Students' Refund Claims Against U. Michigan, Over Switch to Distance Learning, Can Go Forward

Plaintiffs are suing for breach of contract and unjust enrichment.

From Milanov v. Univ. of Mich., decided July 27, 2020 by Judge Michael J. Kelly of the Michigan Court of Claims, but just posted on Westlaw:

Plaintiffs in this putative class action are students at defendant university. Their complaint arises out of actions defendants took in response to the onset of the COVID-19 pandemic. Plaintiffs allege that defendants' actions deprived them of benefits for which they had already paid, including the benefit of in-person instruction, housing, meals, and student activities. Plaintiffs seek refunds of the amounts they paid, on a pro-rata basis, for the remainder of the 2020 winter/spring semester.

Plaintiffs allege that, in approximately March 2020, defendant university announced that it would cancel all live, in-person instruction and would transition to online distance learning for the remainder of the semester. In addition, defendants instructed students who lived in residence halls and on-campus housing to move out if they were able to do so. Plaintiffs contend that nearly half of the semester remained at this time, yet defendants did not offer adequate refunds of tuition and fees for the services that were no longer available to students.

Plaintiffs note that defendants offered a $1,200 credit—which both plaintiffs accepted in this case—for students who followed the directive to move out of the residence halls by March 25, 2020. However, plaintiffs contend that this credit is not commensurate with the financial losses they have suffered, nor is it equal to a prorated, unused amounts for room and board. Plaintiffs allege that defendants failed to offer a refund for the difference in value between online distance learning and live, in-person instruction in a classroom setting….

[Plaintiffs] allege that the online classes are not the equivalent of live, in-person instruction. In particular, plaintiff Kliment Milanov alleges that two of his classes were essentially cancelled because defendant university's online method of instruction failed to provide an adequate learning environment. Plaintiffs assert that the decisions to transition to online classes and to encourage students to leave campus were "responsible" ones; nevertheless, they allege it is unlawful for defendants to retain the full tuition and fees paid by plaintiffs under the circumstances….

Defendants moved for summary judgment, but the court allowed the case to go forward. It held that the cases deferring to universities as to educational judgments didn't apply here:

Plaintiffs are not asserting a due process violation or arguing that the University's decision to switch methods of instruction ran afoul of any constitutional rights. Instead, they are arguing that the university promised one method of instruction, charged tuition and fees commensurate with that method of instruction, yet provided a different (allegedly lesser) method of instruction. This is a claim potentially sounding in contract or in quasi-contract, not in due process. The Ewing decision [deferring to academic judgments] does not stand for the notion that any decision regarding academics is beyond review for a court….

{While the same is unnecessary for rendering a decision at this stage of the litigation, the Court notes troubling aspects of defendants' position. For instance, adopting defendants' position could lead to the conclusion that the university could simply cancel all classes and then retain tuition and fees, having made the academic judgment that instruction was unnecessary or unwarranted.}

The court held that the plaintiffs sufficiently raised a breach of contract claim:

Defendants next argue that … plaintiffs' claims must be dismissed because this state's jurisprudence does not recognize the existence of a contract between universities and students. To this end, they argue that courts have repeatedly held that student handbooks, codes, or other informational materials given to students do not create contracts between universities and students.

The Court disagrees and finds the authorities defendants cite inapposite. The instant case is not one where plaintiffs are alleging that they had a contractual right to continued enrollment or to graduation. As plaintiffs point out, "[i]t is a bedrock principle of American contract law that parties are free to contract as they see fit, and the courts are to enforce the agreement as written absent… a contract in violation of law or public policy."

Moreover, plaintiffs have attached to their responsive briefing a number of documents, such as housing contracts and meal plan contracts, between students and defendants. These documents expressly state that they are, in fact, binding agreements between students and defendant university. In short, if the law does not recognize contractual relationships between universities and students, this would appear to be news to defendants, based on the record before the Court. That is not to say that plaintiffs have established their breach of contract claims or the existence of the pertinent contracts in this case; rather, it is simply a rejection of defendants' legal argument that such agreements cannot exist….

[Plaintiffs'] claims … plead the elements of a breach of contract cause of action. For instance, of the complaint identifies the parties to the contract, the subject-matter (live, in-person instruction, room and board, and "fees"), the consideration provided by each side, and each side's obligations. Paragraph 67 expressly alleges a breach by defendant university, and ¶¶ 69-70 allege damages suffered by plaintiffs. The aforementioned elements, including the element of damages—which is repeatedly mentioned throughout the complaint—are sufficient to satisfy this state's notice-pleading requirements….

The court likewise held that the plaintiffs' unjust enrichment claims could go forward:

The elements of an unjust enrichment claim are: "(1) receipt of a benefit by the defendant from the plaintiff, and (2) which benefit it is inequitable that the defendant retain." "Not all enrichment is unjust in nature, and the key to determining whether enrichment is unjust is determining whether a party unjustly received and retained an independent benefit." Unjust enrichment "describes the result or effect of a failure to make restitution of or for property or benefits received under such circumstances as to give rise to a legal or equitable obligation to account therefor." …

Here, defendants ask the Court to dismiss the unjust enrichment claims because they contend plaintiffs failed to allege that the monies collected by defendant university were used for anything other than legitimate purposes. Hence, the retention of the benefits was not inequitable, argue defendants…. [But] the allegations by plaintiffs are that defendants did not provide the full extent of the services that were secured by plaintiffs' payment of amounts for tuition, fees, and room and board. While plaintiffs might have received a benefit from attending classes in an online environment, … [they] allege that they received a lesser education than that which they stood to receive from live, in-person instruction….[P]laintiffs have alleged that they yielded excess in comparison to what they received. Defendants' documentary evidence has not negated this element of plaintiffs' claim. Furthermore—and as it concerns the room-and-board claim—defendants have not presented evidence in support of their brief, one-sentence argument that their retention of excess amounts paid for room and board provided a benefit to plaintiffs….

And the court concluded that the defendants' impossibility and impracticability defenses don't preclude the plaintiffs' claims:

"A promisor's liability may be extinguished in the event his or her contractual promise becomes objectively impossible to perform." A party asserting this affirmative defense need not show "absolute impossibility"; instead, the party must demonstrate "impracticability because of extreme and unreasonable difficult, expense, injury or loss involved." Here, defendants argue that the COVID-19 pandemic and Governor Whitmer's Executive Orders rendered live, in-person instruction and the provision of room and board impossible and/or impracticable.

In response to defendants' arguments, plaintiffs argue that they are not contesting whether defendants could provide the contracted-for services. Instead, they argue that they should be entitled to a refund of the services, for which plaintiffs pre-paid, that defendant university stopped providing in light of the pandemic. As plaintiffs point out, caselaw holds that, even when performance has become impossible, a party who was deprived of the promised performance is entitled to a refund of consideration for services not rendered due to impossibility.

Defendants have not articulated a compelling argument as to why impossibility or impracticability would be a valid defense to this type of refund claim. As a result, summary disposition is not appropriate based on defendants' stated affirmative defenses.