Krebs et al v. Charlotte School of Law, LLC, et al

Filing 92

ORDER Granting in Part and Denying in Part that all claims are dismissed except Plaintiffs claims for fraud, negligent misrepresentation, and unfair and deceptive trade practices and it is further ORDERED that the DOEs Motion to Dismiss for lack of subject matter jurisdiction as to Plaintiffs sole claim against the DOE is hereby GRANTED 65 Motion to Dismiss for Failure to State a Claim; granting 67 Motion to Dismiss for Lack of Jurisdiction. Signed by Senior Judge Graham Mullen on 9/5/2017. (jaw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
CIVIL ACTION NO. 3:17-CV-00190-GCM
SPENCER KREBS
MORGAN SWITZER
DAVE WYATT
KRYSTAL HORSLEY
JACENTA MARIE PRICE
MARKISHA DOBSON,
ON BEHALF OF THEMSELVES AND
ALL OTHERS SIMILARLY SITUATED,
Plaintiffs,
v.
CHARLOTTE SCHOOL OF LAW, LLC
INFILAW CORPORATION
INFILAW HOLDING, LLC
JAY CONISON
CHIDI OGENE
DON LIVELY
BETSY DEVOS,

Defendants.

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ORDER

This matter is before the Court upon Defendants Charlotte School of Law., LLC, Infilaw
Corporation, Infilaw Holding, LLC,1 Jay Conison, Chidi Ogene, and Don Lively’s (the “CSL
Defendants”) Motion to Dismiss for failure to state a claim upon which relief can be granted

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Defendants InfiLaw Holding, LLC and Don Lively have also moved to dismiss for lack of personal jurisdiction. In
an Order dated June 22, 2017, the Court allowed the Plaintiffs to conduct limited discovery as to the issue of
personal jurisdiction over these two Defendants. Such discovery is ongoing and will be completed by September 6.
The Sterling Partners Defendants were dismissed for lack of personal jurisdiction on July 27, 2017.

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(Doc. No. 65), as well as Defendant United States Department of Education’s (“DOE”)2 Motion
to Dismiss for lack of subject matter jurisdiction. (Doc. No. 67) Plaintiffs have filed a response
in opposition and Defendants have filed a Reply. Accordingly, this matter is ripe for disposition.
I.

FACTUAL BACKGROUND
This action is one of several filed against Charlotte School of Law, LLC (“CSL”), its

parent corporation, and others after CSL was placed on probation by the American Bar
Association (“ABA”) in November of 2016 and CSL’s access to federal student loan programs
was revoked by the DOE in December of 2016.
CSL is one of three for-profit law schools owned by InfiLaw Corporation and/or
InfiLaw Holding, LLC (collectively InfiLaw) (“InfiLaw”). CSL was founded in 2006
and granted full ABA accreditation in 2011. (Second Amended Complaint (“SAC”) ¶¶ 2,
4, 56). Since becoming accredited, CSL has advertised and represented itself on its
website as having “been awarded full accreditation” by the ABA in 2011, which required
the school “ha[ve] full compliance with each of the ABA’s standards, including standards
relating to bar passage, job placement and diversity.” (Id. at ¶ 63, Exhibit A). Moreover,
the website stated that:
a rigorous curriculum has been created to ensure that our students are equipped with
practical skills that will allow them to thrive in a professional setting. Students are
taught not only the traditions and theory of law, but also how to apply this learning
through critical thinking and analytical skill sets. We address what using a law
degree in ‘real life’ can mean to an individual both personally and professionally.
Id.

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Pursuant to an unopposed motion to substitute party, Betsy DeVos, in her official capacity as Secretary of the
DOE, was substituted in place of Defendant DOE.

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Between March 16 and 19, 2014, an ABA “site team” conducted an on-site ThreeYear Interval evaluation of CSL. During the course of this site visit, the team met with
Rick Inatome (CEO of InfiLaw), Jay Conison (Dean of CSL), Don Lively (then-President
of CSL), numerous CSL administrators, members of the institution’s accreditation selfstudy committee, CSL faculty, CSL staff, and CSL students. (Id. at ¶ 64, Exhibit B, at 3).
Subsequent to the site visit, and following a January 2015 meeting, the ABA informed
CSL that it “had not demonstrated compliance with certain ABA standards.” (Id. at ¶¶ 7, 66).
The ABA also “request[ed] additional information to make a determination” as to CSL’s
compliance with additional standards and interpretations, including Standards 301(a),3 501(a),4
and 501(b),5 and Interpretation 501-1,6 which are foundational to the educational enterprise and
the nature of the educational program offered by CSL. (Id. at ¶ 66, Exhibit B, at 3). Despite
being aware of this, CSL failed to inform students or prospective students that the ABA had
found the school to be out of compliance with ABA Standards. (Id. at ¶ 7, Exhibit B, at 10). In
fact, Jay Conison, the Dean of CSL at this time, instead emailed all current students at CSL
stating the following:
the report of the site visit team was very positive. The letter is also very positive
and contains only a few items on which we need to report back with updated
information. Requests to report back are normal. I previously served in the role of
Chair of the ABA Accreditation Committee and in my experience decision letters
typically contain more requests to report back than does ours.

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Standard 301(a): “A law school shall maintain a rigorous program of legal education that prepares its students,
upon graduation, for admission to the bar and for effective, ethical and responsible participation as members of the
legal profession.”
4 Standard 501(a): “A law school shall maintain sound admission policies and practices consistent with the
Standards, its mission, and the objectives of its program of legal education.”
5 Standard 501(b): “A law school shall not admit an applicant who does not appear capable of satisfactorily
completing its program of legal education and being admitted to the bar.”
6 Interpretation 501-1: “Among the factors to consider in assessing compliance with this Standard are the academic
and admission test credentials of the law school’s entering students, the academic attrition rate of the law school’s
students, the bar passage rate of its graduates, and the effectiveness of the law school’s academic support program.”

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(Id. at ¶ 67, Exhibit F).
On February 3, 2016, the ABA informed CSL that CSL “was not in compliance” with
other ABA standards, specifically with:
Standards 301(a), 501(a), 501(b), and Interpretation 501-1, in that the Law School
has not demonstrated that it is maintaining a rigorous program of legal education
that prepares its students, upon graduation, for admission to the bar and for
effective, ethical, and responsible participation as members of the legal profession;
maintaining sound admissions policies and practices consistent with the Standards,
its mission, and the objectives of its program of legal education; or is admitting
applicants who do not appear capable of satisfactorily completing its program of
legal education and being admitted to the bar.
(Id. at ¶¶ 8, 69, Exhibit B, at 4). However, despite being fully aware of the ABA’s second
announcement on February 3, 2016, CSL failed to inform students and prospective students
about the status of its ABA accreditation. (Id. at ¶¶ 9, 70, Exhibit B, at 11).
In July 2016, the ABA issued its third decision, again finding CSL to be out of
compliance with Standards 301(a), 501(a), and 501(b) and Interpretation 501-1. In this decision,
the ABA also informed CSL in its conclusion that “the issues of non-compliance with Standards
301(a), 501(a), and 501(b), and Interpretation 501-1 are substantial and have been persistent.”
(Id. at ¶¶ 11, 71, Exhibit B, at 5). The Committee also found that CSL’s “plans for bringing
itself into compliance with the Standards have not proven effective or reliable.” Id. The decision
was expressly based on forty-four factual findings, on topics such as admissions, programming
for admitted students, mentoring and related opportunities, the writing program, academic
support, faculty, summer and intersession changes, attrition, bar preparation during law school,
post-graduation bar preparation, and bar examinations. Id. Following the ABA’s third decision,
CSL again failed to disclose and intentionally concealed its failure to comply with ABA
requirements to current and prospective students and did not amend, update, or otherwise correct

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its website and other publicly available literature and statements related to its compliance with
ABA requirements. (Id. at ¶ 12).
CSL had actually requested the ABA to keep confidential its findings related to ABA
compliance because “if students and prospective students were aware of the ABA’s findings of
noncompliance, that would have a ‘profound impact on admissions’ because: (1) knowledge of
the ABA’s findings would make applicants ‘much less likely to enroll;’ and (2) such a disclosure
would ‘effectively tell applicants to beware of attending the Charlotte School of Law.’” (Id. at ¶
13, Exhibit B, at 11-12). In addition, CSL argued to the ABA that public disclosure of its
noncompliance would “have an adverse impact on [CSL’s] ability to retain high-performing
students,” because it would “inevitably create anxiety on the part of high-performing students
and make their transfer more likely.” (Id., Exhibit B, at 12).
In August 2016, CSL appealed aspects of the ABA’s third decision, and on October 21,
2016, the ABA held a hearing at which Jay Conison testified on CSL’s behalf. (Id. at ¶ 72,
Exhibit B, at 7). At that hearing, Jay Conison testified that CSL is “not appealing that conclusion
of noncompliance with Standards 301 and 501,” despite the school’s “disappointment” with the
conclusion. Id. Again, this material information was not communicated to students and
prospective students.
On November 14, 2016, the ABA found for the fourth time in almost two years that CSL
was not in compliance with its Standards. On this date, the ABA found CSL “not in compliance”
with Standards 301(a), 501(a), and 501(b), that the issues of noncompliance with these standards
“are substantial and have been persistent,” and that CSL’s “plans for bringing itself into
compliance with the Standards have not proven effective or reliable.” (Id. at ¶¶ 14, 73, Exhibit
B, at 7-8). Because CSL had failed to disclose to its current and prospective students its non-

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compliance with ABA Standards prior to November 14, 2016, the ABA ordered remedial
actions, including public disclosure, and placed CSL on probation, effective November 14, 2016.
Id. Therefore, CSL did not make any type of public disclosure regarding its non-compliance with
ABA requirements for rigorous curriculum, admissions process, bar passage rates, and attrition
rates until it was forced to do so by the ABA. This was the first time current and prospective
students were informed of CSL’s noncompliance. Id.
On December 19, 2016, after reviewing the ABA’s findings, the DOE denied CSL’s
Recertification Application to Participate in the Federal Student Financial Assistance Program,
after finding that CSL’s “substantial” omissions regarding “the nature of its educational
program” to the DOE and current and prospective students were made in order to gain
prospective students’ admission and prevent current students from transferring. (Id. at ¶ 15,
Exhibit B). Specifically, the DOE found that CSL failed to inform students and prospective
students of the “nature and extent” of CSL’s accreditation and the “appropriateness of its courses
and programs to the employment objectives that it states its programs are designed to meet.” (Id.
at ¶ 76, Exhibit B, at 10). Moreover, the DOE found that prior to the ABA’s November 2016
announcement, the DOE was unaware of any public statements that would have informed a
student or prospective student that the ABA had found the school to be out of compliance with
the Standards, or that the ABA had determined that CSL had “not demonstrated that it is
maintaining a rigorous program of legal education that prepares its students, upon graduation, for
admission to the bar and for effective, ethical, and responsible participation as members of the
legal profession.” Id. Nor was the DOE aware of any statement or disclosure during that period
by CSL that the ABA had determined that the school was “admitting applicants who do not

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appear capable of satisfactorily completing its program of legal education and being admitted to
the bar.” Id.
The DOE stated that CSL’s statements on its website that it was in full compliance with
the ABA could lead a current or prospective student to “conclude that the 2011 finding of ‘full
compliance’ by the ABA was the final word as to the institution’s compliance with the ABA’s
accreditation standards.” (Id. at ¶ 77, Exhibit B, at 11). The failure of CSL to disclose the current
status of its ABA accreditation was misleading insofar as it had the likelihood or tendency to
deceive reasonable students and prospective students about the current status, nature, and extent
of CSL’s accreditation. Id. Moreover, the DOE found that CSL’s representation that it created a
“rigorous curriculum . . . to ensure that [CSL] students are equipped with practical skills that will
allow them to thrive in a professional setting,” was also misleading, as it failed to inform
students that:
(1) the ABA has specifically and repeatedly concluded that CSL has not maintained
a “rigorous” program of legal education, that its failures in this regard are
“substantial” and “persistent,” and that CSL’s plans to come into compliance with
that standard have not proven effective or reliable; and (2) the positioning of CSL’s
description of its curriculum as “rigorous” directly beneath the discussion of
compliance with the ABA standards (which use the word “rigorous” to describe
what is expected of a compliant program) has the likelihood or tendency to leave
students and prospective students with the false impression that CSL was compliant
with that very requirement by the ABA.
(Id. at ¶ 78, Exhibit B, at 11). Finally, the DOE found that CSL substantially misrepresented the
bar passage rates of CSL graduates in an interview with the Charlotte Business Journal published
on November 30, 2016. (Id. at ¶ 81, Exhibit B, at 12). In that interview, Defendant Chidi Ogene
stated that “[i]f you look at bar pass rates between 2009 and 2013, we were consistently at or
above the state bar average pass rate. That is an incredible feat for a new school.” Id. However,
out of the nine sittings of the North Carolina bar exam (between July 2009 and July 2013),

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CSL’s first-time bar passage rate was actually below the state average five times (with a
maximum differential of -13.33%) and above the state average only four times (with a maximum
differential of 7.4%). Id.
Plaintiffs allege that as a result of CSL and the other Defendants’ actions, Plaintiffs have
spent millions of dollars in tuition and taken on significant debt which will be difficult to repay.
Many were forced to drop out and find a different profession, as it was too late for them to
transfer to other law schools to finish their JD degree, and they lacked the financial ability to do
so. Of those that were able to successfully transfer to another school, many were forced to take
extra credits, incurring additional student loans, as many of the CSL credits were not accepted
for transfer. The Plaintiffs also fear that repayment of their student loans will prove difficult, as
employment in the legal profession may be elusive due to the reputation of CSL in the legal
community.
Plaintiffs filed this action on behalf of themselves and all individuals enrolled as students
at CSL any time after January 1, 2015, alleging Breach of Contract; Breach of the Covenant of
Good Faith and Fair Dealing; Fraud and Constructive Fraud; Negligent Misrepresentation;
Unjust Enrichment; Unconscionability; Breach of Fiduciary Duties; North Carolina Unfair and
Deceptive Trade Practices Act; Declaratory Judgment; and Punitive Damages. The Defendants
have moved to dismiss all claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure for failure to state a claim.
II.

DISCUSSION
A. Standard for 12(b)(6) Motions to Dismiss
To survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556

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U.S. 662, 678 (2009) (quoting from Bell Atl. Corp. v. Twombly, 550 U.S. 554, 570 (2007)). “A
claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing
Twombly, 550 U.S. at 556). However, “[a] court is not required to accept [t]hreadbare recitals of
the elements of a cause of action supported by mere conclusory statements.” Id.
B. Breach of Contract
For breach of contract claims, the allegations regarding the terms of a contract must be
“‘definite and certain or capable of being made so’ such that the parties ‘assent to the same thing,
in the same sense.’” McFadyen v. Duke Univ., 786 F. Supp. 2d 887, 981 (M.D.N.C. 2011), aff'd
in part, rev'd in part, dismissed in part sub nom. Evans v. Chalmers, 703 F.3d 636 (4th Cir.
2012) (internal citation omitted). “Thus, a contract exists only if there is mutual intent to contract
and an agreement on sufficiently definite terms to be enforceable.” Id. Failure to allege the
“specific contract terms which were breached by Defendants . . . obviously fall[s] far short of the
line of ‘plausibility of entitle[ment] to relief.’” Page v. Select Portfolio Servicing, Inc., No.
1:12CV900, 2013 WL 4679428, at *3 (M.D.N.C. Aug. 30, 2013), report and recommendation
adopted, No. 1:12CV900, 2013 WL 5462282 (M.D.N.C. Sept. 30, 2013) (quoting Twombly, 550
U.S. at 557); see also Houck v. Lifestore Bank, No. 5:13-CV-66-DSC, 2014 WL 197902, at *3
(W.D.N.C. Jan. 15, 2014) (ruling that “[b]ald assertions” about “improper” conduct were
“insufficient” to allege breach of contract). In the higher education setting, a student must point
to a “specific promise” about which a court can make an “objective assessment” without
evaluating the “nuances of educational processes” to state a claim for breach of contract. Ryan v.
Univ. of N.C. Hosps., 494 S.E.2d 789, 791 (N.C. Ct. App. 1998).

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Plaintiffs herein do not identify any written contract and provide no meaningful substance
(or even the date) of any such alleged agreement. Plaintiffs’ conclusory allegations contain no
factual content of any “specific promises” about the quality of education, ABA accreditation, or
a “rigorous curriculum.” Id. Because none of the alleged promises upon which Plaintiffs rely
appear in any material Plaintiffs cite, their breach of contract claims must fail. See, e.g., Rouse v.
Duke Univ., 869 F. Supp. 2d 674, 682–83 (M.D.N.C. 2012) (rejecting breach of contract
allegation because it relied on a provision that was not incorporated into any specific agreement
with Plaintiff). Moreover, Plaintiffs’ reference to CSL’s website (SAC ¶ 85, Ex. A) is wholly
ineffectual to state a contract claim. Indeed, North Carolina courts have repeatedly rejected
nearly identical contract claims based on such materials. See McFadyen, 786 F. Supp. 2d at 982.
Not only do Plaintiffs’ allegations fail to allege a cognizable breach of contract claim, but
the claim is an impermissible attempt to allege a cause of action for educational malpractice.
North Carolina courts have repeatedly rejected such claims.7 As the Court in McFadyen stated:
“[T]he [breach of contract] claim must not involve ‘inquiry into the nuances of educational
processes and theories.’ . . . [T]he Court will not . . . open up any type of ‘educational
malpractice’ claim.” Id. at 982–83 (quoting Ryan, 494 S.E. 2d at 791); see Rouse, 869 F. Supp.
2d at 683 (rejecting claims based on vague assurances of educational quality and experience as
“too general to be enforceable as a matter of contract”); Thomas v. Olshausen, No. 3:07CV130MU, 2008 WL 2468738, at *2 (W.D.N.C. June 16, 2008) (ruling that claims that “Defendants
denied [Plaintiff] or his son access to more challenging educational programs . . . should be

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Numerous other courts throughout the country have likewise refused to acknowledge claims for educational
malpractice. See, e.g., Cavaliere v. Duff’s Bus. Inst., 605 A.2d 397, 403 (Pa. Super. Ct. 1992) (affirming dismissal
of contract claim alleging that school provided inadequate instruction because such claims “for educational
malpractice, whether framed in terms of tort or breach of contract” are not recognized); Lawrence v. Lorain Cty.
Cmty. Coll., 713 N.E.2d 478 (Ohio Ct. App. 1998) (affirming dismissal of claims, including violation of state
consumer practices act and breach of contract, by former student alleging that school provided a substandard
education).

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dismissed as there is no cognizable claim for educational malpractice under North Carolina
law”), aff’d, 305 Fed. Appx. 55 (4th Cir. 2008). Indeed, the North Carolina Court of Appeals
recently reaffirmed that “educational malpractice claims . . . are not recognized under North
Carolina law.” Arnold v. University of N.C. at Chapel Hill, No. COA16-573, 2017 WL
1382212, at *3 (N.C. Ct. App. Apr. 17, 2017) (unpublished table decision). Thus, a breach of
contract claim requires more than an allegation that “the education was not good enough.” Ryan,
494 S.E.2d at 791. Accordingly, Plaintiffs’ Breach of Contract claim fails.
C. Breach of the Implied Covenant of Good Faith and Fair Dealing
The implied covenant of good faith and fair dealing “only arises where a party to a
contract performs its contractual obligations in bad faith.” Devlin v. Wells Fargo Bank, N.A.,
No. 1:12-CV-000388-MR, 2014 WL 1155415, at *10 (W.D.N.C. Mar. 21, 2014), aff'd, 585 F.
App’x 171 (4th Cir. 2014). “In the absence of an enforceable contract, the parties cannot have an
implied covenant of good faith and fair dealing.” Giuliani v. Duke Univ., 1:08CV502, 2010 WL
1292321, at *9 (M.D.N.C. Mar. 30, 2010). Since the Court holds that there is no enforceable
contract herein, this claim must likewise fail.
D. Unjust Enrichment
In Count V of their Second Amended Complaint, Plaintiffs allege that Defendants were
unjustly enriched by the tuition and fees collected from Plaintiffs as a result of their wrongful
conduct. To plead unjust enrichment, a plaintiff must allege facts demonstrating: “(1) one party
conferred a benefit upon the other party; (2) the benefit was not ‘conferred officiously, . . .’ ; (3)
the benefit was not gratuitous; (4) the benefit was measureable; and (5) the defendant
consciously accepted the benefit.” Law Offices of John L. Juliano, P.C., v. Jensen, 2016 WL
7240176, at *3 (4th Cir. Dec. 15, 2016) (applying North Carolina law); see also JPMorgan

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Chase Bank, Nat’l Ass’n v. Browning, 750 S.E. 555, 559-60 (N.C. Ct. App. 2013). Plaintiffs
have failed to state a plausible claim for unjust enrichment.
First, there is no claim for unjust enrichment where a benefit is given officiously, that is
to say, without “solicit[ation] or induce[ment].” Homeq v. Watkins, 154 N.C. App. 731, 733, 572
S.E.2d 871, 873 (2002) (“Absent such inducement or solicitation, Defendants are simply not
liable for unjust enrichment, even if they did benefit from [plaintiff]’s actions.”); Fireman’s
Fund Ins. Co. v. Safeco Ins. Co. of Am., No. 3:07-CV-86, 2007 WL 4233317, at *2 (W.D.N.C.
Nov. 28, 2007) (dismissing unjust enrichment claim where plaintiff failed to allege that
defendant “acted to induce or solicit [plaintiff’s] actions”). Here, Plaintiffs do not allege that
Defendants actively recruited them or solicited their attendance.
Secondly, a claim for unjust enrichment must plausibly allege that the enrichment was in
fact “unjust.” Payment of tuition and fees cannot be unjust if the students received the benefit for
which they paid. There are no allegations that the Defendants failed to provide classes in legal
instruction, professors to teach those classes, or classrooms in which students could be taught. In
short, the Plaintiffs paid for a legal education and in return they received a legal education.8 Any
inquiry into the quality or value of the services provided in return for Plaintiffs’ tuition and fees
constitutes an impermissible foray into educational malpractice.

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See Gerboc v. ContextLogic, Inc., No. 1:16 CV 928, 2016 WL 6563684, at *6 (N.D. Ohio Nov. 4, 2016) (appeal
filed Dec. 20, 2016) (dismissing unjust enrichment claim where Plaintiff paid the listed purchase price for speakers
and received them even though defendant’s “Website, which made it appear as though [plaintiff] was getting a great
deal, was fictitious” because plaintiff “received the benefit of what he paid for”); Augustson v. Bank of Am., N.A.,
864 F. Supp. 2d 422, 439 (E.D.N.C. 2012) (dismissing unjust enrichment claim where complaint did not “plausibly
allege circumstances creating a legal or equitable obligation for [defendant] to account for a benefit” because
“plaintiffs received the loan at the interest rate that each agreed to pay”).

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E. Unconscionability and Punitive Damages
Count VI of Plaintiffs’ Complaint purports to state a claim for unconscionability, alleging
that the amount Plaintiffs paid in tuition and fees was unconscionable as a matter of law because
of Defendants’ alleged conduct. (SAC ¶ 105.) However, under North Carolina law,
“unconscionability is an affirmative defense,” not an independent cause of action. Tillman v.
Commercial Credit Loans, Inc., 655 S.E.2d 362, 369 (N.C. 2008). Accordingly, it must be
dismissed as a claim.
Likewise, Plaintiffs’ stand-alone claim for punitive damages (Count X) also must also be
dismissed because “punitive damages do not and cannot exist as an independent cause of action.”
Iadanza v. Harper, 611 S.E.2d 217, 223 (N.C. Ct. App. 2005).
F. Breach of Fiduciary Duty
Under North Carolina law, to state a claim for breach of fiduciary duty, a plaintiff must
show that “(1) the defendant owed the plaintiff a fiduciary duty of care; (2) the defendant
violated that duty; and (3) the breach of duty proximately caused the plaintiff's injury.” Marketel
Media Inc. v. Mediapotamus, Inc., Nos. 13-cv-427, 13-cv-693, 2015 WL 2401001, at *7-8
(E.D.N.C. May 19, 2015); see also Green v. Freeman, 749 S.E.2d 262, 268 (N.C. 2013).
Defendants contend that Plaintiffs’ claim must fail as they cannot establish the first element – the
existence of a cognizable fiduciary relationship between themselves and Defendants.
The North Carolina Supreme Court has stated that a fiduciary relationship “exists in all
cases where there has been a special confidence reposed in one who in equity and good
conscience is bound to act in good faith and with due regard to the interests of the one reposing
confidence.” Abbitt v. Gregory, 160 S.E. 896, 906 (N.C. 1931). Ordinarily, the existence or
nonexistence of a fiduciary duty is dependent on the circumstances of each case and is generally

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a question of fact for the jury. Stamm v. Salomon, 551 S.E.2d 152, 158 (N.C. Ct. App. 2001),
rev. denied, 560 S.E.2d 139 (N.C. 2002). Nevertheless, North Carolina courts have generally
refused to recognize a fiduciary relationship as a matter of law in certain cases, such as cases
between an employer and employee and between businesses with equal bargaining power
negotiating at arm’s length. See McCants v. National Collegiate Athletic Ass’n, 201 F.Supp.3d
732 (M.D.N.C. 2016). Most importantly with regard to this case, courts applying North Carolina
law have repeatedly rejected attempts to hold schools to a fiduciary standard vis-à-vis their
students.9 See, e.g., Ryan v. Univ. of N.C. Hosps., 609 S.E.2d 498, *4 (N.C. Ct. App. 2005)
(rejecting the imposition of a fiduciary duty in the “academic setting”); McCants, 201 F. Supp.
3d at 749 (finding no fiduciary relationship exists because “North Carolina courts have been
reluctant to extend the concept of fiduciary relationships to the academic setting”); J.W. v.
Johnston Cty. Bd. of Educ., No. 5:11-CV-707-D, 2012 WL 4425439, at *14 (E.D.N.C. Sept. 24,
2012) (same). Plaintiffs’ attempts to distinguish these cases are unavailing.
In Ryan, the court explained that divided loyalties that are inherent to an academic setting
preclude the imposition of a fiduciary duty:
Although defendants were plaintiff’s teachers and advisors, they also had to serve
other interests. First, defendants had to serve the objectives of the institution by
ensuring that its rules and regulations were followed. Second, defendants were
required to protect the public by ensuring that only qualified doctors graduated from
the program. Because defendants had divided loyalties, this case is unlike other
fiduciary relationships in which the fiduciary must act primarily for the benefit of
another.
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Numerous courts throughout the country have likewise concluded a fiduciary relationship does not exist
between schools and their students. See, e.g., Hendricks v. Clemson Univ., 353 S.C. 449, 459, 578 S.E.2d
711, 716 (2003) (relationship between a student and an academic advisor is not fiduciary in nature);
Knelman v. Middlebury Coll., 898 F. Supp. 2d 697, 719 (D. Vt. 2012), aff’d, 570 F. App’x 66 (2d Cir.
2014); Leary v. Wesleyan Univ., No. CV055003943, 2009 WL 865679, at *12 (Conn. Super. Ct. Mar. 10,
2009); Ho v. Univ. of Texas, 984 S.W.2d 672, 693 (Tex. App. 1998); see also Bradshaw v. Rawlings, 612
F.2d 135, 140 (3d Cir. 1979) (because society “considers the modern college student an adult,” no
specific duty of care will be found where “the circumstances show that the students have reached the age
of majority and are capable of protecting their own self interests”).

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609 S.E.2d at *4; see McCants, 201 F. Supp. 3d at 748-49 (concluding that divided loyalties
preclude a fiduciary duty in “academic” context). Here, as in Ryan, CSL (and by extension, the
other Defendants) could not possibly act exclusively for the benefit of Plaintiffs, because it
simultaneously has loyalties to and must serve the interests and demands of many others,
including the institution as a whole, the ABA, the North Carolina Board of Governors, and the
public as an educator of individuals entering a licensed profession.
The absence of any North Carolina court decision extending a fiduciary duty to an
academic context is fatal to the Plaintiffs’ claim. See McCants, 201 F. Supp. 3d at 748–749
(“[A] federal court sitting in diversity, as this Court, cannot expand North Carolina law or policy
‘farther than any North Carolina court has been willing to go.’” (citation omitted)). The court in
McCants explained:
Because North Carolina courts have been reluctant to extend the concept of
fiduciary relationships to the academic setting, see Ryan, 2005 WL 465554, at *4,
and without a clear signal that they are willing to do so, the Court cannot expand
North Carolina law by concluding that Plaintiffs’ Complaint plausibly alleges a
fiduciary relationship between the NCAA and Plaintiffs.
Id. The court in J.W. employed the same reasoning in its refusal to recognize a fiduciary duty
between a special education student and school administration:
[P]laintiffs have not cited any North Carolina appellate opinions holding that a
fiduciary relationship exists in the middle school setting . . . . Because this court is
analyzing North Carolina law under its supplemental jurisdiction, this court may
not expand North Carolina law to create a fiduciary duty. . . .
2012 WL 4425439, at *15 (emphasis added). Accordingly, the Court concludes that Plaintiffs
have failed to allege a plausible claim of breach of fiduciary duty and this claim must be
dismissed.

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G.

Constructive Fraud

“To establish constructive fraud, a plaintiff must show that the defendant (1) owes
plaintiff a fiduciary duty; (2) breached this fiduciary duty; and (3) sought to benefit himself in
the transaction.” Crumley & Assoc., P.C. v. Charles Peed & Assoc., P.A., 730 S.E.2d 763, 767
(N.C. Ct. App. 2012) (citation omitted). As the Court has already determined that there is no
breach of fiduciary duty, this claim must likewise be dismissed.
H. Fraud
In order to state an actionable claim of fraud under North Carolina law, a plaintiff must
allege the following elements: “(1) a false representation or concealment of a material fact, (2)
that was reasonably calculated to deceive, (3) which was made with the intent to deceive, (4) that
did in fact deceive, and (5) resulted in damage.” Breeden v. Richmond Community College, 171
F.R.D. 189, 194 (M.D.N.C. 1997) (citation omitted). In a case for “fraudulent concealment or
nondisclosure, the plaintiff must additionally allege that all or some of the defendants had a duty
to disclose material information to him as silence is fraudulent only when there is a duty to
speak.” Id.
In North Carolina, the general rule is that:
[s]ilence, in order to be an actionable fraud, must relate to a material matter known
to the party and which it is his legal duty to communicate to the other . . . party,
whether the duty arises from a relation of trust, from confidence, inequality of
condition and knowledge, or other attendant circumstances . . . [T]he silence must,
under the conditions existing, amount to fraud, because it amounts to an
affirmation that a state of things exists which does not, and the uninformed party is
deprived to the same extent that he would have been by a positive assertion.
Id. (quoting Setzer v. Old Republic Life Ins. Co., 126 S.E.2d 135, 137 (N.C. 1962).

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The SAC sufficiently pled facts which establish that: (1) there were concealments of
material fact by the Defendants (SAC ¶¶ 63-84, 93-100); (2) that the Defendants reasonably
calculated to deceive the Plaintiffs (SAC ¶¶ 77-84); (3) which were made with the intent to
deceive the Plaintiffs (Id.); (4) that did in fact deceive the Plaintiffs (SAC ¶¶ 29-34, 45-55); and
(5) resulted in damage to the Plaintiffs. (SAC ¶¶ 29-34, 45-55, 124-26). Plaintiffs have also
sufficiently alleged facts that would give rise to a duty on the part of the Defendants to speak and
communicate the omitted information to Plaintiffs. This duty need not amount to a fiduciary
duty, but may arise “from a relation of trust, from confidence, inequality of condition and
knowledge, or other attendant circumstances.” Breeden, 171 F.R.D. at 194.
Federal Rule of Civil Procedure 9(b) provides that “[i]n all averments of fraud or mistake,
the circumstances constituting fraud or mistake shall be stated with particularity….”. The Fourth
Circuit has further defined Rule 9(b)’s particularity requirement, saying,
[t]o meet this standard, a[] . . . plaintiff must, at a minimum, describe “the time,
place, and contents of the false representations, as well as the identity of the person
making the misrepresentation and what he obtained thereby.” Harrison I, 176 F.3d
at 784 (internal quotations omitted). These facts are often “referred to as the ‘who,
what, when, where, and how’ of the alleged fraud.”
United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)
(quoting United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899,
903 (5th Cir. 1997)). In order to comply with the pleading requirements of Rule 9(b) with
respect to fraud by omission, a plaintiff usually will be required to allege the following with
reasonable particularity:
(1) the relationship or situation giving rise to the duty to speak, (2) the event or
events triggering the duty to speak, and/or the general time period over which the
relationship arose and the fraudulent conduct occurred, (3) the general content of
the information that was withheld and the reason for its materiality, (4) the
identity of those under a duty who failed to make such disclosures, (5) what those
defendant(s) gained by withholding information, (6) why plaintiff’s reliance on
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the omission was both reasonable and detrimental, and (7) the damages
proximately flowing from such reliance.
Breeden, 171 F.R.D. at 195-96.
Defendants contend that Plaintiffs’ allegations fail to meet this heightened pleading
requirement. The Court disagrees. The SAC pled with particularity the who, what, when, where,
and how of the alleged fraud, as well the circumstances that gave rise to a duty to speak.
Moreover, Plaintiffs described the Defendants’ relationships to the claims and identified their
specific participation in the “Facts” section of the Plaintiffs’ SAC. Despite Defendants’
arguments to the contrary, the Court also finds that Plaintiffs have plausibly alleged facts that
establish their reasonable reliance and establish that Defendants’ fraudulent omissions
proximately caused their injuries.
I. Negligent Misrepresentation
Negligent misrepresentation occurs when a party justifiably relies to his/her detriment on
information provided without reasonable care by another who owes the relying party a duty of
care. Jordan v. Earthgrains Baking Cos., 576 S.E.2d 336, 339 (N.C. Ct. App. 2003). A plaintiff
must show that the defendant owed a duty to provide complete and accurate information and that
such duty was breached. Simms v. Prudential Life Ins. Co. of Am., 537 S.E.2d 237, 240 (N.C. Ct.
App. 2000). North Carolina courts have described a breach of the duty of care owed as:
[o]ne 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 of others in their business transactions, [and thus] 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.
Id. at 241 (citing Marcus Bros. Textiles, Inc. v. Price Waterhouse, LLP, 513 S.E.2d 320, 323-24
(N.C. 1999). The Plaintiffs have pled facts, which taken as true, are sufficient for this Court to

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draw the reasonable inference that Defendants are liable for negligent misrepresentation.
Accordingly, their negligent misrepresentation claim, like their fraud claim, stands.
J. North Carolina Unfair and Deceptive Trade Practices Act
To prevail on a claim for unfair and deceptive trade practices, a claimant must show: “(1)
an unfair or deceptive act or practice . . . , (2) in or affecting commerce, and (3) which
proximately caused actual injury to claimant . . ..” Marlen C. Robb & Son Boatyard & Marina,
Inc. v. Vessel Bristol, 893 F. Supp. 526, 541 (E.D.N.C. 1994); see also Canady v. Mann, 419
S.E.2d 597, 602 (N.C. Ct. App. 1992), disc. rev. improvidently allowed, 429 S.E.2d 348 (N.C.
1993). North Carolina courts apply a three-factor analysis to determine the sufficiency of a claim
under N.C. Gen. Stat. §75-1.1. See Furr v. Fonville Morisey Realty, Inc., 503 S.E.2d 401 (N.C.
Ct. App. 1998). First, there must be a practice, act, or representation that falls within the broad
definition of “unfair” or “deceptive.” North Carolina courts generally have described a practice
as “unfair” when it offends established public policy, or when the practice is immoral, unethical,
oppressive, unscrupulous, or substantially injurious to consumers. See Johnson v. Phoenix Mut.
Life Ins. Co., 266 S.E.2d 610, 621 (N.C. 1980), overruled on other grounds, Myers & Chapman,
Inc. v. Thomas G. Evans, Inc., 374 S.E.2d 385 (N.C. 1988). An act or practice is “deceptive” if it
has the tendency or capacity to deceive. Johnson, 266 S.E.2d at 622; see also Norman v. Loomis
Fargo & Co., 123 F. Supp. 2d 985, 989 (W.D.N.C. 2000) (quoting Marshall v. Miller, 276
S.E.2d 397, 403 (N.C. 1981)).
North Carolina courts have traditionally applied this statute liberally, including claims
involving negligent misrepresentation and failure to disclose material information. See Gilbane
Building Co. v. Federal Reserve Bank of Richmond, 80 F.3d 895, 903 (4th Cir. 1996); Kron
Medical Corp. v. Collier Cobb & Assocs., 420 S.E.2d 192, 196 (N.C. Ct. App.), disc. rev. denied,

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424 S.E.2d 910 (N.C. 1992). In essence, unfair and deceptive acts and practices can be explained
as follows:
A party is guilty of an unfair act or practice when it engages in conduct which
amounts to an inequitable assertion of its power or position. The concept of
“unfairness” is broader than and includes the concept of “deception.” An act or
practice is deceptive if it has the capacity or tendency to deceive. The facts
surrounding the particular transaction and the impact the practice has in the
marketplace determined whether a particular act is unfair or deceptive. Further, in
determining whether a representation is deceptive, its effect on the average
consumer is considered.
Warfield v. Hicks, 370 S.E.2d 689, 693 (N.C. Ct. App. 1988) (citations omitted).
Because Plaintiffs’ fraud claim survives dismissal, the UDTPA claim survives as well, as
it is largely based on Defendants’ alleged fraudulent conduct. Accordingly, Defendants’ Motion
to Dismiss is denied as to the UDTPA claim.
K. Declaratory Judgment
In Count IX of their SAC, Plaintiffs seek a declaratory judgment against “all Defendants”
including Defendant DOE to discharge all of Plaintiffs’ debt that was acquired in order to attend
CSL’s JD program on the basis that CSL substantially misrepresented its JD program. They
allege that those misrepresentations were the reason Plaintiffs acquired the debt in the first place,
and seek a declaratory judgment that CSL’s fraud is a defense to the repayment of the student
loans issued by the DOE to Plaintiffs and the class.
The DOE has moved to dismiss this claim against it pursuant to Rule 12(b)(1) for lack of
subject matter jurisdiction.10 In considering a motion to dismiss under Rule 12(b)(1), a court
normally views the facts in the light most favorable to the plaintiff, but if it receives evidence
concerning the issue of subject matter jurisdiction, “the court may weigh the evidence in
determining whether the facts support the jurisdictional allegations.” Lovern v. Edwards, 190

10

This is Plaintiffs’ only claim against Defendant DOE.

20

F.3d 648, 654 (4th Cir. 1999)); see also Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir.
1999). In making this determination, “the district court is to regard the pleadings’ allegations as
mere evidence on the issue, and may consider evidence outside the pleadings without converting
the [motion] to one for summary judgment.” Richmond, Fredericksburg & Potomac R. Co. v.
United States, 945 F.2d 765, 768 (4th Cir. 1991); see U.S. ex rel. Saidiani v. NextCare, Inc., No.
3:11-cv-141-GM, 2014 WL 4672417, at *2 (W.D.N.C. Sept. 18, 2014) (granting Rule 12(b)(1)
motion for lack of standing in False Claims Act case). In addition, “[a] court may take judicial
notice of information publicly announced on a party’s web site, so long as the web site’s
authenticity is not in dispute and ‘it is capable of accurate and ready determination.’” Jeandron
v. Bd. of Regents of Univ. Sys.of Maryland, No. 12-1724, 510 F. App’x 223, 227 (4th Cir. Feb.
14, 2013) (unpublished) (quoting Fed. R. Evid. 201(b)); see, e.g., Pharm. Research & Mfrs. of
Am. v. U.S. Dep’t of Health & Human Servs., 43 F. Supp. 3d 28, 33 (D.D.C. 2014) (collecting
cases taking judicial notice of information posted on official public websites of government
agencies).
Defendant DOE argues that Plaintiffs lack standing to sue for declaratory relief because
they have not asserted a concrete and particularized injury traceable to government action.
Article III of the Constitution limits the federal courts to the resolution of live “cases” and
“controversies.” U.S. Const., art. III, § 2. The doctrine of standing is an essential aspect of this
case-or-controversy requirement, and the party invoking federal jurisdiction bears the burden of
establishing standing. Lujan v. Defs.of Wildlife, 504 U.S. 555, 561 (1992). To meet that burden,
Plaintiffs must allege (1) they have suffered an actual or imminent, concrete and particularized
injury, (2) that is fairly traceable to an action by the DOE that they are challenging, and (3) that
is likely to be redressed by the declaratory relief Plaintiffs have requested. See id. at 560-61; see

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also Taubman Realty Grp. Ltd. v. Mineta, 320 F.3d 475, 480 (4th Cir. 2003). Where a plaintiff
does not establish each of the elements of standing, a court must dismiss that claim for lack of
subject matter jurisdiction. Valley Forge Christian Coll. v. Ams. United for Separation of Church
& State, Inc., 454 U.S. 464, 475-76 (1982).
Plaintiffs seek a declaratory judgment “that CSL’s fraud is a defense to the repayment of
the student loans issued by [Education] to Plaintiffs and the class, that the loans should be
discharged, and th[at] any payments made by them are due to be refunded.” (SAC ¶ 123). But
Plaintiffs have not alleged that the DOE has determined not to discharge Plaintiffs’ loans. Such
a determination could only result from Plaintiffs asserting a borrower defense through the DOE’s
administrative process or in a proceeding to collect on a Direct Loan, see 34 C.F.R. §
685.206(c)(1); Federal Student Aid, An Office of the United States Department of Education,
Borrower Defense to Repayment, https://studentaid.ed.gov/borrower-defense. Plaintiffs do not
allege that they have even attempted to apply for federal loan forgiveness based on a borrower
defense through the DOE’s administrative process. As such, the DOE has not had the
opportunity to review Plaintiffs’ applications and reach a decision. Accordingly, Plaintiffs have
not made the required showing that they are in immediate danger of sustaining any “concrete and
particularized” injury that can be traced to the DOE.11 Because Plaintiffs have failed to show
that “there is a substantial controversy, . . . of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment,” any decision by this Court on this claim would be an
improper advisory opinion on an abstract question. Maryland Cas. Co. v. Pacific Co., 312 U.S.

11

The DOE also argues that Plaintiffs have failed to allege an applicable waiver of sovereign immunity that would
allow them to raise this claim against the DOE. In light of the Court’s finding that Plaintiffs lack standing to sue, it
is unnecessary to reach this argument.

22

270, 273 (1941). Plaintiffs’ request for a declaratory judgment against the DOE is therefore
dismissed for lack of subject matter jurisdiction.
Plaintiffs’ declaratory judgment claim also fails under Rule 12(b)(6) for similar reasons,
as argued by the other Defendants. Plaintiffs have failed to allege that they have exhausted their
administrative remedy of adjudicating their borrower defense to repayment claims before the
DOE. It is “long settled” that judicial relief is not appropriate “until the prescribed administrative
remedy has been exhausted.” Phillip Morris, Inc. v. Block, 755 F.2d 368, 369 (4th Cir. 1985)
(internal quotation omitted).
Plaintiffs do not dispute that they have failed to exhaust their administrative remedies, but
instead contend that exhaustion would be “futile or inadequate.” However, Plaintiffs do not
provide any evidence to support their contentions of futility or inadequacy, other than
speculation. They cannot claim undue delay because, as noted, they have not even filed
borrower defense to repayment claims. Mere complaints about having to wait for a decision
from the DOE are insufficient to waive the exhaustion requirement. See Id. at 369-71 (rejecting
the plaintiff’s argument that it would be “inherently unfair and inefficient” to spend time and
money pursuing the prescribed administrative remedies, and stating that the court could not
“tamper with the administrative process” or “expedite the process”). Accordingly, Plaintiffs’
declaratory judgment claim is premature and must be dismissed.
For the foregoing reasons,
IT IS THEREFORE ORDERED that the CSL Defendants’ Motion to Dismiss for failure
to state a claim is GRANTED IN PART AND DENIED IN PART. All claims are dismissed
except Plaintiffs’ claims for fraud, negligent misrepresentation, and unfair and deceptive trade
practices; and

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IT IS FURTHER ORDERED that the DOE’s Motion to Dismiss for lack of subject
matter jurisdiction as to Plaintiffs’ sole claim against the DOE is hereby GRANTED.

Signed: September 5, 2017

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