Wright et al v. Capella University, Inc.

Filing 283

ORDER AFFIRMING MAGISTRATE JUDGE'S ORDER. (Written Opinion) Signed by Judge Wilhelmina M. Wright on 9/22/2021. (RJE)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Carolyn Wright et al.,

Case No. 18-cv-1062 (WMW/ECW)
Plaintiffs,
ORDER AFFIRMING MAGISTRATE
JUDGE’S ORDER

v.
Capella University, Inc., and Capella
Education Company,
Defendants.

This matter is before the Court on Defendants Capella University, Inc., and Capella
Education Company’s appeal of the April 2, 2021 Order of United States Magistrate Judge
Elizabeth Cowan Wright. (Dkt. 268.) The April 2, 2021 Order granted in part and denied
in part Plaintiff Maurice Jose Ornelas’s motion for leave to file a second amended class
action complaint. For the reasons addressed below, the Court affirms the April 2, 2021
Order.
BACKGROUND
Defendants are Capella Education Company and Capella University, Inc.
(collectively “Capella”), both of which are Minnesota corporations that operate a for-profit
university. Plaintiffs are current and former doctoral students of Capella.
Plaintiffs commenced this lawsuit on April 20, 2018, alleging claims against
Defendants for a fraudulent scheme in which Defendants misrepresented to prospective
students the time and cost to complete Capella’s educational programs.

Plaintiffs

subsequently filed a First Amended Complaint (FAC). On May 6, 2019, the Court granted
in part and denied in part Defendants’ motion to dismiss the FAC. The Court dismissed
all of the named plaintiffs except Ornelas, leaving him as the sole remaining putative class
representative.
On October 5, 2020, Ornelas moved to amend the FAC. The proposed Second
Amended Complaint (SAC) seeks to remove allegations pertaining to the former plaintiffs
whose claims were dismissed, add six new plaintiffs and add claims against Defendants
pertaining to the new plaintiffs. On April 2, 2021, the magistrate judge granted in part and
denied in part Ornelas’s motion. The magistrate judge found that Ornelas had not unduly
delayed filing his motion and that the proposed amendments are not unduly prejudicial to
Defendants. Relevant to this Order, the magistrate judge found that Ornelas’s graduationrate-misrepresentation claims are not futile. And the magistrate judge found that the claims
of proposed Plaintiffs April Powers and Jennifer Proffitt are not futile.
Defendants appeal the April 2, 2021 Order, arguing that the magistrate judge erred
by finding that the proposed graduation-rate-misrepresentation claims are not futile.
Defendants also appeal the magistrate judge’s decision to allow Powers to plead a claim
based on the Idaho Consumer Protection Act (ICPA), Idaho Code § 48-608, and Proffitt to
plead a claim based on the Michigan Consumer Protection Act (MCPA), 1976 Mich. Pub.
Acts 331. Ornelas argues that the Court should affirm the magistrate judge’s April 2, 2021
Order.

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ANALYSIS
The standard of review that applies to a magistrate judge’s ruling on a
nondispositive issue is “extremely deferential.” Scott v. United States, 552 F. Supp. 2d
917, 919 (D. Minn. 2008). Such a ruling will be modified or set aside only if it is clearly
erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed. R. Civ. P. 72(a);
LR 72.2(a)(3); see also Ferguson v. United States, 484 F.3d 1068, 1076 (8th Cir. 2007). A
ruling is clearly erroneous when the reviewing court “is left with the definite and firm
conviction that a mistake has been committed.” Wells Fargo & Co. v. United States, 750
F. Supp. 2d 1049, 1050 (D. Minn. 2010) (internal quotation marks omitted). When a court
“fails to apply or misapplies relevant statutes, case law or rules of procedure,” its decision
is contrary to law. Id. (internal quotation marks omitted).
Generally, a magistrate judge’s ruling on a nondispositive motion is subject to the
extremely deferential standard addressed above. However, “when a magistrate judge
denies leave to amend a pleading because the proposed amendment would be futile, the
magistrate judge’s ruling is reviewed de novo.” Selective Ins. Co. of S.C. v. Sela, 353
F. Supp. 3d 847, 852 (D. Minn. 2018); see also Magee v. Trs. of Hamline Univ., 957
F. Supp. 2d 1047, 1062 (D. Minn. 2013). In circumstances like this one, when a defendant
appeals the magistrate judge’s decision to grant leave because the proposed amendment is
not futile, courts also conduct a de novo review. See Selective Ins., 353 F. Supp. 3d at 852–
53.

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I.

Graduation-Rate-Misrepresentation Claims

The magistrate judge determined that Ornelas’s graduation-rate-misrepresentation
claims are not futile based on the allegations in the proposed SAC. Defendants contend
that the graduation-rate-misrepresentation claims are futile and do not plausibly allege
fraud.
A complaint must allege sufficient facts that, when accepted as true, state a facially
plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When determining
whether a complaint states a plausible claim, a district court accepts as true all factual
allegations in the complaint and draws all reasonable inferences in the plaintiff’s favor.
Blankenship v. USA Truck, Inc., 601 F.3d 852, 853 (8th Cir. 2010). When alleging fraud,
a plaintiff must “state with particularity the circumstances constituting fraud.” Fed. R. Civ.
P. 9(b). “Determining whether a complaint states a plausible claim for relief will . . . be a
context-specific task that  requires the reviewing court to draw on its judicial experience
and common sense.”  Iqbal, 556 U.S. at 679.
Rule 15 “requires the court to ‘freely give leave’ to amend ‘when justice so
requires.’ ” Shank v. Carleton Coll., 329 F.R.D. 610, 613 (D. Minn. 2019) (quoting Fed.
R. Civ. P. 15(a)(2)). “A motion to amend may be denied for compelling reasons such as
undue delay, bad faith, or dilatory motive, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the non-moving party, or futility of
the amendment.”

Id. at 613 (emphasis added) (internal quotation marks omitted).

However, “a motion to amend should be denied on the merits only if it asserts clearly

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frivolous claims or defenses.” Becker v. Univ. of Neb., at Omaha, 191 F.3d 904, 908 (8th
Cir. 1999) (internal quotation marks omitted). 
Defendants dispute three misrepresentations alleged in the SAC:


“Our typical learner will complete their PhD program in 3 years, plus or
minus one quarter, by averaging 2 courses per quarter.”



“Typical time to completion is anywhere from 3.5 to 5.5 years to complete;
4 to 4.5 is average.”



A commonly used form email provided that the “average degree completion”
time is within a range of 2–4 years.

First, Defendants argue that none of these statements makes “any representations—implicit
or explicit—that the ‘average’ or ‘typical’ learner graduates, and none contains any
promise that ‘more than 50% of’ doctoral students graduate.” Plaintiffs counter, and the
magistrate judge found, that the plain language of the alleged misrepresentations is
sufficiently deceptive to state a non-frivolous claim for relief.1 The Court agrees. The
plain language of the alleged misrepresentations plausibly suggests that the “average” or
“typical” student will complete a program in a certain amount of time, meaning that the
“average” or “typical” student actually graduates. Because the SAC also plausibly alleges
that the average Capella student did not graduate, as addressed below, the allegations

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The magistrate judge concluded that “[c]ommon sense leads the Court to conclude
that a representation that the ‘average’ or ‘typical’ doctoral student completes a program
in a certain amount of time is a representation that the ‘average’ or ‘typical’ doctoral
student actually graduates from that program. Otherwise, how would she ever complete
the program?”

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pertaining to Capella’s misrepresentations are not “clearly frivolous.” Becker, 191 F.3d at
908.
Defendants next argue that the SAC fails to plausibly allege facts demonstrating that
“less than 10% of [Capella University’s] doctoral student population graduates with a
doctoral degree.” The SAC alleges that Capella’s graduate student-body population
consists of approximately 12,000 students each year and, based on Capella’s August 2010
and March 2011 commencement ceremonies, only 1,109 doctoral students graduated
during the 2010–2011 school year. According to the SAC, these numbers reflect a 9.24
percent graduation rate. The magistrate judge relied on this allegation to support her
conclusion that Ornelas has alleged sufficient facts to plausibly allege that Capella’s
representations were false.
However, the calculation in the SAC fails to account for the fact that the 12,000
enrolled doctoral students are at varying stages of degree completion. For example, using
the logic advanced in the SAC, if a hypothetical 4-year undergraduate program included
3,000 freshmen, 3,000 sophomores, 3,000 juniors, and 3,000 seniors, the university would
have 12,000 students. And if 1,109 students were to graduate at the end of the academic
year, the graduation rate would be approximately 37 percent, not less than 10 percent as
alleged in the SAC. Therefore, the SAC’s allegation that less than 10 percent of Capella’s
doctoral students graduate is inconsistent with the facts alleged. But for the reasons
addressed below, this inconsistency does not make the SAC’s allegations frivolous.

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The SAC alleges that Capella represented that it takes 3 years to 5.5 years to
complete a doctoral program. Assuming an even distribution of students across class years,
if there are 12,000 doctoral students enrolled each year, and it takes between 3 years and
5.5 years to complete the doctoral program, then a 100 percent graduation rate would result
in between 2,182 and 4,000 doctoral students graduating each year. If, as the SAC alleges,
only 1,109 doctoral students graduated in a given year, then Capella’s actual graduation
rate would be between 27.7 percent and 50.8 percent. Drawing all reasonable inferences
in favor of Plaintiffs, if Capella’s graduation rate is as low as 27.7 percent, this fact
plausibly supports Plaintiffs’ claim that Capella’s representations as to “average” or
“typical” doctoral students are false.

Plaintiffs’ graduation-rate-misrepresentation

allegations, therefore, are not frivolous. The magistrate judge correctly granted Ornelas’s
motion to amend the complaint as to the graduation-rate-misrepresentation allegations
because those allegations are not “clearly frivolous.” Becker, 191 F.3d at 908.
Having performed a de novo review, the Court affirms the magistrate judge’s April
2, 2021 Order to the extent that it granted Ornelas’s motion to amend the complaint to add
graduation-rate-misrepresentation claims.
II.

ICPA and MCPA Claims

The magistrate judge also concluded that proposed Plaintiffs Powers and Proffitt
may allege claims under the ICPA and MCPA, respectively. Defendants argue that both
of the proposed Plaintiffs’ claims are futile because those claims fail as a matter of law.

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Ornelas contends that, because Defendants did not properly raise these issues before the
magistrate judge, these issues are not properly before the Court on appeal.
A party cannot raise arguments before the district judge that it failed to present to
the magistrate judge, parties “must take before the magistrate, not only their best shot but
all of their shots.” Ridenour v. Boehringer Ingelheim Pharms., Inc., 679 F.3d 1062, 1067
(8th Cir. 2012) (internal quotation marks omitted) (quoting Borden v. Sec’y of Health &
Hum. Servs., 836 F.2d 4, 6 (1st Cir. 1987)); see also Grant v. Shalala, No. 93-CV-0124E(F),
1995 WL 322589, at *2 (W.D.N.Y. Mar. 13, 1995) (warning district courts not to consider
arguments raised for the first time on appeal because that “would allow every party to
simply decline to present his or her case before a Magistrate Judge, await the result of that
adjudication and, thereafter and only if necessary, expend the resources needed to file
objections in the District Court”). Any arguments that were not presented before the
magistrate judge are waived, and the district court may properly refuse to consider new
arguments. See Ridenour, 679 F.3d at 1067.
The magistrate judge expressly observed in the April 2, 2021 Order that Defendants’
arguments as to the ICPA and MCPA were not fully briefed, and she concluded that
“Defendants may raise those arguments in a motion to dismiss, should they choose to bring
one, or a motion for summary judgment.” Because Defendants’ arguments were not fully
presented to the magistrate judge, the Court declines to address them in an appeal of the
magistrate judge’s order. Accordingly, the magistrate judge’s ruling permitting proposed

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Plaintiffs Powers and Proffitt to allege claims under the ICPA and MCPA, respectively, is
affirmed.
ORDER
Based on the foregoing analysis and all the files, records and proceedings herein, IT
IS HEREBY ORDERED that the April 2, 2021 Order, (Dkt. 250), is AFFIRMED.
Dated: September 22, 2021

s/Wilhelmina M. Wright
Wilhelmina M. Wright
United States District Judge

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