Mark's national practice includes actions involving FDCPA, RICO, FCRA, TILA and other federal and state statutes.  Mark represents numerous financial institutions and is an author...

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Elizabth Marden Commercial Litigation Attorney Polsinelli Kansas City
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Libby’s strong advocacy skills, strategic and analytical abilities, and business acumen make her a valuable asset to the firm’s litigation team. Libby is dedicated to developing outcome-driven litigation strategies that are aligned with her clients’ business goals. She takes pride in partnering with clients to achieve positive outcomes both inside and outside of the courtroom.

As a member of Polsinelli’s Commercial Litigation practice group, Libby assists clients with all stages of business disputes and methods of dispute resolution, including litigation, mediation, and arbitration...

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