Lancaster v. Daymar Colleges Group, LLC, No. 3:11-cv-00157-TBR, 2011 WL 2437774 (W.D. Ky. June 14, 2011).
Here is a case of “if at first you don’t succeed, try, try again.” A District Court in Kentucky held that when the complaint is ambiguous and two interpretations are plausible regarding the class definition, the suitable remedy is amendment of complaint to properly define the class the plaintiffs seek to represent.
The plaintiffs, for themselves and on behalf of current and prior attendees of the various Daymar Colleges, brought a class action in state court alleging that the defendants Daymar Colleges Group and others violated, inter alia, KRS Chapter 165A et seq., the Kentucky Consumer Protection Act, Kentucky antitrust laws, and common law misrepresentation, fraud and breach of contract. (Editors’ Note: See the CAFA Law Blog analysis of the companion case of Wiggins v. Daymar Colleges posted on September 12, 2011).
According to the complaint, the class is composed of present and former students of Daymar who have been fraudulently solicited to attend Daymar educational institutions with the promise of receiving degrees transferrable to the vast majority of institutions of higher learning. The plaintiffs’ also sought to represent a class who secured loans to pay for degrees, who were promised jobs in their field of study following graduation, and who were misled regarding the terms and availability of financial aid.
The defendants removed the case to the federal court on the basis of diversity jurisdiction under CAFA.
The plaintiffs moved to remand, which the District Court declined to grant given the ambiguity in the complaint concerning the class definition.
First regarding the amount in controversy, the Court found that the defendants had proven the jurisdictional amount of $5 million by a preponderance of the evidence. The plaintiffs’ complaint indicated that the class would be composed of thousands of people. Thus, the Court observed that at the very least, the defendants could estimate the class size to be at least 2,000. In addition, to the plaintiffs’ claim for reimbursement of “all loan amounts,” the defendants noted that the average loan amount for a Daymar student was $5,000. The Court stated that multiplying these numbers presented $10 million in damages alone.
The plaintiffs claimed that this estimate was too high. The Court remarked that the plaintiffs’ complaint, however, averred that the plaintiffs had become indebted “to the extent of thousands of dollars . . .” Even at $2,000 for 2,000 class members, the class would claim $4 million in damages for reimbursement of loan amounts. This figure must then be added to the additional damages the plaintiffs sought; including compensatory damages for time lost and lost income opportunities, pain and suffering, punitive damages, injunctive relief, and statutory attorneys’ fees. The Court found that this was more than enough to satisfy the jurisdictional amount. Accordingly, the Court concluded that the defendants properly removed this action under CAFA.
Next, the plaintiffs conceded thatminimal diversity existed; however, the plaintiffs argued that two exceptions to the minimal diversity requirement — “home state controversy” and “discretionary” exception applied here.
For the home state controversy exception to apply, among other things, the plaintiffs must establish that “two-thirds or more of the members of all proposed plaintiff classes in the aggregate, must be citizens of Kentucky; and under the “discretionary” exception, the Court may decline jurisdiction when between one third and two thirds of the proposed plaintiffs class are citizens of Kentucky.
The plaintiffs sought limited discovery as to the citizenship of the proposed class members.
The defendants provided the affidavit of the Vice President of Information Technology for Daymar Colleges Group. In this affidavit, the affiant compiled a statistical summary of the residences of students who attended the Daymar campuses in Kentucky, Ohio, Indiana, and Tennessee during the class period. The summary indicated that 46.7% of those students, a total of 10,447, resided in Kentucky, based on the last known place of residence each student provided to the defendants.
The plaintiffs argued that the defendants improperly included Tennessee Daymar students in the statistical data. The plaintiffs asserted that the only reference to Tennessee within the complaint was contained in the paragraph describing the defendant Mark A. Gabis. That paragraph stated that Mr. Gabis “is the president and principal shareholder and/or member of a multitude of companies operated under the Daymar College label engaged in the offering of a variety of higher education Degrees to students in Kentucky, Indiana, Ohio and Tennessee.” The plaintiffs claimed that all class allegations, however, were “made only on behalf of current and former students at Daymar’s Ohio, Indiana and Kentucky campuses.”
In contrast, the defendants argued that the class was defined as “current and prior attendees of the various Daymar Colleges,” and the plaintiffs had acknowledged that Daymar colleges operate in Tennessee through their statement regarding Mr. Gabis.
The Court opined that both interpretations were plausible. Thus, the Court concluded that the complaint was ambiguous and failed to properly define the class the plaintiffs sought to represent. Accordingly, the Court directed the plaintiffs to amend the complaint to properly define the class they seek to represent, and stated that it would consider the CAFA exceptions and necessity of discovery thereafter.