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State v. Minnesota School of Business, Inc.

Supreme Court of Minnesota

November 6, 2019

State of Minnesota, Appellant/cross-respondent,
v.
Minnesota School of Business, Inc. d/b/a Minnesota School of Business, et al., Respondents/cross-appellants.

          Court of Appeals Office of Appellate Courts.

          Keith Ellison, Attorney General, Liz Kramer, Solicitor General, Jason Pleggenkuhle, Adam Welle, Assistant Attorneys General, Saint Paul, Minnesota, for appellant/cross-respondent.

          Joseph W. Anthony, Brooke D. Anthony, Mary L. Knoblauch, Anthony Ostlund Baer & Louwagie P.A., Minneapolis, Minnesota, for respondents/cross-appellants.

          Mark R. Bradford, Christine E. Hinrichs, Bassford Remele, P.A., Minneapolis, Minnesota, for amicus curiae Minnesota Chamber of Commerce.

         SYLLABUS

         1. In a case brought by the Attorney General under Minn. Stat. § 8.31, subd. 3a (2018), and his parens patriae power, a causal nexus under the Minnesota Consumer Fraud Act between fraudulent and misleading statements and harm caused to consumers may be established without proof of direct evidence of reliance by each consumer. Evidence showing longstanding, pervasive, and widespread false statements about the nature of a product, that those statements were made with an intent to induce reliance, and that the fraudulent statements are of the kind a consumer would be expected to rely upon under the circumstances are relevant to show that a causal nexus has been established.

         2. The district court did not abuse its discretion by ordering restitution and fashioning a restitutionary remedy and claims process.

         Affirmed in part, reversed in part.

          OPINION

          Thissen, Justice.

         The Attorney General, on behalf of the State of Minnesota, sued two for-profit universities, the Minnesota School of Business, Inc. and Globe University, Inc. (the Schools), alleging that the Schools misled prospective students about the value of criminal justice degrees offered by the schools. The Attorney General invoked his parens patriae power and statutory authority under Minn. Stat. § 8.31, subd. 3a (2018), to pursue violations of the Minnesota Consumer Fraud Act (MCFA), Minn. Stat. § 325F.69 (2018), and the Uniform Deceptive Trade Practices Act (DTPA), Minn. Stat. § 325D.44 (2018).[1]

         The parties agree that, to prevail, the Attorney General must establish a "causal nexus" between the Schools' uncontested violations of the MCFA and the harm suffered by the students who entered the Schools' criminal justice program seeking to become police and probation officers. But the parties disagree about the showing required to prove a causal nexus. The court of appeals held that the evidence in the record supported the district court's finding that the Attorney General established a causal nexus between the Schools' wrongful conduct and the harm identified by testifying students but failed to establish a causal nexus as to nontestifying students. State v. Minn. Sch. of Bus., 915 N.W.2d 903, 910-13 (Minn.App. 2018). Accordingly, we must decide what the Attorney General must show to establish a causal nexus and whether the Attorney General met that burden in this case. In addition, we must address whether the equitable restitution process ordered by the district court is proper.

         We conclude that the Attorney General proved that a causal nexus was established between the Schools' fraudulent statements and the harm suffered by the students. We also hold that the district court did not abuse its discretion when it ordered the equitable restitution process. Accordingly, we affirm in part and reverse in part the decision of the court of appeals.

         FACTS

         The Schools are for-profit, postsecondary educational institutions that offer certificates and associates', bachelors', masters', and doctoral degrees in several different fields including criminal justice.[2] This case focuses on the Schools' criminal justice program.

         Most prospective students who signed up for the criminal justice program wanted to be either a police officer or a probation officer. As described to prospective students and put into practice, the criminal justice curriculum focused on police work like crime scene investigations and many classes were taught by former or current police officers. In marketing materials and through admissions practices, the Schools made statements to prospective students that graduates of their criminal justice program were qualified to become a police officer, or at least qualified to enter programs providing the additional training required to become a police officer. Some advertisements referenced mandated additional skills training and stated that the Schools would help the student find a program to complete the training. The Schools also advertised that an associate's degree from their criminal justice program qualified a student for a career as a probation or parole officer.

         During the relevant time period, the Schools spent approximately $120 million on marketing all of their programs to the public through online advertising, other mass marketing, and sales interactions between prospective students and admission representatives. The Schools disseminated the information on their website and by using media platforms to target people interested in a career in policing. The Schools placed advertisements for, or otherwise recruited potential students to, their criminal justice program on sites like PoliceLink.com, military.com, policemag.com, policeone.com, and officer.com.

         The Schools also placed advertisements for their criminal justice program on Google and other search engines. The ads would appear as results to search inquiries that included "law enforcement schools" and "police schools." These online ads made statements such as: "A degree in criminal justice is useful in a wide variety of positions including . . . police officer. [. . .] A degree in criminal justice provides the industry knowledge and credentials potential employers seek," and "When designing our criminal justice degrees . . . we called on seasoned professionals in . . . law enforcement. . . . And you can be sure, as a graduate of a Globe University/Minnesota School of Business criminal justice program, you will have those qualifications." Other advertisements by the Schools were accompanied by images of police officers.

         The Schools' claims about the value of a criminal justice degree were false. The Schools do not contest that to become a police officer in Minnesota, one must have either a criminal justice degree from a program approved by the Police Officer Standards and Training (P.O.S.T.) Board or a bachelor's degree in any field and complete a certified professional peace officer education (P.P.O.E.) program offered by a college. The Schools were not P.O.S.T. Board approved, and the Schools' credits did not transfer to any college that offered certified P.P.O.E. programs.

         The Schools' statements that an associates' degree in criminal justice would qualify a student to be a probation or parole officer were also misleading. The Schools do not contest that while the qualifications to become a probation or parole officer in Minnesota vary by county, every county requires probation officers to hold at least a bachelor's degree as a prerequisite to employment. Many counties (including the state's large metropolitan counties) also require in-field experience. The Schools' criminal justice associate's degree program did not meet these prerequisites.

         The district court conducted a 17-day bench trial on the Attorney General's claims against the Schools. Over 60 witnesses testified, including 15 students who had enrolled in the criminal justice program. For example, one student testified that he transferred into the criminal justice program because the school "assured him that the program would allow him to become a Minnesota police officer" and that he would not have pursued that program had he known the school was not P.O.S.T. certified. Another student enrolled in the criminal justice program after being told that he could attend training after graduating and thereafter become a Minnesota police officer. After graduation, when he attempted to enroll in a skills training as recommended by the Schools, he learned that he was not eligible to attend because the School was not P.O.S.T. certified. The 15 students' testimony had some variations, but they all testified that, based on statements made by the Schools (or their agents), they enrolled in the program to become a police officer or probation officer.

         After reviewing the evidence and testimony, the district court found the Schools' false advertising pervasive and characterized the Schools' practices as "a trap for the unwary." It determined that the "evidence [presented at trial] is sufficient to establish fraud and/or deception in the marketing of [the Schools'] Criminal Justice program." The district court ruled:

16. The Court concludes that [the Schools] violated the CFA . . . by advertising and marketing their criminal justice program as providing all or some portion of the education and training necessary to become a Minnesota police officer. [The Schools'] program was not in fact certified by the POST board to permit a graduate to become a police officer, nor was it a regionally-accredited program that permitted its graduates to attend a PPOE or "skills training" course to become a licensed Minnesota police officer. Yet, [the Schools] targeted their criminal justice program to students interested in careers as Minnesota police officers; advertised that their program could make graduates eligible to become police officers or participate in additional training to do so; had recruiters recommend the program to students who expressed an interest in becoming police officers in Minnesota; and told prospective students that they could become police officers or would only need "additional training" to become police officers. These representations were false and misleading and in violation of the CFA . . . . In addition, [the Schools] failed to disclose material facts.
19. The Court concludes that [the Schools] violated the CFA . . . by marketing their criminal-justice associate's degree program as a means for becoming a probation officer in Minnesota . . . . [P]robation officer jobs in Minnesota at a minimum require a bachelor's degree, and [the Schools] knew this. Yet, [the Schools] advertised and recommended their criminal justice associate's degree program as a means for students to become probation officers and failed to disclose to students material facts.

         Notably, the Schools do not challenge any of these findings of fact or conclusions of law on appeal.

         The district court found that the student witnesses produced by the Attorney General "credibly testified to being injured by these false and misleading practices." The district court concluded that the Schools violated the MCFA regarding students who wanted to be police officers and those who wanted to become probation or parole officers.

         Further, the district court found that the students were harmed by paying tuition for degrees that would not allow them to become police or probation officers and that such economic harm "is an inevitable and foreseeable consequence of the misrepresentations and obfuscations in [the Schools'] marketing of the program." Consequently, the court stated that the Attorney General proved a causal nexus between the Schools' misrepresentations and the harm suffered by the criminal justice program students required under the MCFA. In its Order for Restitution, the district court explained its reasoning:

Thus, [the Schools] argue, there is no evidence of widespread public injury. [The Schools'] argument ignores the Court's finding that the harm suffered by those students was foreseeable and inevitable. [The Schools'] attempt to understate the breadth of that finding cherry-picks the Court's Order and misreads its intent. There can be no question that [the Schools'] fraudulent practices caused significant public injury to any students . . . who enrolled in the criminal justice program with the goal of becoming a Minnesota police or probation officer.
It stands to reason that if the Court adopts [the Schools'] interpretation of the relevant case law, then only consumers that are perfectly similarly-situated are entitled to restitution even though there has been a finding of fraud under the CFA . . . related to a specific class of persons. Here, the [Attorney General] has proven that [the Schools] violated the CFA . . . with respect to the marketing of its criminal justice program. A restitutionary process, as requested by the [Attorney General], is necessary in this case to determine the appropriate amount of restitution for each affected student while giving [the Schools] an opportunity to respond to claims for restitution.

         The court issued an injunction and imposed other civil penalties. The district court also ordered equitable restitution requiring the Schools to disgorge the tuition collected from the criminal justice program students.[3] To assess the proper scope of the equitable restitution remedy, the district court established a process for determining how many students entered the Schools' criminal justice program with the goal of becoming a police or probation officer because they relied on the Schools' fraudulent statements and the amount each student paid in tuition and other fees and costs.

         Under the Order for Restitution, students who were enrolled in the criminal justice program during the relevant time period are to be notified and given the opportunity to submit a claim for restitution within 50 days. This process was put in place for both the testifying and nontestifying students and included the appointment of a special master under Minn. Stat. § 8.31 and Minn. R. Civ. P. 53.07 to resolve disputes. The process includes:

5. Substantive Guidelines. For any eligible claimant who files a claim form representing that they enrolled in [the Schools'] criminal justice program based on an understanding they could become (a) a police officer in Minnesota or (b) a parole or probation officer in Minnesota with an associate's degree, there shall be a rebuttable presumption of injury and causal nexus. . . . The restitution amount for such claimants shall include (a) the amount of tuition paid to [the Schools] by or on behalf of the claimant, (b) payments to [the Schools] by or on behalf of the claimant for books, enrollment or student expenses or fees, and (c) any interest or finance charges incurred by the claimant for student loans taken out to pay for such tuition, expenses, or fees.
6. Process. The parties shall oversee the claims review process and mutually agree on whether a claimant should receive restitution and in what amount consistent with this Order. The parties may provide or make reasonable requests for documents regarding a claim, and shall act promptly in conferring and determining claims. Upon written agreement of any restitution sum, [the Schools] shall make payment to the claimant within 7 days of the written agreement. If the parties cannot resolve a dispute, the matter shall be submitted to the Special Master pursuant to the Special Master's instructions. The parties may agree that the Special Master's decisions on disputed claims is binding. The Special Master shall review each disputed claim and issue a written decision to the parties determining the amount of restitution for that student.
8. Judgment. The Attorney General's Office may request that judgment be entered as to any unpaid claim that has been agreed to, determined by the Special Master and not objected to, or determined by the Court.

         The Schools appealed, arguing among other things that the Attorney General "failed to prove the necessary elements of a MCFA violation" and "the restitution order violated Minnesota law." State v. Minn. School of Bus., 915 N.W.2d 903, 905 (Minn.App. 2018).

         The court of appeals upheld the district court's restitution order for the students who testified at trial because there was direct evidence that those students relied on fraudulent statements and were harmed by paying for "a degree that did not serve its purpose-to enable them to become police or probation officers." Id. at 909. But the court of appeals reversed the district court's decision that the Attorney General could recover restitution on behalf of the nontestifying students. The court of appeals described the district court's "rebuttable presumption" to be employed in the restitution process as "problematic." Id. at 910. Further, it held that the restitution process "does not satisfy the [S]tate's burden to prove a causal nexus" and that it "cannot presume this element is met." Id. at 911.

         The Attorney General sought review, asking us to reverse the court of appeals' decision that the evidence failed to show a causal nexus between the Schools' false and misleading statements and the harm suffered by nontestifying students. The Schools requested conditional review, arguing that the court of appeals erred in affirming the restitution for the testifying students because the causal nexus standard used by the district court-the "foreseeable and inevitable" analysis-was improper. The Schools ...


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