Trial News

The Minnesota Supreme Court has affirmed a trial court ruling that two for-profit schools violated state law by misleading prospective and enrolled criminal justice students about the value of their degrees. The state high court found that the state attorney general properly established a “causal nexus” between the school’s fraudulent statements and the injuries students suffered and that the trial court did not abuse its discretion by ordering the schools to divest unlawfully earned profits and distribute the “proceeds to injured consumers.” (State v. Minn. Sch. of Bus., 2019 WL 5778078 (Minn. Nov. 6, 2019).)

The defendants—the Minnesota School of Business, Inc. and Globe University, Inc.—represented in targeted online marketing materials and as part of their admissions processes that graduates of their criminal justice programs would be “qualified to become a police officer or at least qualified to enter programs providing the additional training to become a police officer.” But the defendants were not accredited to offer the required degrees, and school credits did not transfer to any college that offered certified training programs. The defendants’ marketing materials also included incorrect information about the requirements to become a Minnesota parole or probation officer, falsely stating that students’ associate degrees would qualify them to enter these careers.

The state attorney general alleged that the schools had violated the Minnesota Consumer Fraud Act (MCFA). After a 17-day bench trial, during which 15 students testified that they relied on the schools’ false statements before enrolling, the trial court held that the attorney general had presented sufficient evidence to establish that the schools committed fraud or engaged in deceptive marketing.

The judge found that the attorney general had met his burden to show a causal nexus between the schools’ misrepresentations and the harm to the students. The court also ruled that, in addition to the students who had testified, the attorney general could recover restitution for nontestifying criminal justice students because, although the defendants “argue there is no evidence of widespread public injury, [this] argument ignores the Court’s finding that the harm suffered by . . . students was foreseeable and inevitable.” The appellate court affirmed restitution for testifying students but reversed the order for nontestifying students, finding the state had not established that those students had relied on the defendants’ false statements.

The attorney general and the defendants appealed, and the Minnesota Supreme Court reviewed whether the attorney general had established the required causal nexus under the MCFA for both groups of students and whether the trial court had abused its discretion by ordering restitution.

The court noted that the MCFA eliminates elements of common law fraud, such as proof of damages, indicating a “clear legislative policy” that the statute should be “generally very broadly construed to enhance consumer protection.” Because the case had been brought by the state attorney general, the court also reviewed similar cases involving state enforcement under the Federal Trade Commission Act; these decisions did not require proof of “each individual consumer’s reliance on a defendant’s misrepresentations, finding that would “be an onerous task with the potential to frustrate the purpose of the . . . statutory mandate.”

Citing this and other precedent—in particular, Group Health Plan, Inc. v. Philip Morris Inc. (621 N.W.2d 2 (Minn. 2001))—the Minnesota high court held that “‘proof of individual reliance’ is not needed to prevail under the MCFA.” Here, the attorney general had sufficiently established a causal nexus for both testifying and nontestifying students by presenting evidence that the schools’ false advertising and “misleading recruitment promises were widespread and pervasive” and that the schools had intended students to rely on those false statements. “It is reasonable to conclude that a person who wants to become a police officer or a probation officer will make such an investment of money and time only if the person believes that the classes will provide the requisite qualifications for that career,” the court wrote. “The [s]chools should not profit from fraudulently providing a useless degree to their students.”

The Minnesota Supreme Court also affirmed the equitable restitution award. Under the MCFA, the attorney general has the power to “divest the [s]chools of gains that they reaped as a result of their violations,” and the trial court did not abuse its discretion by ordering this remedy.

Tampa attorney John Yanchunis, who has represented students in class actions against for-profit educational institutions, applauded the decision. “These institutions deliberately engage in predatory marketing and recruitment, targeting people vulnerable to their false statements and promises. They are creating a whole stratum of people crippled by huge amounts of debt that can’t be discharged under current bankruptcy laws. Civil lawsuits against these organizations have become increasingly difficult with the proliferation of forced arbitration provisions with class waivers, and attorneys general need to be prepared to use their enforcement powers to protect injured consumers who might otherwise have limited options.”