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Live Update #3 – ABA Antitrust Spring Meeting, Washington, D.C.

Among the industries disrupted by the COVID-19 public health crisis has been the educational sector, as universities across the country have been forced to shutter their campuses and transition to virtual remote learning. Public and private institutions alike have worked tirelessly to transform their curricula and physical operations in time for students to complete the Spring 2020 semester. But with the cost of higher education already a subject of national attention, these efforts are being challenged. Some students and other stakeholders have asserted that the universities have not provided (and cannot provide) the promised education, and they have launched a spate of class actions seeking such relief as refunds of tuition and room and board payments. And because there is no assurance that the pandemic will have abated by the start of the Fall 2020 semester, the volume of similar class action lawsuits is likely to grow. Already, students are pressuring universities for tuition abatements, deferments, or other concessions in anticipation of a diminished on-campus experience going forward.  In responding to these challenges, universities cannot necessarily rely on the typical class-action defense toolbox. Because their reputation and business depend on the school’s ongoing and vital relationships with current and prospective students, universities are faced with potentially competing objectives when students become plaintiffs. A standard litigation strategy that minimizes risk of damages in a particular action may result in a Pyrrhic victory if it damages the university’s overall ability to attract and retain the loyalty of students, faculty, and alumni. In both avoiding and defending against litigation, universities must keep in mind the perception their actions may create. Moreover, although all universities are facing the same general challenge, they have different funding mechanisms, market brands, student populations and levels of risk of decreased enrollment, among other ways in which they are not similarly situated. Some universities may face more substantial issues addressing lost revenue historically generated by sports and other prominent extracurricular programs. Others may be secure that student demand will remain strong, and will want to defend lawsuits to the fullest extent. Public institutions may be able to assert certain immunities to damages. All universities may face greater scrutiny by antitrust authorities if they communicate with each other about policies related to tuition and fees.  Below is a road map to help identify and assess certain of the risks faced by university administrators in this swiftly changing landscape, and some of the tools they should consider as they grapple with their planning.  <h5>I. Class actions</h5>  At this time, most schools have not refunded tuition. Instead, they have shifted into long-distance learning, offering content online. Some students and parents argue that these online classes do not carry the same value as in-person instruction, and therefore they did not receive their “benefit of the bargain” after paying tuition in anticipation of a live learning environment, which, in cases of certain private schools, can be well north of $40,000. Undergraduate and graduate students alike claim that they enrolled in their respective schools not only to obtain in-person instruction, but also to foster relationships with professors and peers. When institutions began to announce that tuition and other fees would not be refunded, the class action lawsuits swiftly followed.  At least 40 class actions have been initiated across the country in no less than 21 different jurisdictions, against both private and public universities, seeking to recover refunds for tuition following the shift to online classrooms, unused portions of room and board, and fees for on-campus services that are no longer applicable following the closure of schools. Plaintiffs argue that the institutions’ failure to refund these expenses constitutes breach of contract, unjust enrichment, or conversion.  In Rozenkrantz v. Arizona Board of Regents, parents and students of University of Arizona filed a putative class action lawsuit seeking the school system’s disgorgement of various fees related to on-campus facilities and resources, including housing and meals. Similarly, in Cox v. Boston University, the plaintiff, a graduate student in the social work program, disputes the tuition, fees, and room and board costs for the remainder of the 2020 semester and claims that she has received less rigorous instruction through online platforms than she previously experienced during live instruction. In Carpey v. University of Colorado, Boulder, plaintiffs set forth similar claims and allege that the transition to online instruction will diminish the value of the students’ degrees conferred upon graduation.  In defending against class actions, a key early defense is to challenge the certification of the class. Before a court can determine the merits of these cases, it must first evaluate whether the class in the action is eligible to be certified and meets the following criteria by the preponderance of the evidence: (1) the class is so numerous that joining each member under this class would be impracticable; (2) there are common questions of law or fact in this class; (3) the claims or defenses of the class representative are typical of the class; and (4) the class representative will fairly and adequately protect the interests of the class.  Many plaintiffs have defined the putative class based on the recovery they seek: Some seek the recovery of tuition, for example, while others include fees and housing costs. Such groupings may be argued to be too expansive, constituting members who cannot be considered common, such as distinguishing between undergraduate and graduate programs and various academic disciplines. On the other hand, if the class is defined too narrowly, institutions may argue that the class is not so numerous so as to render joining each member impracticable, attacking another requirement of certification.  Public institutions may also argue that they enjoy state immunity from damage claims. Here, the court will conduct an “arm of the state” analysis to determine whether an institution is actually independent from state authorities or is instead essentially a state agency and therefore entitled to protection.  <h5>II. Contract-based claims and defenses</h5>  Most of the lawsuits filed to date allege, among other things, breach of contract. Plaintiffs’ lawyers, along with students and their families, are scouring student enrollment contracts along with meal plan and housing agreements, parking and other fee agreements, and the university’s published refund, withdrawal and deferral policies. They are also examining their university’s public-facing statements about the scope and type of education students may expect to receive, to establish evidence of contractual promises that they may allege have been breached. As universities design their contracts and policies for the 2020/2021 academic year and beyond, these issues can be anticipated and the risks of a compelled remote learning environment due to public health concerns or other governmental order must be addressed and allocated.  But the contracts and policies in effect for Spring 2020 did not anticipate the closure of campuses across the country. For these current cases, the existing contracts and policies are generally subject to a traditional contract dispute analysis.  <ul> 	<li>Force majeure: The first step will be to determine whether the contract itself allocates this risk among the parties. If the contract does contain a force majeure clause, the question will turn on its particular language and how it applies to these particular circumstances.</li> 	<li>Contract language and materiality of breach: The language of the enrollment contract and refund policies will be the first, but not the last, step in analyzing the parties’ obligations. The question will extend to whether the university has substantially complied with the obligations it undertook to provide education, which plaintiffs may argue includes all of the amenities and benefits of being on campus. In New York, courts in pre-COVID-19 cases have expressed an unwillingness to second-guess a university’s pedagogical decisions. However, most of the litigated disputes about tuition refunds centered around the withdrawal or expulsion of individual students rather than the canceling of all on-campus programs and classes.</li> 	<li>Impossibility/frustration of purpose: In most jurisdictions, common law recognizes defenses of impossibility and/or frustration of purpose as a defense for performance under the contract. The consideration whether to raise such defenses would necessarily include consideration of the available remedies, and whether they can achieve the desired outcome.</li> </ul>  <h5>III. Antitrust Concerns</h5>  In this environment, administrators are looking to their peer institutions to see how others are addressing the many unprecedented challenges this crisis is presenting. It may be tempting to engage counterparts at other institutions in forward-looking discussions about questions that affect the entire industry. Will they reduce or refund room and board, tuition, or parking fees? Will other schools try to poach our students, faculty or staff? In considering what they may and may not discuss with other colleges and universities, it is critical that administrators remain mindful of antitrust laws. Agreements not to compete among horizontal competitors can violate the antitrust laws, and collusion among colleges and universities is no exception. While many collaborative activities are low risk, state and federal antitrust laws generally require that colleges and universities compete independently on many fronts ‒ from admissions and faculty to tuition and class or amenity offerings. With few exceptions, these antitrust laws generally apply regardless of nonprofit status or state affiliation. The Department of Justice Antitrust Division has had higher education institutions on its radar for many years and recently brought antitrust charges against and reached a settlement with the National Association for College Admission Counseling regarding the ways that colleges compete in the recruiting of students.<a href="#1">[1]</a>  While it may be helpful to know what others are doing when making these decisions, it is vital that colleges and universities avoid having discussions with competitor institutions that could lead to costly accusations of antitrust misconduct. Educational institutions must make the most critical decisions independently and avoid any agreement ‒ or the appearance thereof ‒ with competing institutions about these decisions. In particular, decisions regarding the scope and size of refunds for disruptions caused by COVID-19 represent a significant component of a school’s price and are likely to draw close attention and scrutiny. Agreements, common understandings, or joint decisions on tuition or components of costs like room and board, or parking or other fees, may be viewed by public enforcers or parents and private litigants as illegal price-fixing agreements. To avoid running afoul of these antitrust laws, colleges and universities therefore must be very careful when discussing these issues with other institutions and ensure that decisions are made independently.  <h5>Key Takeaways:</h5>  <ul> 	<li>Universities are facing a rising tide of litigation, including putative class actions, based on the forced transition to remote learning caused by the COVID-19 pandemic.</li> 	<li>In anticipating and defending against these lawsuits, university policies and litigation strategy must account for the school’s pedagogical, business and relationship objectives as well as the legal issues in a particular case.</li> 	<li>Universities must remain mindful of antitrust laws and should avoid any appearance of horizontal agreements on business decisions that could affect competition.</li> </ul>  BakerHostetler’s attorneys are well versed in higher educational policy and the shared-governance model present at U.S. universities and colleges and bring that experience to our representation of universities across practice groups. Our team is comprised of university Trustees, former prosecutors, former antitrust enforcement officials from the Department of Justice, and experienced trial lawyers.  Authorship Credit: Tracy Cole, Brady Cummins, Daniel Guttman, Darley Maw, Ann O’Brien, William Oxley and Carole Rendon  <a id="1" name="1"></a>[1] <a href="https://www.justice.gov/opa/pr/justice-department-files-antitrust-case-and-simultaneous-settlement-requiring-elimination">https://www.justice.gov/opa/pr/justice-department-files-antitrust-case-and-simultaneous-settlement-requiring-elimination</a>

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COVID-19 Compliance

From Virtual Classes to Class Actions: Higher Education Policy, Litigation and Antitrust Considerations in Responding to the COVID-19 Pandemic

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