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State v. Minnesota School of Business, Inc.

Court of Appeals of Minnesota

June 4, 2018

State of Minnesota, Respondent,
v.
Minnesota School of Business, Inc. d/b/a Minnesota School of Business, et al., Appellants

          Hennepin County District Court File No. 27-CV-14-12558

          Lori Swanson, Attorney General, Alan Gilbert, Jason Pleggenkuhle, Adam Welle, Assistant Attorneys General, St. Paul, Minnesota (for respondent)

          Joseph W. Anthony, Brooke D. Anthony, Daniel R. Hall, Amelia Selvig Hartman, Anthony Ostlund Baer & Louwagie P.A., Minneapolis, Minnesota (for appellants)

          Considered and decided by Schellhas, Presiding Judge; Reyes, Judge; and Stauber, Judge.

         SYLLABUS

         To recover damages under the Minnesota Consumer Fraud Act, a consumer must prove a causal nexus between wrongful conduct and harm. A district court may not presume a causal nexus as a matter of law.

          OPINION

          STAUBER, Judge [*]

         For several years, appellants misled prospective students into believing appellants' two-year and four-year criminal-justice programs provided the means to become police officers, and that enrolling in appellants' two-year criminal-justice program was a means to become a probation officer. Following a bench trial, the district court determined that appellants violated the Minnesota Consumer Fraud Act (MCFA) and the Uniform Deceptive Trade Practices Act (UDTPA), and ordered a restitution process for those students who were misled. On appeal, the appellants argue that the district court erred because the state failed to prove the necessary elements of an MCFA violation, the restitution order violated Minnesota law, and the determination that the appellants are jointly liable was improper. Because the state proved the necessary elements of an MCFA violation in respect to testifying students, we affirm in part. Because the restitution order's presumption of injury and causal nexus was not authorized by law with respect to non-testifying students, we reverse in part.

         FACTS

         Appellants Globe University and Minnesota School of Business ("the schools") are for-profit, post-secondary educational institutions. The schools have many separate campuses from one another, are separately accredited, and keep separate financial records. While the schools are separate legal entities, they have many overlapping qualities. Both schools are owned by the Myhre family; have the same corporate management team, which oversaw uniform operations of both campuses; and are Minnesota corporations that share a principal place of business in Woodbury. Credits at one school can be applied to a program at the other school, and both schools use joint course catalogs. The likenesses go further, as the schools share training materials, student-activity-record systems, instructors, and enrollment agreements. Both schools offer certificates, diplomas, associate's degrees, bachelor's degrees, master's degrees, and doctoral degrees. This appeal is centered on the schools' associate's and bachelor's degrees in criminal justice.

         In July 2014, the state sued the schools, alleging that the schools violated both the MCFA and the UDTPA by making false, deceptive, and misleading statements.[1] The misleading statements that are at issue on appeal involve promising prospective students career opportunities unattainable with the criminal-justice degree.[2] The complaint requested injunctive and declaratory relief, civil penalties, restitution under the parens patriae doctrine for all persons injured, litigation costs, and attorney fees.

         A bench trial was held in April 2016 on the MCFA and UDTPA claims. The trial lasted 17 days, and over 60 witnesses testified. The state argued that the schools misled prospective students to believe that the bachelor's and associate's degrees in criminal justice provided the means to become a police officer, even though the degrees did not satisfy any aspect of the education required to become a police officer.[3] Similarly, the state argued that the schools misled prospective students that the associate's degree in criminal justice provided the means to become a probation officer, even though the degree did not satisfy any aspect of the education required to become a probation officer.[4]

         At trial, the state introduced numerous marketing and advertising exhibits to support its arguments that the schools misled prospective students to believe that their programs were means to become police officers or probation officers. Many of the materials used images of police officers, and the Minnesota School of Business's blog website depicted stories of past students becoming police officers. The school had presentations by police officers and meet-and-greets with police officers. Numerous materials led students to believe the program was a means to become a police officer. For example, Globe University's website stated, "[I]f you're interested in working in law enforcement . . . the multidisciplinary field of criminal justice can lead down many different career paths. A degree in criminal justice is useful in a wide variety of positions including: Police officer."

         Both schools' program applications included an acknowledgment by applicants that stated, "I acknowledge I have discussed and fully understand the Criminal Justice program offered through Globe University/Minnesota School of Business is not POST certified. I realize this prevents me from being eligible to participate in skills training required to be a sworn police officer in the State of Minnesota." Other materials admitted into evidence instructed employees of the schools to provide applicants accurate disclosures and to avoid any misrepresentations.

         Twenty-four students in the schools' programs between 2008 and 2015 testified on behalf of the state.[5] Many students testified that the schools misled them regarding the criminal-justice programs. The testimony of these students shared a common narrative: the prospective student would inform one of the schools of their intent to become a police officer, he would be encouraged by the school to enroll in a criminal-justice program, and he then enrolled in the program in reliance on the schools representations. Numerous school employees also testified, including a former admissions representative from the Minnesota School of Business, who testified that if an individual wanted to become a police officer, she was instructed to sell the program regardless of whether it realistically matched the applicant's career goal.

         The schools' expert, Dr. Chiagouris, testified that the state relied on flawed evidence: testimony of select students was not a legitimate method to represent the actual student body. And another expert, Dr. Guryan, testified that the schools' criminal-justice degrees provided substantial net-value earnings to their graduates.

         The district court found the that students who testified on behalf of the state were credible, and also found that the testimony of the schools' employee-witnesses, who stated they informed prospective students that they could not become police officers, credible as well. The court found the state's anecdotal evidence regarding the criminal-justice programs persuasive, and it determined that the schools advertised their criminal-justice programs as a means to become a police officer, without disclosing the true requirements of becoming a police officer. It found that the schools' online marketing was directed at prospective students interested in becoming police officers.

         The district court found that the schools engaged in false and misleading practices in violation of the MCFA and the UDTPA in relation to their criminal-justice programs. It found that a causal connection existed between the schools' advertising and promotion of the criminal-justice programs and harm to citizens of Minnesota based on the schools targeting prospective students interested in becoming police officers; advertising and suggesting that their programs could lead to becoming a police officer; having recruiters recommend the programs to students interested in becoming police officers; misleading prospective students into believing the two-year degree was sufficient to become a probation officer; and failing to disclose material facts. The district court determined the harm from these actions was both foreseeable and inevitable.

         Next, the district court addressed relief. It determined that the schools were jointly liable as they never tried to legally separate themselves, were jointly operated, and were factually indistinguishable.

         Although the state represented from the beginning of the case that it would not pursue relief on an individual level, it nonetheless sought restitution for the victims. The district court found that these positions were not incompatible and ordered restitution for not only the 15 students who testified, but also provided a system through which other potentially harmed students could seek relief. The restitution order set up a notice-and-claims process for the schools to provide relief to students who attended the criminal-justice programs and were misled into thinking that they could become police or probation officers. The restitution order required that the schools must notify potentially harmed students, and that eligible claimants have 45 days to complete a claim form. Then, any claimant who demonstrated that he or she enrolled in a criminal-justice program with the understanding he or she would be qualified to become a police officer or probation officer would receive a rebuttable presumption of harm and causation. The schools had the opportunity to request documentation and to dispute any claims. And if the parties cannot come to a resolution, then the schools have the opportunity to had a third party make a binding decision.

         The ...


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