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Lorona v. Arizona Summit Law School, LLC

United States District Court, D. Arizona

May 17, 2016

Paula C. Lorona, Plaintiff,
v.
Arizona Summit Law School, LLC; Infilaw Corporation; Jane and Johns Doe 1-100; Black Corporation 1-100; White Partnership 1-100, Defendants.

          ORDER

          Neil V. Wake United States District Judge

         Before the Court is Defendant Arizona Summit Law School, LLC’s Motion to Dismiss (Doc. 35) 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 federal statutory claims. (Doc. 1-1 at 56-80.)

         On May 28, 2015, the defendants removed to federal court. (Doc. 1.) Lorona then obtained counsel (Doc. 14) and amended her complaint again (Doc. 20). That second amended complaint named only Arizona Summit Law School, Infilaw, and fictitious entities as defendants. (Doc. 20 at 1.) It claimed violations of federal employment laws and state fraud laws. (Id. at 18-49.) The Court dismissed many of the employment claims and all the fraud claims for failure to state a claim upon which relief may be granted, but permitted Lorona to amend her complaint again. (Doc. 33 at 27-28.)

         On January 14, 2016, Lorona filed a third amended complaint. (Doc. 34.) The revised complaint contains federal employment claims against all defendants and state-law fraud and negligent misrepresentation claims against Arizona Summit Law School only. (Id. at 14-28.) The Law School moves to dismiss the fraud and negligent misrepresentation claims. (Doc. 35.) Oral argument was held on May 13, 2016.

         The relevant allegations in the third amended complaint are summarized below. They are presumed true at this stage.

         A. Arizona Summit Law School’s Representations to Lorona

         In considering whether and where to attend law school, Lorona reviewed Arizona Summit Law School’s “Viewbook, ” a marketing brochure about the Law School. (Doc. 34 at ¶¶ 37-38.) She read a paper copy of the Viewbook on campus, as well as an online copy on the Law School’s website. (Id.) The Viewbook contained enrollment statistics about the Law School’s students, including their median Law School Admission Test (“LSAT”) scores and undergraduate grade point averages (“GPAs”). (Id. at ¶¶ 38, 49.) LSAT scores and undergraduate GPAs are commonly accepted indicators of a student’s likelihood to succeed in law school and pass the bar exam. (Id. at ¶ 48.) As of spring 2008, the Viewbook reported a median LSAT score of 153 and median undergraduate GPA of 3.18. (Id. at ¶ 49.) The Law School also reported this information to a third party, the Law School Admission Council, which posted the information on its website. (Id. at ¶ 38.)

         Lorona also reviewed other statements by the Law School about its program. She read on the Law School’s website that more than 80% of its graduates passed the bar exam. (Id. at ¶ 41.) She read in the Law School’s application packet that only two out of 70 graduates who were actively seeking employment were unemployed and that graduates had a median salary of $60, 000 and a median student loan debt of $101, 310. (Id. at ¶ 39.) She read in the Law School’s application instructions that the Law School is governed by an American Bar Association standard prohibiting the admission of applicants “who do not appear capable of satisfactorily completing its educational program and being admitted to the bar.” (Id. at ¶ 40.)

         Based on this information, Lorona decided the Law School would be a good school to attend. (Id. at ¶¶ 42, 89.) In August 2009, she applied for traditional enrollment and was accepted as a traditional evening student. (Id. at ¶ 44.)

         As a student, Lorona kept track of the Law School’s enrollment statistics, which the Law School updated each year. (Id. at ¶¶ 45-47.) In particular, she noted that the Law School’s median LSAT scores and undergraduate GPAs remained stable while she was a student and compared favorably to other law schools. (Id. at ¶ 48.) Through 2014, the Law School continued to report an “Ultimate” bar pass rate of over 80%. (Id. at ¶¶ 61-62.) This rate was based on the number of Law School graduates who passed the Arizona Bar Exam on the first or subsequent attempts. (Id. at ¶ 61.) The Law School also continued to report graduates’ employment status and average salaries. (Id. at ¶ 67.) From 2010 through 2013, the Law School’s website stated that the school “places 97% of its graduates into jobs within nine months of graduation.” (Id. at ¶ 68.) Based on this information, Lorona decided to remain at the Law School. (Id. at ¶¶ 48, 63, 69, 90.)

         At some unspecified time and place, the Law School described its legal education program as follows:

We believe by graduation, lawyers should enter the workforce professionally prepared to practice law in a variety of diverse settings and industries. Summit Law partners with local law firms, courts, municipalities, businesses and non-profits to provide real-world work experiences that foster our students’ desire to learn, grow and succeed while creating well-rounded lawyers who add immediate value to their firms and employers.

(Id. at ¶ 93 (emphasis in original).)

         B. Shortcomings in Arizona Summit Law School’s Representations

         Arizona Summit Law School’s enrollment statistics did not reflect the LSAT scores or undergraduate GPAs of all its students. In 2005, the Law School began admitting some students via an “Alternative” admissions program that did not require LSAT scores or undergraduate GPAs within the traditional range. (Id. at ¶¶ 50-51.) The Law School did not include these Alternative students’ LSAT scores or undergraduate GPAs in the enrollment statistics reported in its Viewbook, on its website, or to the Law School Admission Council. (Id. at ¶ 52.) The Law School did not specify that its statistics omitted Alternative students, and Lorona did not know of this omission. (Id. at ¶¶ 54-55.)

         The Law School substantially increased its percentage of Alternative students from 2005 to spring 2011. (Id. at ¶ 53.) During the time Lorona was enrolled, most of the students at the Law School were Alternative students. (See Id. at ¶¶ 53, 57.)[1] The Law School knew that students’ LSAT scores and undergraduate GPAs correlate with their likelihood of passing the bar exam. (Id. at ¶¶ 46, 70-71.) Thus, the Law School predicted that the more Alternative students it admitted, the fewer of its graduates would pass the bar exam. (Id. at ¶¶ 72-73.) The Law School did not disclose this prediction to its students. (Id.)

         The prediction proved true. In recent years, the percentage of Law School graduates who pass any given administration of the Arizona Bar Exam has fallen, from 72.9% of those who took the February 2013 exam, to 63.3% of those who took the July 2013 exam, to 48.8% of those who took the February 2014 exam, to 49.5% of those who took the July 2014 exam, to 52.6% of those who took the February 2015 exam, to 26.4% of those who took the July 2015 exam. (Id. at ¶¶ 59-60.)

         In May 2014, the Law School began to pay graduates who it predicted would fail the bar exam not to take the exam. (Id. at ¶¶ 74-75.) The predictions were based on students’ LSAT scores, undergraduate GPAs, law school GPAs, and other factors. (Id. at ¶ 71.) In February 2015, for example, the Law School offered students predicted to fail the exam $5, 000 and other benefits to defer taking it. (Id. at ¶ 77.) Eliminating these students from the pool of examinees artificially skewed pass rates in the Law School’s favor. (Id. at ¶ 78.) These more favorable pass rates enabled the Law School to maintain its reputation, accreditation, and federal funding. (Id. at ¶¶ 78-80.)

         C. Lorona’s Inability to Find Employment

         Lorona graduated from the Law School in December 2014 and passed the Arizona Bar Exam in 2015. (See Id. at ¶ 86; Doc. 33 at 4-5.)[2] She incurred over $200, 000 in student loan debt. (Doc. 34 at ¶ 81.) Based on the Law School’s representations, she believed that upon graduating she would find gainful employment at a law firm or in the public sector with a salary sufficient to repay this debt. (Id. at ¶ 82.)

         This belief turned out to be overly optimistic. While awaiting bar exam results, Lorona applied for positions that did not require a law license, such as bailiff, clerk, and paralegal. (Id. at ¶ 85.) She did not receive an interview. (Id.) After being admitted to the bar, she applied for positions at private law firms and in the public sector, and she enlisted the services of employment placement firms. (Id. at ¶ 86.) She received one interview but no callback. (Id.) She is currently attempting to establish a solo practice, without the support or client base she would expect at a private firm or in the public sector. (Id. at ¶ 88.)

         Lorona attributes her plight to the Law School’s reputation, which has recently plummeted due to its graduates’ low bar pass rates. (Id. at ¶ 87.) Had she known the true value of her law degree, she would not have enrolled in the Law School or would have withdrawn from the Law School and, if necessary, pursued a different career. (Id. at ¶¶ 89-90.) She accuses the Law School of common-law fraud, statutory consumer fraud, and negligent misrepresentation (collectively, “fraud claims”). (Id. at ¶¶ 91-116.)

         II. LEGAL STANDARD

         Arizona Summit Law School moves to dismiss Lorona’s fraud claims for failure to state a claim under Federal Rule of ...


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