June 12th, 2017

Consumer Liability 101: Six Areas to Watch, Part II

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As discussed in the first part of this analysis, an increasing number of students are filing lawsuits against colleges and universities claiming violation of state consumer protection laws. Here, I offer three more ways of strengthening your defenses.  Schools need to strengthen their defenses to consumer protection liability; evaluate their existing policies, procedures, and related publications; and develop effective training and supervision of employees and others authorized to speak on the institution’s behalf.

Strengthen your defenses

While state consumer protection laws vary, there are certain defenses to liability that are common enough—and powerful enough—that all schools should be familiar with them.  These defenses are (i) preserving and protecting your educational mission; (ii) acting in accordance with regulatory requirements; and (iii) for state schools, preserving and protecting sovereign immunity.

Preserve and protect your educational mission

In many cases, courts have been hesitant to find a school liable under a consumer protection theory where the challenged conduct involved the school engaging in its core educational activities. For example, schools accused of having violated state consumer protection laws because they allegedly refused to allow students to retake courses, refused students readmission, or made false or misleading statements about financial aid policies were found not liable because courts ruled that those activities involved the schools’ core educational mission.

So how can you protect yourself? One step may involve revisiting the language of your school’s mission statement. As the Supreme Court has indicated in the affirmative action context, a college or university’s mission statement can have significant legal consequences. A mission statement that emphasizes the inherent value of education, including the development of ideas and free expression, and interprets the institution’s educational mission broadly will help to limit liability under consumer protection laws.

Complying with regulatory requirements

Consumer protection statutes are designed to impose morality and fairness on the marketplace, but how can you show that your actions are moral and fair and in accordance with the practices of the market?  One powerful way is to show that the challenged act or practice was taken in accordance with existing state or federal regulations.  In many states, this is actually an explicit defense in the law: entities cannot be sued if they are acting consistently with or as directed by regulations. In other states, the defense is merely implied, but it is certainly easier to argue that your institution followed the morals of the marketplace if the challenged actions were mandated by the institution’s own regulators.

Sovereign immunity

The doctrine of sovereign immunity provides that a state cannot be sued unless it allows itself to be sued. Generally, this protection extends to state entities such as public colleges and universities. All states, however, allow themselves to be sued in limited circumstances. This is called waiving sovereign immunity and can happen if the waiver is explicit.

How can you protect your sovereign immunity? First, make sure that you assert it. If your school is sued under a state consumer protection statute, you need to raise sovereign immunity as a defense in your initial response to the lawsuit. Additionally, if you and other public schools in your state have separate legal counsel, make sure you coordinate with each other on this issue;  you do not want a bad court decision involving another public school in your state to undermine your institution’s legal protection. Finally, stay informed about legislative activities. Because waiver typically comes from the legislature, make sure you are aware of any proposed, relevant legislation or amendments to your state’s consumer protection law.

Evaluating your school’s policies and procedures

I recommend that each institution conduct, with an eye toward limiting its potential liability, a self-assessment of its policies and procedures and related publications, including marketing materials, admission brochures, and student handbooks. These materials likely include a variety of disclosures and other representations to which potential legal liability might attach under consumer protection laws.

In your assessment, first determine if your disclosures are accurate. If they involve the same subject matter as your formal disclosures, verify that the information and data have been calculated in the manner required by the applicable regulations. Also, review student handbooks and rulebooks to ensure that there is a good-faith, reasonable justification for each rule, consistent with your institution’s educational mission.

Next, look at your marketing materials. Review closely any language that presents the higher education experience in purely pecuniary terms or gives higher priority to graduates’ employment, salaries, or networking opportunities than to the broader benefits of higher education.  Avoid making promises about post-graduate employment, other measures of success, or repayment of loans. Do not present statistics in an incomplete or otherwise misleading manner.

Develop effective training and supervision for employees

Because, as a general rule, a school can be held liable for misstatements made by any of its employees or other agents, be vigilant about who is authorized to speak on behalf of your institution. Assess who is in charge of making formal representations for the university and who a lay observer might perceive as speaking on its behalf.  This may include a broad list of people, from the head of Admissions down to student volunteers who give campus tours.

Once you have identified this group, make sure these individuals say the right things—or, at least, not the wrong things. Train your employees and agents to know that accuracy is critical. They should never make promises of any kind, unless specifically authorized to do so. If they are asked a question and do not know the answer, they should either refer the question to the appropriate person or ask that appropriate person themselves and relay the answer back.

Finally, ensure that all potential spokespeople for your institution are well supervised.  Develop a system for ongoing supervision, regularly remind them about what they learned in their trainings, and emphasize the critical importance to the institution of their full compliance.

Reprinted from “Consumer Liability 101, Six Areas to Watch, Part 2,” Recruitment & Retention, 28.8 (2014): 1,2. © Magna Publications. All rights reserved.