Seyfarth Synopsis: In the first ruling in response to the slew of room and board refund class actions filed in the wake of COVID-19, on July 29, 2020, in Rosenkrantz v. Arizona Board of Regents, No. 2:20-CV-01203 (D. Ariz.), Judge John Tuchi of the U.S. District Court for the District of Arizona granted the Universities’ Rule 12(b)(6) motion to dismiss for failure to state a claim. Judge Tuchi held that Plaintiffs failed to comply with an Arizona statute that required them to file a notice of claim with a public entity prior to filing suit. The Court’s ruling may prove useful for other colleges and universities sued in states with similar prerequisites. Because the ruling depends on a state-specific technicality, however, it is unlikely to quell the tide of similar class actions filed across the country.
Plaintiffs, parents of students enrolled at one of three public universities – the University of Arizona, Arizona State University, and Northern Arizona (the “Universities”) – during Spring 2020, filed a putative class action on behalf of all persons who paid the cost of room and board or fees for the Spring 2020 semester at the Universities. Id. at 2.
Plaintiffs claimed that, in response to the COVID-19 pandemic, the Universities forced students to move out of on-campus housing, moved all classes online, cancelled campus events, and ceased providing various services. Plaintiffs asserted that, despite these actions, the Universities failed to return or refund the cost of room and board or the fees for services. Id. at 1-2.
Plaintiffs alleged claims for breach of contract, unjust enrichment, and conversion seeking the return of pro-rated, unused funds, a declaration that the Universities wrongfully kept the monies paid for room and board and fees, and injunctive relief enjoining the Universities from retaining the pro-rated, unused portion of monies paid. Id. at 2.
The Universities moved to dismiss on the grounds that Plaintiffs failed to file a pre-suit notice of claim as required by A.R.S. 12-821.01(A). The Court granted the motion.
The Court’s Opinion
At the outset, the Court recognized that Arizona law requires a plaintiff to file a notice of claim with a public entity before suing it for damages. In the notice of claim, the claimant must set forth “facts sufficient to permit the public entity . . . to understand the basis on which liability is claimed” and “a specific amount for which the claim can be settled and the facts supporting that amount.” Id. at 3.
The Court noted that, because the statute functions to allow public entities to investigate and assess liability and to “assist in financial planning and budgeting,” which are fiscal considerations, the statute applies only to claims for money damages and does not apply when declaratory or injunctive relief is the “primary purpose of the litigation.” Id. A plaintiff, however, cannot circumvent the notice requirement by maintaining claims for monetary damages “under the guise of seeking declaratory relief.” Id.
Here, although Plaintiffs sought “disgorgement” of the pro-rated unused monies already paid, a “declaration” that the Universities are unlawfully withholding the funds, and an “injunction” enjoining the Universities from retaining them, the Court held that an equitable remedy is inappropriate where, as here, “an adequate legal remedy exists in the form of money damages.” Id. at 4. The Court concluded that all six of Plaintiffs’ claims, regardless of the label that Plaintiffs used, directly involved government funds and, therefore, were subject to the notice of claim requirement. Id. at 5.
The Court concluded that, although Plaintiffs alleged that they demanded the return of money through multiple channels, they did not allege that they had filed a notice of claim. The Court, therefore, found their action barred. Id. at 6-7.
Members of the plaintiffs’ class action bar have filed nearly 200 lawsuits seeking corona-virus related refunds to date, many against colleges and universities for failing to refund tuition, room and board, or other fees. Although Defendants scored the first win, in the form of a dismissal of one of the largest reimbursement class actions filed to date, the ruling’s usefulness may be limited for defense purposes. The Court relied upon a state-specific prerequisite to suit and did not reject the claims on their merits. Thus, it remains to be seen whether the Universities’ strategy of invoking the notice requirement at the motion to dismiss stage will impact the ultimate outcome of similar claims asserted on behalf of these or other putative class members. As a result, it is unlikely that this bellwether ruling will slow the fervor with which the plaintiffs’ class action bar continues to pursue similar cases.