A Fiscal Crisis in Education: How Breach-of-Contract Class Actions Arising from Online Learning Transitions Threaten One of the Largest Markets in the United States

Ninoslav K. Dickersin

 

At the beginning of the COVID-19 pandemic, the vast majority of public and private universities switched from in-person to online learning.[1] This dramatic shift happened quickly, interrupting the Spring 2020 semester.[2] But, by making the transition to online learning during a semester in which tuition and other costs had already been paid, universities exposed themselves to class action litigation. As of the date of publication, over two hundred and sixty-one actions have been filed across the country alleging wrongdoing during the transition to online learning.[3] Depending on their success, these lawsuits could pose a significant fiscal risk to the higher education industry.

The extent of the fiscal risk depends on two factors: the merits of the lawsuits and the size of requested damages relative to schools’ operating budgets. Each of these factors implicates the risk to individual universities and the industry as a whole. The results of these actions may drive broader trends, like rising tuition, student debt, or cuts to educational services.

Though they are being brought separately by different law firms against individual universities, the online learning class actions tend to identify the same or similar underlying actions, facts, kinds of plaintiffs, and damages. They typically “assert some variety of breach of contract, unjust enrichment, and conversion.”[4] They seek refunds for tuition, room and board, and fees for either the entirety of the Spring 2020 semester, or the portion that was conducted online.[5] They allege universities (1) did not provide the meal and housing services they promised, and/or (2) did not provide the educational services they agreed to, in so far as online education is both inadequate compared to in-person instruction and not the service which was marketed and offered to students.[6] Finally, putative classes may include all enrolled students, including graduate and part-time students when applicable.[7]

Because online learning class actions are novel and immature, it is difficult to make broad conclusions about how courts will evaluate the validity of the actions, or what outcomes might arise from settlement or trial. However, individual court decisions reveal some key considerations and lines of thinking that yield different outcomes in each case. One core concern for these cases is whether the breach-of-contract claims can survive motions to dismiss.[8]These claims allege that online education was not worth the tuition paid, or that it was not equivalent to the value of an in-person education.[9] Judges have largely dismissed claims framed in this manner under the “educational malpractice” doctrine, which bars claims based on the alleged inadequacy of the value of a provided education.[10] The majority of courts are unwilling to permit these claims to move forward, because of the lack of a clear standard for measuring the quality of one kind of education versus another.[11]

However, more successful lawsuits have survived motions to dismiss by framing their breach-of-contract claims as relating to a failure to provide a specifically promised in-person education, rather than a discrepancy in the value of the education provided.[12] This argument comes with its own challenges, as universities often do not require students to sign written enrollment contracts, let alone ones in which an in-person education is specifically promised.[13] However, some courts have found that promotional materials, course syllabi, catalogs, schedules, and other documents might establish an implied contract promising in-person education.[14] This inquiry is both fact-specific and dependent on state law, as not all states recognize the existence of an implied contract between a student and a university.[15]

A second core concern is class certification. While courts have not yet ruled on certification, key differences between members of the putative classes may risk violating the commonality, typicality, and predominance requirements of Rule 23 of the Federal Rules of Civil Procedure.[16] These require a putative class to share common questions of law or fact,[17] that the claims of the representative parties are typical of those of the class,[18] and that shared common questions of law or fact predominate over questions affecting individual members.[19] In COVID-19 tuition class actions, plaintiffs benefit from having an easily identified set of students in the class, each of whom suffered the same alleged harm from a single defendant’s breach-of-contract arising out of a single instance of halting in-person learning. However, defendants may be able to successfully oppose class certification when members of the class are enrolled in different programs (especially graduate and undergraduate), pay different costs of attendance (in-state vs. out-of-state students), live on- or off-campus, subscribe to a meal plan, or study part- or full-time.[20] Class certification will be hotly contested in these actions, and interested parties should look for court decisions to shed light on potential outcomes.

The fiscal risk of pending online learning class actions is additionally affected by the scale of damages which universities face, and the extent to which they are able to bear the cost of a trial verdict or settlement. The scale of the risk is fact-specific, as it depends on individual schools’ tuition rates, student class size, and whether they can cover costs using their endowment. Although potential damages vary among schools, back-of-the-envelope calculations indicate a benchmark university with average costs[21] and student body size[22] would face over $78,000,000 in liability for the cost of the Spring 2020 semester.[23]

Moreover, liability varies significantly amongst individual universities because of differences in tuition rates and class sizes. The University of Tampa (against which a class action is currently pending and survived a motion to dismiss)[24]had a total undergraduate enrollment of 8,697 students in Spring 2020,[25] and charged a net average of $33,020,[26]exposing them to over $143,000,000 in potential compensatory damages.[27] In contrast, Temple University, due to its higher undergraduate enrollment of 27,306[28] could be responsible for over $314,000,000[29] in damages (despite a lower average net price).[30]

Losing approximately half of a year’s operating revenue would be a fiscal crisis for most universities. To be sure, some might be able to bear the cost by withdrawing funds from their substantial endowments,[31] but most would not.[32]Nor could marginal tuition increases and cost-cutting make up such a sizable difference. Public universities may be able to raise funding from state governments, although this is highly dependent on political will. Most likely, schools will need to cover the cost of settlements or awards through loans.

As online learning class actions progress, the risk to universities will drive trends that will echo throughout the higher education industry. In particular, if more actions continue to survive motions to dismiss and courts show a willingness to certify classes, universities will be under increased pressure to settle cases. This will create an immediate fiscal impact which will drive increases in tuition and cost-cutting. Moreover, if universities need to take on loans, those changes may persist for years to come. Additionally, if settlement becomes frequent, more plaintiffs may look to sue their schools on the same grounds. As nearly all universities transitioned to online learning during the Spring 2020 semester, these class actions could become the norm, and drive major fiscal concerns for the industry in the coming decade.

 

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[1] Cathy Li and Farah Lalani, The COVID-19 Pandemic Has Changed Education Forever. This is How, World Econ. F. (Apr. 29, 2020), https://www.weforum.org/agenda/2020/04/coronavirus-education-global-covid19-online-digital-learning/.

[2] Id.

[3] Bryan, Cave, Leighton, Paisner LLP, Higher Education COVID-19: Tuition and Fee Refund Litigation Tracker, https://www.bclplaw.com/en-US/practices/higher-education-covid-19-litigation-tracker.html.

[4] Drew Gann and Anthony Le, Coronavirus Class Actions—Part Three—Analyzing the Latest COVID-19 Class Actions in Banking, Privacy, Higher Education and Securities Law, McGuireWoods LLP (Apr. 20, 2020), https://www.classactioncountermeasures.com/2020/04/articles/in-the-news/coronavirus-class-actions-part-three-analyzing-the-latest-covid-19-class-actions-in-banking-privacy-higher-education-and-securities-law/.

[5] Id.

[6] Martin M. Loring and Michael D. Hayes, COVID-Related Class Actions Against Higher Education Institutions, Husch Blackwell LLP (May 11, 2020), https://www.huschblackwell.com/newsandinsights/covid-related-class-actions-against-higher-education-institutions. See also Anjelica Cappellino, More Than 70 Universities Sued for Refunds Following COVID-19 Campus Closures, Expert Inst. (Sept. 9, 2021), https://www.expertinstitute.com/resources/insights/universities-sued-for-covid-19-refunds-following-campus-closures/.

[7] See infra note 11.

[8] Doug Lederman, Courts Skeptical on COVID-19 Tuition Lawsuits, Inside Higher Ed (May 6, 2021), https://www.insidehighered.com/news/2021/05/06/courts-view-covid-19-tuition-refund-lawsuits-skeptically.

[9] Id.

[10] Charles E. Harris, II, Colleen M. Campbell, COVID-19 Higher Ed Litigation: The Educational Malpractice Doctrine Bars Students’ Online Learning Claims, Mayer Brown LLP (May 12, 2020), https://www.mayerbrown.com/en/perspectives-events/publications/2020/05/covid19-higher-ed-litigation-the-educational-malpractice-doctrine-bars-students-online-learning-claims#_edn6.

[11] Id.

[12] See infra note 14.

[13] See Harris and Campbell, COVID-19 Higher Ed Litigation, supra note 10.

[14] Opinion Denying Defendant’s Motion to Dismiss, 24, Fiore v. Univ. of Tampa, No. 20-cv-03744 (S.D.N.Y., Oct. 20, 2021); Memorandum of Decision RE: Defendant’s Motion to Dismiss (ECF No. 35), 22-24, Metzner v. Quinnipiac Univ., No. 20-cv-00784 (D. Conn. Mar. 25, 2021); Decision Denying Defendant’s Motion to Dismiss, 8-9, Ford v. Rensselaer Polytechnic Institute, No. 20-cv-00470 (N.D.N.Y. Dec. 16, 2020).

[15] Thomas H. Wintner, Mathilda S. McGee-Tubb, COVID-19 Tuition and Fees Lawsuits: Defending University Practices and Defeating Class Claims, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (Jun. 26, 2020), https://www.mintz.com/insights-center/viewpoints/2206/2020-06-25-covid-19-tuition-and-fees-lawsuits-defending-university.

[16] Thomas F. Holt, Jr. et al., COVID-19: Class Actions in Session, Nat’l Law Rev. (May 4, 2020), https://www.natlawreview.com/article/covid-19-class-actions-session.

[17] Fed. R. Civ. P. 23(a)(2).

[18] Fed. R. Civ. P. 23(a)(3).

[19] Fed. R. Civ. P. 23(b)(3). See also Holt supra note 14 (explaining that predominance is not necessarily required, but is the primary avenue by which plaintiffs will tend to try to satisfy the requirements of Fed. R. Civ. P. 23(b) in these kinds of cases).

[20] See supra notes 8, 9.

[21] U.S. Dep’t of Educ., Nat’l Ctr. for Educ. Stats., Digest of Education Statistics, 2019 (NCES 2021-009), Table 330.10 (2019), https://nces.ed.gov/fastfacts/display.asp?id=76 ($24,623 in average total costs for full-time undergraduates at all institutions from 2018-2019).

[22] Sarah Wood, 10 Colleges With the Most Undergraduate Students, U.S. News (Oct. 26, 2021), https://www.usnews.com/education/best-colleges/the-short-list-college/articles/colleges-with-the-most-undergraduates (the average headcount across all 1,216 ranked colleges that were surveyed was 6,354).

[23] $24,683 / 2 * 6,354 = $78,227,271.

[24] See Opinion Denying Defendant’s Motion to Dismiss, Fiore v. Univ. of Tampa supra note 7.

[25] U.S. News, University of Tampa, https://www.usnews.com/best-colleges/university-of-tampa-1538.

[26] U.S. Dep’t of Educ., Nat’l Ctr. for Educ. Stats., College Navigator: The University of Tampa, https://nces.ed.gov/collegenavigator/?id=137847 (tuition less grant or scholarship aid, not including financial aid in the form of loans, was $33,020 in the 2019-2020 school year).

[27] $33,020 * 8,697 / 2 = $143,587,470.

[28] U.S. News, Temple University, https://www.usnews.com/best-colleges/temple-university-3371#:~:text=Temple%20University%20is%20a%20public,campus%20size%20is%20406%20acres.

[29] $23,032 * 27,306 / 2 = $314,455,896.

[30] U.S. Dep’t of Educ., Nat’l Ctr. for Educ. Stats., College Navigator: Temple University, https://nces.ed.gov/collegenavigator/?q=temple&s=all&id=216339#enrolmt (the average net price for in-state undergraduates, less grant or scholarship aid, not including financial aid in the form of loans, was $23,032. Temple’s maximum liability could be higher because out-of-state residents pay more. Without factoring in financial aid, out-of-state students were charged $6,390 more than in-state ones.)

[31] Josh Moody, 10 Universities With the Biggest Endowments, U.S. News (Sept. 21, 2021), https://www.usnews.com/education/best-colleges/the-short-list-college/articles/10-universities-with-the-biggest-endowments.

[32] Emma Whitford, Endowment Returns Tumble, Inside Higher Ed (Feb. 19, 2021), https://www.insidehighered.com/news/2021/02/19/college-and-university-endowments-post-worst-returns-five-years (showing the median endowment from the surveyed group was $164.4 million in fiscal year 2020).