Wiggins v. Daymar Colleges, et al, No. 5:11-CV-36, 2011 WL 2899674 (W.D. Ky. July 9, 2011).

If you could hop into a time machine what do overs would you do?  Put JFK in a limo with a roof?  Tell Michael Jackson to stop the surgeries? Suggest to Jessica Simpson she should not divorce Nick Lachey?  In this case, a group of students got a big do over in their CAFA case.

A District Court in Kentucky held that when the class definition is ambiguous, the best course of action is to allow the plaintiffs to amend their complaint to properly define the class they seek to represent. 

In this class action lawsuit against the defendants, Daymar Colleges Group, the plaintiffs sought to represent present and former students of Daymar who have been fraudulently solicited to attend Daymar educational institutions with the promise of receiving degrees transferable to the vast majority of institutions of higher learning, and for whom these representations were both false and the degrees and credits non-transferrable. 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 plaintiffs’ claims were based on violations of KRS Chapter 165A et seq., the Kentucky Consumer Protection Act, Kentucky antitrust laws, and common law misrepresentation, fraud, fraudulent inducement, breach of contract, breach of implied contract, conspiracy, and injunctive and declaratory relief.

The defendants removed the case to the federal court on the basis of diversity jurisdiction under CAFA. 

The plaintiffs filed a motion to remand arguing that the defendants had not established that the amount in controversy exceeded $5 million, and that CAFA exceptions warranted remand to the state court.

Although the plaintiffs sought an unspecified amount of damages, the complaint averred that the plaintiffs sought an amount exceeding the jurisdictional requirements of the state court, which was $4,000. 

The Court observed that because the complaint indicated that the class would be composed of thousands of people, at the very least, the defendants could estimate the class size to be at least 2,000. In addition, the plaintiffs sought reimbursement of ‘all loan amounts.’ The defendants noted that the average loan amount for a Daymar student was $5,000. Multiplying these numbers presented $10 million in damages alone. The Court remarked that even at $2,000 for 2,000 class members, the class would claim $4 million in damages for reimbursement of loan amounts. This figure, 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, was more than enough to satisfy the jurisdictional amount.  Accordingly, the Court concluded that the defendants properly removed this action under CAFA.

The plaintiffs, however, argued thattwo exceptions to the minimal diversity requirement applied here. The Court noted that under the “home state controversy” exception, the Court must decline to exercise jurisdiction when, among other things, two-thirds or more of the members of all proposed plaintiff classes in the aggregate are citizens of the state in which the action was originally filed, 28 U.S.C. § 1332(d)(4)(B). Under the “discretionary” exception, the Court may decline jurisdiction when, among other things, (1) between one third and two thirds of the proposed plaintiffs class are citizens of the State in which it was originally filed, §1332(d)(3).

The plaintiffs sought limited discovery as to the citizenship of the proposed class members. The defendants, however, asserted that such discovery was unnecessary, as the defendants had provided the affidavit of Michael Leathers, the Vice President of Information Technology for Daymar Colleges. Mr. Leathers’s affidavit 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 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. Specifically, that paragraph states 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 complaint further states that all class allegations, however, are “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 acknowledged that Daymar colleges operate in Tennessee through their statement in paragraph 109 regarding Mr. Gabis.

The Court found that both interpretations were plausible because the complaint was ambiguous and failed to properly define the class the plaintiffs sought to represent. Thus, the Court believed that the best course of action was to allow the plaintiffs to amend their complaint to properly define the class they sought to represent. The Court stated that it would consider the CAFA exceptions and whether limited discovery was necessary after the amended complaint was filed.

It doesn’t take a degree from Daymar or any other institution to know that we will see this case again.