Wright et al v. Capella University, Inc.

Filing 57

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS 38 (See order for details) (Written Opinion) Signed by Judge Wilhelmina M. Wright on 5/6/2019. (RJE)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Carolyn Wright et al.,

Case No. 18-cv-1062 (WMW/SER)
Plaintiffs,
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTION TO DISMISS

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

This matter is before the Court on Defendants’ motion to dismiss Plaintiffs’
amended complaint for failure to state a claim on which relief can be granted. (Dkt. 38.)
For the reasons addressed below, the motion is granted in part and denied in part.
BACKGROUND
Plaintiffs are current and former doctoral students of Capella University that hail
from Alabama, Florida, Kansas, Massachusetts, New York, Ohio, Pennsylvania, and
Tennessee. Defendants are Capella Education Company and its wholly-owned subsidiary,
Capella University, Inc. (collectively, “Capella”), both of which are Minnesota
corporations.
Capella offers multiple online doctoral degree programs. Before enrolling in
Capella’s doctoral programs, Plaintiffs received information from Capella via emails,
website content, or conversations with Capella recruiters. Through each of these sources,
Plaintiffs contend, Capella represented its doctoral programs as shorter and less expensive
than the programs actually were. Plaintiffs purportedly relied on Capella’s representations

of the time and cost to complete the programs when deciding to enroll. Plaintiffs allege
that, after enrolling in Capella’s doctoral programs, Capella created obstacles so as to
prolong the programs and collect more tuition. These alleged obstacles include high
faculty turnover rates and inconsistent and delayed feedback to students from professors.
Plaintiffs initiated this putative class action lawsuit on April 20, 2018, and filed an
amended complaint on August 20, 2018.1 Plaintiffs assert claims of common-law and
statutory fraud, breach of contract, and unjust enrichment.
ANALYSIS
Capella moves to dismiss Plaintiffs’ amended complaint for failure to state a claim
on which relief can be granted. See Fed. R. Civ. P. 12(b)(6). In part, Capella argues that
Plaintiff Lois Mason’s claims are “premature” and that Plaintiff Jacqueline Carter has not
suffered an injury. Although Capella makes these arguments in the context of a Rule
12(b)(6) motion, the question of whether Mason or Carter has been injured implicates their
standing to bring this lawsuit. As a jurisdictional prerequisite, standing must be resolved
before reaching the merits of a lawsuit. City of Clarkson Valley v. Mineta, 495 F.3d 567,
569 (8th Cir. 2007). For this reason, the Court addresses Capella’s standing arguments
first and then addresses Capella’s remaining arguments as to the merits of Plaintiffs’
amended complaint.

1

Plaintiffs bring their amended complaint on behalf of themselves and all others
similarly situated, either as a national class or, alternatively, as state sub-classes.
2

I.

Standing

Capella argues that Mason and Carter cannot bring claims because neither Mason
nor Carter had suffered an injury when Plaintiffs filed the amended complaint. Mason
enrolled in Capella’s Doctor of Information Technology (DIT) program in 2016. The
2.5-year timeline that Capella allegedly promised her had not yet elapsed when Plaintiffs
filed the amended complaint. Carter enrolled in Capella’s Doctor of Social Work (DSW)
program in 2015, but she withdrew before her projected graduation date.
Article III of the United States Constitution limits federal jurisdiction to actual cases
or controversies. U.S. Const., art. III, § 2, cl. 1; Lujan v. Defenders of Wildlife, 504 U.S.
555, 560 (1992); Hargis v. Access Capital Funding, LLC, 674 F.3d 783, 790 (8th Cir.
2012). If a federal district court determines at any time that it lacks subject-matter
jurisdiction, the court must dismiss the action. Fed. R. Civ. P. 12(h)(3). When the district
court or a party challenges standing, the party invoking federal jurisdiction must establish
that the requirements of standing have been satisfied. Mineta, 495 F.3d at 569. Standing
is determined based on the facts as they existed when the complaint was filed. Lujan, 504
U.S. at 569 n.4.
To have constitutional standing, a plaintiff must (1) have suffered an injury in fact,
(2) establish a causal relationship between the defendant’s conduct and the alleged injury,
and (3) show that the injury would be redressed by a favorable decision. Id. at 560-61;
Mineta, 495 F.3d at 569. Only the injury-in-fact element is at issue here. Such injury in
fact must be “concrete, particularized, and either actual or imminent.” United States v.

3

Metro. St. Louis Sewer Dist., 569 F.3d 829, 833-34 (8th Cir. 2009) (internal quotation
marks omitted).
Mason and Carter, like the other Plaintiffs, allege that Capella induced them to
enroll in doctoral programs based on false promises and representations of the programs.
They lost time and money, Plaintiffs contend, by enrolling and participating in a program
in which they otherwise would not have enrolled. The alleged time and money that was
lost began to accrue when Mason and Carter enrolled in their programs and paid tuition for
them. As alleged, the injury is particularized and actual. Accordingly, the Court rejects
Capella’s argument that Mason and Carter need to wait until their projected graduation
dates in order to bring claims against Capella.
For this reason, Mason and Carter have standing to bring this lawsuit.
II.

Failure to State a Claim

Capella next contends that Plaintiffs have failed to state a claim on which relief can
be granted. A complaint must allege sufficient facts such that, when accepted as true, a
facially plausible claim to relief is stated. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). If
a complaint fails to state a claim on which relief can be granted, dismissal is warranted.
See Fed. R. Civ. P. 12(b)(6). When determining whether a complaint states a facially
plausible claim, a district court accepts the factual allegations in the complaint as true and
draws all reasonable inferences in the plaintiff’s favor. Blankenship v. USA Truck, Inc.,
601 F.3d 852, 853 (8th Cir. 2010). Factual allegations must be sufficient to “raise a right
to relief above the speculative level” and “state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). Mere “labels and
4

conclusions” are insufficient, as is a “formulaic recitation of the elements of a cause of
action.”

Id. at 555. And legal conclusions couched as factual allegations may be

disregarded. See Iqbal, 556 U.S. at 678. Each of Plaintiffs’ causes of action is addressed
in turn.2
A.

Common-Law Fraud (Counts 1, 7, 11, 14, 18, 22, 26, 30, 34, 38 and 44)

Capella contends that Plaintiffs have neither alleged a misstatement of fact nor
pleaded their fraud claims with particularity. Alternatively, Capella argues that the
educational-malpractice doctrine bars Plaintiffs’ claims. Each argument is addressed in
turn.
1.

Misstatement of Fact

Capella argues that Plaintiffs’ common-law fraud claims do not sufficiently allege
an actionable misstatement of fact.

To state a claim for common-law fraudulent

misrepresentation under Minnesota law, a plaintiff must allege that (1) a party falsely
represented a past or existing material fact that is susceptible of knowledge, (2) the party
made the representation either knowing that it was false or without knowing if the
representation was true or false, (3) the party intended to induce another to act in reliance
on the representation, (4) the plaintiff acted in reliance on the representation, and (5) the

2

Plaintiffs bring their claims as a national class or, alternatively, as state sub-classes.
The parties contend, and the Court agrees, that a choice of law inquiry is not appropriate at
this early stage of litigation, prior to discovery. Cf. Frazier v. Bickford, No. 14-cv-3843,
2015 WL 8779872, at *3 (D. Minn. Dec. 15, 2015) (“[T]he choice of law determination is
a fact driven question . . . .”). For the purpose of this analysis, the Court applies Minnesota
law without determining that Minnesota law controls. The laws of the state sub-classes are
analyzed throughout this Order when relevant.
5

plaintiff consequently suffered pecuniary damages. 3 Angeles v. Medtronic, Inc., 863
N.W.2d 404, 422 (Minn. Ct. App. 2015). Capella challenges the first element.
a.

Plaintiff Wright

Plaintiff Carolyn Wright, who enrolled in Capella’s Doctor of Nursing Practice
(DNP) program, alleges that she relied on a statement on Capella’s website that claims,
“[i]n just two years you can earn your DNP.” Wright also alleges that she relied on a 2-year
recommended timeline contained within materials that Capella sent to her. According to
Wright, the DNP program is not, in fact, a 2-year program. Rather, Capella’s Gainful
Employment report4 states that only 13 percent of Capella students who graduated with a
DNP degree between 2013 and 2014 were able to finish in 30 months or fewer. And,
between 2014 and 2015, 84 percent of students who graduated with a DNP degree from
Capella did so within 39 months.

3

In addition to alleging fraudulent misrepresentation, Plaintiffs allege that Capella
fraudulently omitted its low graduation rates and slow completion times. A plaintiff may
bring a common-law fraudulent omission claim only when the defendant had a duty to
disclose the contested information. See Driscoll v. Standard Hardware, Inc., 785 N.W.2d
805, 812-13 (Minn. Ct. App. 2010). Plaintiffs cite no authority—nor has the Court’s
research produced any authority—holding that a university has a duty to disclose
graduation rates or completion times. As such, Plaintiffs have not stated a claim for
fraudulent omission.
4

In a Rule 12(b)(6) motion to dismiss, a district court “may consider some materials
that are part of the public record or do not contradict the complaint, as well as materials
that are necessarily embraced by the pleadings.” Ashford v. Douglas Cty., 880 F.3d 990,
992 (8th Cir. 2018) (quoting Smithrud v. City of St. Paul, 746 F.3d 391, 395 (8th Cir.
2014)). Because Capella submitted Gainful Employment reports to the United States
Department of Education, which are public documents and are embraced by the amended
complaint, the Court considers the Gainful Employment reports for the purpose of
Defendants’ motion.

6

Wright fails to allege a false statement of material fact. Although Capella’s website
and course catalogue suggest that it is possible for a student to complete a DNP degree
within 2 years, neither source represents that the average student completion rate is within
that time period. Nor do these sources guarantee that Wright will complete the DNP degree
within 2 years. For this reason, Wright’s experience at Capella and the statistics presented
in the Gainful Employment report are not incompatible with the representations on
Capella’s website and course catalogue. Nothing in Wright’s allegations suggests that it
would be impossible to complete a DNP degree in 2 years. Consequently, there is no
allegation of a false representation of material fact.
Accordingly, Count 1 is dismissed as asserted by Wright. 5
b.

Plaintiffs Kennedy, Brannen, and Matelski

Plaintiffs Debbra Kennedy, Sherry Bailey Brannen, and Shauna Matelski enrolled
in Capella’s Doctor of Education (Ed.D.) program. Each of these Plaintiffs alleges that she
was induced to enroll in this program based on Capella’s website, which represented that
the Ed.D. program is “designed to be completed in less than 3 years.” In contrast to this
representation, Capella’s Gainful Employment Report states that no student who graduated
with an Ed.D. degree between 2014 and 2015 completed the program within 3 years.

5

Under the laws of Kansas, the state of Wright’s respective sub-class, a claim of
fraudulent inducement similarly requires that “the defendant made false representations as
a statement of existing and material fact.” Stechschulte v. Jennings, 298 P.3d 1083, 1096
(Kan. 2013). Because Wright has not alleged facts that would support an inference of a
false representation, her claims also fail under Kansas law. Accordingly, Count 7 is
dismissed.
7

These three Plaintiffs do not sufficiently allege a false representation. Accepting
Plaintiffs’ allegations as true for the purpose of this motion, Capella represents that the
Ed.D. program is “designed” to take less than 3 years. Capella does not represent that an
average student would complete the degree in 3 years, nor did Capella guarantee that
Kennedy, Brannen, or Matelski would complete the Ed.D. program in fewer than 3 years.
Neither the statistics contained in the Gainful Employment report nor the experiences of
the Plaintiffs contradict the representation of a 3-year “design” time.6
For these reasons, Kennedy, Brannen, and Matelski have not stated a claim for
common-law fraud. Count 1 is dismissed as asserted by these Plaintiffs.7
c.

Plaintiffs Mason and Norris

Mason enrolled in Capella’s DIT program, allegedly relying on a recruiting email,
which stated that “DIT is a structured three year program; 2.5 years with transfer credit for
you.” Mason maintains that the DIT program was longer than Capella represented, as
indicated by Capella’s Gainful Employment report, which discloses a program length of
39 months. Similarly, Plaintiff Candace Norris enrolled in Capella’s Doctor of Business

6

Although the Gainful Employment report states how long a program is “designed
to take,” the statistic Capella reports in that category is based on the average time to
completion, not the design time of the program.
7

Kennedy, Brannen, and Matelski fare no better under the laws of the state subclasses, Tennessee, Florida, and Ohio, respectively. The common-law fraud doctrine for
each of these states requires a misstatement of fact. See Siegel v. Ringer, 94 N.E.3d 1178,
1185 (Ohio 2017); Baugh v. Novak, 340 S.W.3d 372, 388 (Tenn. 2011); Johnson v. Davis,
480 So.2d 625, 627 (Fla. 1985). Because Kennedy, Brannen, and Matelski have not
sufficiently alleged this element, they do not state a claim under Tennessee, Florida, or
Ohio law, and Counts 11, 14 and 18 are dismissed.
8

Administration (DBA) program after a recruiter informed her that it was a 3-year program
and that it would be “possible” to finish the program in 2.5 years. Norris contends that the
DBA program was longer than Capella represented, as evidenced by the Gainful
Employment report, which discloses a program length of 45 months.
Mason and Norris fail to sufficiently allege a false representation of a material fact,
however. The recruiter’s email to Mason states that the DIT program is a structured 3-year
program. A program’s structure is distinct from its average length, however. The email’s
reference to “2.5 years with transfer credit for you” also misses the mark as a false
representation of a material fact. Although this statement is tailored to Mason, it represents
only the structured length of the program as it applies to Mason. It does not represent how
long it will actually take Mason to complete the program. Likewise, the recruiter’s
purported statements to Norris do not indicate what the average length of the DBA program
is. Although the recruiter told Norris that completing a degree in 2.5 years was “possible,”
that statement does not convey that a 2.5-year timeline was guaranteed or common for
DBA students. For these reasons, Mason and Norris do not sufficiently allege that Capella
misrepresented the average length of the DIT or DBA programs, nor do they allege that
the programs were not, in fact, structured as 3-year programs.
Accordingly, as asserted by Mason and Norris, Count 1 is dismissed.8

8

Mason’s state sub-class is Pennsylvania. Pennsylvania’s common-law fraud
doctrine also requires a false, material misrepresentation by the defendant. Kit v. Mitchell,
771 A.2d 814, 819 (Pa. 2001). Because Mason has not alleged facts that support an
inference of a false, material misrepresentation, Mason’s claim is also deficient under
Pennsylvania law such that Count 22 is dismissed. Norris’s sub-class is Ohio, which also
requires a false, material misrepresentation by the defendant in order to state a claim for
9

d.

Plaintiff Ornelas

Plaintiff Maurice Jose Ornelas enrolled in Capella’s PhD in Public Safety program,
with a specialty in Criminal Justice. He alleges that he enrolled in this program in reliance
on an email from a Capella recruiter that stated, “[o]ur typical learner will complete their
PhD program in 3 years, plus or minus one quarter, by averaging 2 courses per quarter.”
This statement, Ornelas contends, falsely represents the average time—and, because tuition
is tied to the number of semesters, the average cost—of the PhD in Public Safety program.
Capella discloses in its Gainful Employment report that the length of the PhD in Public
Safety program is 75 months.9 The report also states that only 68 percent of students who
completed a PhD in Public Safety between 2014 and 2015 were able to do so within 75
months.
Unlike Capella’s representations of design times or program structures, here,
Capella represents how long it takes a “typical learner” to complete the PhD in Public
Safety program. The typical learner’s 3-year length is contradicted by Capella’s disclosure
in the Gainful Employment report, which states that the program is, on average, 6 years
and 3 months. This reported length is more than twice as long as the length that Capella
represents in its recruiting email. Ornelas has adequately alleged that Capella made a false
representation of material fact.

common-law fraud. Jack Turturici Family Tr. v. Carey, 962 N.E.2d 347, 351 (Ohio Ct.
App. 2011).
9

As addressed in footnote 6, Capella is reporting an average time to completion, even
though the Gainful Employment report uses the standard language “designed to take.”
10

The other elements of a common-law fraud claim also are sufficiently alleged.
Ornelas alleges that Capella knew its representation was false, as Capella could make the
necessary calculations for the Gainful Employment report. And, Ornelas alleges, Capella
made the false representation with the intention to induce Ornelas’s reliance, because the
information was provided in a recruiting email. Ornelas relied on this representation, he
alleges, and would not have enrolled in the program had he known its true length and cost.
Finally, Ornelas’s alleged damages are the time and tuition he lost by enrolling in a program
that he otherwise would not have.
Because Ornelas has stated a claim for common-law fraud, Capella’s motion to
dismiss is denied as to Count 1 as asserted by Ornelas.10
e.

Plaintiff Carter

Carter enrolled in Capella’s DSW program purportedly in reliance on an email from
a Capella recruiter. The email stated that the DSW program is “designed to be completed
in three years,” and Capella’s course catalogue included a 3-year and 1-quarter
recommended course schedule. In contrast to this information, Capella reports that only

10

Massachusetts law, which governs Ornelas’s respective sub-class, includes the same
elements of common-law fraud as Minnesota. See Balles v. Babcock Power Inc., 70 N.E.3d
905, 913 (Mass. 2017) (“The elements of fraud consist of [1] a false representation [2] of
a matter of material fact [3] with knowledge of its falsity [4] for the purpose of inducing
action thereon, and [5] that the plaintiff relied upon the representation as true and acted
upon it to his or her damage.” (internal quotation marks omitted)). As such, the Court’s
conclusion as to Ornelas’s common-law fraud claim is the same under Massachusetts law.
Accordingly, Capella’s motion to dismiss is denied as to Count 26.

11

19 percent of students who graduated with a DSW degree between 2014 and 2015 were
able to do so within 42 months.
Like Kennedy, Brannen, and Matelski, Carter does not sufficiently allege a false
representation of material fact. That a program is “designed” to be completed in a certain
amount of time is not false merely because the average student takes longer to complete
that program. And the course catalogue displays only a possible schedule; it does not
represent the actual or guaranteed length of the program. Moreover, the course catalogue
expressly disclaims that the “completion time for the dissertation courses varies.” This
disclaimer also undermines Carter’s allegations that the course catalogue was a false
representation of the time to complete the DSW degree.
For these reasons, Count 1 is dismissed as asserted by Carter.11
f.

Plaintiff Goldstein

Plaintiff Geoffrey Goldstein enrolled in the PhD in Business Management program
after a recruiter allegedly informed him that he would graduate within 3 years “if he
enrolled in consecutive quarters.” Although Goldstein enrolled in consecutive quarters and
received top grades during those quarters, two years into the program Capella told
Goldstein that he must either “voluntarily withdraw from the program or restart the entire
dissertation process from the beginning.”

11

Whether these allegations amount to

Even if Carter were proceeding under the Alabama sub-class, the Court’s conclusion
would remain unchanged. See Deng v. Scroggins, 169 So.3d 1015, 1024 (Ala. 2014)
(including a false representation of a material existing fact as a required element of
common-law fraud). Accordingly, Count 38 is dismissed.

12

misstatements of fact is a close call. But assuming without deciding that Goldstein
sufficiently alleges a misstatement of fact, Goldstein’s fraud claim nonetheless fails
because he does not plead his claim with particularity, as addressed below.
2.

Particularity Requirement

When pleading any fraud claim, “a party must state with particularity the
circumstances constituting fraud.” Fed. R. Civ. P. 9(b). A party bringing a fraud claim
must “identify specifically the who, what, where, when, and how of the alleged fraud.”
United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006)
(internal quotation marks omitted). And the allegations must present “facts that give rise
to a strong inference of fraudulent intent.” Dunnigan v. Fed. Home Loan Mortg. Corp.,
184 F. Supp. 3d 726, 741 (D. Minn. 2016) (internal quotation marks omitted). The primary
purpose of this particularity requirement is to “facilitate a defendant’s ability to respond
and to prepare a defense to charges of fraud.” Commercial Prop. Invs., Inc. v. Quality Inns
Int’l, Inc., 61 F.3d 639, 644 (8th Cir. 1995). Rule 9(b) does not require a plaintiff to allege
the precise details of every instance of fraud, but Rule 9(b) does require enough detail to
inform the defendant of “the core factual basis for the fraud claims.” Ransom v. VFS, Inc.,
918 F. Supp. 2d 888, 898 (D. Minn. 2013) (internal quotation marks omitted).
Capella contends that Plaintiffs have not pleaded their fraud claims with
particularity. In particular, Capella argues that Goldstein has failed to allege the “who” of
the fraud, and that both Goldstein and Ornelas have failed to allege the “why” of the
fraud—namely, facts that give rise to an inference of fraudulent intent. Goldstein alleges
that a Capella recruiter told him that he would graduate from the PhD in Business
13

Management program in 3 years if he enrolled in consecutive quarters. But the amended
complaint does not identify the Capella recruiter with whom Goldstein spoke or indicate
when the conversations occurred. These generalized allegations do not sufficiently enable
Capella to respond and prepare a defense to charges of fraud. Commercial Prop. Invs., 61
F.3d at 644.
As to the remaining Plaintiff, Ornelas, Capella contends that although he did not
complete his program within 3 years as he had hoped, this fact alone does not give rise to
an inference of fraud.

But Ornelas’s allegations go beyond a mere desire to have

progressed through his PhD program more quickly.

Ornelas alleges that Capella

misrepresented the average time and cost of a Capella degree so as to induce Ornelas to
enroll in the program. Such allegations, accepted as true for the purposes of this motion,
support an inference that Capella acted with a fraudulent intent. Moreover, Ornelas pleads
his claims with sufficient details for Capella to be able to adequately respond to and prepare
a defense against Ornelas’s allegations. Id. For these reasons, Ornelas has pleaded his
fraud claim with sufficient particularity.
Accordingly, only Goldstein’s common-law fraud claim, Count 44, is dismissed for
failure to plead the fraud claim with particularity. And Count 1 is dismissed as asserted by
Goldstein.
3.

Educational-Malpractice Doctrine

Defendants contend that Plaintiffs’ common-law fraud claims are barred by the
educational malpractice doctrine.

14

The educational-malpractice doctrine bars courts from “inquir[ing] into the nuances
of educational processes and theories.” Alsides v. Brown Inst., Ltd., 592 N.W.2d 468, 473
(Minn. Ct. App. 1999) (quoting Ross v. Creighton Univ., 957 F.2d 410, 417 (7th Cir.
1992)).12 This doctrine does not bar allegations that “the institution failed to perform on
specific promises,” but the doctrine does bar challenges to “the general quality of the
instructors and the education [the students] received.” Id. (dismissing claims in which “the
essence of the complaint is that the school failed to provide an ‘effective education’ ”).
Courts justify the educational malpractice doctrine based on “(1) the lack of a satisfactory
standard of care by which to evaluate an educator; (2) the inherent uncertainties about
causation and the nature of damages in light of such intervening factors as a student’s
attitude, motivation, temperament, past experiences, and home environment; (3) the
potential for a flood of litigation against schools; and (4) the possibility that such claims
will embroil the courts into overseeing the day-to-day operations of schools.” Id. at 472
(internal quotation marks omitted).

12

Each of the state laws potentially implicated by the alternative sub-classes
recognizes the educational-malpractice doctrine. See Gillis v. Principia Corp., 832 F.3d
865, 872 (8th Cir. 2016) (applying Missouri law); Adams v. Antonelli Coll., 304 F. Supp.
3d 656, 664-65 (S.D. Ohio 2018) (applying Ohio law); Thomas v. Meharry Med. Coll., 1
F. Supp. 3d 816, 828 (M.D. Tenn. 2014) (applying Tennessee law); Jamieson v. Vatterott
Educ. Ctr., Inc., 473 F. Supp. 2d 1153, 1159-60 (D. Kan. 2007) (applying Kansas law);
Gally v. Columbia Univ., 22 F. Supp. 2d 199, 207 (S.D.N.Y. 1998) (applying New York
law); Doe v. Town of Framingham, 965 F. Supp. 226, 230 (D. Mass. 1997) (applying
Massachusetts law); Christensen v. S. Normal Sch., 790 So. 2d 252, 254-56 (Ala. 2001)
(per curiam); Armstrong v. Data Processing Inst., Inc., 509 So. 2d 1298, 1299 (Fla. Dist.
Ct. App. 1987); Cavaliere v. Duff’s Bus. Inst., 605 A.2d 397, 400-04 (Pa. Super. Ct. 1992).
15

Here, Ornelas is the only Plaintiff with surviving common-law fraud claims.
Ornelas alleges that Capella misrepresented the average time and cost of its PhD in Public
Safety program. To assess this claim, the Court need not assess the general quality of
Ornelas’s instructors nor the effectiveness of Capella’s programs. Instead, the relevant
inquiry would be tied to objective enrollment statistics.

For this reason, Ornelas’s

common-law fraud claims are not barred by the educational-malpractice doctrine.
B.

Statutory Fraud (Counts 4, 5, 10, 21, 25, 29, 33, 37, 41 and 42)

In addition to alleging common-law fraud, Plaintiffs also allege statutory fraud.
Capella again argues that Plaintiffs have not pleaded these fraud claims with sufficient
particularity, that Plaintiffs have failed to allege an actionable misstatement of fact, and
that these claims are barred by the educational-malpractice doctrine.
The Minnesota Uniform Deceptive Trade Practices Act prohibits the
misrepresentation of goods or services being sold. See Minn. Stat. § 325D.44, subd. 1(5)
(prohibiting a person from representing that “goods or services have . . . characteristics . . .
that they do not have”); Minn. Stat. § 325D.44, subd. 1(13) (prohibiting a person from
engaging “in any other conduct which similarly creates a likelihood of confusion or
misunderstanding”).

Similarly, the Minnesota Prevention of Consumer Fraud Act

prohibits misrepresentations and misleading statements in conjunction with goods sold.
See Minn. Stat. § 325F.69, subd. 1 (“The act, use, or employment by any person of any
fraud, false pretense, false promise, misrepresentation, misleading statement or deceptive
practice, with the intent that others rely thereon . . . is enjoinable . . . .”).

16

Plaintiffs’ statutory fraud claims are based on the same allegations as their
common-law fraud claims. As such, the analysis in Part I.A. applies with equal force here.
As explained, only Ornelas sufficiently alleges that Capella made a false representation
concerning the time and cost of its doctoral programs.

And, consistent with the

educational-malpractice doctrine analysis in Part I.A.3, Ornelas’s statutory fraud claims do
not require an inquiry into Capella’s educational decisions or pedagogy. Accordingly,
Ornelas states a claim for statutory fraud.
For these reasons, Capella’s motion to dismiss is denied as to Counts 4 and 5 only
to the extent that these nationwide claims are asserted by Ornelas.13
C.

Breach of Contract (Counts 3, 8, 12, 15, 19, 23, 27, 31, 35, 39 and 45)

Plaintiffs contend that Capella breached its promises that students would have
control over the length of their degree programs and that the degrees could be obtained in
a set amount of time. Capella moves to dismiss Plaintiffs’ breach-of-contract claims for
failure to state a claim.
Under Minnesota law, contract formation requires communication of a specific and
definite offer, acceptance of that offer, and consideration. See Pine River State Bank v.
Mettille, 333 N.W.2d 622, 626-27 (Minn. 1983). Vague language or subjective intentions

13

The laws of the alternative sub-classes proscribe similar acts as compared to the
Minnesota statutes. See Ala. Code § 8-19-5(27); Fla. Stat. § 501.204; Kan. Stat. Ann.
§ 50-626; Mass. Gen. Laws ch. 93A; Mo. Rev. Stat. § 407.010 et seq.; N.Y. Gen. Bus. Law
§ 349; Ohio Rev. Code Ann. § 1345.02; Pa. Stat. and Cons. Stat. Ann. § 201-2. Plaintiffs
do not bring a statutory fraud claim for the Tennessee sub-class. Accordingly, Capella’s
motion to dismiss Ornelas’s Massachusetts statutory fraud claim, Count 29, is denied. The
remaining statutory fraud claims, Counts 10, 21, 25, 33, 37, 41 and 42, are dismissed.
17

do not form the basis of a specific and definite offer. See Hunt v. IBM Mid Am. Emps. Fed.
Credit Union, 384 N.W.2d 853, 857-58 (Minn. 1986) (finding that general policy
statements in employee manual did not create enforceable contract, and explaining that
“[t]o decide whether a contract has been breached, a fact-finder needs reasonably definite
terms to interpret and apply”); see id. at 857 (“Whether a proposal is meant to be an offer
for a unilateral contract is determined by the outward manifestations of the parties, not by
their subjective intentions.”).
Plaintiffs claim that Capella promised that its students would control the length of
their degree programs, and Capella promised that each degree program could be completed
in a set amount of time. But the allegations in the amended complaint do not support the
existence of any such promises. Capella’s representations on which Plaintiffs rely include
statements of how long the degree programs are “designed” to take, how the program is
“structured,” what a recommended sequence of courses is, or the length of time it takes a
“typical learner” to complete the program. None of these allegations supports the assertion
that Capella made a specific and definite offer to any of the Plaintiffs that students would
be in control of the length of the program or that degrees would be obtainable within a set
timeframe.
For these reasons, Plaintiffs’ nationwide breach-of-contract claim, Count 3, is
dismissed.14

14

Consistent with Minnesota law, the laws of the state sub-classes require that a
contract have specific and definite terms. See, e.g., G v. Fay Sch., Inc., 282 F. Supp. 3d
381, 399-400 (D. Mass. 2017); Swan Media Grp., Inc. v. Staub, 841 F. Supp. 2d 804, 808
(S.D.N.Y. 2012); Deghand v. Wal-Mart Stores, Inc., 926 F. Supp. 1002, 1020 (D. Kan.
18

D.

Breach of the Covenant of Good Faith and Fair Dealing (Count 6)

Capella moves to dismiss Plaintiffs’ breach of the covenant of good faith and fair
dealing claim. Every contract under Minnesota law includes an implied covenant of good
faith and fair dealing, “requiring that one party not unjustifiably hinder the other party’s
performance of the contract.” In re Hennepin County 1986 Recycling Bond Litig., 540
N.W.2d 494, 502 (Minn. 1995).
As explained above, Plaintiffs have not adequately alleged the existence of a
contract under Minnesota law between Capella and Plaintiffs in which Capella promised
that students had control over the length of the programs or that a degree was obtainable in
a certain amount of time. Because there is no underlying contract, Plaintiffs’ claim for
breach of the covenant of good faith and fair dealing cannot stand.
Count 6 is dismissed for this reason.15

1996); White Sands Grp., L.L.C. v. PRS II, LLC, 998 So. 2d 1042, 1051 (Ala. 2008);
Glosser v. Vasquez, 898 So. 2d 1179, 1181 (Fla. Dist. Ct. App. 2005); Olathe Millwork Co.
v. Dulin, 189 S.W.3d 199, 204 (Mo. Ct. App. 2006); Huntington Nat’l Bank v. Antrobius,
983 N.E.2d 932, 938-39 (Ohio Ct. App. 2012); Lackner v. Glosser, 892 A.2d 21, 30 (Pa.
Super. Ct. 2006); Doe v. HCA Health Servs. of Tenn., Inc., 46 S.W.3d 191, 196 (Tenn.
2001). Because Plaintiffs have failed to sufficiently allege facts that would indicate a
contract with specific and definite terms, their breach-of-contract claims likewise fall short
under the laws of the state sub-classes. Accordingly, Counts 8, 12, 15, 19, 23, 27, 31, 35,
39 and 45 are dismissed.
15

Capella also argues that the economic-loss doctrine prevents Plaintiffs from
bringing both fraud and contract claims. But, as addressed above in Part II.C., the Court
dismisses all of Plaintiffs’ contract-based claims. Because only fraud claims remain,
Capella’s economic-loss doctrine argument is moot.
19

E.

Unjust Enrichment (Counts 2, 9, 13, 16, 20, 24, 28, 32, 36, 40 and 43)

Finally, Plaintiffs allege that Capella was unjustly enriched when it retained
Plaintiffs’ tuition money. Plaintiffs allege that Capella “did not provide students with the
doctoral process that was promised and expected in connection with the payment of the
tuition.” Capella moves to dismiss the unjust-enrichment claims because Plaintiffs have
an adequate remedy at law, as demonstrated by their fraud and contract claims.
Alternatively, Capella moves to dismiss these claims because they fail to state a claim on
which relief can be granted.
Because a claim for unjust enrichment is brought in equity, a plaintiff can obtain
relief for this claim only if there is no adequate remedy at law available. See ServiceMaster
of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 305 (Minn. 1996). A plaintiff may
plead inconsistent claims in the alternative, however. See Fed. R. Civ. P. 8(d). For this
reason, courts routinely decline to dismiss unjust-enrichment claims when pled in the
alternative. See, e.g., Mono Advert., LLC v. Vera Bradley Designs, Inc., 285 F. Supp. 3d
1087, 1091 (D. Minn. 2018) (citing Federal Rule of Civil Procedure 8 and allowing unjustenrichment claim to be pleaded in the alternative); Cummins Law Office, P.A. v. Norman
Graphic Printing Co., 826 F. Supp. 2d 1127, 1130 (D. Minn. 2011) (observing that courts
“routinely permit the assertion of contract and quasi-contract claims together”). Drawing
“all reasonable inferences” in favor of Plaintiffs for the purpose of this motion to dismiss,
the Court treats Plaintiffs’ unjust-enrichment claims as alternative claims. Martin v. Iowa,
752 F.3d 725, 727 (8th Cir. 2014).

20

To state an unjust-enrichment claim under Minnesota law, a plaintiff must allege
“(1) a benefit conferred; (2) the defendant’s appreciation and knowing acceptance of the
benefit; and (3) the defendant’s acceptance and retention of the benefit under such
circumstances that it would be inequitable for him to retain it without paying for it.” Dahl
v. R.J. Reynolds Tobacco Co., 742 N.W.2d 186, 195 (Minn. Ct. App. 2007). When parties
dispute the third element of this claim, it is not sufficient that one party merely benefits
from the efforts of another. “[I]nstead it must be shown that a party was unjustly enriched
in the sense that the term ‘unjustly’ could mean illegally or unlawfully.” Id. at 196 (internal
quotation marks omitted).
In Zinter v. University of Minnesota, a graduate student claimed that the university
was unjustly enriched when it retained her tuition payments without awarding her a
graduate degree. 799 N.W.2d 243, 247 (Minn. Ct. App. 2011). While pursuing her
master’s degree, the student had failed one of the required courses. Id. at 244-45. The
court held that the university was not unjustly enriched because it provided courses in
exchange for each installment of tuition payment. Id. at 247. Moreover, the court observed
that the “bargain” between the university and the student was that the university would
provide the student with instruction in exchange for tuition, not that the university would
necessarily provide her with a degree. Id.
Capella argues that Plaintiffs fail to allege how the retention of tuition payments is
inequitable. This Court agrees. Plaintiffs received educational services in exchange for
each semester for which Plaintiffs paid tuition. There is no plausible allegation that Capella
guaranteed a degree, or a degree in a certain period of time, in exchange for tuition. The
21

allegations do not support an inference that it is illegal or unlawful for Capella to retain the
tuition payments. See id.
Accordingly, Plaintiffs fail to state a claim for unjust enrichment. Count 2 is
dismissed.16
ORDER
Based on the foregoing analysis and all the files, records and proceedings herein, IT
IS HEREBY ORDERED:
1.

Capella’s motion to dismiss, (Dkt. 38), is DENIED IN PART as to Plaintiff

Ornelas’s common-law and statutory fraud claims and GRANTED IN PART as to
Plaintiffs’ remaining claims.
2.

Counts 2 through 25, 27, 28, and 30 through 45 of Plaintiffs’ amended

complaint, (Dkt. 24), are dismissed without prejudice. Count 1 is dismissed without
prejudice only to the extent that it is asserted by Plaintiffs Wright, Kennedy, Brannen,
Norris, Matelski, Goldstein, Mason, and Carter.

16

The unjust-enrichment doctrines of the alternative state sub-classes warrant the
same conclusion because each of the state laws requires that the defendant’s retention of a
benefit be inequitable. See Matador Holdings, Inc. v. HoPo Realty Invs., L.L.C., 77 So.3d
139, 145-46 (Ala. 2011); Fla. Power Corp. v. City of Winter Park, 887 So.2d 1237, 1241
n.4 (Fla. 2004); J.W. Thompson Co. v. Welles Prods. Corp., 758 P.2d 738, 745 (Kan. 1988);
Metro. Life Ins. Co. v. Cotter, 984 N.E.2d 835, 850 (Mass. 2013); AIG Agency, Inc. v. Mo.
Gen. Ins. Agency, Inc., 474 S.W.3d 222, 228 (Mo. Ct. App. 2015); E.J. Brooks Co. v. Cambridge Sec. Seals, 105 N.E.3d 301, 312 (N.Y. 2018); Camp St. Mary’s Ass’n v. Otterbein
Homes, 889 N.E.2d 1066, 1078 (Ohio Ct. App. 2008); Mitchell v. Moore, 729 A.2d 1200,
1203 (Pa. Super. Ct. 1999); Potter’s Shopping Ctr., Inc. v. Szekely, 461 S.W.3d 68, 72 n.5
(Tenn. Ct. App. 2014). Accordingly, Counts 9, 13, 16, 20, 24, 28, 32, 36, 40 and 43 are
dismissed.
22

Dated: May 6, 2019

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

23