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C.A. Upholds Chapman Law School Tuition Refund Claims

By a MetNews Staff Writer
August 4, 2004

Metropolitan News-Enterprise

Violation of a law requiring unaccredited law schools to make specific disclosures to their students gives rise to a private cause of action to recover tuition and fees, the Fourth District Court of Appeal ruled yesterday.

The court also ruled that Business and Professions Code Sec. 6061 is not subject to the exhaustion of administrative remedies doctrine; that it requires written disclosures each semester, or preceding any payment of any tuition or fee other than an application fee; that it does not unjustly enrich students who obtain refunds of tuition and continue in school; and that it is governed by the one-year limitations period for actions on a statute for a penalty or forfeiture. Each issue was a matter of first impression, Presiding Justice Judith McConnell of Div. One explained.

The code section requires schools to disclose their unaccredited status, how their students have fared on the bar examination and the “baby bar,” whether the school has applied for accreditation and the status of any application, and that the education they provide may not satisfy requirements of other states for the practice of law.

The ruling came in an appeal filed by three members of the 1995 inaugural class of Chapman University’s School of Law after they failed to recover damages on claims the school misrepresented the consequences for students of studying law at an unaccredited institution. The school, initially unaccredited, won provisional approval from the American Bar Association in 1998 and full accreditation in 2002.

An Orange Superior Court judge properly directed a verdict in favor of the three on their statutory claim, McConnell said. The judge was also correct in granting summary adjudication in favor of the school on fraud and other claims by one of the students, basing that ruling on the fact the student flunked out of school and thus suffered no damages from any misrepresentations, the presiding justice said.

She added that sufficient evidence supported the jury’s award of no damages to the other two students. Though the jury found the school made actionable misrepresentations, it was justified in concluding that the school’s statements were not the cause of the failure of the two prospective lawyers to progress toward their career goals, McConnell reasoned.

McConnell noted that during the school’s first two years of existence, it repeatedly ignored warnings from the State Bar’s Committee of Bar Examiners that claims it was making to prospective students were misleading. A school newsletter predicted preliminary approval by the committee in 1995, even though the school had been told such approval was unlikely, and informed students that approval would exempt them from taking the “baby bar,” though it would not have.

First-year law students at unaccredited schools must pass that exam before continuing their studies, and often have difficulty doing so. Less than 14 percent of the Chapman inaugural class passed the “baby bar” in June 1996, McConnell noted.

The school’s catalogue also described a three-year course of study, though students at unaccredited schools must study for four years before they can take the bar exam.

The inaugural class consisted of about 200 students. In 1997, under a new dean, the school offered tuition refunds to withdrawing inaugural class members and tuition discounts to continuing students, though to qualify for the discounts, continuing students were required to waive claims against the school.

A Chapman attorney said yesterday that the suit against the school originally included 47 plaintiffs. The lawyer, Duke F. Wahlquist of Rutan & Tucker in Costa Mesa, said the trial judge selected 15 for “what was thought to be a sort of test trial.”

None of the 15 recovered damages beyond refunds under Sec. 6061, and in the wake of the five-month trial settlements were reached with all but the three whose appeal was decided yesterday, Wahlquist explained.

McConnell rejected the school’s argument that Sec. 6061 was like the provisions of the Insurance Code which were held not to create a private right of action in Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287.

“Chapman ignores the statute’s mandate that a law school failing to make proper written disclosures refund students’ fees,” McConnell wrote. “...Since in enacting section 6061 the Legislature unquestionably intended to bestow students or former students with individual monetary claims, it must have intended to give them private rights of action to pursue such claims. In our view, section 6061’s refund language explicitly denotes a private right of action.”

Since neither the statute nor the State Bar’s rules provides a procedure for seeking a refund, there was no requirement that the student’s exhaust administrative remedies before suing, the presiding justice explained. She added that to comply with the statute, which states the notifications must be given “prior to the payment of any registration fee,” schools must make the disclosures each time they accept a tuition payment.

Chapman contended that continuing students would be unjustly enriched by receiving a refund, in addition to the legal education they paid for. But since the refund was mandated by the law, it was not unjust, McConnell declared.

She explained, however, that none of the three students—Stephen Mann, Raelyn Yeomans and Dennis Goehring—were entitled to recover on their fraud causes of actions, despite the jury’s finding that the school misled them.

The trial judge properly found that Goehring was dismissed because his academic performance fell below the school’s standards, and thus could not prove fraud damages, McConnell said.

Yeomans claimed the misrepresentations delayed her admission to the bar, but the presiding justice said jurors would have been justified in finding that since she cited personal reasons for taking a leave of absence and twice failed to pass bar examination, she suffered no compensable damages. As for Mann, McConnell said that since the jury was not asked to render a special verdict specifying nature of the reliance of specific plaintiffs, the appeals court had to presume jurors found factors other than the school’s misrepresentations caused him to withdraw.

Wahlquist pointed out that the appeal was heard by Div. One, based in San Diego, rather than by Santa Ana-based Div. Three because nearly all of the Div. Three justices had a connection with Chapman University or its law school, many of them as law school instructors or members of the school’s advisory board.

The case is Goehring v. Chapman University, 04 S.O.S. 4168.