Wednesday, May 27, 2020
3:00 p.m. to 4:00 p.m. Eastern
2:00 p.m. to 3:00 p.m. Central
1:00 p.m. to 2:00 p.m. Mountain
12:00 p.m. to 1:00 p.m. Pacific
Already an attractive forum for expensive consumer class action suits, the COVID-19 pandemic has created unprecedented disruption and challenges for businesses navigating California’s consumer protection laws. The ongoing pandemic has created even more costly traps and pitfalls for businesses struggling to pilot these uncharted waters. This webinar discusses some of California’s most common consumer protection related issues being litigated as a result of the pandemic, and further discusses what businesses should be aware of to reduce potential exposure and litigation during this crisis. Experienced counsel will discuss the latest developments and trends that impact California businesses and companies conducting business with California consumers.
Specifically, attendees will gain further insight into the following aspects of recent class action litigation:
- Tuition and fee refund actions against universities and other educational institutions
- Membership and subscription refund actions against gyms, theme parks, ski mountains, and semi-private clubs
- Refund actions against sports teams, conferences, festivals, and ticket brokers
- Price gouging actions involving high impact products and services
- Privacy actions in the context of data collection necessity or mandated because of COVID-19
- Auto renewal and deceptive pricing actions
Particular areas of focus of this webinar will be on describing the recent developments, explaining the claims and expected defenses, and proactive attempts that companies can employ now to attempt to avoid these suits. We hope you will join us and share your views on the issues raised.
Seyfarth Synopsis: On May 6, 2020, the Supreme Court heard oral arguments on a First Amendment challenge to a 2015 amendment to the TCPA, which exempted calls regarding debts owed to the government from certain of its prohibitions. While most Justices seemed to agree that the exemption was a content based restriction on speech, the Justices struggled with whether severance was the appropriate remedy.
The Telephone Consumer Protection Act (“TCPA”) prohibits the use of automated, artificial or prerecorded calls to any cell phone unless made for emergency purposes or without prior express consent (“cell phone ban”). In 2015, Congress amended the TCPA to create an additional exemption for calls related solely to the collection of debts owed to the U.S. government (“government debt exemption”).
In Barr v. American Association of Political Consultants et al., Case No. 19-631 (2020), an association of political and polling organizations (“Political Consultants”) challenged the constitutionality of the TCPA, arguing that the government debt exemption was a content-based restriction on speech in violation of the First Amendment.
The Fourth Circuit ruled that the government debt exemption was a content-based restriction on speech but chose to remedy that defect by severing the exemption, leaving the cell phone ban in place. The Attorney General petitioned the Supreme Court for review, arguing that the government debt exemption was not a content-based restriction on speech. On January 10, 2020, the Supreme Court granted the petition for certiorari to determine whether the exemption was a content-based restriction on speech subject to strict scrutiny and, if so, whether the appropriate remedy was to sever the exemption or invalidate the cell phone ban in its entirety. The Court held oral arguments on May 6, 2020, which were live streamed on C-SPAN. We were listening.
Oral Argument Observations
The Justices were largely in agreement that the government debt exemption was a content-based restriction on speech that could not survive scrutiny. The most notable exception was Justice Kagan, who suggested that Congress had intended to create a content-neutral exemption but failed to do so because of sloppy drafting. On the whole, however, the Justices focused on the issue of the appropriate remedy: severance or invalidation of the cell phone ban.
Many of the Justices appeared sympathetic to the Government’s argument that severance would be appropriate given that the TCPA (1) is very popular with consumers; (2) has been in place since 1991; and (3) survived all constitutional challenges prior to the addition of the government debt exemption in 2015.
Nevertheless, the Justices appeared uncomfortable with the ramifications of severance, which would have a perverse result: making the restriction on speech even broader (by eliminating an exemption to the ban on speech) and failing to give the prevailing party (the Political Consultants) any relief. The Justices pondered whether such a ruling would provide a disincentive to bringing First Amendment challenges in the future. The Justices also expressed due process concerns with eliminating the rights of individuals who were not parties to this case (e.g., private debt collectors who the government can engage to collect government debts).
The Political Consultants further argued that severing the government debt exemption from the cell phone ban was not sufficient to remedy the First Amendment violation because the cell phone ban itself was an improper restriction on speech. Although the Political Consultants conceded that, without the government debt exemption, the cell phone ban would be content neutral and subject only to intermediate scrutiny, they argued that the cell phone ban could not even survive that level of review because it was not supported by an important government interest. Specifically, the Political Consultants argued that Congress’s act of passing the government debt exemption in 2015—which permits the Government or its agents to make debt-collection calls, widely regarded as the most annoying and intrusive type of autodialed or prerecorded calls—was itself evidence that the Government does not value consumer privacy as highly as the Attorney General contended on appeal.
In response to this argument, however, Chief Justice Roberts pointed out that Congress may be taking steps one at a time (such as it did in passing the 2015 amendment creating the government debt exemption) to remedy the cell phone ban’s broad restriction on speech. The Chief Justice questioned whether it would be appropriate for the Court to intervene in this Congressional process.
Lastly, two other intriguing options were proposed by the Justices but did not receive extensive consideration: (1) remanding to the Fourth Circuit (presumably for further consideration of the appropriate remedy or due process issues); or (2) crafting the Court’s opinion in such a way to carve out political speech from the cell phone ban.
A majority of the Justices are likely to find that the government debt exemption is a content-based restriction on speech, but how they will choose to remedy that infirmity (or whether they will even reach agreement on a remedy) is unclear. Indeed, as Justice Kavanaugh noted, the Court has no precedent for ruling on severability when the First Amendment violation is created by an exception to the restriction on speech. The Court’s decision is expected by June 2020. We will update you here when it issues.
Companies responding to the pandemic are faced with the challenges of not only complying with federal, state, and local emergency orders and guidelines for each location in which they operate, but also ensuring that any measures taken to address the foregoing do not affect compliance with other laws. In the wake of business closures and event cancellations brought on by the pandemic, plaintiffs’ attorneys have continued to look to California’s various consumer protection statutes as fodder for class litigation, bringing an influx of COVID-19-related lawsuits against companies still dealing with unprecedented restrictions on their businesses.
With in-person purchasing opportunities limited or prohibited during the pandemic, companies have looked to expand their online offerings to consumers, particularly companies providing subscription-based products or services such as entertainment and streaming content providers, data storage and security providers, and recurring “box” and food delivery services. Companies using such business models to conduct business with consumers in California should ensure that they are in compliance with California’s various consumer protection statutes to avoid costly class actions.
Many of these actions are aimed at membership- and subscription-based businesses, such as gyms and sports clubs, ski resorts, and theme parks. Consumers have filed actions in California and several other states, seeking injunctive and declaratory relief, restitution, and damages for claims under the California’s Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750, et seq., Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq., and False Advertising Law (“FAL”), Cal. Bus. & Prof. Code §§ 17500, et seq. In the case of one class action complaint brought against a fitness center, the plaintiffs have also asserted claims for breach of warranty, breach of contract, misrepresentation, fraud, conversion, and violation of California’s Health Studio Services Contract Law, Cal. Civ. Code §§ 1812.80, et seq., based on the company’s alleged collection of membership fees after the imposition of stay-at-home and similar orders due to COVID-19.
The reach of these laws is not limited to businesses – a former union member has brought a similar action against his union, alleging violations of the Electronic Funds Transfer Act and various provisions of California’s Business and Professions Code for automatic withdrawals of fees following the termination of the plaintiff’s membership in the union.
Given such an extensive body of consumer protection laws, compliance for companies doing business in California can be fraught with the potential for class action lawsuits. Membership- and subscription-based businesses must also adhere to specific requirements for accepting and collecting payments on a recurring basis, which may raise issues under the CLRA, UCL, FAL, and common law, in addition to California’s Automatic Renewal Law (“ARL”), Cal. Bus. & Prof. Code §§ 17600, et seq.
The ARL was enacted in 2009 with the express purpose of “end[ing] the practice of ongoing charging of consumer credit or debit cards . . . without the consumers’ explicit consent.” Cal. Bus. & Prof. Code § 17600. A popular tool for plaintiffs and regulators alike, the ARL applies to almost any arrangement in which a paid subscription or purchase agreement is automatically renewed unless and until it is canceled by the consumer. As business models increasingly rely on automatic renewals, perpetual subscriptions, and electronic billing, the ARL can increasingly become a trap that businesses must navigate if they are to construct a California-compliant subscription plan. Under the ARL, any subject arrangement must conform to the following requirements,* which can be grouped into five (5) main categories:
- Clear and conspicuous disclosures. The offer to enroll and key terms of the subscription agreement must be disclosed in a manner that clearly calls attention to the auto-renewal language and must be in visual proximity (or temporal proximity for audio offers) to the request for consent. The following terms must be disclosed in type or font that is larger than or otherwise in contrast with surrounding text (or, for audio disclosures, in a volume and cadence sufficient to be readily audible and understandable):
- a. The nature of the subscription or purchasing agreement as one that will continue until the consumer cancels;
- b. How to cancel the offer;
- c. The recurring amounts that will be charged to the consumer’s payment account;
- d. That the amount of the charge may change and the post-change amount, if known;
- e. The length of the automatic renewal term; and
- f. Any minimum purchasing obligation(s).
- Retainable acknowledgment. The business must provide to the consumer an acknowledgment that provides the terms of the automatic renewal of continuous service, the cancellation policy, and how to cancel. The acknowledgment must be provided in a manner that is capable of being retained by the consumer (e.g., in writing).
- Affirmative consent. The business must obtain affirmative consent from the consumer before charging the consumer’s debit or credit card on a recurring basis. The consent may be given orally or in writing.
- Mechanisms for cancellation. The business must provide a cost-effective, timely, and easy-to-use mechanism for cancellation (e.g., a toll-free number, email address).
- Notice of material change(s). The business must provide to the consumer clear and conspicuous notice of any “material” change in the terms of the subscription, as well as written information about how to cancel the offer if already accepted.
*The ARL was amended in 2018 to extend the above requirements to promotional offers, e.g., special pricing that will be followed by automatic charges, and to allow for the termination or cancellation of online services via sufficiently uncomplicated online means. [See our previous article covering the 2018 amendments here.]
Remedies And Takeaways For Businesses
Any products sold without the above disclosures are considered an unconditional gift under the ARL, meaning consumers will likely be entitled to refunds without returning their purchases. However, the ARL does not limit the remedies available for violations of its provisions, permitting consumers to pursue virtually any civil remedy. In addition, alleged violations of the ARL can be repackaged into claims under the UCL, CLRA, and FAL, offering the remedies available under those statutes as well (e.g., injunctive relief, restitution, and statutory and punitive damages).
The current trend in COVID-19-related consumer class litigation is a powerful reminder to diligently assess consumer disclosures and business protocols. Membership- and subscription-based businesses should always be mindful of the ARL’s requirements, but especially of the notices they provide to consumers during this time, and should make sure the notices include all necessary information. In the action described above, brought against the union, the plaintiff alleges in his complaint that the union “never provided advanced clear and conspicuous notice to plaintiff of this auto-renewal,” and failed to provide any notice or otherwise inform the plaintiff “of its intent to renew the twenty (20) dollar auto withdrawal.”
Businesses should also carefully consider the issues that will likely arise where collections are concerned to avoid claims stemming from unauthorized withdrawal or retention of funds, especially since the ARL and other laws discussed do not state a minimum amount required for injury. Membership- and subscription-based businesses and organizations in particular should seek the advice of competent counsel in revisiting their compliance measures.
Long before COVID-19 affected retail companies had already started shifting to e-commerce platforms, marked by retail giants exclusively in the e-commerce space. Even banks acknowledged this trend, by no longer offering cash-back credit rewards for just gas and grocery purchases, but for online purchases too. Now, as COVID-19 affects a growing number of retail stores, with some being forced into bankruptcy, many will likely close brick-and-mortar storefronts, in favor of e-commerce platforms. While e-commerce may allow retailers to shed dollars on rent, store associates, and other costs, they must take prudent measures to ensure the dollars saved are not lost to defending against future enforcement actions or class action litigation. This update highlights a number of the issues e-commerce retailers should consider to maintain regulatory compliance and to minimize the risks of potential litigation.
Marketing and Advertising
The Federal Trade Commission (“FTC”) and Food and Drug Administration (“FDA”) have routinely reminded retailers, even in the wake of COVID-19, of marketing and advertising requirements. Even though a product label itself may not contain any marketing or advertising claims, language on websites, social media accounts, videos and other mediums must also comport with the FTC Act and, if a product qualifies, with FDA regulations too. As a general matter, claims must be truthful, cannot be deceptive or unfair, and must be evidence-based. Should a retailer utilize influencers or endorsements, the FTC has set forth additional requirements for adequate disclosures about these promotional relationships. If a retailer makes representations about the source of the product or its components, the FTC has strict guidelines on when it is appropriate to make “Made in the USA” claims. The type of product also dictates further compliance. For example, dietary supplements and drugs may contain health related claims that must be substantiated by “competent and reliable scientific evidence.” The same is true for products with environmental claims as governed by the FTC’s Green Guides. In short, marketing language is subject to significant scrutiny in consumer sales so retailers have to be careful what they say, whether express or implied.
Promotions and Pricing
The FTC Act prohibits unfair and deceptive advertising, which extends to product pricing. The FTC’s Guides Against Deceptive Pricing generally require that a retailer offer an item at a price for a reasonable, substantial period of time in good faith, and in the regular course of business, before advertising that price as the former or regular price (16 C.F.R. § 233.1). Companies cannot artificially inflate a product’s price for short period of time in order to support a claim that an item is discounted when the price is thereafter reduced. Additionally, companies cannot distort price comparisons: retailers cannot advertise their product as less than another merchant or manufacturer unless principal retail outlets are selling the product at a higher price. Also, a retailer who advertises a manufacturer’s or distributor’s suggested retail price should be careful to avoid creating a false impression that it is offering a reduction from the price at which the product is generally sold in its trade area. When retailers utilize sales, sweepstakes, contents and other promotions, additional legal requirements may be implicated. Finally, a popular phrase provoked by COVID-19 is “price gouging.” This illegal activity is exhibited by the use of “excessive” or “unconscionable” pricing, which may be measured by the average prices in an affected area over a given look-back period prior to the emergency or event that triggered the escalated pricing. While there is no federal law governing price gouging, President Trump issued an executive order instructing the Department of Justice to investigate and prosecute price gouging of medical resources pursuant to the broad executive authority under the Defense Production Act. Many states also have laws on the books that prohibit price gouging, several of which come with steep fines. See, e.g., D.C.’s Natural Disaster Consumer Protection Act. Retailers therefore need to be sensitive to the pricing advertised for products to avoid it be construed as deceptive.
Privacy and Payment Processing
As for payments, businesses should partner with reliable payment processing companies to help with the safe transfer of payment and consumer information as well (i.e. credit card information, consumer address). Businesses should also establish merchant accounts with a financial institution with requisite safeguards in place. Financial institutions are required to adhere to the Financial Services Modernization Act, which includes protecting consumers’ “nonpublic” personal information. Under the Fair Credit Reporting Act, the FTC’s “Red Flag Rules” also require financial institutions to institute identify theft protections. Some of these obligations, i.e. fraud protection, are borne in part by the financial institution of the consumers.
Without consumers’ ability to pick up their products comes the obvious issue of shipping. Under the FTC’s “Mail Order Rule” when retailers advertise merchandise, they must have a reasonable basis for stating or implying that they can ship within a certain time advertised. “Reasonable basis” means that the merchant has, at the time of making the representation, such information as would under the circumstances satisfy a reasonable and prudent businessperson, acting in good faith, that the representation is true. When there is no shipment statement, retailers must have a reasonable basis for believing that the products can be shipped within 30 days. Because of the 30-day default, this requirement is sometimes referred to as the “30-day Rule.” Importantly, if a retailer cannot meet the prescribed shipment date or default, 30-day period, it must seek the customer’s consent to the delay. There is specific language that must be included in a notice to a customer about a shipping delay, including offering the customer the option to cancel the order. In addition to timing, retailers should be cognizant of U.S. restrictions on shipping certain products. Last, companies need to have conspicuous return and refund policies so that customers understand how to ship back unwanted or damaged merchandise. Careful consideration should be afforded to state laws as return and refund requirements vary by state. For example, under Virginia’s Consumer Protection Act, retail merchants must maintain a conspicuous policy of providing, for a period of not less than 20 days after date of purchase, a cash refund or credit to the purchaser’s credit card account for returned merchandise.
Beyond following the law, there are some proactive measures retailers can adopt to improve compliance. Almost all retail web sites currently have their own “Terms and Conditions.” These disclosures generally outline the nature of the relationship between the retailer and consumer, the jurisdiction (i.e. state) governing the sale activity, procedure for disputes (i.e. arbitration or court), limitations of liability, policies for returns or order issues, privacy considerations, and other matters governing the use of the website. Such terms and conditions establish the rights and responsibilities of the retailer and consumer. Retailers should also consider commercial insurance coverage necessary to cover e-commerce activity, including but not limited to product liability, professional liability, privacy and cyber risks, and intellectual property infringement. While insurance does not insulate a retailer from liability, it ensures that a retailer will have the financial means to address covered claims.
The foregoing provides an overview of some of the essential issues related to e-commerce for retailers expanding their internet presence. Other legal considerations, albeit not exhaustive, include consumer reviews, intellectual property (i.e., copyright, trademark), accessibility (i.e., ADA requirements), marketing activity stemming from website interaction (i.e. promotional emails or texts), and assessing sales tax. Retailers should be thoughtful and prudent in their e-commerce activities, mindful that regulators and class action attorneys are overseeing the same with a critical eye. Seyfarth is available to address these or other pressing issues affecting your online business.
Seyfarth Synopsis: In an April 8, 2020 post on the Federal Trade Commission (“FTC”)’s Business Blog, the Director of the FTC Bureau of Consumer Protection, Andrew Smith, provided helpful guidance on the use of artificial intelligence technology in businesses’ decision-making. In particular, Smith emphasized (i) transparency, both in informing consumers about how automated tools are used and how sensitive data is collected, (ii) the importance of explaining the reasoning behind algorithmic decision-making to consumers, (iii) ensuring that decisions are fair and do not discriminate against protected classes, (iv) ensuring accuracy of data used in algorithmic decision-making, and (v) for businesses to hold themselves accountable.
As more and more businesses turn to artificial intelligence and algorithms to make decisions that impact consumers—such as deciding whom to insure or to extend credit—they face the serious risk that such decision-making will be challenged as being biased, unfair, or otherwise violating consumer protection laws. Last month the Director of the FTC Bureau of Consumer Protection, Andrew Smith, published a blog post that provides helpful tips and guidance that businesses should keep in mind when implementing artificial intelligence in any decision-making that can impact consumers.
As Smith explains, “while the sophistication of AI and machine learning technology is new, automated decision-making is not, and we at the FTC have long experience dealing with the challenges presented by the use of data and algorithms to make decisions about consumers.” In light of that experience, Smith discusses how “the use of AI tools should be transparent, explainable, fair, and empirically sound, while fostering accountability.” In particular, businesses should consider:
- Transparency. As Smith explains, though artificial intelligence often “operates in the background,” it can also be used to interact with consumers, such as when companies use “chatbots,” and businesses should be transparent about the nature of that interaction. In addition, businesses that make algorithmic decisions based on data collected from consumers should be transparent as to how that data is collected—secretly collecting sensitive data could give rise to an FTC action. Finally, there are some notices that must be given to consumers under the Fair Credit Reporting Act in connection with use of consumer information to automate decision-making on a number of subjects (e.g. credit eligibility, employment, insurance, and housing) and businesses should ensure they comply with any applicable requirements.
- Explaining Decisions. Businesses should also be transparent about their decision-making process. If a business denies consumers something of value based on algorithmic decision-making, it should be able to explain that decision to consumers. As Smith explains, “[t]his means that you must know what data is used in your model and how that data is used to arrive at a decision. And you must be able to explain that to the consumer.” If an algorithm is used to assign “risk scores” to consumers, businesses may be required to disclose the key factors that affect that score (for example, there are a number of required disclosures in connection with credit scores). And if the terms of a deal might change based on automated tools, that fact should be disclosed to consumers as well.
- Ensuring Fairness. Businesses should be careful to ensure that their use of artificial intelligence does not discriminate against any protected class. That means that businesses should look both at the data inputted into an algorithm, such as whether a model looks at protected characteristics “or proxies for such factors, such as census tract[,]” and also whether the outcome of an algorithmic decision has a disparate impact on protected classes. In addition, in the interest of fairness, businesses should give consumers an opportunity to correct or dispute any information used to make decisions about them.
- Accuracy of data. Data used in algorithmic decision-making should be accurate and up-to-date. Businesses that provide data about their customers to others for use in automated decision-making (i.e. “furnishers” of data) should ensure that such data is accurate. Furthermore, any artificial intelligence models used by businesses should not only be developed and validated using accepted statistical principles and methodology, but should also be “periodically revalidated . . . and adjusted as necessary to maintain predictive ability.”
- Holding Oneself Accountable. Smith identifies four key questions that businesses should ask themselves to hold themselves accountable when using algorithmic decision-making: (1) “How representative is your data set?” (2) “Does your data model account for biases?” (3) “How accurate are your predictions based on big data?” and (4) “Does your reliance on big data raise ethical or fairness concerns?” In addition, businesses should protect their algorithms from any unauthorized use or abuse, and should consider using outside, objective observers to test the fairness and accuracy of their algorithms.
While using artificial intelligence and algorithmic decision-making can help businesses operate efficiently and reduce costs, businesses should keep in mind the above guidance by taking a proactive approach in protecting themselves from litigation risk, whether in the form of consumer class actions or FTC enforcement actions, and also as part of good corporate governance in a data-driven age.
 “Using Artificial Intelligence and Algorithms,” Business Blog, Federal Trade Commission (April 8, 2020), https://www.ftc.gov/news-events/blogs/business-blog/2020/04/using-artificial-intelligence-algorithms?utm_source=govdelivery.
 Id. (emphasis in original).
As the number of COVID-19 cases began to rise in the United States, colleges and universities around the country took proactive steps to limit the spread of the disease on campuses. Students were asked to return home; faculty and students transitioned to online classes; and staff who were able to work remotely were asked to do so. While these changes were disruptive and altered the traditional college experience, they were necessary to prevent college dormitories and campuses from becoming COVID-19 hot spots. Ultimately, the shift to remote learning became mandatory in the face of state and local stay-at-home orders.
Although students are still taking courses and faculty are still teaching at institutions of higher education, plaintiffs’ lawyers are rushing to file lawsuits on behalf of students seeking reimbursement for tuition, fees, and room and board. These cases are being brought as putative class actions on behalf of all similarly situated students. Most of the lawsuits assert claims for breach of contract and unjust enrichment on the theory that the named plaintiffs and their classmates were promised an “on-campus” education. A few others assert claims for conversion. The lawsuits allege tens of millions of dollars in damages. Not surprisingly, these lawsuits are being brought and presumably funded by plaintiffs’ lawyers who specialize in commercial and employment class action litigation and who hope to recover millions of dollars in attorneys’ fees themselves.
For many institutions, these lawsuits represent more than an attack on their emergency response to the pandemic. Many colleges and universities rely on tuition, fees, and room and board to meet their annual budgetary needs, with some running deficits each year. As a result, if these lawsuits are successful, they could have dire financial consequences. But whether these lawsuits will, in fact, be successful is yet to be seen, and there are some obvious weaknesses in the plaintiffs’ lawyers’ theories that will make the claims difficult to prevail on.
Where we are
Virtually every college and university in the United States has cancelled in-person learning and sent students home for the remainder of the academic year. Some institutions of higher education took these steps proactively, often in conjunction with spring break, while others did so in response to government-mandated business closures orders and social distancing guidelines. But this does not mean that education has stopped or that colleges and universities’ resources are sitting idle. Even though campuses are currently closed to most students, courses have continued online, credits are being earned and degrees will be conferred over the coming weeks, albeit virtually. Research activities continue, including those related to treatments and vaccines for COVID-19. Some students still live in residence halls because they cannot return home. Career services, financial aid, and other student services remain operational. Student organizations continue to meet virtually and operate. Building facilities and public safety teams continue to report to work on campus.
At the same time, students are understandably upset about losing out on the traditional college experience and instead being quarantined with their parents and siblings, often far away from friends and significant others, and having to attend classes remotely and taking exams online. Many students were on break when they learned that they could not return to school and with little notice. With the total cost of college oftentimes exceeding $50,000 per year, many students (or their parents) question why they should have to pay tuition, fees, and room and board when they are seemingly not getting the benefits thereof.
The plaintiffs and their claims
Never one to let a crisis go to waste, the plaintiffs’ bar is hard at work filing class action lawsuits against many colleges and universities, seeking to recover tuition, fees, and room and board on behalf of students (and a hefty contingency fee for themselves). The lawsuits are being brought on behalf of undergraduate and graduate students. The claims are typically brought on behalf of three putative classes that largely overlap at many institutions: (1) students who paid tuition, (2) students who paid mandatory fees, and (3) students who paid room and board. The claims asserted are typically for breach of contract and unjust enrichment, and in a few instances, conversion. Because these are common law claims, the lawsuits have been filed in many different jurisdictions against many different colleges and universities.
To date, more than 50 putative class actions have been filed nationwide. These lawsuits are being driven by the lawyers, not the students who serve as the named plaintiffs. These lawsuits are being brought by a handful of plaintiffs’ class action lawyers who are often competing with each other to bring these claims. As a result, some universities have been hit by more than one lawsuit brought by competing class action law firms. Not surprisingly, this is mostly about fees. Many class action lawsuits ultimately settle, and the plaintiffs’ lawyers typically recover a large percentage of the settlement fund for their efforts, with the remainder being spread out among the hundreds, if not thousands, of class members. Oftentimes in commercial class action settlements like these, class members do not recover any money, but instead receive coupons or credits toward future purchases.
Potential weakness in the plaintiffs’ claims
Because the plaintiffs are bringing common law breach of contract claims, they would have to prove that there was an actual contract and that the college or university breached a material term. This may prove problematic as to tuition, since students have, for the most part, been receiving the benefits of their tuition in the form of continued online courses, academic credits, and degrees being conferred. It would thus be difficult for this putative class to prove any harm other than some highly speculative claim that classroom learning is superior to remote learning. Even if plaintiffs’ lawyers could make such a showing in some instances, it would likely be difficult to certify a class on this basis since students’ experiences may depend on their field of study, academic standing (i.e., class year), or degree program (i.e., undergraduate vs. graduate). It would also be difficult to put together a non-speculative theory of damages. As to other claimed damages, the claims likely turn on what the agreements say. Most colleges and universities specifically state that fees are mandatory and non-refundable. This seemingly forecloses a breach of contract claim. As to room and board, many colleges and universities have pro-rated these costs already.
Putting aside these problems, most colleges and universities make clear that matriculation as a student is subject to their established policies. Institutions of higher education are expected to have emergency response plans, including those relating to pandemics. Thus, the “contract” necessarily includes these plans. While the lawsuits often reference a college’s advertising about its campus and the on-campus experience, students do not have an absolute right to be on campus and to receive in-person instruction. This may be no different than cases brought by students who have been expelled for misconduct or academic reasons. While the students in those cases often attempt to recover the same damages asserted now in these class actions, courts have recognized that the “contract” between a student and a university includes and is subject to the institution’s policies. The logic (and holdings) of these cases should control now.
Moreover, the lawsuits ignore the reality that confronted colleges and universities. Even if they did not maintain an explicit policy permitting the transition to remote learning, the pandemic, along with the resulting government shut down orders, were a force majeure event warranting the shift to remote learning. The alternative posed by the lawsuits—that colleges and universities had a contractual obligation to keep their campuses open to avoid breach—was an impossibility. Indeed, doing so would have exposed institutions of higher education to tort claims by students who became ill with the disease or even wrongful death suits. And many students simply would not have returned after spring break, or left shortly thereafter, as states began to shut down most businesses, creating even more complex issues for plaintiffs’ lawyers to base claims on.
Finally, even if these contract claims were to make it to a jury (which we doubt), it is hard to see jurors in most jurisdictions—many of whom have lost jobs themselves, or are close to someone who has (if not family members and friends who have lost their lives), and may never have had the opportunity to attend college—being sympathetic to college students who have largely received the benefit of their tuition dollars, even if they could not participate in campus life for part of the semester.
As for the unjust enrichment claims, because colleges and universities typically require students to sign some form of contract concerning the payment of tuition, fees, and room and board, those claims are unlikely to be successful as well. Unjust enrichment is an equitable remedy and is unavailable in most jurisdictions where there is a contract, even if the contract claims are unsuccessful. Rather, the plaintiffs would have to show that there was no relevant contract that governs the payment of one or all of the categories of potential damages.
Public colleges and universities face their own set of complications during these difficult times, as a portion of their budgets come from state coffers, which are currently being depleted fighting the pandemic. Indeed, several state universities have received public records requests for communications concerning tuition refunds, a type of “free discovery” that private institutions are not subject to. Public institutions may have a unique defense not available to private institutions, however, in the form of sovereign immunity, so long as the state has not waived it by legislation. This could substantially curtail, if not eliminate altogether, any claims for damages.
All is certainly not lost for colleges and universities that are faced with lawsuits of this nature. There are several viable defenses and procedural hurdles that plaintiffs’ lawyers will have to overcome to prevail, and they are far from slam dunk claims. In fact, it is unlikely that they will be successful. But plaintiffs’ lawyers are no doubt counting on colleges and universities, which are typically risk averse and prefer to avoid public confrontations, to enter into quick settlements (that will primarily benefit the lawyers) so as to avoid the time and expense of litigation, and potentially bad press. There are good reasons for schools to fight these claims, however. Any settlement diverts resources away from the mission of the organization. Further, as officials warn of multiple waves of the COVID-19 pandemic, these issues could recur. Fighting and winning these cases now may, like fighting the pandemic itself, help prevent the spread of these cases and deter multiple waves of lawsuits. In other words, flattening the curve of these opportunistic class actions.