Law Grads Claiming Stat Fraud Denied Class Status

(CN) — Students claiming that Widener University School of Law published misleading statistics about graduate employment cannot proceed as a class, the Third Circuit affirmed.

In 2012, 15 law schools across the nation were served with a wave of class-action lawsuits accusing them of publishing "Enron-style" post-graduate employment statistics that misrepresented students' chances of getting a job with their law degree.

Widener University School of Law, the only law school in Delaware, was hit with one such class action filed by lead plaintiff John Harnish.

Between 2005 and 2011, Widener reported that 90 to 97 percent of its students were employed after graduation, when, according to the complaint, only 50 to 70 percent of graduates were employed in full-time legal positions — a fact Widener knew, but allegedly concealed from prospective students.

The class claimed that Widener's misleading employment statistics made students willing to pay "inflated" tuition rates, and the lawsuit sought damages for the tuition students allegedly overpaid.

But a federal judge denied class certification last year, and the Third Circuit upheld the decision Tuesday.

Though the lower court incorrectly believed that individual students' eventual employment outcomes were relevant to the class certification question, the mischaracterization of students' argument was harmless, Judge Michael Chagares found, writing for the three-judge panel.

"The plaintiffs appear to be pursuing out-of-pocket damages, claiming that Widener's misrepresentations caused them to pay more for their education than it was truly worth," Chagares wrote. "But the plaintiffs do not purport to have class-wide proof of reliance, in the traditional sense, on the part of every single class member. Nor could they; reliance is nearly always an individualized question, requiring case-by-case determinations of what effect, if any, the misrepresentation had on plaintiffs' decision-making."

In order to prove class-wide damages, the students argued that Widener's publication of misleading employment statistics empowered the university to charge higher tuition across the entire market, causing class members to pay more for their education than it was worth.

The problem with this fraud-on-the-market theory, which depends on showing the existence of an efficient market, is that "state courts have refused to recognize [it] outside the federal securities fraud context," Chagares said.

The 22-page opinion concluded, "Because the fact of damages (an 'ascertainable loss' having a 'causal relationship' with Widener's conduct) is a crucial issue in the case, the inability to resolve it in class-wide fashion will cause individual questions to predominate over common ones, which precludes class certification." (Parentheses in original.)

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