Lorona v. Arizona Summit Law School LLC et al

Filing 40

ORDER that Defendant Arizona Summit Law School, LLC's Motion to Dismiss (Doc. 35 ) Counts I, II, and III of the Third Amended Complaint (Doc. 34 ) is granted with prejudice only to the extent those Counts rely on fraud other than misrepresen tation in enrollment statistics. The Motion is otherwise denied. FURTHER ORDERED that the parties may, as of the date of this order, begin discovery as to how many of the Law School's students were Alternative students during the times relevant to Lorona's fraud claims. This discovery shall conclude no later than Friday, 07/15/16. FURTHER ORDERED that if the Law School deems the outcome of this discovery dispositive of Lorona's fraud claims, it may file a motion for summary judgment to that effect no later than Monday, 08/01/16. If no such motion is filed, the parties may then begin general discovery as to Lorona's fraud claims. See order for details. Signed by Judge Neil V. Wake on 5/17/16. (NKS)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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No. CV-15-00972-PHX-NVW

Paula C. Lorona,
Plaintiff,

ORDER

v.
Arizona Summit Law School, LLC; Infilaw
Corporation; Jane and Johns Doe 1–100;
Black
Corporation
1–100;
White
Partnership 1–100,

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Defendants.

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Before the Court is Defendant Arizona Summit Law School, LLC’s Motion to

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Dismiss (Doc. 35) and the parties’ accompanying briefs. For the reasons that follow, the

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motion will be granted in part and denied in part.

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I.

BACKGROUND

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On March 2, 2015, Paula Lorona filed a complaint pro se in state court against

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Arizona Summit Law School, LLC (“Arizona Summit Law School” or “the Law

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School”), Infilaw Corporation (“Infilaw”), and various individuals and entities. (Doc. 1-1

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at 1–18.) Lorona then amended her complaint to include federal statutory claims. (Doc.

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1-1 at 56–80.)

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On May 28, 2015, the defendants removed to federal court. (Doc. 1.) Lorona then
obtained counsel (Doc. 14) and amended her complaint again (Doc. 20). That second
amended complaint named only Arizona Summit Law School, Infilaw, and fictitious
entities as defendants. (Doc. 20 at 1.) It claimed violations of federal employment laws
and state fraud laws. (Id. at 18–49.) The Court dismissed many of the employment
claims and all the fraud claims for failure to state a claim upon which relief may be
granted, but permitted Lorona to amend her complaint again. (Doc. 33 at 27–28.)

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On January 14, 2016, Lorona filed a third amended complaint. (Doc. 34.) The
revised complaint contains federal employment claims against all defendants and statelaw fraud and negligent misrepresentation claims against Arizona Summit Law School
only.

(Id. at 14–28.)

The Law School moves to dismiss the fraud and negligent

misrepresentation claims. (Doc. 35.) Oral argument was held on May 13, 2016.
The relevant allegations in the third amended complaint are summarized below.
They are presumed true at this stage.
A.

Arizona Summit Law School’s Representations to Lorona

In considering whether and where to attend law school, Lorona reviewed Arizona
Summit Law School’s “Viewbook,” a marketing brochure about the Law School. (Doc.
34 at ¶¶ 37–38.) She read a paper copy of the Viewbook on campus, as well as an online
copy on the Law School’s website. (Id.) The Viewbook contained enrollment statistics
about the Law School’s students, including their median Law School Admission Test
(“LSAT”) scores and undergraduate grade point averages (“GPAs”). (Id. at ¶¶ 38, 49.)
LSAT scores and undergraduate GPAs are commonly accepted indicators of a student’s
likelihood to succeed in law school and pass the bar exam. (Id. at ¶ 48.) As of spring
2008, the Viewbook reported a median LSAT score of 153 and median undergraduate
GPA of 3.18. (Id. at ¶ 49.) The Law School also reported this information to a third
party, the Law School Admission Council, which posted the information on its website.
(Id. at ¶ 38.)

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Lorona also reviewed other statements by the Law School about its program. She
read on the Law School’s website that more than 80% of its graduates passed the bar
exam. (Id. at ¶ 41.) She read in the Law School’s application packet that only two out of
70 graduates who were actively seeking employment were unemployed and that
graduates had a median salary of $60,000 and a median student loan debt of $101,310.
(Id. at ¶ 39.) She read in the Law School’s application instructions that the Law School is
governed by an American Bar Association standard prohibiting the admission of
applicants “who do not appear capable of satisfactorily completing its educational
program and being admitted to the bar.” (Id. at ¶ 40.)
Based on this information, Lorona decided the Law School would be a good
school to attend.

(Id. at ¶¶ 42, 89.)

In August 2009, she applied for traditional

enrollment and was accepted as a traditional evening student. (Id. at ¶ 44.)
As a student, Lorona kept track of the Law School’s enrollment statistics, which
the Law School updated each year. (Id. at ¶¶ 45–47.) In particular, she noted that the
Law School’s median LSAT scores and undergraduate GPAs remained stable while she
was a student and compared favorably to other law schools. (Id. at ¶ 48.) Through 2014,
the Law School continued to report an “Ultimate” bar pass rate of over 80%. (Id. at
¶¶ 61–62.) This rate was based on the number of Law School graduates who passed the
Arizona Bar Exam on the first or subsequent attempts. (Id. at ¶ 61.) The Law School
also continued to report graduates’ employment status and average salaries. (Id. at ¶ 67.)
From 2010 through 2013, the Law School’s website stated that the school “places 97% of
its graduates into jobs within nine months of graduation.” (Id. at ¶ 68.) Based on this
information, Lorona decided to remain at the Law School. (Id. at ¶¶ 48, 63, 69, 90.)
At some unspecified time and place, the Law School described its legal education
program as follows:

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We believe by graduation, lawyers should enter the workforce
professionally prepared to practice law in a variety of diverse
settings and industries. Summit Law partners with local law
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firms, courts, municipalities, businesses and non-profits to
provide real-world work experiences that foster our students’
desire to learn, grow and succeed while creating wellrounded lawyers who add immediate value to their firms
and employers.

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(Id. at ¶ 93 (emphasis in original).)
B.

Shortcomings in Arizona Summit Law School’s Representations

Arizona Summit Law School’s enrollment statistics did not reflect the LSAT
scores or undergraduate GPAs of all its students. In 2005, the Law School began
admitting some students via an “Alternative” admissions program that did not require
LSAT scores or undergraduate GPAs within the traditional range. (Id. at ¶¶ 50–51.) The
Law School did not include these Alternative students’ LSAT scores or undergraduate
GPAs in the enrollment statistics reported in its Viewbook, on its website, or to the Law
School Admission Council. (Id. at ¶ 52.) The Law School did not specify that its
statistics omitted Alternative students, and Lorona did not know of this omission. (Id. at
¶¶ 54–55.)
The Law School substantially increased its percentage of Alternative students
from 2005 to spring 2011. (Id. at ¶ 53.) During the time Lorona was enrolled, most of
the students at the Law School were Alternative students. (See id. at ¶¶ 53, 57.)1 The
Law School knew that students’ LSAT scores and undergraduate GPAs correlate with
their likelihood of passing the bar exam. (Id. at ¶¶ 46, 70–71.) Thus, the Law School
predicted that the more Alternative students it admitted, the fewer of its graduates would
pass the bar exam. (Id. at ¶¶ 72–73.) The Law School did not disclose this prediction to
its students. (Id.)

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The third amended complaint is not clear on exact figures. It alleges that 80% of
those who applied to be Alternative students in spring 2011 were admitted, but then
alleges that 80% of the overall student population were Alternative students. (Doc. 34 at
¶¶ 53, 57.) At oral argument, the Law School disputed the latter allegation. In response,
Lorona maintained that at least a majority of the students were Alternative students.

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The prediction proved true.

In recent years, the percentage of Law School

graduates who pass any given administration of the Arizona Bar Exam has fallen, from
72.9% of those who took the February 2013 exam, to 63.3% of those who took the July
2013 exam, to 48.8% of those who took the February 2014 exam, to 49.5% of those who
took the July 2014 exam, to 52.6% of those who took the February 2015 exam, to 26.4%
of those who took the July 2015 exam. (Id. at ¶¶ 59–60.)
In May 2014, the Law School began to pay graduates who it predicted would fail
the bar exam not to take the exam. (Id. at ¶¶ 74–75.) The predictions were based on
students’ LSAT scores, undergraduate GPAs, law school GPAs, and other factors. (Id. at
¶ 71.) In February 2015, for example, the Law School offered students predicted to fail
the exam $5,000 and other benefits to defer taking it. (Id. at ¶ 77.) Eliminating these
students from the pool of examinees artificially skewed pass rates in the Law School’s
favor. (Id. at ¶ 78.) These more favorable pass rates enabled the Law School to maintain
its reputation, accreditation, and federal funding. (Id. at ¶¶ 78–80.)
C.

Lorona’s Inability to Find Employment

Lorona graduated from the Law School in December 2014 and passed the Arizona
Bar Exam in 2015. (See id. at ¶ 86; Doc. 33 at 4–5.)2 She incurred over $200,000 in
student loan debt. (Doc. 34 at ¶ 81.) Based on the Law School’s representations, she
believed that upon graduating she would find gainful employment at a law firm or in the
public sector with a salary sufficient to repay this debt. (Id. at ¶ 82.)
This belief turned out to be overly optimistic. While awaiting bar exam results,
Lorona applied for positions that did not require a law license, such as bailiff, clerk, and
paralegal. (Id. at ¶ 85.) She did not receive an interview. (Id.) After being admitted to
the bar, she applied for positions at private law firms and in the public sector, and she
enlisted the services of employment placement firms. (Id. at ¶ 86.) She received one

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Lorona’s present complaint does not specify when she graduated or took the bar
exam, but she clarified these dates at oral argument.

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interview but no callback. (Id.) She is currently attempting to establish a solo practice,
without the support or client base she would expect at a private firm or in the public
sector. (Id. at ¶ 88.)

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Lorona attributes her plight to the Law School’s reputation, which has recently
plummeted due to its graduates’ low bar pass rates. (Id. at ¶ 87.) Had she known the true
value of her law degree, she would not have enrolled in the Law School or would have
withdrawn from the Law School and, if necessary, pursued a different career. (Id. at
¶¶ 89–90.) She accuses the Law School of common-law fraud, statutory consumer fraud,
and negligent misrepresentation (collectively, “fraud claims”). (Id. at ¶¶ 91–116.)

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II.

LEGAL STANDARD
Arizona Summit Law School moves to dismiss Lorona’s fraud claims for failure to

state a claim under Federal Rule of Civil Procedure 12(b)(6). (Doc. 35 at 1.)
When considering a motion to dismiss, a court evaluates the legal sufficiency of
the plaintiff’s pleadings. Dismissal under Rule 12(b)(6) can be based on “the lack of a
cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable
legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). To
avoid dismissal, a complaint need include “only enough facts to state a claim for relief
that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).
On a motion to dismiss under Rule 12(b)(6), all allegations of material fact are
assumed to be true and construed in the light most favorable to the non-moving party.
Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). However, the principle that a
court accepts as true all of the allegations in a complaint does not apply to legal
conclusions or conclusory factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). Further, “[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.” Id. “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable inference

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that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is
not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a
defendant has acted unlawfully.” Id. To show that the plaintiff is entitled to relief, the
complaint must permit the court to infer more than the mere possibility of misconduct.
Id. If the plaintiff’s pleadings fall short of this standard, dismissal is appropriate.

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III.

ANALYSIS
Lorona alleges fraud of three varieties: common-law fraud, fraud under the

Arizona Consumer Fraud Act, and negligent misrepresentation. Each deserves brief
explanation.
A.

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Common-Law Fraud, the Arizona Consumer Fraud Act, and Negligent
Misrepresentation

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To state a claim for fraud under Arizona common law, Lorona must allege (1) the

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Law School made a representation to her that was (2) false and (3) material, (4) the Law

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School knew the representation was false or was ignorant of its truth, (5) the Law School

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intended that she rely on the representation in the manner reasonably contemplated, (6)

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she did not know the representation was false, (7) she relied on the representation, (8) her

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reliance was reasonable, and (9) she was harmed as a result. See Echols v. Beauty Built

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Homes, Inc., 132 Ariz. 498, 500, 647 P.2d 629, 631 (1982); accord Revised Arizona Jury

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Instructions (Civil), Commercial Torts Instruction 24 (5th ed. 2013). Failing to disclose

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material information despite an obligation to do so is equivalent to a misrepresentation.

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Haisch v. Allstate Ins. Co., 197 Ariz. 606, 610 ¶ 14, 5 P.3d 940, 944 (Ct. App. 2000).

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The Arizona Consumer Fraud Act is “much broader in its scope” than common-

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law fraud. Cearley v. Wieser, 151 Ariz. 293, 295, 727 P.2d 346, 348 (Ct. App. 1986).

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The Act defines and prohibits consumer fraud as follows:

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The act, use, or employment by any person of any deception,
deceptive act or practice, fraud, false pretense, false promise,
misrepresentation, or concealment, suppression or omission

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of any material fact with intent that others rely upon such
concealment, suppression or omission, in connection with the
sale or advertisement of any merchandise whether or not any
person has in fact been misled, deceived, or damaged thereby,
is declared to be an unlawful practice.

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A.R.S. § 44-1522(A). To state a claim for consumer fraud, Lorona must allege (1) the

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Law School made a false promise or misrepresentation (2) in connection with the sale or

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advertisement of merchandise, (3) she relied on the representation, and (4) she was

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harmed as a result. Kuehn v. Stanley, 208 Ariz. 124, 129 ¶ 16, 91 P.3d 346, 349 (Ct.

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App. 2004); accord Revised Arizona Jury Instructions (Civil), Commercial Torts

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Instruction 21 (5th ed. 2013). She need not allege that the Law School intended to

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deceive her. See State ex rel. Babbitt v. Goodyear Tire and Rubber Co., 128 Ariz. 483,

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486, 626 P.2d 1115, 1118 (Ct. App. 1981). Nor need she allege that her reliance was

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reasonable. See Kuehn, 208 Ariz. at 129 ¶ 16, 91 P.3d at 349. Although the Act is

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limited to the sale or advertisement of merchandise, the Act defines “merchandise” as

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including “intangibles” and “services.”

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applied this definition broadly. See State ex rel. Woods v. Sgrillo, 176 Ariz. 148, 148–49,

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859 P.2d 771, 771–72 (Ct. App. 1993) (information about credit cards is merchandise);

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Villegas v. Transamerica Fin. Servs., Inc., 147 Ariz. 100, 102, 708 P.2d 781, 783 (Ct.

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App. 1985) (money is merchandise); Flower World of Am., Inc. v. Wenzel, 122 Ariz. 319,

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321–22, 594 P.2d 1015, 1017–18 (Ct. App. 1978) (commercial franchise is merchandise).

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But see Waste Mfg. & Leasing Corp. v. Hambicki, 183 Ariz. 84, 87, 900 P.2d 1220, 1223

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(Ct. App. 1995) (existing business entity is not merchandise).

A.R.S. § 44-1521(5).

Arizona courts have

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Arizona also recognizes the tort of negligent misrepresentation as defined in the

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Second Restatement of Torts. St. Joseph’s Hosp. v. Reserve Life Ins., 154 Ariz. 307, 312,

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742 P.2d 808, 813 (1987). The Restatement provides, in relevant part:

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(1) One who, in the course of his business, profession or
employment, or in any other transaction in which he has a
pecuniary interest, supplies false information for the guidance

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of others in their business transactions, is subject to liability
for pecuniary loss caused to them by their justifiable reliance
upon the information, if he fails to exercise reasonable care or
competence in obtaining or communicating the information.
(2) Except as stated in Subsection (3), the liability stated in
Subsection (1) is limited to loss suffered
(a) by the person or one of a limited group of persons
for whose benefit and guidance he intends to supply
the information or knows that the recipient intends to
supply it; and
(b) through reliance upon it in a transaction that he
intends the information to influence or knows that the
recipient so intends or in a substantially similar
transaction.

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Restatement (Second) of Torts § 552 (1977). Accordingly, to state a claim for negligent

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misrepresentation, Lorona must allege (1) the Law School supplied “false information” to

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her (2) in a transaction in which it had a “pecuniary interest,” (3) the Law School

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intended that the information would “guid[e]” her in a business transaction, (4) the Law

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School failed to exercise “reasonable care or competence” in obtaining or communicating

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the information, (5) she “reli[ed]” on the information, (6) her reliance was “justifiable,”

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and (7) she suffered “pecuniary loss” as a result. Id.; accord Revised Arizona Jury

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Instructions (Civil), Commercial Torts Instruction 23 (5th ed. 2013).

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misrepresentation is “narrow in scope” because it is premised on the reasonable

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expectations of a foreseeable user of information supplied in connection with commercial

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transactions. St. Joseph’s Hosp., 154 Ariz. at 312–13, 742 P.2d at 813–14. Whereas

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fraud imposes a general duty of honesty, negligent misrepresentation imposes a specific

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duty of care. See Restatement (Second) of Torts § 552 cmt. a. Not every user of

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commercial information may hold every supplier to a duty of care. St. Joseph’s Hosp.,

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154 Ariz. at 313, 742 P.2d at 814. The duty of care owed to the foreseeable user in

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supplying information for use in commercial transactions is a relative standard, “defined

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Negligent

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only in terms of the use to which the information will be put, weighed against the
magnitude and probability of loss that might attend that use if the information proves to
be incorrect.”

Id. (quoting Restatement (Second) of Torts § 552 cmt. a).

The

information supplier’s “pecuniary interest” in the transaction usually lies in payment,
either in direct exchange for the information or as part of the transaction in which the
information is supplied, but it may be of a more indirect character. Restatement (Second)
of Torts § 552 cmt. d.
For all three claims, Lorona must allege the circumstances constituting fraud “with
particularity.” Fed. R. Civ. P. 9(b); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103
(9th Cir. 2003) (“It is established law, in this circuit and elsewhere, that Rule 9(b)’s
particularity requirement applies to state-law causes of action.”); Gould v. M & I
Marshall & Isley Bank, 860 F. Supp. 2d 985, 988 n.2 (D. Ariz. 2012) (applying Rule 9(b)
to negligent misrepresentation); Grismore v. Capital One F.S.B., No. CV 05-2460-PHXSMM, 2007 WL 841513, at *6 (D. Ariz. Mar. 16, 2007) (applying Rule 9(b) to Arizona
Consumer Fraud Act). In other words, Lorona must allege “the who, what, when, where,
and how” of the misconduct charged. Vess, 317 F.3d at 1106.
Some elements are common to all three claims. Other elements are unique to one
or two of the claims. The Law School’s motion challenges only common elements. It
does not, for example, challenge the Arizona Consumer Fraud Act claim or the negligent
misrepresentation claim separately from the common-law fraud claim.

This order

addresses only the elements that the Law School challenges. Those challenges succeed in
part and fail in part, as discussed herein.
B.

Lorona Has Stated Fraud Claims Based on Reporting of Deceptively
Incomplete Enrollment Statistics.

In short, Lorona alleges:

Arizona Summit Law School knowingly and

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intentionally reported inflated enrollment statistics by omitting LSAT scores and

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undergraduate GPAs of students admitted through its less rigorous “Alternative”

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admissions program. This omission was material because students’ LSAT scores and
undergraduate GPAs correlate with their likelihood of passing the bar exam, which in
turn determines a law school’s reputation and bears strongly on the value of its diploma.
Unaware of this omission, Lorona relied on these inflated statistics in deciding to attend
the Law School. As a result, she spent years and money on a degree that turned out to be
worth substantially less than she expected.
The Law School argues that Lorona’s allegations concerning misrepresentation of
enrollment statistics fall short of fraud in several ways. None of the challenges is
persuasive.
1.

Lorona has pled misrepresentation.

According to the Law School, Lorona’s fraud allegations about its inflation of
enrollment statistics are conclusory. On its view, Lorona merely assumes that (1) the
omission of Alternative students improved the statistics regarding student LSAT scores
and undergraduate GPAs, (2) these statistics generally affect the value of a law school’s
diploma, and (3) there were enough Alternative students at the Law School that this
omission had a material effect.

But these allegations are reasonably specific and

sufficiently plausible to stave off Rule 12(b) dismissal. However, the parties’ dispute
over how many Alternative students were at the Law School seems easily resolvable and
might prove dispositive. Thus, the Court will allow limited discovery on this issue and
an opportunity for a summary judgment motion before allowing general discovery as to
Lorona’s fraud claims.
The Law School also points out that Lorona does not specify whether it violated
any third-party reporting requirements.

The Court previously viewed this lack of

specificity as a reason to dismiss Lorona’s claim that the Law School reported misleading
data to third parties. (See Doc. 33 at 22.) But her current complaint claims that the Law
School reported misleading data not only to third parties but also in its marketing

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materials to potential students.

Thus, her claim no longer depends on third-party

reporting requirements.
The Law School also contends that Lorona fails to specify when it reported its
enrollment statistics. Not true. She says the Law School reported these statistics in a
marketing brochure and on its website, both of which she read when deciding whether to
attend. She even gives an example: as of spring 2008, the Law School reported a median
LSAT score of 153 and median undergraduate GPA of 3.18. She also specifies that the
Law School updated these statistics each year and that she kept track of them as a
student. These allegations are specific enough. The point of requiring specificity is “to
give defendants notice of the particular misconduct” so that they can adequately defend
against the charge. Vess, 317 F.3d at 1106. Lorona has provided enough detail to give
the Law School notice of the misconduct she is referring to.
2.

Lorona has pled reliance.

According to the Law School, Lorona fails to allege reliance on its enrollment
statistics in enrolling in the school, because she does not specify when she decided to
enroll or when she began her studies. But Lorona explicitly states that she reviewed
those statistics before deciding to enroll. Indeed, she specifies what those statistics were
as of spring 2008, which was before she applied and was accepted in August 2009.
Although more detail is preferable, it is not necessary.
The Law School also challenges the plausibility of Lorona’s claim that she relied
on the enrollment statistics in remaining at the school—i.e., that she would have dropped
out had she discovered the truth. But this claim is plausible. Lorona says she was
incurring debt in the hope that her law degree would prove valuable enough to repay it.
Had she known the Law School’s median LSAT scores and undergraduate GPAs were
substantially lower than advertised, she might have predicted a decline in the Law
School’s reputation and in the corresponding value of her degree, in which case she
might have decided to cut her losses. Of course, discovery in this case might reveal

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otherwise—for example, that Lorona knew the true enrollment statistics all along, or that
she would have completed the program no matter the cost. But discovery might also
reveal that many Arizona Summit Law School students did make the choice to drop out
and incur no further debt. Accordingly, the Law School will have the opportunity to
investigate and renew its objection at summary judgment.
3.

Lorona has pled damages.

The Law School argues that even if Lorona relied on incomplete enrollment
statistics, she was not damaged because she got what she paid for. Not only did she
receive a legal education, but she attained a law degree, passed the Arizona Bar Exam,
and is now attempting to establish a solo practice. On the Law School’s view, Lorona’s
attendance at the Law School was beneficial, not damaging.
This argument misunderstands the nature of Lorona’s damages claims. Lorona did
not attend Arizona Summit Law School to start out as a solo practitioner without
experience, clients, training, or income. She went to get a paying job with training in law
practice. It turned out that she is unemployable, not even as a paralegal. According to
her allegations, she reasonably expected a law degree from a school with enrollment
statistics comparable to other schools (before and while she was a student), but she
received a law degree from a school with enrollment statistics worse than other schools
(during that same time). Thus, she received something less valuable than she paid for,
much like a used car buyer who later discovers that the seller rolled back the odometer by
20,000 miles. The damage does not stem from being worse off than before, but from the
difference between the advertised product and the actual product.
Admittedly, the fact and the amount of damage will be hard to prove and measure
here. Lorona’s law school performance will matter, for example. As the Law School
points out, damages may not be simply the difference between Lorona’s current income
and what she would earn at another job, because even if the enrollment statistics had been
accurate, there was no guarantee of post-graduation employment. But Lorona is not

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suing on a guarantee. She is suing for fraud and related claims. Difficulty in calculating
damages does not amount to failure to plead damages.

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C.

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Lorona Has Not Stated Fraud Claims Based on Other Alleged
Misrepresentations.

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Lorona claims that the Law School made other misrepresentations beyond

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inflating its enrollment statistics. None of them gives rise to an independent fraud claim.
1.

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Lorona alleges that through 2014, the Law School reported an “Ultimate” bar pass

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The alleged representations of an “Ultimate” bar pass rate were
not materially false or misleading.

rate of over 80% based on the total number of graduates who passed the Arizona Bar
Exam on the first or subsequent attempts. This rate was higher than the percentage of
graduates who passed any recent single administration of the exam. For example, only
48.8% of the graduates who took the February 2014 exam passed, and only 49.5% of
those who took the July 2014 exam passed. Moreover, the Law School had recently
increased the percentage of students admitted through its Alternative admissions
program, and it knew that such students were more likely to fail the exam. Therefore,
Lorona claims the Ultimate bar pass rate was “extremely misleading at best.” (Doc. 34 at
¶ 65.)
Notably, Lorona does not claim in her third amended complaint that the Ultimate
pass rate was false. This is because, as the Court explained in its previous order, the
Ultimate pass rate measured something broader than the pass rate of any single exam.
(See Doc. 33 at 21.) For example, a student might fail the exam four times but pass the
fifth time, thereby lowering the pass rates for four exams but raising the Ultimate rate.
(See id.) In addition, an overall decline in exam pass rates would affect pass rates of
recent exams more sharply than the Ultimate rate. (See id.)
Perhaps students might confuse the Ultimate pass rate with that of a single exam.
But such confusion could not be attributed to the Law School. The Law School clarified
that the Ultimate rate was based on graduates who passed the exam on “the first or
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subsequent attempts.” (Doc. 34 at ¶ 61.) Indeed, the word “Ultimate” indicates its broad
focus. Lorona does not claim that the Law School withheld pass rates of single exams.
Quite the contrary, her complaint confirms that the Law School disclosed those rates as
well as the Ultimate pass rate (see id. at ¶ 58) and that such rates are publicly available in
any event (see id. at ¶ 66).
Perhaps students might assume that the Ultimate pass rate would remain stable,
whereas in reality, the Law School was admitting more and more Alternative students
likely to lower the pass rate. But the fact that a statement might become false in the
future does not render it fraudulent when made. “The general rule is that in order to
constitute actionable fraud, the false representation must be of a matter or fact which
exists in the present, or has existed in the past . . . .” Law v. Sidney, 47 Ariz. 1, 4, 53 P.2d
64, 66 (1936). Lorona does not identify any exception requiring the Law School to warn
students of a likely decline in its Ultimate pass rate.
At oral argument, Lorona took the position (for the first time) that the true
Ultimate pass rate was lower than what the Law School reported. To support this
position, Lorona presented a chart calculating what the Ultimate pass rate, as defined by
the Law School, should have been in recent years. Lorona’s counsel said he performed
these calculations based on data taken from the Arizona Supreme Court website. Lorona
did not submit a copy of this chart to the Court before or after oral argument.
Ordinarily the Court would dismiss belated allegations like this one with leave to
include them in an amended complaint. But amendment here would be futile. The chart
presented by Lorona showed Ultimate pass rates averaging in the 80 percentages,
consistent with the Law School’s representations. Admittedly, the chart showed a current
Ultimate pass rate of only 75.4% in light of recent low pass rates. This variation,
however, is too small and occurred too late to plausibly support Lorona’s claim that she
detrimentally relied on the Law School’s contrary representation.

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Because Lorona does not plausibly allege that the Law School’s reports of its
Ultimate bar pass rate were materially false or misleading, she has not stated a fraud
claim based on those representations.

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Lorona has not pled reliance or damages with respect to the
alleged manipulation of bar exam results.

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Lorona alleges that in May 2014, the Law School began paying graduates who it

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predicted would fail the bar exam not to take the exam. The result, according to Lorona,

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was to skew bar exam results in the Law School’s favor. While this conduct is not an

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express misrepresentation, it may well be a manipulation of circumstances aimed at

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creating a false impression of the Law School’s quality.

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Whether or not such conduct is deceptive in general, it was not fraud against

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Lorona. She does not allege that she relied on the skewed exam results in deciding to

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attend or remain at the Law School. Nor could she plausibly so allege. She says the

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misconduct began in May 2014, but she graduated only seven months later, in December

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2014. She could not have known the results of any manipulated exam until her last

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semester. It is implausible that at that point, she would have relied on the results in

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deciding to remain at the school.

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Moreover, Lorona does not allege that the skewed results harmed her in any way.

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In fact, her complaint repeatedly suggests the opposite: that the results benefited her as a

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student and graduate of the Law School. She says the results “enabled” the Law School

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“to maintain its reputation as a competent law school” and “to retain accreditation and

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receive other benefits, such as eligibility for Title IV funding from the Department of

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Education.” (Doc. 34 at ¶¶ 78–79.) Thus, her own pleadings prevent an inference of

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harm.

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Perhaps the alleged manipulation of exam results will have evidentiary value in

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this case. But because Lorona does not plausibly allege that she relied on, or was harmed

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by, the skewed exam results, she has not stated a separate fraud claim based on this
conduct.
3.

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The other alleged representations or omissions were not
materially false or misleading.

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Lorona alleges that when she was deciding whether to attend the Law School, she

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read in the school’s application instructions that the school is governed by an American

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Bar Association (“ABA”) standard prohibiting the admission of applicants “who do not

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appear capable of . . . being admitted to the bar.” (Doc. 34 at ¶ 40.) The standard is not

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demanding; it applies only to applicants who appear incapable of becoming attorneys.

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Arguably the standard is so lax that it cannot give rise to a fraud claim at all. Even

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assuming a violation could be fraud, that is not this case. Lorona claims the Law School

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admitted students with substandard LSAT scores and undergraduate GPAs. But she does

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not specify these scores or GPAs or explain why such students would be incapable of bar

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admission. Lorona also claims the Law School predicted many of its students would fail

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the bar exam (on their first attempt). But she does not allege that these predictions were

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occurring at the relevant time—i.e., when she relied on the ABA standard in deciding

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whether to attend. Moreover, these predictions did not violate the ABA standard. The

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predictions were based in part on students’ law school performances, which the Law

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School could not have known when admitting students. And the students predicted to fail

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were not incapable of passing. Case in point: Lorona passed despite the Law School’s

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prediction otherwise. (See Doc. 20 at ¶ 119.) Thus, Lorona does not plausibly allege that

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the Law School violated the ABA standard at the time she claims to have relied.

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Lorona also alleges that when she was deciding whether to attend the Law School,

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she read in the school’s application packet that its graduates had a low unemployment

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rate, a median salary of $60,000, and a median student loan debt of $101,310. As a

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student, she read similar statements from the Law School about its graduates’

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employment status and average salaries. But she does not plausibly allege that this

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information was false or misleading. The mere fact that she ended up with a belowmedian salary and above-median student loan debt does not contradict the Law School’s
prior, generalized statements about its graduates.
Lorona also alleges that the Law School failed to disclose its prediction that fewer
of its graduates would pass the bar exam as more Alternative students were admitted.
But this non-disclosure was not fraud. As stated above, fraud is generally limited to “a
matter or fact which exists in the present, or has existed in the past.” Law, 47 Ariz. at 4,
53 P.2d at 66. Lorona does not explain why, contrary to general fraud principles, the
Law School had an affirmative duty to state its beliefs about the future. Moreover,
Lorona does not claim that these predictions occurred before May 2014. At that time she
was already well into her last year. She does not plausibly allege that she would have
acted differently had she learned about the Law School’s predictions.
Finally, Lorona alleges that at some unspecified time and place, the Law School
made the following representation about its legal education program:

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We believe by graduation, lawyers should enter the workforce
professionally prepared to practice law in a variety of diverse
settings and industries. Summit Law partners with local law
firms, courts, municipalities, businesses and non-profits to
provide real-world work experiences that foster our students’
desire to learn, grow and succeed while creating wellrounded lawyers who add immediate value to their firms
and employers.

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(Id. at ¶ 93 (emphasis in original).) As the Court explained in its prior order, this
freestanding statement does not give rise to a fraud claim because it is aspirational, not
factual, and because the circumstances surrounding the statement have not been pleaded
with particularity. (See Doc. 33 at 23–24.)
D.

Leave to Amend

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Leave to amend should be freely given “when justice so requires.” Fed. R. Civ. P.

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15(a)(2). Courts should consider five factors: bad faith, undue delay, prejudice to the

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opposing party, futility of amendment, and whether the plaintiff has previously amended
the complaint. Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004). “Futility alone
can justify the denial of a motion to amend.” Id.
Lorona has already amended her complaint three times.

The most recent

amendment followed a lengthy Court order dismissing Lorona’s fraud claims for reasons
similar to those raised by the Law School’s present motion.

To permit further

amendment would drag out the litigation for no foreseeable benefit. Therefore, as to the
parts of Lorona’s claims that will be dismissed, no further leave to amend will be granted.
IT IS THEREFORE ORDERED that Defendant Arizona Summit Law School,
LLC’s Motion to Dismiss (Doc. 35) Counts I, II, and III of the Third Amended
Complaint (Doc. 34) is granted with prejudice only to the extent those Counts rely on
fraud other than misrepresentation in enrollment statistics. The Motion is otherwise
denied.
IT IS FURTHER ORDERED that the parties may, as of the date of this order,
begin discovery as to how many of the Law School’s students were Alternative students
during the times relevant to Lorona’s fraud claims. This discovery shall conclude no
later than Friday, July 15, 2016.
IT IS FURTHER ORDERED that if the Law School deems the outcome of this
discovery dispositive of Lorona’s fraud claims, it may file a motion for summary
judgment to that effect no later than Monday, August 1, 2016. If no such motion is filed,
the parties may then begin general discovery as to Lorona’s fraud claims.
Dated this 17th day of May, 2016.

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Neil V. Wake
United States District Judge

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