Kentucky ex rel. Conway v. Daymar Learning, Inc.
| Decision Date | 22 March 2012 |
| Docket Number | CIVIL ACTION NO. 4:11CV-00103-JHM |
| Parties | COMMONWEALTH OF KENTUCKY EX REL. JACK CONWAY, ATTORNEY GENERAL PLAINTIFF v. DAYMAR LEARNING, INC., et al. DEFENDANTS |
| Court | U.S. District Court — Western District of Kentucky |
This matter is before the Court on a motion to remand this case to the Daviess Circuit Court by Plaintiff, Commonwealth of Kentucky, ex rel. Jack Conway, Attorney General, [DN 9] and on a motion to dismiss by Defendants, Daymar Learning, Inc., Daymar Learning of Paducah, Inc., Daymar Holdings, Inc., Draughons Junior College, Inc., Daymar Colleges Group, LLC, and Mark A. Gabis, [DN 7]. The Court granted Plaintiff's motion to stay adjudication of the motion to dismiss pending ruling on the motion to remand. Fully briefed, these matters are ripe for decision.
On July 27, 2011, Plaintiff, Commonwealth of Kentucky, ex rel Jack Conway, Attorney General, filed this action against Daymar Learning, Inc., Daymar Learning of Paducah, Inc., Daymar Holdings, Inc., Draughons Junior College, Inc., Daymar Colleges Group, LLC, (collectively "Daymar College") and Mark A. Gabis, for violations of the Kentucky Consumer Protection Act ("KCPA"), KRS § 367.170, and KRS § 367.175. Defendants operate a private, for-profit, post-secondary educational business on multiple campuses in multiple states, including the state of Kentucky. The Complaint alleges that the Defendants engaged in unfair, false, misleading, and deceptive conduct in the operation of post-secondary schools in the Commonwealth of Kentuckyin violation of the Kentucky Consumer Protection Act, KRS § 367.170 and KRS § 367.175. The Complaint alleges that the Defendants made false and misleading statements to students that credits earned at Daymar College will transfer to other institutions in Kentucky and offered programs that do not meet the standards of institutional accreditation. (Complaint at ¶¶ 23-24.) The Complaint also alleges that Defendants engaged in unfair and deceptive conduct by recruiting and enrolling students who do not meet Daymar College's own admission standards. (Id. at ¶¶ 27-28.) The Complaint further alleges that Defendants made false statements to students and engaged in deceptive conduct to prevent students from purchasing their textbooks and supplies from other vendors. (Id. at ¶¶ 31-32.) Plaintiff claims that Defendants falsely informed students that they can only use their financial aid monies to purchase textbooks and supplies from Daymar College and withheld from students the textbook identifying information and their financial aid. (Id. at 35-37.) Plaintiff asserts that these violations of the KCPA continue to occur. The Complaint further alleges that Defendants' requirement that students purchase their textbooks and other supplies from Daymar College, as opposed to other vendors, is an unlawful restraint of trade or commerce in violation of KRS § 367.175. (Id. at ¶ 41 (Count V).)
Defendants removed the case to this Court. Upon removal of the case, Defendants immediately filed a motion to dismiss the complaint for failure to state a claim arguing that Plaintiff's claims are subject to express preemption under the Higher Education Act and are barred by conflict preemption; that Defendants' actions are lawful under the Higher Education Act; and that Plaintiff's complaint fails to satisfy the federal pleading requirements of Fed. R. Civ. P. 8(a)(2). Plaintiff timely filed a motion to remand pursuant to 28 U.S.C. § 1447(c) arguing that neither federal question jurisdiction nor diversity jurisdiction exists. The Court shall address the motion to remandfirst.
Defendants initially removed this action from state court on grounds of federal question jurisdiction arguing that the Higher Education Act of 1965, 20 U.S.C. § 1001, et seq. ("HEA") preempts the claims asserted under the Kentucky Consumer Protection Act and also raises a substantial federal question. Defendants amended their Notice of Removal to add as grounds for removal the Class Action Fairness Act, 28 U.S.C. § 1332(d) and § 1453. Plaintiff moves to remand the case to state court arguing that this Court lacks either federal question jurisdiction or class action diversity jurisdiction.
"Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable" to federal court. 28 U.S.C. § 1441(b). "A claim falls within this court's original jurisdiction under 28 U.S.C. § 1331 'only [in] those cases in which a well-pleaded Complaint establishes either that federal law creates the cause of action or that the plaintiff[']s right to relief necessarily depends on resolution of a substantial question of federal law.'" Eastman v. Marine Mechanical Corp., 438 F.3d 544, 550 (6th Cir. 2006) (citation omitted). However, "the plaintiff is the master of the claim," Gafford v. General Elec. Co., 997 F.2d 150, 157 (6th Cir. 1993), and "the fact that the wrong asserted could be addressed under either state or federal law does not ordinarily diminish the plaintiff's right to choose a state law cause of action." Alexander v. Electronic Data Sys. Corp., 13 F.3d 940, 943 (6th Cir. 1994). The defendant bears the burden of establishing the existence of federal subject matter jurisdiction and the propriety of the removal. Eastman, 438 F.3d at 549. "Ifat any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). "The Supreme Court has developed two limited exceptions to the well-pleaded complaint rule: the complete preemption doctrine and the substantial federal question doctrine." Taylor Chevrolet Inc. v. Medical Mut. Services LLC, 306 Fed Appx. 207, 210 (6th Cir. Dec. 22, 2008).
Defendants claim that the Plaintiff's state-law claims are preempted by the Higher Education Act of 1965, 20 U.S.C. § 1001, et seq. ("HEA"). Specifically, Defendants argue that although pleaded as a state law action under KRS § 367.170 and KRS § 367.175, Plaintiff's complaint challenges the adequacy of multiple disclosures to students eligible for federal Title IV student funding. Defendants contend that 20 U.S.C. § 1098g1 expressly preempts any state law disclosure requirements to which loans under Title IV are subjected; and therefore, the complete preemption doctrine applies to Plaintiff's claims. The Court disagrees.
Complete preemption arises where Congress has so completely preempted a particular area "that any civil complaint raising this select group of claims is necessarily federal in character." Metropolitan Life Ins. Co., 481 U.S. 58, 63-64 (1987). In such cases, the plaintiff has essentially "'brought a mislabeled federal claim.'" Taylor Chevrolet Inc. v. Medical Mut. Services, 306 Fed. Appx. 207, 210 (6th Cir. 2008)(quoting King v. Marriott Int'l, Inc., 337 F.3d 421, 425 (4th Cir. 2003)). "Unlike ordinary preemption, which is a federal defense to a state-law claim under theSupremacy Clause of the Constitution that does not render a state-law claim removable to federal court, complete preemption makes a state-law claim 'purely a creature of federal law,' and thus removable from state to federal court from the outset." Hansen v. Harper Excavating,Inc., 641 F.3d 1216, 1220-1221 (10th Cir. 2011)(quoting Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 23-24 (1983)). See also Harvey v. Life Ins. Co. of North America, 404 F. Supp. 2d 969, 973 (E.D. Ky. 2005)(citing Caterpillar, Inc. . Williams, 482 U.S. 386, 393 (1987); Roddy v. Grand Trunk Western Railroad, Inc., 395 F.3d 318, 323 (6th Cir. 2005).
Complete preemption is a very narrow exception to the well-pleaded complaint rule. AmSouth Bank v. Dale, 386 F.3d 763, 776 (6th Cir. 2004). See also Roddy, 395 F3d at 323. In fact, the Sixth Circuit in AmSouth Bank summarized the law in this area and noted the Supreme Court has only found three statutes that evince Congressional intent to completely preempt a field: § 301 of the LMRA, see Avco Corp. v. Aero Lodge No. 735, 390 U.S. 557, 560 (1968), § 502(a)(1)(B) of ERISA, see Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-66 (1987), and §§ 85 and 86 of the National Bank Act, see Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 10-11 (2003). AmSouth Bank, 386 F.3d at 776; see also Mikulski v. Centerior Energy Corp., 501 F.3d 555, 563 (6th Cir. 2007). "In those cases where the Supreme Court has found complete preemption, 'the federal statutes at issue provided the exclusive cause of action for the claim asserted and also set forth procedures and remedies governing that cause of action.'" Roddy, 395 F.3d at 323 (quoting Beneficial Nat'l Bank, 539 U.S. at 8.).
The doctrine of complete preemption does not apply under the HEA because complete preemption is only available where there is a private right of action under federal law. The HEA does not create a private right of action. As noted by the Sixth Circuit, "'nearly every court toconsider the issue in the last twenty-five years has determined that there is no express or implied private right of action to enforce any of the HEA's provisions.'" Thomas M. Cooley Law School v. American Bar Ass'n, 459 F.3d 705, 710 (6th Cir. 2006)(quoting McCulloch v. PNC Bank Inc., 298 F.3d 1217, 1221 (11th Cir. 2002)). Because there is no federal private right of action, there can be no complete preemption in this matter based on the HEA.
Furthermore, courts that have addressed this issue have consistently held that the HEA does not completely preempt state law claims. See Adkins v. Excel College of Corbin, Inc., 21 F.3d 427, 1994 WL 124268, *2 (6th Cir. April 11, 1994)( no passage in the HEA that suggests the statute has the "extraordinary preemptive power" necessary to confer federal jurisdiction); Bland v....
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