Case Information
*1 _ IN TIIE UNITED STATES DISTRICT COURT FOR TIIE EASTERN DISTRICT OF NORTII CAROLINA SOUTHERN DMSION
No. 7:21-CV-169-D
ELIZABETII KARANIK, CHARLOTTE )
KARANIK, by her.parents and next friends, ) JOHN KARANIK. and KIMBERLY )
KARANIK, and NATALIE PRESSLEY, )
)
Plaintiffs, )
) v. ORDER ) )
CAPE FEAR ACADEMY, INC., )
)
Defendant. )
On December 27, 2021, Elizabeth Karanik ("Elizabeth"), Charlotte Karanik ("Charlotte") by and through her parents John and Kimberly Karanik ("John" and "Kimberly," respectively), and ~ Natalie Pressley ("Natalie") ( collectively, ''plaintiffs") filed an amended complaint against Cape Fear
Academy, Inc. ("CFA" or "defendant'') alleging sex discrimination and retaliation in viola~on of Title IX, 20 U.S.C. §§ 1681, et~, intentional infliction of emotional distress ("IIED"), negligent - infliction of emotional distress (''NIED"), breach of contract, and violations of the covenant of good
faith and fair dea.lliig [D.E. 20]. On January 10, 2022, CFA moved dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) and filed a memorandum in support [D.E. 22, 23]. On January 31 ~ 2022, plaintiffs responded in opposition [D.E. 24]. On February 14, 2022, CF A replied [D.E. 25]. As explained below, the court grants in part and denies in part defendant's motion
\ dismiss.
I. Plaintiffs' allegations concern. two sets of facts. The first set of facts concerns plaintiffs' experiences at CF A during the 2020-21 academic year and the summer of 2021. The second set of facts concerns CF A; seeking and obtaining a loan through the Paycheck Protection Program ("PPP"), *2 which the Small Business Administration ("SBA") admini~ters under the CARES Act, Pub. L. No. 116-136, § 1102, 134 Stat. 281, 286 (2020) (codified at 15 U.S.C. § 636).
A. During tJ].e 2020-21 academic year, Elizabeth, Charlotte, and Natalie were high-school students at CFA, a private school in WUmington, North Carolina, that is organized as a non-profit corporation under North Carolina law. See Am .. Compl. [D.E. 20] ff 1-3, S, 10. Elizabeth and Natalie were seniors, and Charlotte was a sophomore. See id. ,r 38. Students attend CFA pursuant to enrollment contracts between the school and the students' parents or guardian. See id. ff 47, SO. During the 2020-21 academic year, Natalie enrolled in an Advanced Placement ("AP") Literature course. See id. ,r 62. Plaintiffs allege that throughout the school year, during the AP Literature class, male students made dismissive, inappropriate, or offensive remarks and jokes about women, sexual . assault on women, and violence toward women. See, e.g., id. ff 63-65, 69, 77, 88, 91-96. They allegedly did so despite knowing Natalie was sexually assaulted while attending a boarding school, suffered from post.:.traumatic stress disorder, and risked experiencing serious emotional responses to materials in the (?OllrSe that depicted violence or sexual assault toward women. See id. ff 42-44, 69. Plaintiffs allege that after some time; this group of male students in Natalie's AP Literature class continued making offensive remarks and jokes in part because they "had become quite aware of the things that they could do or say to create a reaction from Natalie." Id. ,r 81. The male students' behavior made Natalie dread attending class and caused emotional distress, including panic attacks. See id. ff 74, 81, 89, 97. Natalie also attended counseling due to the negative effects the male students' behavior ,had on her. See id. ,r 90.
During the Fall 2020 semester, Natalie a~pted to discuss her concerns about the male students' behavior during AP Literature class sessions with faculty and admini~tors at CFA with almost no success.: Natalie's AP Literature teacher suggested Natalie talk to CF A's counselor and AP Psychology teacher, Tobi Ragon ("Ragon"). See id. ,r 66. Natalie discussed her concerns several
: - ... *3 times with Ragon, who "left Natalie with the impression" Ragon had no authority to address Natalie's concerns. Id. ft 69--71, 86, 97. Ragon instead encouraged Natalie to "do a better job 'advocating for herselr" in class and to ''take it upon herself' to ''use her own 'pain' and challenge the male students in the class." Id. ,r 69. Even though ''Natalie was fully capable of reading and analyzing ttie material," CFA's other attempted solution was to have Natalie self-study different ~g materials than the rest of the·students in $e AP Literature course for twQ weeks rather than participate with the rest of the class. Id. ,r 81; see id. ,r 78.
At the beginning of the Spring 2021 semester, the school reassigned Natalie into a new statistics class with: some of the same male students involved in the AP Literature class harassment. See id. ,r 84. Natalie was the only female sµident in that statistics class. See id. Natalie told RagQn she was uncomfortable with the new statistics class but the school refused to allow her to transfer to a different statistics class, and Ragon told Natalie ·that receiving accommodations would hurt Natalie over time because the "real world doesn't accommodate mental illness." Id. ,r 86. After several days of the ~ew class and another conversation with l,lagon, CF A allowed Natalie to attend her statistics class via Zoom. See id. ,r 87. The male students in the AP Literature class continued -----. with the same behavior in the Spring 2021 semester. See id. ,r 88.
In the Spring 2021 semester, Natalie went to Ragon again after she had a panic attack in class after an AP Literature class discussion in which the male students joked about rape. S~ id. ft 90--97. Ragon also had individual and group conversations with Natalie, other female students, and some male studen~ who told Ragon about experiences they had at CFA similar to those Natalie had experienced. See id. ft 98-100. Ragon again "left the impression" she had no_authority to do anything aboutthe~e students' conduct but suggested talking to Jamison Fee (''Fee"), CF A's dean of students. See id. ,r 100.
Over the span of a week, Elizabeth and other students took concerns about "sexual . harassment and unwelcome conduct" by "certain male students" to Fee in meetings and via email .
. I *4 Id. ff 101-05. Fee asked Elizabeth to provide specific examples of misconduct. See id. ,r 102. In an email, Elizabeth recounted to Fee that her former boyfriend called her a "hoe" and a "slut'' and that other male students had asked her or encouraged her to have.sex with another CFA student. Id. Fee never met with Natalie, even though she attempted to meet with him several times to discuss her experiences in the AP Literature class. See id. ,r 106. Plaintiffs allege that based on their meetings with Fee, they and other students ''were assured and therefore reasonably believed that CFA would undertake an investigation into these male students' conduct, and appropriate action would be taken." Id. ,r 104. Besides asking students to send Fee information and evidence to support their concerns, plaintiffs do not know whether CF A conducted an investigation. See id. ,r 1 OS; cf. id. ,r
113.
In May 2021, CFA administrators announced the student graduation speakers. The CFA ; ~ administration chose some of the male students that Natalie, Elizabeth, and others had alleged engage4 in sexual harassment or unwelcome conduct toward them to be graduation speakers. See id. ,r 107. Natalie, Elizabeth, and other students objected to these male students speaking at graduation and voi~d their concerns to CFA faculty members. _ See id. ,r 108. When the school took no action, Natalie, Elizabeth, and other students proposed to Ragon the idea of a petition to have the _objectionable graduation speakers removed. Ragon "endorsed" the idea, and a different faculty member said a petition was a "smart" idea Id. ,r 114. Thereafter, more than 20 students collaborated to write a petition, which Elizabeth posted online at Change.org. See id. ff 116-17. The posted petition stated:
The senior class feels that those chosen to speak at graduation and commencement do not accurately represent the class of 2021. · The senior class feels [ certain identified male students] do not deserve speaking roles in these events. The group feels these students have caused harm to fellow CF A students and would be setting a bad example for our school community. The class feels the speakers chosen for these events should be people who care about their fellow peers and be people who support thelr classmates. The class would like to remove their speaking roles and replace therti with either elected peers or teachers. We ask that they be removed from these roles or step down from them knowing their classmates will not respect their speeches due to their own lack of respect in the CFA community.
Id.~ 117. The petitfoit garnered 27 student signatures before the CFA administration had the petition taken down a few hours later. See id. ft 118, 120. Charlotte was among the students who signed the petition. See i~. ft 118-19. ' ,
In response~ the petition, Fee met with Elizabeth. See id. ft 121-26. During the meeting, Elizabeth recounted to Fee the events leading to the petition. See id. ft 122-24. Elizabeth refused to tell Fee who collaborated with her to write the petition. See id. ft 12S, 130. Fee told Elizabeth that because she posted the petition, she would have to ''take the rap for it'' and that the petition constituted ''reckless endangerment [and] false accusations." Id. ft 126, 129. Natalie and other students also attempted to meet with Fee about the petition, but he refused to meet with them. See
' i id}ft 131, 134. Fee told Elizabeth's parents she would appear before CF A's Honor Council, stating that posting the petjtion constituted a ''major infraction," that if found true would be reported any ' colleges or universities to which Elizabeth had applied. See id. ft 13S-47. A~ording to Fee,
Elizabeth violated a rule against ''publish[ing] material intended to harm or slander another person." Id. ~ 142. The school excluded Elizab~'s parents from attending the Honor Council proceeding,
) even though the school had communicated exclusivelywithJohnandKimberly, not Elizabeth, about . L the proceeding. See id. ft 13S, 139-42, 1S2. After the Honor Council hearing, no one told Elizabeth the outcome of the council's deliberations. See id. ~ 166. Elizabeth believes the student members of the HonorCouncil determined ''that no action should be taken against [her] and that the male students ... should be disciplined." Id.~ 161; see id.~ 176. After deliberating, ''the student : members of the Hqnor Council were excused." Id. ~ 162.
·,, The day ~ the Honor Council hearing, and despite what Elizabeth believes the student. ' members of the Honor Council concluded, the director ofCFA's upper school emailed Kimberly
(not Elizabeth) req~g Elizabeth to write an apology note to every male student mentioned in the petition or be exclqded from CF A's "Salute to Seniors" and commencement ceremonies. See id. ft 16S, 170, 174. This punishment surprised plaintiffs because Fee had told Kimberly that regardless
s ,r *6 of the Honor Council's decision, CF A would not exclude Elizabeth from these graduation activities. See id. fl 136, 172. Elizabeth refused to write the apology letters, and CF A refused to allow Elizabeth to participate in the Salute to Seniors and commencement ceremonies. See id. fl 177, 181-82. During these ceremonies, the school omitted all references that Elizabeth was a graduating student. See id. ff 183, 188. Before the commencement ceremony, Natalie and other students announced that they intended to tum their chairs around when the male students they had objected to spoke. See id. ,r 189. Fee told them they could do so to exercise their freedom of speech but if , they did so they would not be able to receive their diplomas at graduation. See id. Natalie and other students did tum their chairs around. See id. The amended complaint does no~ state whether these students received their diplomas during the commencement ceremony.
Plaintiffs allege that although CF A generally allows graduating seniors to keep their CF A email accounts through the July following their graduation, the school suspended Elizabeth's account · immediately after the May 25, 2021 graduation ceremonies. See id. ,r,r 182, 192.
:: In Februaryi_2021, John and Kimberly executed an enrollment contract to enroll Charlotte at CFA for the 2021-22 school year and paid a deposit of one-half of tuition. See id. ,r 194: On June 4, 2021, CF A ~ t ed Charlotte's re-enrollment, stating in a letter to John and Kimberly that the school was exercising its discretion to deny Charlotte's enrollment because of Kimberly's ~ involvement in Elizabeth's decision not to write the apology letters. See id. ,r 196. The school also
suspended Charlotte's access to her email account. See id. ,r 201. Because of the timing of CF A's decision to deny C~lotte re-enrollment, John and Kimberly missed the deadlines to enroll Charlotte in a comparable priyate school or any "honors" or "Advanced Placement" classes in any public high school that Charlotte could attend in New Hanover County. See id. ,r,r 202, 206.
B. Plaintiffs allege that before the 2020-21 academic year, CFA received a PPP loan which was forgiven after the end of that academic year. On April 30, 2020, CF A's assistant head of school for *7 finance and .operations applied for a PPP loan of $1,253,949. See [D.E. 23-2] 2-3; Am. Compl. ,r
10. One section o~:the application form reads: "All businesses receiving SBA financial assistance must agree not to di~criminate in any business practice, including employment practices and services to the public on the basis of categories cited in 13 C.F.R., Parts 112, 113, and 117 of SBA Regulations." [D.E. 23-2] 5; cf. Am. Compl. ,r,r 18-19. On May 4, 2020, First Carolina Bank issued a PPP loan to CF A. for the full amount CF A had requested. See [D.E. 23-1] 2. In the loan agreement, CFA promised to "comply in all material respects with all laws, rules, regulations and requirements of any Governmental Authority, including the SBA, applicable to its business" and to "c~use all representations, warranties and certifications contained [in the loan agreement] and in the ;
Application to remain true and correct at all times while any portion of the Loan remains outstanding." Id. ~t 9. Also on May 4, 2020, First Carolina Bank submitted an application to the \ SBA for a guarantY, ofits loan CFA. See id. at20-21; cf. Am. Comp!. ,r 22. On June 15, 2021,
the SBA forgave CF A's entire PPP loan and repaid First National Bank. See [D.E. 23-2] 6. Thus, CFA had the loan from May 4, 2020, June 15, 2021.
Plaintiffs allege that CF A (1) discriminated against Natalie on the basis of sex in violation of Title IX, (2) retaliated against Elizabeth and Charl_otte in violation of Title IX, (3) intentionally inflicted emotional distress on Elizabeth and Charlotte, ( 4) negligently inflicted emotional distress .on Elizabeth and Charlotte, and (5) breached its emollment contracts with John and Kimberly, of which Elizabeth ~d Charlotte were beneficiaries, including by breaching the covenant of good faith and fair dealing. See id. ,r,r 209--326. Plaintiffs bring their state-law claims under North Carolina law. Plaintiffs seek damages in excess of$75,000. See id._ at 80-81.
II. A motion~ dismiss under Rule 12(b )(6) tests the complaint's legal and factual sufficiency.
See Ashcroft v. Iqbal,
,7
*8
U.S. 30 (2012); Giarratano v. Johnson, 521 F.3d 298,302 (4th Cir. 2008). To withstand a Rule
12(b )(6) motion, a pleading ''must contain sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face." Iqbal,
556
U.S. at 678 (quotation omitted); see Twombly,
550
U.S. at 570; Giarratano, 521 F.3d at 302. In considering the motion, the court must construe the
facts and reasonable inferences "in the light most favorable to [the nonmoving party]." Massey v.
Ojaniit, 759 F.3d .343, 352 (4th Cir. 2014) (quotation omitted); see Clatterbuck v. City of
Charlottesville,
\ Gilbert, 576 U.S. 155 (2015). A court need no~ accept as true a complaint's legal conclusions, ''unwarranted inferences, unreasonable conclusions, or arguments." Giarratano, 521 F.3d at 302 (quotation omitted); see Iqbal, 556U.S. at67&-79. Rather, aparty'sfactualallegationsmustnudge its claims beyond ~e-realm of''mere possibility'' into ''plausibility." Iqbal, 556 U.S. at 67&-79; see Twombly. 550 U.S. at 570.
When evaluating a motion to dismiss, a court considers the pleadings and any materials "attached or incorporated into the complaint." E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637F.3d435,448-(4thCir.2011); see Fed. R. Civ.P. lO(c); Goinesv. ValleyCmty. Servs.Bd., 822 F.3d 159, 166(4thCir.2016); Thompsonv. Greene,427F.3d263,268 (4th Cir. 2005). A court may also consider a document submitted by a moving party if it is "integral to the complaint and there is no dispute about the document's authenticity'' without converting the motion into one for summary
judgment. Goines, 822 F .3d at 166. Additionally, a court may take judicial notice of public records.
See, e.g., Fed. R. ~vid. 201; Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
m.
Plaintiffs allege that CFA(l) discriminated against Natalie on the basis of sex in violation ;
of Title IX, and (2) retaliated against Elizabeth and Charlotte in violation of Title IX. See Am.
! Comp!. ff 209-25~. CF A responds that its PPP loan was not federal financial assistance under Title *9 IX and therefore Title IX did not apply to CFA during the relevant period'. CFA also argues that even if required to ~om.ply with Title IX, plaintiffs fail to plausibly state a claim under Title IX or state law. See [D.E. 23] 5-30.
A. CF A argues plaintiffs fail to state a claim because CF A never received federal financial ; ·,
assistance and thus is not subject to Title IX. See [D.E. 23]
5.
Plaintiffs respond that CF A's PPP
loan was federal financial assistance that required CF A to comply with Title IX during the life of the
loan. See [D.E. 24] 4-11. CFA replies that the PPP loan falls within an exclusion in the definition
of''federalfinancialassistance"forcontractsofguaranty. See [D.E.23] 5-14; [D.E. 25] 2. Whether
CFA received ''federal financial assistance" is an essential element of plaintiffs' Title IX claims. See
'·
Feminist Majority Found. v. Hurley.
1. Under Section 7(a) of the Small Business Act, Congress empowered the SBA to make loans c to support small businesses. See 15 U.S.C. § 636(a); United States v. Kimbell Foods, Inc., 440 U.S.
•
l
715, 719 n.3 (197~); Small Bus. Admin. v. McClellan,
,, 7(a) loans suppqrt "general business purposes," and the loans may take one of three forms. 13 C.F.R. § 120.2(a)(~). A section 7(a) loan may be "(i) [a] direct loan by SBA; (ii) [a]n immediate " participation loan by a Lender and SBA; or (iii) [ a] guaranteed loan ( deferred participation) by which
SBA guarantees a portion of a loan made by a Lender." Id. Although all three types of loans are '- available, "[t]he S~A prefers to guarantee private loans rather than disburse funds directly."
Kimbell Foods, 440 U.S. at 719n.3; Inre Gateway Radiology, 983 F.3dat 1248. The SBA'sbroad
[1] Because tp.e receipt of ''federal financial assistance" is an element of a Title cy: claim, the
parties properly frame the issue under Rule 12(b )( 6) rather than under Rule 12(b )(1 ). See Arbaugh
v. Y & H Corp.,
lending authority allows the SBA to "lend□ money to small businesses whenever they could not get ,
necessary loans oh reasonable terms from private lenders." McClellM,
When Congress created the Paycheck Protection Program, it placed the program __ under
section 7(a) of the;Small Business Act. See 1S U.S.C. § 636(a)(36); Sprin,gfield Hosp., Inc. v.
Guzman,
: only for certain enpmerated ~es. See id.§ 636(a)(36)(F)(i);,Lucius v. Fon Taco, LLC, No. 21- 22397-CN-WILLIAMS/MCALILEY, 2022 WL 33S491, at *2--6 (S.D. Fla. Jan. S, 2022) (unpublished). PPP loan forgiveness is subject to certain conditions, such as a borrower using the funds only for tho~e enumerated uses. See 1S U.S.C. § 636m(d), (f). For example, a borrower qualifies for loan forgiveness when the borrower has used at least 60% of the loan to cover payroll costs and has used::the remaining funds to cover payroll, mortgage interest, rent, utilities, covered operations expendi:tures, covered property damage costs, covered supplier costs, or covered worker protection costs. See 1S U.S.C. § 636m(b), (d)(8); Sprin,gfieldHosp .. 28 F.4that409, 424; Lucius, ·
>
2022 WL 33S491, :at *3.
,,..,.. l
Like other $ection 7(a) loans, "PPP loans are made through private lenders and participants sign promissory nQtes, subject to SBA guarantee~." Springfield Hosp., 28 F .4th at 423 ( quotation omitted). The pro~ss obtain a PPP loan is similar that for other section 7( a) guaranteed loans. An: applicant "seeking a PPP loan submits an application to an authorized lender, which then determines the borrower's eligibility. If the lender wishes to make the loan, it submits a guarantee *11 ' application to the :SBA, and then disburses the loan proceeds if the guarantee application is
approved." Mem. Supp. Defs.' Mot. Dismiss at 7, Carmen's Comer Store v. Small Bus. Admin.,
520 F. Supp. 3d 726 (D. Md. 2021) (No. CCB-20-1736), 2020 WL 7480256; see 13 C.F.R. §
120.2(a)(2). Loans· :financed by lenders in SBA's Preferred Lenders Program are not subject to the
same prior approval requirements. See 13 C.F.R. § 120.450. In short, ''the PPP is a loan guaranty
program." Springfield Hosp.,
2.
Title IX pr9hibits discrimination, exclusion from participation in, and denial of the benefits
of any education program or activity2 that receives "Federal :financial assistance." 20 U.S.C. §§
168l(a), 1687; see ~ackson v. Birmingham Rd. ofEduc.,
or activity, except a contract of insurance or guaranty." 34 C.F.R. § 106.2(g).
An entity is a recipient of federal :financial assistance regardless of whether it receives the
federal :financial ~sistance directly or indirectly. See Grove City Coll. v. Bell,
r (1984); see also 34 C.F.R. § 10_6.2(i) (defining ''recipient''). Indirectly receiving federal :financial
(
assistance includes receiving it ''through an intermediary." NCAA v. Smith, 525 U.S. 459, 468
(1999); s~ Peltier,
[2] Cover~d education institutions include "any public or private preschool, elementary, or secondary school.'; 20 U .S.C. § 1681 ( c ). And"[ a]n entire corporation, partnership, or other private organization ... [w]hich is principally engaged in the business of providing education" qualifies as an "education program." 20 U.S.C. § 1687(3)(A)(ii); see 34 C.F .R. § 106.2(h)(3)(i)(B). As a private K.-12 school, CF.A meets these definitions. See Am. Compl. ,r 10; [D.E. 23] 2.
assistance, however, when the entity merely benefits economically from a different entity receiving federal assistance: See id. Put differently, "Title IX coverage extends to Congress' intended
:-
recipient, whether receiving the aid directly or indirectly," but it does not "follpw□ the aid past the
recipient to those ~ho ~erely benefit from the aid." U.S. Dep't ofTransp. v. Paralyzed Veterans
of Am.,
At least three parts of the regulatory definition of ''federal financial assistance" are relevant here. First, ''federal financial assistance" encompasses loans or grants to support an education program or activio/. See 34 C.F.R. § 106.2(g)(l). Second, ''federal financial assistance" encompasses "any other contract, agreement, or arrangement which has as one of its purposes the provision of assistance to any education program or activity." Id. § 106.2(g)(5). An "arrangement'' is "[t]he action of ~ging or disposing in order," an "[a]rranged condition, orderly disposition, order," "[a] settlement of mutual relations or claims between parties; an adjustment of disputed or debatable matters; a settlement by agreement," or a "[d]isposition of measures for. the accomplishment of a purpose; preparations _for successful performance." Arrangement, Oxford English Dictioruuy _( online ed.). Third, ''federal financial assistance" excludes contracts of guaranty. See 34 C.F .R. § 10~.2(g)(5). A "guaranty'' is "[ a] promise to answer for the payment of some debt, or the performance of some duty, in case of the failure of another who is liable in the first instance; a collateral und~gby one person to be answerable for the payment of some debt or performance of some duty or contract for another person who stands first bound to pay or perform." Guaranty, Black's Law Dictioruuy (11th ed. 2019) (noting a guaranty, as defined here, could also be termed a .. i
"contract of ~ty''). -
A PPP loan.is ''federal financial assistance" subject Title IX because it is "[ a] grant or loan
of Federal financial assistance." 34 C.F.R. § 106.2(g)(l). After all, ''the PPP is, in substance and
in form, a loan pro~." Springfield Hosp .• 28 F .4th at 423. The CARES Act itself uses the word
"loan" about 75 times describe the PPP. See id.; Tradeways, Ltd. v. U.S. Dep't ofTreasw;y, Civil
*13
Action No. ELH-20-1324, 2020 WL 3447767, at *17 (D. Md. June 24, 2020) (unpublished).
Borrowers receive money under a loan that is registered with and guaranteed by the SBA. See
Springfield Hosp.,
; . CFA' s loan documents bolster this conclusion. The note First Carolina Bank issued to CF A has the SBA's logo at the top of the first page and prominently states on the first page that the note is part of the PPP.· See [D.E. 23-1] 2. The loan agreement confirms that CFA applied to First · Carolina Bank "for a SBA 7(a) Paycheck Protection Program loan." Id. at 7. And the loan agreement states that First Carolina Bank made the loan "subject to 1;he terms and conditions herein set forth and in accordance with the CARES Act, PPP Regulations and the Application." Id. at 8. Moreover, the borrower's certification states that First Carolina Bank was making a "U.S. Small Business Administration ('SBA') guaranteed loan." Id. at 17. The note, loan agreement, and borrower's certification also contain an SBA loan number and loan name. See id. at 2, 7, 17. The interest rate on the· loan was subject to change only "in accordance with SBA Standard Operating Procedures." Id. at 2. When:First Carolina Bank disbursed the funds to CF A, First Carolina Bank and CF A execute4 an SBA Form 1050 to confirm that ''the loan proceeds were disbursed and received and will be used in accordance with the Use of Proceeds section of the Authorization, *14 including any and all SBA/Lender approved modifications." Id. at 16. Thus, although First Carolina Bank, a private lender, issued the loan, CF A's loan documents indicate First Carolina Bank did so . pursuantto and as a result of the SBA's lending authority under the CARES Act, making CF A's PPP
loan a "loan of F,ederal financial assistance." 34 C.F.R. § 106.2(g)(l); see 15 U.S.C. § 636( a)(36)(F)(ii)(I).
Even if PPP loans are not "loan[s] of Federal financial assistance" because the loans are issued by private lenders, they still are federal financial assistance because they are the result of an "arrangement which has as one of its purposes the provision of assistance to any education program or activity." 34 C.F.R. § 106.2(g)(l), (5). The PPP's structure-:--i.e., private lenders making loans
' to borrowers with a guaranty from the SBA-fits the definition of "arrangement." The PPP is a "disposition of measures for the accomplishment of" Congress's purpose to "help □ businesses make payroll and pay operating expenses in order to help keep people employed through the economic downturn" caused 9y COVID-19. Jnre Gateway Radiology. 983 F .3d at 1247; Arrangement, Oxford English Dictionary ( online ed.). In this arrangement, the private lender is the intermediary through which Congress's intended recipients (i.e., businesses, organizations, and other entities hurt by the COVID-19 pandemic) receive access to capital for which they might not otherwise have qualified without the federal government's guarantee the lender ensure repayment. Thus, a borrower receiving a PPP loan receives federal financial assistance indirectly through an intermediary (i.e., the ,.
private lender) under an arrangement created by Congress and is a recipient of federal financial
assistance for the duration of the loan. See NCM,
Although the SBA guarantees PPP loans, that alone does not make the PPP loan a contract *15 of guaranty. A guaranty is a ''promise to answer for the payment of some debt ... in case of the
\ '· failure of another 'Yho is liable in the first instance." Guaranty. Black's Law Dictioruuy (11th ed. 2019). The PPP lo~ itself is not such a promise but is instead the·instrument that creates the debt . . to be guaranteed. And the PPP loan recipient is the party "liable in the first instance" for the debt.
Id. The contract of guaranty under Congress's arrangement in the PPP is the SBA's promise to the lender to repay the lender if the borrower defaults or the SBA forgives the loan. Cf. 15 U.S.C. § 636(a)(-2)(F). That promise is between the lender and the SBA and is one piece of the larger arrangement Congress created. For example, CFA's borrower's certification states First Carolina Bank was ''m.ak[ing] a U.S. Small Business Administration ("SBA") guaranteed Loan." [D.E. 23-1] . '
~ 17. The SBA gwu;anteed the loan, but the loan itself was not the guaranty. First Carolina Bank ' applied separately ~ the SBA for a guaranty of its loan CF A, and CFA was not a party that
application. See id. at 20-21.
In opposition, CFA cites Gallagher v. Croghan Colonial Bank,
' assistance that would make it liable for disability discrimination under section 504 of the Rehabilitation Act. See Gallagher, 8~ F.3d at 277. The plaintiff argued that the defendant bank . ' i, received federal financial assistance because the bank made loans to students that the federal
government subsidlzed and guaranteed. See id. The Sixth Circuit held that the defendant bank did
- ~ not receive federal: financial assistance because the guarantees· on the student loans were contracts of guaranty, which the regulations implementing the Rehabilitation Act excluded from the definition of federal financi3' assistance. See id. The court held the subsidies also were not federal financial assistance but w~e compensation for making stud~t loans at below-market rates. See id. Moreover, relying _on Paralyzed Veterans, the Sixth Circuit noted that the defendant bank was not the intended recipient of the federal aid. See id. at 278. Rather, the students receiving the loans were *16 the intended recipients. The Sixth Circuit concluded that the defendant bank "did not receive federal financial assistance for purposes of the Rehabilitation Act by disbursing loans to students pursuant to federal student l9an legislation." Id.
In Moore, the Eleventh Circuit also considered whether a defendant bank received federal
, financial assistan~ under, section 504 of the Rehabilitation Act. See Moore,
Moore, the defendant bank made section 7(a) loans guaranteed by the SBA. See id. at 1431-32. The defendant bank ar~ed that the guarantees it received from the SBA fell within the exclusion for contracts of guaranty in the regulations implementing the Rehabilitation Act. See id. at 1430. The Eleventh Circuit rejected this argument, holding that the regulations' exclusion of contracts of guaranty conflicted with the statutory text, which contained no such exclusion. See id. at 1425-32. The Eleventh Circuit distinguished Title VI and Title IX because those statutes contain express exclusions for contracts of guaranty. See id. at 1425-27.
Gallagher and Moore do not help CFA. Gallagher and Moore reached opposite conclusions •
concerning essenti~ythe same question. Notably, however, both cases involved whether the lender had received feder~ financial assistance that would expose it to liability for disability discrimination under the Rehabilitation Act. The defendant banks received loan guarantees (and in Gallagher, subsidies) from the federal government and were issuing guaranteed loans to borrowers. The , -
question in Gallagher and Moore was whether the intermediaries in the :t;unding arrangement at issue received federal fip.ancial assistance and were subject to the Rehabilitation Act. Neither case addressed the question here, which is whether a borrower receiving money from ail intermediary lender via an SBA-guaranteed loan receives federal financial assistance.
CF A received "federal financial assistance" and had to comply with Title IX for the life of · its loan. By plausibly alleging that CF A had a PPP loan during the 2020-21 academic year, ,plaintiffs
. plausibly alleged the first element of their Title IX claims. See Hurley, 911 F.3d at 686; Jennjng~-
*17
B. CF A argue~ that even if it is subject to Title IX, plaintiffs fail to state a plausible Title IX claim. See [D.E. 23] 18-26. Plaintiffs allege that (1) CFA discriminated against Natalie through deliberate indifference to the student-on-student sexual harassment she suffered and (2) retaliated against Elizabeth and Charlotte for engaging in protected activity under Title IX.
CF A argues Natalie fails to plausibly allege a student-on-student sexual harassment claim.
Under Title IX, a school may be liable for student-on-student sexual harassment that is "sufficiently
severe." Davis v. Monroe Cn1y. Bd. of Educ.,
[3] In.light of this conclusion, the court need not address plaintiffs' weaker alternative argument
that its Title IX claims can proceed because CF A agreed in its loan application to follow Title IX and
the SBA' s regulations implementing Title IX. Cf. 13 C.F .R. §§ 112.11, 113 .605 ( discussing SBA' s
enforcement procedures); Matternes v. Ci1y of Winston-Salem,
· 911 F .3d at 686; Jcimings, 482 F .3d at 69S~ Plaintiffs plausibly allege that CF A is an educational institution that received federal financial assistance during the time period in which plaintiffs' claims arose. Moreover, CF A does not contest that Natalie plausibly alleges the school, through an official who has authority !9 address the alleged harassment and to institute corrective measures, had actual ' . notice or knowledge of the alleged harassment. See [D.E. 23] 18. CFA argues, however, that ·'
Natalie failed to plausibly allege the second and fourth elements. See id.
As for the second element, a plaintiff must plausibly allege that she "suffered sexual
harassment that was so severe, pervasive, and objectively offensive that it deprived [her] of equal
access to the educational opportunities or benefits provided by'' the school. Fairfax Cnty. Sch. Bd.,
[1]
-~
1 F.4th at 263. A court evaluates this element by considering "a constellation of surrounding
circumstances, expectations, and relationships." Davis, S26 U.S~ at 6S1 (quotation omitted); see
Oncale v. Sundowner Offshore Servs., Inc., S23 U.S. 7S, 82 (1998); Jenning~, 482 F.3d at-696.
Students-may "eng~e in insults, banter, teasing, shoving, pushing, and gender-specific conduct that
is upsetting to students subjected to it'' without exposing a school to liability under Title IX. Davis,
S26 U.S. at 6S1-S2; see Jennings,
·' to education that T~tle IX is designed to protect." Davis, S26 U.S. at 6S2; see Fairfax Cnty. Sch. Bd., · 1 F.4th at 263; J~gs, 482 U~S. at 696. A student is denied equal access to the school's educational oppo~ties and benefits if the harassment "(1) results in the physical exclusion of the victim from an educational program or activity; (2) so undermines and detracts from the victim's educational experience as effectively deny her equal access to an institution's resources and
s'
opportunities; or (3) has a concrete, negative effect on the victim's ability participate in an
educational program or activity." Fairfax Cnty. Sch. Bd., 1 F .4th at 27S ( cleaned up); see Jennings.
As
for the fourth element, a plaintiff must plausibly allege that ''the school acted with
deliberate indifference to the alleged harassment." Fairfax Cney. Sch. Bd., 1 F .4th at 264. A plaintiff
must allege more than mere negligence, but a ''half-hearted investigation or remedial action will
[ not] suffice to shield a school from liability." Id. at 271 ( alteration in original; quotation omitted);
see S.B. ex rel. A.~. v. Bd. of Educ. of Hartford Cnty .•
689 (quotation and'alteratiqns omitted); see Davis,
Taking the; allegations in the amend~ complaint and all reasonable inferences drawn therefrom as true, Natalie's Title IX claim crosses the plausibility line. As discussed, Natalie has plausibly alleged ~e first element, and CFA does not contest that Natalie has plausibly alleged the third element. As for the second element, Natalie alleges that male students in her AP Literature class made offensive jokes and comments about sexual violence against women, such as stating that women "invite rap~" and joking about rape. ·see Am. Compl. ff 62-64. For example, during one class session, Natalie alleges that a male student stated, "[W]omen getting raped and murdered, ~hat's wrong with;that. · .. tale as old as time." Id. ,r 94. When Natalie objected to this comment, another male studdnt stated, "[N]o, I.don't think that any or'us here would rape anyone.;, Id. ,r 95. · A third male studeµt replied, "[D]on't speak for ail of us!!!" Id. Natalie alleges the AP Literature teacher did not intervene or respond to comments like these in the classroom. See id. ff 64, 94. *20 Natalie alleges this.conduct was not isolated to one or two class sessions but was repe~ted and on going throughout the year-long course and occurred at least on a weekly basis. See id. ,r 60. Natalie also alleges the maJ;e students engaged in this conduct knowing Natalie had been sexually assaulted at a different school and suffered from post-traumatic stress disorder due to the assault. See id. ,r,r 42-43, 45. And Natalie alleges that the male students specifically directed at least some of this conduct at her after she contested the male students' behavior. See id~ ,r 63; cf. id. ,r 81.
Natalie also plausibly alleges that the harassment deprived her of equal access to the
.
)
educational opportunities at CFA. Natalie alleges she experienced anxiety and dread about attending
AP Literature _class sessions. See Jennings,
experienced frequent panic attacks because of the comments, including at least one such panic attack ' ' ' during class. See Am. Compl. ,r,r 74, 96. Although she ''was fully capable of reading and analyzing the materials" assigned in the course, Natalie studied different materials than other students, and at one point, she self-studied alone for two weeks instead of participating in class because of the male students' conduct. Id. ,r,r 78, 81. In Spring 2021, when CF A transferred Natalie to a new statistics class, in which some of the same male students from her AP ~iterature class were also enrolled, Natalie took the class on Zoom, rather than in person, after the school refused to allow her to attend a different statistics class. See id. ,r,r 84-87. Natalie was the only female student in the statistics : a class. See id. ,r 84.~ Natalie sought counseling because of the male students' in-class behavior. See
id. ,r,r 74, 90. Finally, Natalie also alleges she "struggled to maintain her course load while meeting· the expectations of completing college entry requirements for performing arts." Id. ,r 75. Thus, Natalie has plausi~ly alleged the second element of her Title IX claim.
As for the fourth element, taking the allegations in the amended complaint and all reasonable
inferences drawn _therefrom as true, Natalie plausibly alleges that CFA acted with deliberate
*21
indifference toward the unwelcome conduct Natalie experienced. Even though "school
admini~trators are entitled to substantial deference when they calibrate a disciplinary response," S.B. ,
ex rel. A.L., 819 F .3d at 77, taking only "limited steps in response to the harassing and threatening
[conduct] ... -do[es] not preclude Title IX liability." Hurley.
to change their con~uct, despite knowing the effects it had on Natalie. See, e.g .• Am. Compl. ff 66, 71-73, 77, 86, 88, 94. Although CF A apparently investigated the misconduct late in the school year, it is unclear how CFA resolved the investigation, and adminii;:trators refused to meet with Natalie as a part of the investigation. See id. ff 104---06, 110, 113, 190. Accordingly, Natalie has plausibly alleged the fourth element of her claim.
Natalie plausibly states a Title IX claim against CFA. Thus, the court denies CF A's motion to dismiss Natalie's Title IX claim.
2.
CF A argues that Elizabeth and Charlotte fail to state retaliation claims under Title IX.
*22
Plaintiffs may bring a private action for retaliation under Title IX. Jackson,
As for the first prong, protected activity includes "oppositional conduct that is prompted by
a reasonable belief that [a school] is not in compliance with its Title IX obligations." Lamb v.
Liberty Univ., Inc:, No. 6:21-cv-00055, 2022 WL 731526, at_ *3 (W.D. Va Mar. 10, 2022)
(unpublished); cf. ~eMasters v. Carillon Clinic,
CFA argues that Charlotte never engaged in protected activity and that even though Elizabeth did engage in prote~ted activity, CFA never retaliated against her for doing so. See [D.E. 23] 25-26. Viewing the amended complaint in the light most favorable to Charlotte and Elizabeth, CFA's . arguments fail. CFA does not dispute that Elizabeth engaged in protected activity. According to the amended complaint, Elizabeth engaged in protected activity by ta])cjng to the school counselor and an adminiinrator, Fee, about harassment she experienced at CFA. See Am. Compl. ft 99, 101-02. Moreover, Elizabeth helped prepare and post online a petition advocating against certain male students speaking ~t graduation. See id. ft 117-18. These male students were some of the same *23 students that alleg¢dly made unwelcome comments during Natalie's AP Literature class and allegedly harassed Elizabeth. See id. ,r,r 102, 107. Although the petition itself makes no direct reference to harassment, Elizabeth and other students discussed the petition with the school's counselor and another teacher during conversations about Elizabeth and the other students' opposition to the objectionable graduation speakers because the graduation speakers had allegedly harassed them. See id. ,r,r 111-18. Thus, the petition was plausibly protected activity because it /
J advocated against ~exual harassment. See Hurley. 911 F.3d at 694. In respons~ to the petition, CF A brought Elizabeth before the school's Honor Council, arguing the petition constituted ''retaliation, intimidation, threats, reprisal, false accusations, and/or making false charges." Id. ,r,r 140, 142. Viewing the amended complaint in the light most favorable to Elizabeth, CFA:s charge against Elizabeth suggests CFA did not take seriously the concerns voiced to admini~rs and then made public in the petition and instead immediately sided with the male students. CF ~'s ultimatum to JohnandKimberlythatitwould bar Elizabeth from participating in graduation ceremonies if she did not apologize to the male students named in the petition bolsters ~ this conclusion. See id. ,r,r 165, 170, 174. When Elizabeth did not apologize, CFA excluded
Elizabeth and her family from the school's graduation events. See id. ,r,r 173, 181-83. The Honor Council proceedings and CF A's sanctions against Elizabeth are plausibly retaliatory because Elizabeth had no prior disciplinary history at CF A, she was an excellent student, Ragon and another teacher told Elizab~ the petition was a good idea, and the sanctions CFA levied against Elizabeth were atypical at CFA. See id. ,r,r,136, 169, 172,175,186. Moreover, Elizabeth alleges that CFA ( imposed these sanctions despite the Honor Council not finding any code of conduct violations or
recommending consequences. See id. ,r,r 161--65, 176. The sanctions also are plausibly retaliatory because CF A omitted all references to Elizabeth during the graduation events. See id. ,r,r 183, 188. Thus, Elizabeth pl~usibly alleges CF A retaliated against her for participating in protected conduct.
Charlotte's· retaliation claim also crosses the plausibility line. R~gardless of whether *24 Charlotte engaged 1n protected activity, CFA's decision to forbid Charlotte to re-enroll for the 2021-22 academic year was plausibly a third-party reprisal for Elizabeth's protected activity and John and Kimberly's supp~rt of Elizabeth. Notably, the letter from CFA to John and Kimberly expressly cited Elizabeth's conduct and John and Kimberly's ''fail[ ure] to support and cooperate with the outcome ofthe:school's disciplinary process" as the reasons Charlotte could not re-enroll. Id. ,r 196.
In Thompson v. North American Stainless, LP, the plaintiff's :fiancee engaged in protected activity under Title VII. See 562 U.S. 170, 172 (2011). In retaliation for the fiancee's protected activity, the defendant fired the plaintiff, who sued for retaliation under Title VII. See id. The . defendant argued that Title VII does not allow retaliation claims brought by third parties. See id. at
172-74. The Supreme Court rejected that argument and "ha[d] little difficulty'' concluding that if the plaintiff's allegations were true, the plaintiff's firing violated Title VII. Id. at 173. The Court
\ concluded that third-party reprisals can constitute unlawful retaliation under Title VII when the third party has a close relationship to the person who engaged in protected activity. See id. at 173-75. Thus, "firing a clo~e family member will almost always meet the" standard for unlawful retaliation under Title VII. Id. at 175. Moreover, in Thompso!!, the Court concluded that a third party who is
r fired in retaliation for another's protected activity ''falls within the zone of interests protected by Title VII" and can maintain a lawsuit for Title VII retaliation, at least when the third party "is not an accidental victim of the retaliation" or "collateral damage" but instead was ''the employer's intended means of harming'~ the person who engaged in protected activity. Id. at 177-78; see Jarvis v. Bank
.· ! . . of Am. Com., N;o. 1:10CV896, 2012 WL 6568791, at *6-7 (M.D.N.C. Dec. 17, 2012)
.,
(unpublished), re_p~rt and recommendation adopted,
Because ''familiar Title VII retaliation concepts [apply] the requirements of a Title IX
retaliation claim," the court applies Thompson the facts alleged in plaintiffs' amended complaint.
*25
Hurley, 911 F.3d a~ 694; see A.B. v. Hawaii State De.p't of Educ., 30 F.4th
828,
840-42 (9th Cir.
2022); Ollier v. Sweetwater Union High Sch. Dist.,
! students at CF A fr?m engaging in protected Title IX activity. See Hurley, 911 F .3d at 694. Thus, the allegedly retali~ry actions were materially adverse.
Elizabeth and Charlotte plausibly allege that CF A retaliated against them in violation of Title ~ ' IX. Accordingly, the court denies CFA's motion dismiss Elizabeth's and Charlotte's Title IX f
retaliation claims. ;
N. In addition their Title IX claims, Elizabeth and Charlotte also allege state-law claims for IIED, NIED, and ~each of contract. The court has supplemental jurisdiction overthese_claims. See
t
28 U.S.C. § 1367; Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 349 (1988); United Mine
'
Workers of Am. v. Gibbs,
376, 394 (4th Cir. 2012); Sbanaghan v. Cahill,
Con, .•
;
quotation omitted); see Day & Zimmennann Inc. v. Challoner,
A. CFA argue$ that Elizabeth and Charlotte fail to plausibly allege IIED claims. See [D.E. 23] f 26-27. An IIED c'aim requires a plaintiff to plausibly allege "(1) that the defendant engaged in
extreme and outrageous conduct; (2) that the conduct was intended to cause severe emotional
t
distress; and (3) that the conduct in fact caused severe emotional distress." Sasser v. Cicy of
Whiteville; No. 7:10-CV-95-D, 2010 WL4809039, at *2 (E.D.N.C. Nov.18, 2010) (unpublished);
see Tumerv. Thomas, 369N.C. 419,427, 794 S.E.2d439, 446 (2016); Waddle v. Sparks, 331 N.C:.-
73, 82,414 S.E.2d,22, 27 (1992); Dickens v. Ptuyear,
[4] North Cm:olina does not have a mechanism certify questions of state law its Supreme Court. See Town ofNags Head v. Toloczko, 728 ]!.3d 391, 398 (4th Cir. 2013).
To be considered "extreme and outrageous," the conduct must be "so outrageous in character,
and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as
atrocious, and utterly intolerable in a civilized community." Hogan v. Forsyth Country Club Co.,
I
\..
North Carolina '~ set a high threshold to satisfy this element." T~er, 369 N.C. at 427, 794
S.E.2d at 446 (quo~tion omitted). Whether conduct is sufficiently outrageous is a question oflaw
for the court. See Lenins
v. K-Mart
Con,.,
Even viewing the allegations of the amended complaint in the light most favorable to •
Elizabeth and Char~otte, their allegations do not meet North Carolina's ''high threshold" for an IIED
claim. Turner, 36~ N.C. at 427; 794_ S.E.2d at 446 (quotation omitted). Elizabeth and Charlotte
suffered insult and,indignity because of CF A's allegedly retaliatory conduct, but the allegations do
not plausibly allege that ~FA' s treatment of Elizabeth and Charlotte ''was so extreme in degree, as
i? go beyond all po~sible bounds of decency, and to be regarded as atrocious, and utterly intolerable
in a civilized comniunity" or that it was intended to cause severe emotional distress. Hogan, 79 N.C.
App. at 493-94,
i
(S.D.W. Va. Aug. }7, 2012) (unpublished); Rouse v. Duke Univ.,
B. CFA argues Elizabeth and Charlotte fail to plausibly allege NIED claims. See [D.E. 23] 27-28. To state mi NIED claim, a plaintiff must plausibly allege that "(i) defendant negligently
[1] engaged in conduct; (ii) it was reasonably foreseeable the conduct would cause plaintiff severe
emotional distress; :and (iii) the conduct in fact caused plaintiff to suffer such distress." Andersen v. Baccus, 335 N.C. 526, 531, 439 S.E.2d 136, 139 (1994); Johnson v. Ruark Obstetrics & GynecologyAssocs~. P.A., 327N.C. 283,304,395 S;E.2d 85, 97 (1990); Acosta v. Byrum, 180N.C. ~ App. 562, 567, 638 S.E.2d 246, 250 (2006). "When the plaintiff's complaint alleges acts of
discrimination that are intentional in nature, and simply concludes that the acts were committed· negligently, [the complaint] is insufficient to state a claim for negligent infliction of emotional distress." Barbier v. Durham Cney. Bd. of Educ., 225 F. Supp. 2d 617, 631 (M.D.N.C. 2002); Mitchell v. Ly~. Inc., 16 F.3d 410, 1994 -WL 38703, at *3 (4th Cir. 1994) (per curiam) (unpublished table; decision); Sasser, 2010 WL 4809038, at *3. An NIED claim is "subject to dismissal when 'the material factual allegations charge nothing but intentional acts."' Fisher v. FrontlineNat'l, No. 1:18-cv-00193-MOC-WCM, 2019 WL 1048848,at *4-5 (W.D.N.C. Mar. 5, 2019) (unpublished) (quoting Mitchell, 1994 WL 38703, at *3).
Elizabeth and Charlotte fail to plausibly allege NIED claims. The amended complaint's ''material factual allegations" center on CF A's allegedly retaliatory conduct toward them. Mitchell, 1994 WL 38703, at *3. "Retaliation is, by definition, an intentional act." Jackson, 544 U.S. at ; 173-74. Although-parties may plead inconsistent claims as alternative theories of liability, see Fed.
R. Civ. P.
8(d)(3),
the allegations in the complaint must support each theory. Elizabeth and
Charlotte, however, attempt to repackage CFA's intentional, retaliatory conduct toward them as
negligence. Yet where a ''plaintiff's compliant alleges acts of discrimination that are intentional in
nature, and simply concludes that the acts were committed negligently, it is insufficient to state" an
NIED claim. Barbier,
5:09-CV-00104,
C.
CF A argues Elizabeth and Charlotte fail to plausibly allege their claims for breach of contract
and breach of the covenant of good faith and fair dealing. See [D.E. 23] 28-30. The elements of
a breach of contract claim are "(1) the existence of a valid contract and (2) breach of the terms of that
contract." Poor v. Hill, 138 N.C. App. 19, 26,
Srvs. USA, Inc. v.'. Link, 372 N.C. 260, 276, 827 S.E.2d 458, 472 (2019) (per curiam); Bicycle
TransitAuth., Inc. v. Bell,
Dep't of State Treasurer,
Under Norf:b. Carolina law, contracts implicitly contain ''the basic principle of contract law
that a party who enters into an enforceai,.le contract is required act in good faith and to make
reasonable efforts perform [its] obligations under the agreement.,, Maglione v. Aegis Fam. Health
Ctrs.,
.! inconsistent with, the express language used in the agreement." (citation omitted)). Because Elizabeth and Cfuu:lotte allege breach of contract and breach of the covenant ·of good faith and fair dealing as part and parcel o;f the same claims, see Am. Compl. ff 285-308, the court treats them "as a single breach of contract issue" and evaluates them together. Sutherland, 2018 WL 4398259, at *5.
John and Kimberly executed enrollment contracts with CF A for the 2020--21 academic year, of whichElizabeth,and Charlotte were beneficiaries. See Am. Compl. ,r 47. John and Kimberly also executed an enro~ent contract for Charlotte for the 2021-22 academic year. See id. ,r 49. Plaintiffs allege that the~e enrollment contracts incorporated CFA' s student handbook by reference .. See id. ff 50( d), 53~ 289, 292. Plaintiffs allege that the student handbook states: ''No adverse action
[5] See Nadendla v. WakeM~
will be taken against any person who makes a good faith report of bullying, harassment, or hazing. Retaliation in any form against anyone for making a good faith complaint under this policy or for participating in an ·investigation is strictly prohibited." Id. ,r 58 (emphasis omitted). Moreover, according to Fee, being prohibited from attending graduation events is not listed in the student handbook as an available sanction. See id. ,r 136. Yet the student handbook states that "[t]he school's rules, consequences and procedures for a violation will be disseminated and applied consistently to ensure that consequences are predictable." Id. ,r 169.
Taking thes,e allegations and all reasonable inferences drawn therefrom as true, Elizabeth has -.
plausibly alleged a; breach of contract claim. As discussed, Elizabeth plausibly alleges that CF A unlawfully retaliated against her in violation of Title IX. Elizabeth also plausibly alleges the existence of a valid enrollment contract of which she was a beneficiary, and she plausibly alleges that the contract incorporated by reference provisions in CF A's student handbook stating retaliation for claims ofbullying or harassment is prohibited and that CF A would not impose disciplinary sanctions inconsistent with those in the handbook. Finally, Elizabeth plausibly alleges CFA breached these contractual terms by retaliating against her for speaking out regarding claims of sexual harassment and by imposing a punishment not listed in the handbook. }
Charlotte's!breach of contract claim focuses on the 2021-22 enrollment contract, not her
2020-21 enrollment contract. See Am. Comp!. ,r,r 297-308. Charlotte plausibly alleges a breach
of contract claim. The contract reserved for CF A ''the right to immediately terminate or not renew
a student's Enro~ent Contract if the school, in its sole discretion, concludes that the actions of a
parent or guardiaJ?, unreasonably impedes a constructive relationship or otherwise materially
interferes with the School's accomplishment of its mission." Am. Comp!. ,r 50( e ). Thus, CF A had
unilateral authority under the contract to terminate Charlotte's re-enrollment based on its assessment
that John and KiIJ?.berly acted in a way that impeded a constructive relationship with CF A or
interfered with CFA's mission. However, "[w]here a contract confers on one party a discretionary
*32
power affecting the rights of the other, this discretion must be exercised in a reasonable manner
based on upongoo4faithandfairplay." Dysartv. Cummings,
Outsourcing, Inc. v. Continental Cas. Co.,
A factfinder could conceivably view CF A's actions as reasonable in light of the breakdown '· n in the relationship petween CFA and John and Kimberly over Elizabeth's actions. However, it is
:i
equally plausible in light of Charlotte's good standing academically and behaviorally and her Title . ~
IX retaliation alleg~tions that CF A's decision not to re-enroll Charlotte was unfair and made in bad t, faith. See Am. Comp!. ff 301-02. Thus, viewing the amended complaint in the light most favorable
to Charlotte, Charlotte' sbreach of contract claim crosses the pla~ibility line. \
V. In sum, the court GRANTS IN PART and DENIES IN PART defendant's motion dismiss [D.E. 22]. The court DISMISSES WITHOUT PREJUDICE Elizabeth's and Charlotte's IIED and NIED claims. Pla.ip.tiffs may pro~ with their respective Title IX and breach of contract claims. ~ The parties SHAL~ confer and :file a discovery plan pursuant Federal Rule of Civil Procedure 26.
The parties also $HALL engage in a court-hosted settlement conference with United States Magistrate Jud~e James E. Gates.
SO ORDERED; This J1. day of June, 2022.
JSC.DEVERID United States District .Judge