Morgan v. Richmond School of Health and Technology, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
MARY MORGAN, et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 11-1066 (GK)
)
RICHMOND SCHOOL OF HEALTH AND )
TECHNOLOGY, INC., )
)
Defendant. )
______________________________)
MEMORANDUM OPINION
Plaintiffs are or have been students at Defendant Richmond
School of Health and Technology, Inc. (“RSHT”). They bring this
suit on behalf of themselves and others similarly-situated for
violations of the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691et seq., Title VI of the Civil Rights Act of 1964, 42 U.S.C. §§
2000d et seq., and the Virginia Consumer Protection Act, Va. Code
Ann. §§ 59.1-196 et seq., and for breach of contract and fraudulent
inducement to contract. The matter is now before the Court on
Defendant’s Motion to Dismiss or Transfer [Dkt. No. 22]. Upon
consideration of the Motion, Opposition, Reply, Supplemental
Briefs, and the entire record herein, and for the reasons stated
below, Defendant’s Motion to Dismiss or Transfer is granted.
I. Background1
Plaintiffs, who are dissatisfied students at RSHT, have
brought this case as a breach of contract action. RSHT is a for-
profit vocational college with campuses in Richmond, Virginia, and
Chester, Virginia. RSHT offers vocational degrees for occupations
such as surgical technician, medical assistant, and pharmacy
technician.
To summarize, Plaintiffs allege that RSHT does not provide the
education it promises its prospective students. Notably, despite
representation to the contrary, RSHT fails to prepare its students
for tests necessary for certification or licensing in their fields,
fails to place students in necessary externships, and fails to
provide critical equipment or, at times, even teachers.
Nevertheless, tuition at RSHT ranges from $10,000 to $20,000
per program, depending on the program. The vast majority of RSHT’s
students finance their education through federal financial aid.
RSHT itself participates in the financial aid process by filling
out and submitting forms to the United States Department of
Education (“DOE”) on behalf of the student. Once a student
qualifies for a loan, RSHT receives funding directly from the
1
For purposes of ruling on a motion to dismiss, the factual
allegations of the complaint must be presumed to be true and
liberally construed in favor of the plaintiff. Aktieselskabet AF
21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir.
2008); Shear v. Nat’l Rifle Ass’n of Am., 606 F.2d 1251, 1253 (D.C.
Cir. 1979). Therefore, the facts set forth herein are taken from
the Second Amended Complaint.
-2-
United States and credits the student’s account to pay for tuition
and other charges. The student must later repay the loan with any
applicable interest. RSHT graduates often fail to obtain a job in
their field of study and thereafter find themselves heavily
burdened by tuition debt.
On June 8, 2011, Plaintiffs filed their first Complaint [Dkt.
No. 3]. On August 3, 2011, Plaintiffs filed an Amended Complaint
[Dkt. No. 3]. On December 7, 2011, the Court granted leave for
Plaintiffs to file their Second Amended Complaint [Dkt. No. 21].
The Second Amended Complaint sets forth five causes of action.
First, Plaintiffs claim that RSHT violated the Equal Credit
Opportunity Act, 15 U.S.C. §§ 1691 et seq., because its use of
financial aid intentionally discriminated and disparately impacted
African Americans. Second, Plaintiffs claim that RSHT violated
Title VI of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000d et
seq., because its acts, policies, and practices intentionally
discriminated against African Americans. Third, Plaintiffs claim
that RSHT violated the Virginia Consumer Protection Act, Va. Code
Ann. §§ 59.1-196 et seq., by committing fraudulent acts relating to
Plaintiffs’ enrollment. Fourth, Plaintiffs claim that RSHT breached
its contracts with them by violating the implied covenant of good
faith and fair dealing and failing to provide Plaintiffs with an
adequate education. Fifth, Plaintiffs claim that RSHT fraudulently
induced them to contract.
-3-
On December 15, 2011, RSHT filed this Motion to Dismiss or
Transfer pursuant to Federal Rules of Civil Procedure 12(b)(2) and
12(b)(3). On January 13, 2012, Plaintiffs filed their Opposition
[Dkt. No. 13]. On January 20, 2012, RSHT filed its Reply [Dkt. No.
25].
II. Standard of Review
On a motion to dismiss for lack of personal jurisdiction under
Rule 12(b)(2), the plaintiff bears the burden of establishing
personal jurisdiction over each defendant. FC Inv. Grp. LC v. IFX
Mkts., Ltd., 529 F.3d 1087, 1091 (D.C. Cir. 2008). In order to
satisfy this burden, a plaintiff must establish the court's
jurisdiction over each defendant through specific allegations in
his or her complaint. Kopff v. Battaglia, 425 F. Supp. 2d 76, 80-81
(D.D.C. 2006). Additionally, the plaintiff cannot rely on
conclusory allegations; rather, he or she must allege the specific
facts on which personal jurisdiction is based. First Chicago Int'l
v. United Exchange Co., 836 F.2d 1375, 1378 (D.C. Cir. 1988).
On a motion to dismiss for improper venue under Rule 12(b)(3),
“the court accepts the plaintiff's well-pled factual allegations
regarding venue as true, draws all reasonable inferences from those
allegations in plaintiff's favor, and resolves any factual
conflicts in the plaintiff's favor.” Pendleton v. Mukasey, 552 F.
Supp. 2d 14, 17 (D.D.C. 2008) (citation and internal quotations
omitted). “Because it is the plaintiff's obligation to institute
-4-
the action in a permissible forum, the plaintiff usually bears the
burden of establishing that venue is proper.” Freeman v. Fallin,
254 F. Supp. 2d 52, 56 (D.D.C. 2003).
III. Analysis
A. Personal Jurisdiction
RSHT contends that Plaintiffs have failed to carry their
burden of establishing personal jurisdiction. “To establish
personal jurisdiction, plaintiffs must (1) plead facts sufficient
to show that jurisdiction is appropriate under the District of
Columbia's long-arm statute and (2) satisfy the ‘minimum contacts’
demands of constitutional due process.” Fuentes-Fernandez & Co. v.
Caballero & Castellanos, PL, 770 F. Supp. 2d 277, 281 (D.D.C. 2011)
(citing United States v. Ferrara, 54 F.3d 825, 828 (D.C. Cir.
1995)).
In relevant part, the District of Columbia’s long-arm statute
reads, “[a] District of Columbia court may exercise personal
jurisdiction over a person, who acts directly or by an agent, as to
a claim for relief arising from the person's . . . transacting any
business in the District of Columbia.” D.C. Code § 13-423(a). “The
plaintiff bears the burden of establishing the factual basis for
the exercise of personal jurisdiction over a defendant by
demonstrating that (1) the defendant transacted business in the
District; (2) the claim arose from the business transacted in the
District; and (3) the defendant had minimum contacts with the
-5-
District such that the Court's exercise of personal jurisdiction
would not offend traditional notions of fair play and substantial
justice.” Gibbons & Co. v. Roskamp Inst., Civ. No. 06-720 (EGS),
2006 WL 2506646, at *2 (D.D.C. Aug. 28, 2006) (citing Cellutech,
Inc. v. Centennial Cellular Corp., 871 F. Supp. 46, 48 (D.D.C.
1994)); Koteen v. Bermuda Cablevision, Ltd., 913 F.2d 973, 974
(D.C. Cir. 1990).
The parties agree that RSHT’s only contacts with the District
of Columbia flow from its participation in federal financial aid
programs through DOE under Title IV of the Higher Education Act of
1965. See Def.’s Mot. 25; Pls.’ Opp’n 17-22; 2d Am. Compl. ¶¶ 4,
69-78, 83-91. Therefore, if, as RSHT argues, its contacts with DOE
are legally insufficient to establish personal jurisdiction under
the government contacts exception, then the case must be dismissed.
NBC-USA Housing, Inc. Twenty-Six v. Donovan, 741 F. Supp. 2d 55, 59
(D.D.C. 2010) (no personal jurisdiction where defendant’s only
contact with the District of Columbia was a “government contact.”).
“[T]he traditional ‘government contacts’ principle . . .
denies personal jurisdiction over non-residents whose only contact
with this jurisdiction involves uniquely governmental activities.”
Siam Kraft Paper Co. v. Parsons & Whittemore, Inc., 400 F. Supp.
810, 812 (D.D.C. 1975); Naartex Consulting Corp. v. Watt, 722 F.2d
779, 786-87 (D.C. Cir. 1983). This exception “finds its source in
the unique character of the District as the seat of national
-6-
government and in the correlative need for unfettered access to
federal departments and agencies for the entire national
citizenry.” Envtl. Research Int’l, Inc. v. Lockwood Green Eng’rs,
Inc., 355 A.2d 808, 813 (D.C. 1976) (en banc). Indeed, “[t]o permit
our local courts to assert personal jurisdiction over nonresidents
whose sole contact with the District consists of dealing with a
federal instrumentality not only would pose a threat to free public
participation in government, but also would threaten to convert the
District of Columbia into a national judicial forum.” Id.Therefore, “certain contacts with the federal government--such
as meeting with federal officials in Washington, D.C., or receiving
federal funding--are insufficient to establish personal
jurisdiction.” Fuentes-Fernandez & Co., 770 F. Supp. 2d at 281. In
order to come within the government contacts exception, a
defendant’s only contacts with the District of Columbia must
involve uniquely governmental activities. Id. at 281-82 (citing
Siam Kraft Paper Co., 400 F. Supp. at 812).
Accordingly, the government contacts exception has been
applied to instances where a defendant was in administrative
receivership and therefore managed by the Department of Housing and
Urban Development, Fuentes-Fernandez & Co., 770 F. Supp. 2d at 280-
82; where a defendant entered into a sales contract with the
Department of Housing and Urban Development, NBC-USA Housing, Inc.
Twenty-Six, 741 F. Supp. 2d at 59; where a defendant school
-7-
received funds from the Department of State, Ficken v. Rice, 594 F.
Supp. 2d 71, 75 (D.D.C. 2009); where a defendant entered into
contracts to sell vaccines to the Department of Defense, Savage v.
Bioport, Inc., 560 F. Supp. 2d 55, 62 (D.D.C. 2006); and where a
defendant visited the Environmental Protection Agency to procure
grants, Envtl. Resources Int’l, 355 A.2d at 813.
Participating in federal financial aid programs through DOE is
no different than receiving federal grants, or, indeed, from
receiving direct financial support for education services from the
federal government. See id.; Siam Kraft Paper Co., 400 F. Supp. at
812; Ficken, 594 F. Supp. 2d at 75. Use of federal financial aid
under Title IV of the Higher Education Act is obviously a uniquely
governmental activity. Hence, contacts with the District of
Columbia in furtherance of this activity do not suffice to
establish personal jurisdiction. Fuentes-Fernandez & Co., 770 F.
Supp. 2d at 281-82; Siam Kraft Paper Co., 400 F. Supp. at 812.
Moreover, the situation presented here is precisely the type
that the government contacts exception seeks to prevent. As the
District of Columbia Court of Appeals stated en banc, permitting
“local courts to assert personal jurisdiction over nonresidents
whose sole contact with the District consists of dealing with a
federal instrumentality . . . would threaten to convert the
District of Columbia into a national judicial forum.” Envtl.
Research Int’l, 355 A.2d at 813. If interacting with the Department
-8-
of Education in order to secure federal financial aid for students
were sufficient to establish personal jurisdiction, the District of
Columbia would become a national judicial forum for litigation
against schools, colleges, and universities throughout the country.
Indeed, by Plaintiffs’ own estimation, approximately 2000 for-
profit colleges would find themselves liable to be haled into court
in the District for any manner of dispute. 2d Am. Compl. ¶ 69. The
government contacts exception does not permit this result.
In response to RSHT’s contentions, Plaintiffs rely, almost
entirely, on a single, short, unpublished decision in United States
v. Wilfred Am. Educ. Corp., No. 86-333, 1987 WL 10501 (D.D.C. Apr.
23, 1987). See Pls.’ Opp’n 13-22. According to Plaintiffs, “in
Wilfred, this Court squarely rejected the precise jurisdictional
argument advanced by RSHT on virtually identical facts.” Id. at 13.
Although it is true that the Wilfred case held that the defendant’s
contacts with the government relating to federal financial aid were
sufficient to establish personal jurisdiction, Plaintiffs have
ignored a critical distinction. In that case, the Inspector General
of the Department of Education, i.e. the government itself, sought
to enforce subpoenas, which were enforceable in any appropriate
United States district court under the Inspector General Act of
1978, and which were designed to investigate the defendant’s use,
or misuse, of financial aid. Wilfred, 1987 WL 10501, at *1. Relying
on this important fact, Judge Pratt found that “[t]he additional
-9-
burden on the District of Columbia courts resulting from cases
brought by government agencies carrying on investigations in
Washington will not flood or cripple the local courts.” Id. at *4.
In short, even if Wilfred had any precedential value, which is
doubtful, it is clearly distinguishable from the case at hand.
Finally, in a Notice of Supplemental Authority (“Pls.’ Supp.
Mem.”) [Dkt. No. 26], Plaintiffs argue that this case falls under
a newly-delineated fraud exception to the government contacts
exception. Plaintiffs contend that because RSHT made fraudulent
representations to DOE when submitting student loan paperwork, the
government contacts exception should not shield it from personal
jurisdiction in Washington, D.C. Pls.’ Supp. Mem. 2-6.
In answer to a certified question from the Court of Appeals
for the D.C. Circuit, the District of Columbia Court of Appeals
recently held that the government contacts exception contains a
very narrow fraud exception. Companhia Brasileira Carbureto De
Calcio-CBCC v. Applied Indus. Materials Corp., 35 A.3d 1127, 1134
(D.C. 2012). The contours of this exception to the exception are
crystal clear: “a person who uses the government as an
instrumentality of fraud . . . and thereby causes unwarranted
government action against another, forfeits the protection of the
government contacts exception.” Id. This holding is very narrow,
and “[c]ases in which this fraud exception applies should be rare
indeed.” Id.-10-
Here, there is simply no allegation that RSHT used “the
government as an instrumentality of fraud” or “fraudulently induced
unwarranted government action against the plaintiff.” Id.; see
Pls.’ Supp. Mem. 4-5 (summarizing Plaintiffs’ allegations of
fraud). If anything, Plaintiffs’ allegations suggest that RSHT
assisted students in obtaining funding they desired and needed.
Certainly, though, there is no allegation that RSHT employed the
allegedly fraudulent statements to coax the government into action
against any Plaintiff, as was the case in Companhia. 35 A.3d at
1132. The fraud exception to the government contacts exception is
therefore inapplicable.
In sum, RSHT’s sole contacts with the District of Columbia
come within the government contacts exception. Therefore,
Plaintiffs have failed to carry their burden of establishing
personal jurisdiction over RSHT. FC Inv. Grp. LC, 529 F.3d at 1091;
Naartex, 722 F.2d at 786-87; Siam Kraft Paper Co., 400 F. Supp. at
812.
B. Venue
“A court may transfer a case to another district even though
it lacks personal jurisdiction over the defendants.” Naartex, 722
F.2d at 789; Sweetgreen, Inc. v. Sweet Leaf, Inc., ___F. Supp.
2d___, Civil Action No. 11-cv-00859 (JDB), 2012 WL 975415, at *5
(D.D.C. Mar. 23, 2012). “Transfer is appropriate under 28 U.S.C. §
1406(a) ‘when procedural obstacles [such as lack of personal
-11-
jurisdiction or improper venue] impede an expeditious and orderly
adjudication . . . on the merits.’” Id. (quoting Sinclair v.
Kleindienst, 711 F.2d 291, 293–94 (D.C. Cir. 1983) (alterations in
original). “The decision whether a transfer or a dismissal is in
the interest of justice . . . rests within the sound discretion of
the district court.” Naartex, 722 F.2d at 789. Transfer of a case
is usually preferable to dismissal. Jones v. United States, 820 F.
Supp. 2d 58, 61 (D.D.C. 2011).
It is clear that this case should be transferred to the
Eastern District of Virginia.2 As an initial matter, Plaintiffs do
not dispute RSHT’s contention that venue would be proper in the
Eastern District of Virginia. See Defs.’ Mot. 35-36; Pls.’ Opp’n
34-35; 28 U.S.C. § 1406(a). More to the point, all parties, all
events related to the case, and all known witnesses reside or
occurred in the Eastern District of Virginia. See generally 2d Am.
Compl. Because this Court does not have personal jurisdiction over
2
RSHT argues alternatively that the Court should transfer the
case to the Eastern District of Virginia, Richmond Division, under
the similar provisions of 28 U.S.C. § 1404(a). Def.’s Mot. 35-36.
Section 1404(a) reads, “[f]or the convenience of parties and
witnesses, in the interest of justice, a district court may
transfer any civil action to any other district or division where
it might have been brought or to any district or division to which
all parties have consented.” 28 U.S.C. § 1404(a). As under §
1406(a), § 1404(a) “vests discretion in the District Court to
adjudicate motions for transfer on an ‘individualized, case-by-case
consideration of convenience and fairness.’” Otter v. Salazar, 718
F. Supp. 2d 62, 63-64 (D.D.C. 2010) (quoting Stewart Org., Inc. v.
Ricoh Corp., 487 U.S. 22, 29 (1988)). There is no doubt the case
would also properly be transferred under § 1404(a), for the reasons
outlined above.
-12-
RSHT, and because the Eastern District of Virginia is a proper
venue, it is in the interest of justice to transfer this case to
the Eastern District of Virginia.
IV. Conclusion
For the reasons set forth above, RSHT’s Motion to Dismiss or
Transfer is granted, and the case shall be transferred to the
Eastern District of Virginia, Richmond Division.
An Order will issue with this opinion.
/s/
April 30, 2012 Gladys Kessler
United States District Judge
Copies via ECF to all counsel of record
-13-