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Lorona v. Arizona Summit Law School LLC

United States District Court, D. Arizona

December 16, 2015

Paula C. Lorona, Plaintiff,
v.
Arizona Summit Law School, LLC, et al., Defendants.

ORDER

Neil V. Wake United States District Judge

Before the Court is Defendants’ Motion to Dismiss (Doc. 21) and the parties’ accompanying briefs. For the reasons that follow, the motion will be granted in part and denied in part.

I. BACKGROUND

On March 2, 2015, Paula Lorona filed a complaint pro se in state court against Arizona Summit Law School, LLC (“Arizona Summit Law School” or “the Law School”), Infilaw Corporation (“Infilaw”), and various individuals and entities. (Doc. 1-1 at 1-18.) Lorona then amended her complaint to include claims under federal statutes. (Doc. 1-1 at 56-80.) On May 28, the defendants removed to federal court. (Doc. 1.) Lorona then obtained counsel (Doc. 14) and amended her complaint again. This Second Amended Complaint (Doc. 20) names only Arizona Summit Law School, Infilaw, and fictitious entities as defendants and alleges the following.

A. Arizona Summit Law School and Infilaw

Arizona Summit Law School is a for-profit Arizona limited liability company. (Id. at ¶ 4.) Its parent company is Infilaw, a Delaware corporation whose primary place of business is in Florida. (Id. at ¶ 7.) Infilaw dominates the Law School’s business operations and controls all its finances. (Id. at ¶ 15.) Specifically, Infilaw controls the Law School’s budget, payroll, employee promotions, employee incentives, employee benefits, and certain employee requests for reimbursement. (Id. at ¶¶ 16-19.)

B. Lorona’s Employment at Arizona Summit Law School

In November 2009, the Law School hired Lorona as an administrative assistant. (Id. at ¶ 23.) Lorona accepted the job in part because the Law School offered a tuition waiver to employees. (Id. at ¶¶ 24-25.) Lorona also reviewed statistics regarding the Law School’s completion rates, the academic caliber of its students, and bar pass rates, and decided it would be a good place to work and attend school. (Id. at ¶ 26.)

In her first two years of work, Lorona was promoted three times and received excellent employment reviews. (Id. at ¶¶ 23, 28.) Then problems arose.

1. Lorona’s refusal to file an inaccurate tax form[1]

In 2012 the Law School’s Director of Finance, Judy Smith, ordered Lorona to upload a tax form to the Arizona Department of Revenue’s website. (Id. at ¶¶ 29-30.) Lorona explained that the form contained inaccurate information and refused to file it, even after Smith made revisions. (Id. at ¶¶ 33-40.) Smith continued to pressure Lorona to file the form. (Id. at ¶¶ 41-42.)

Concerned, Lorona sought advice from the Law School’s General Counsel, who told her not to file the form. (Id. at ¶¶ 43-45.) Lorona also met with the Law School’s Human Resources Manager, Stephanie Lee, who advised Lorona to speak with the Law School’s President, Scott Thompson, or to contact Infilaw’s whistleblower hotline. (Id. at ¶¶ 5-6, 46-49.) Lee and Thompson declined Lorona’s requests for follow-up meetings. (Id. at ¶¶ 50-52.) Lorona then contacted Infilaw’s whistleblower hotline. (Id. at ¶¶ 53-55.) Days later, Smith was fired. (Id. at ¶ 56.)

2. Employment difficulties

Subsequently, Lorona was charged “paid time off hours while working remotely and caring for her children, who had severe asthma. (Id. at ¶¶ 67-70, 177, 204-07, 209.) At times she was denied the opportunity to work remotely at all. (Id. at ¶ 183.) Lorona discussed her concerns regarding “paid time off hours with Lee. (Id. at ¶¶ 251-54.) Lorona was not advised of her rights under the Family and Medical Leave Act (“FMLA”). (Id. at ¶¶ 181, 184, 208.) At Lorona’s request, Lee gave Lorona the paperwork necessary to seek FMLA leave, but her doctor misplaced the paperwork. (Id. at ¶¶ 210-14.) Other employees-males without disabilities or caregiving responsibilities-received FMLA leave without requesting it or submitting paperwork. (Id. at ¶¶ 215-19.)

In addition, Lorona was denied an interview for a promotion for which she was qualified. (Id. at ¶¶ 58-61, 185-87.) The position was given to a male without disabilities or caregiving responsibilities, who was less qualified than Lorona. (Id. at ¶¶ 62, 193.) Thompson and Lee excluded Lorona from department meetings and took away her corporate credit card. (Id. at ¶ 63.) Lorona complained to her superiors that she was being unfairly treated and discriminated against due to her need to care for her disabled children. (Id. at ¶¶ 270-72.)

On one occasion, Lee commented in a meeting that Lorona (who was absent) had a “great butt.” (Id. at ¶¶ 231-32.) Lee later told Lorona she should be flattered, not embarrassed. (Id. at ¶¶ 235-38.) On a separate occasion, Lorona’s supervisor compared Lorona to a Barbie doll. (Id. at ¶¶ 239-40.) Lorona complained to her superiors that she was being discriminated against because she is a woman. (Id. at ¶ 270.)

On April 13, 2013, Lorona was fired. (Id. at ¶¶ 90-93.) Lee had previously assured Lorona there were no concerns about her performance. (Id. at ¶¶ 242-44.) When Lorona was fired, Lee confirmed she was not being fired for cause. (Id. at ¶¶ 94-95.) Lorona was replaced by a male who did not follow standard hiring procedures, is less qualified than Lorona, and regularly leaves work earlier than Lorona was allowed to leave. (Id. at ¶¶ 256-58, 264-65.)

3. Lorona’s claims arising from her employment

Lorona has filed complaints with the Arizona Attorney General’s Office for whistleblower protection and the Equal Employment Opportunity Commission (“EEOC”) for discrimination. (Id. at ¶ 97.)

Here in federal court, Lorona claims: (1) Defendants discriminated against her because of her sex in violation of Title VII of the Civil Rights Act of 1964, as amended (id. at ¶¶ 227, 266); (2) Defendants discriminated against her because of her children’s disability in violation of the Americans with Disabilities Act (id. at ¶¶ 171-72, 194); (3) Defendants denied her accommodations to care for her children in violation of the Family Medical Leave Act (id. at ¶¶ 202, 219); and (4) Defendants terminated her in retaliation for activity protected under these statutes (id. at ¶¶ 173, 228, 270-73).

C. Lorona’s Enrollment at Arizona Summit Law School

In August 2009, Lorona applied for traditional enrollment at the Law School and was accepted. (Id. at ¶ 27.) Traditional enrollment may be contrasted with “alternative” enrollment, whereby students with lower undergraduate grade point averages (“GPAs”) and Law School Admission Test (“LSAT”) scores are accepted to the Law School. (Id. at ¶ 130.) The Law School has increased its percentage of “alternative” enrollees over the years, from 11% in 2005 to 80% in 2011. (Id. at ¶ 131.)

The Second Amended Complaint does not state whether Lorona was accepted to any other law schools, on what date she decided to attend Arizona Summit Law School, or on what date she began attending. Lorona graduated at the end of 2014. (See Id. at ¶ 115.) She incurred approximately $204, 000 of student loan debt and cannot find employment with her degree. (Id. at ¶¶ 143, 147.) As conceded in oral argument, Lorona passed the Arizona Bar Exam in 2015 and is currently attempting to establish a solo practice.

1. Representations by the Law School

Arizona Summit Law School made representations, to Lorona and others, about its students. In 2009, bar exam pass rates among the Law School’s graduates were reportedly over 80%. (Id. at ¶ 26.) But Law School emails from 2012 to 2014 disclosed plummeting pass rates, as low as 50%. (Id. at ¶¶ 79-84.) During that period the Law School continued to boast an “Ultimate” bar pass rate of over 80%, via brochures and email. (Id. at ¶¶ 85-86.) The “Ultimate” pass rate refers to the percentage of all graduates who have passed the bar exam “on the first or subsequent attempts, ” not the percentage of test-taking graduates who passed the exam on a particular date. (Id. at ¶ 85.) In addition, the Law School reported to third parties statistical data about its students, such as undergraduate GPAs, LSAT scores, and bar pass rates. (Id. at ¶¶ 128, 130-31.) But these data did not take into account students admitted via “alternative” enrollment, even though such students comprise up to 80% of the student population. (Id. at ¶¶ 128, 130-31, 133.) In a staff meeting in 2011, the dean of the Law School stated that “alternative” enrollees were just as successful in the classroom as traditional enrollees. (Id. at ¶¶ 72-74.) In May 2014, the Law School began paying students it deemed likely to fail the bar exam not to take the exam, in order to inflate bar pass rates. (Id. at ¶¶ 102-104, 106, 117-20.) Despite struggling bar pass rates, the Law School projected confidence: “We believe by graduation, lawyers should enter the workforce professionally prepared to practice law . . . . Summit Law . . . creat[es] well-rounded lawyers who add immediate value to their firms and employers.” (Id. at ¶ 138.)

The Law School also made representations about its affordability. Its website stated that tuition, fees, and supplies for its three-year program beginning in 2010 would total approximately $103, 000 and that median student loan debt for recent graduates was approximately $98, 000. (Id. at ¶ 142.) Further, the Law School enrolled students ineligible for federal financial aid and gave them “time to fix their credit to receive loans, ” despite knowing the Department of Education does not lend to students with certain credit deficiencies. (Id. at ¶ 140.)

In addition, the Law School made representations about its bar exam preparation program, myBAR. A 2013 Law School email advised students to sign up for myBAR instead of a competitor’s bar review course, citing higher bar pass rates with myBAR. (Id. at ¶ 126.) The Law School’s website also promotes myBAR with statements such as the following: “The myBAR program has been specially designed to offer you the best of everything.” (Id. at ¶ 127.)

2. Lorona’s claims arising from her enrollment

Lorona claims Defendants defrauded her in violation of A.R.S. § 44-1521 et seq. and Arizona common law because the above-mentioned representations were false and she detrimentally relied on these representations in deciding to enroll at the Law School and in deciding to remain there. (Id. at ¶¶ 143-147, 150-58.) She also claims Defendants negligently misrepresented information to her because they failed to exercise reasonable care in communicating. (Id. at ¶ 163.)

II. LEGAL STANDARD

Defendants move to dismiss the Second Amended Complaint in its entirety for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). (Doc. 21 at 1.)

When considering a motion to dismiss, a court evaluates the legal sufficiency of the plaintiff’s pleadings. Dismissal under Rule 12(b)(6) can be based on “the lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). To avoid dismissal, a complaint need include “only enough facts to state a claim for relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).

On a motion to dismiss under Rule 12(b)(6), all allegations of material fact are assumed to be true and construed in the light most favorable to the non-moving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). However, the principle that a court accepts as true all of the allegations in a complaint does not apply to legal conclusions or conclusory factual allegations. Ashcroft v. Iqbal, 566 U.S. 662, 678 (2009). Further, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. “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. “The plausibility standard is not akin to a ‘probability requirement, ’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. To show that the plaintiff is entitled to relief, the complaint must permit the court to infer more than the mere possibility of misconduct. Id. If the plaintiff’s pleadings fall short of this standard, dismissal is appropriate.

Generally, material beyond the pleadings may not be considered in deciding a Rule 12(b)(6) motion. However, a court may consider evidence on which the complaint necessarily relies if (1) the complaint refers to the document, (2) the document is central to the plaintiff’s claim, and (3) no party questions the authenticity of the copy of the document submitted to the court. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). The Second Amended Complaint refers to a Charge of Discrimination that Lorona filed with the EEOC. (Doc. 20 at ¶ 13.) The charge is central to Lorona’s employment discrimination claims because the Court’s jurisdiction to hear such claims depends on whether Lorona has exhausted her administrative remedies. See Sosa v. Hiraoka, 920 F.2d 1451, 1456 (9th Cir. 1990). Defendants have submitted a copy of the charge. (Doc. 28-1.) Lorona does not question its authenticity. (Doc. 30.) Therefore the Court considers the charge as well as the pleadings in deciding the present motion.

III. ANALYSIS

A. Employment-Related Claims

Lorona claims Defendants violated her employee rights under Title VII of the Civil Rights Act of 1964 as amended (“Title VII”), the Americans with Disabilities Act (“ADA”), and the Family Medical Leave Act (“FMLA”). Defendants contend Lorona fails to state a claim under any of these statutes.

1. Infilaw’s liability as Lorona’s employer

As a threshold matter, Defendants contend Lorona does not adequately allege Infilaw was her “employer” for purposes of Title VII, the ADA, or the FMLA. Defendants do not dispute that the Law School was her employer; the issue is whether Infilaw, the parent company, was her employer as well.

The Ninth Circuit has held that “[i]n the absence of special circumstances, a parent corporation is not liable for the Title VII violations of its wholly owned subsidiary.” Watson v. Gulf & W. Indus., 650 F.2d 990, 993 (9th Cir. 1981). However, the court noted that this general rule may not apply if the parent company “participated in or influenced the employment policies” of its subsidiary. Id. In a subsequent case, the Ninth Circuit invoked this exception by extending Title VII liability to a “parent” (the State of California) that “participated extensively in, and influenced, the employment policies and practices” of its “subsidiary” (local school districts). Ass’n of Mexican-Am. Educators v. State of California, 231 F.3d 572, 582 (9th Cir. 2000). These cases provide guidance in interpreting not only Title VII but also similar statutes. See, e.g., E.E.O.C. v. Con-Way, Inc., No. CV 06-1337-MO, 2007 WL 2610367, at *2 (D. Or. Sept. 4, 2007) (citing Watson in interpreting Age Discrimination in Employment Act). Similarly, although these cases were on appeal from summary judgment, they provide guidance as to what must be alleged at the motion to dismiss stage. See, e.g., Nowick v. Gammell, 351 F.Supp.2d 1025, 1034 n.28 (D. Haw. 2004) (citing Watson and Mexican-Am. Educators in considering motion to dismiss).

The issue is therefore whether Lorona’s allegations permit a reasonable inference that Infilaw “participated in or influenced” the Law School’s employment policies.[2]Most of Lorona’s allegations on this subject miss the mark. For example, Infilaw’s control over the Law School’s “business operations, ” “finances, ” “budget, ” and “payroll” does not bear on employment policy. (Doc. 20 at ¶¶ 15-17.) Similarly, Infilaw’s control over Law School employees’ 401k and corporate credit cards has little to do with any employment policy related to Lorona’s suit. (Id. at ¶¶ 18-19.)

Only one allegation is on point: “All promotions [of Law School employees] had to be approved by Infilaw.” (Id. at ¶ 16.) That allegation suffices to plead Infilaw’s liability as Lorona’s employer, with respect to her claims involving denial of a promotion. If Infilaw had to approve all promotions of Law School employees, one could infer that Infilaw “participated in or influenced” the Law School’s decision not to promote Lorona. Although this inference is weak, it is enough at the pleading stage because whether a parent company is an “employer” of its subsidiary’s ...


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