954 F.3d 56
1st Cir.2020Background
- Mount Ida College closed abruptly in May 2018 after about six weeks' notice; the University of Massachusetts system agreed to acquire Mount Ida assets and UMass Dartmouth offered admission to students in good standing.
- Plaintiffs (three students, suing as a putative class) alleged administrators knew the college was insolvent but concealed that fact; students claimed harm from lost transfer opportunities, credit-transfer problems, and reduced financial aid/options.
- Mount Ida had publicly filed audited financial statements (showing multi-year deficits) and submitted a 2017 NEASC self-study reporting ongoing deficits and forecasting recovery only by 2021.
- Plaintiffs sued under Massachusetts law (breach of fiduciary duty, invasion of privacy, fraud, negligent misrepresentation, fraud in the inducement, breach of contract, and M.G.L. ch. 93A) in federal court under CAFA.
- The district court granted defendants’ motion to dismiss; the First Circuit affirmed dismissal in all respects and denied leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fiduciary duty | College/officers owed students a fiduciary duty based on trust and reliance | No fiduciary duty exists between college (or its officers) and students; any director/officer fiduciary duty is owed to the corporation | No fiduciary duty to students as a matter of Massachusetts law; claim barred and enforcement of charity-management claims is the AGO's province |
| Invasion of privacy (G.L. c.214 §1B) | Transfer of students' academic/financial records to UMass Dartmouth without consent was unreasonable | Record transfer served a legitimate purpose (to preserve student records and facilitate transfers) and was authorized by law/regulation | Dismissed: disclosure was reasonable and justified by regulations and AGO involvement |
| Fraud / negligent misrepresentation / fraud by omission | Defs misrepresented Mount Ida’s viability or omitted material insolvency facts, inducing enrollment | No actionable false statements alleged; financials were publicly available; no duty to disclose | Dismissed: plaintiffs failed to plead particular false statements or an actionable duty to disclose; negligent misrep also fails without a false statement |
| Breach of contract (express or implied) | Enrollment and tuition created enforceable contracts; defendants breached by failing to provide bargained-for education/notice | Complaint lacks essential terms or specifics of any contract; Mount Ida provided a semester of education | Dismissed for failure to plead contract terms with sufficient specificity; no plausible breach alleged |
| M.G.L. ch. 93A (unfair/deceptive acts in trade or commerce) | Mount Ida engaged in commercial recruitment and deceptive practices, so ch. 93A applies | Activities were in furtherance of the college’s educational (charitable) mission, not "trade or commerce" | Dismissed: activities fell within educational mission; ch. 93A not available for these nonprofit-school actions |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard — plausibility required)
- Penate v. Hanchett, 944 F.3d 358 (1st Cir. 2019) (pleading / factual-allegation treatment on motion to dismiss)
- Freeman v. Town of Hudson, 714 F.3d 29 (1st Cir. 2013) (courts may consider public records and documents referenced in complaint)
- Morris v. Brandeis Univ., 804 N.E.2d 961 (Mass. App. Ct. 2004) (no fiduciary relationship between student and university administrator)
- Weaver v. Wood, 680 N.E.2d 918 (Mass. 1997) (Attorney General as appropriate enforcement agent for mismanagement of public charities)
- Ortiz v. ExamWorks, Inc., 26 N.E.3d 165 (Mass. 2015) (§1B privacy claim requires unreasonable and substantial invasion; legitimate purpose can justify disclosure)
- Linkage Corp. v. Trustees of Boston Univ., 679 N.E.2d 191 (Mass. 1997) (distinguishing charitable/educational mission from "trade or commerce" under ch. 93A)
- Planned Parenthood Fed'n of America v. Problem Pregnancy of Worcester, 498 N.E.2d 1044 (Mass. 1986) (charitable corporations’ activities often fall outside ch. 93A)