Ogdon v. Grand Canyon Univ.
| Decision Date | 21 March 2022 |
| Docket Number | 1:20-cv-00709-DAD-SKO |
| Parties | KATIE OGDON, an individual, on behalf of herself and all others similarly situated, Plaintiff, v. GRAND CANYON UNIVERSITY, INC., et al., Defendants. |
| Court | U.S. District Court — Eastern District of California |
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS, IN PART, AND TRANSFERRING ACTION (DOC. NOS. 24, 25)
This matter is before the court on the motion to dismiss and motion to strike filed by defendants on September 17 2020.[1] (Doc. Nos. 24, 25.) Pursuant to General Order No. 617 addressing the public health emergency posed by the COVID-19 pandemic, defendants' motions were taken under submission on the papers. (Doc. No. 26.) For the reasons explained below, the court will grant defendants' motion to dismiss in part, transfer this action, and decline to rule on the pending motion to strike in light of the transfer.
On May 20, 2020, plaintiff Katie Ogdon filed the complaint initiating this putative class action lawsuit against defendants Grand Canyon University, Inc. (“GCU”) and Grand Canyon Education, Inc. (“GCE”) (collectively, the “corporate defendants”) alleging violations of California's consumer protection laws. (Doc. No. 1.) On August 4, 2020, plaintiff filed the operative first amended complaint (“FAC”), adding a civil racketeering claim and naming three corporate officers as additional defendants: Brian Mueller, Dan Bachus and Stan Meyer. (Doc. No. 18 at ¶¶ 9-11.)
Plaintiff alleges as follows in her FAC.[2]
A. Background on Defendants and the University
Defendant GCU, formerly known as Gazelle University, is an Arizona non-profit corporation registered to do business in California, and its sole member is non-party Grand Canyon University Foundation (the “Foundation”). (Id. at ¶ 7.) Defendant GCE, a Delaware corporation registered to do business in California, is a publicly traded holding company that controls GCU. (Id. at ¶ 8.) At all relevant times, defendant Mueller was the president of the Foundation, GCU, and GCE; defendant Bachus was the chief financial officer of GCE; and defendant Stan Meyer was the chief operating officer of GCE. (Id. at ¶¶ 9-11.)
Prior to July 2018, GCE operated Grand Canyon University (the “University”) as a for-profit institution, as it had done since purchasing the University in 2004, when the University was “a small, freestanding, Christian non-profit corporation with a small brick and mortar campus in Arizona” facing closure. (Id. at ¶¶ 29, 31.) In response to the Department of Education's passage of several new regulations in 2014 “to curb the worst abuses of for-profit schools, ” including by requiring for-profit schools to comply with certain disclosure requirements “to better inform prospective students as to the likelihood they will obtain gainful employment in their field, ” defendants started to “plan to restructure themselves as a non-profit” so that the University could continue to operate unburdened by those regulations. (Id. at ¶¶ 51, 55.) As part of this plan, in July 2018, GCE sold the University assets to GCU. (Id. at ¶ 59.) Together, GCU and GCE operate the University, including “an online education program, through which they offer graduate degrees in a variety of professional areas that are subject to state regulation, such as health care and education (‘Regulated Professions').” (Id. at ¶¶ 1, 29, 41.) The online program became the centerpiece of the University's graduate offerings and the focus of GCE's aggressive marketing and recruitment efforts because they could reach graduate students across the country who did not need to relocate to Arizona or be located in geographic proximity to the University's campus in Arizona. (Id. at ¶ 39.)
Pursuant to a corporate restructuring and various agreements that are detailed in the FAC, but need not be summarized here, GCU (the non-profit) outsourced operation of the University to GCE (the for-profit), but GCU maintained nominal control of the University in an effort to obtain non-profit status for the University. (Id. at ¶¶ 13, 29, 31, 38, 41, 59-66.) For example, GCU “provide[s] the academic instruction and [is] the entity receiving tuition dollars, obtained by students, including those in California, from the federal student loan program, ” and GCU “pay[s] GCE those tuition dollars to perform various services, including most importantly, conducting the marketing and recruiting of new students from around the country, including California, to enroll.” (Id. at ¶ 64.) Defendants petitioned the Department of Education to recognize the University as a non-profit, but their petition was denied on November 6, 2019, for several reasons that are detailed in the allegations of the FAC. (Id. at ¶¶ 67-74.) In denying non-profit recognition, the Department instructed GCU to comply with all federal regulations governing for-profit entities in its operation of the University and to not to refer to itself as a non-profit. (Id. at ¶ 75.)
The University obtained its regional accreditation from Higher Learning Commission (“HLC”), a regional accreditation agency. (Id. at ¶¶ 56-57, 77.) “To participate in the federal student loan program, a university must have accreditation from a regional accreditation agency.” (Id. at ¶ 77.) However, in addition to regional accreditation, (Id. at ¶ 78.) “[T]he process of obtaining and maintaining professional accreditation of a program can be time consuming and expensive” because “[d]ifferent states may have different standards for a given Regulated Profession, and a school that wishes to prepare people to work in a variety of different jurisdictions will need to invest in ensuring their programs meet any differing standards.” (Id. at ¶ 80.) According to plaintiff, “[b]ecause Defendants divert tuition dollars into shareholder profits, they cannot offer educational programs that are professionally accredited in all jurisdictions.” (Id. at ¶ 82.) Many of the University's “professional degree and certification programs are not accredited” for their professional purposes. (Id. at ¶ 88.) For example, most of the University's healthcare degree programs and educational master's and doctorate programs and are not accredited in California or most other states. (Id. at ¶¶ 89-90.)
B. Defendants Allegedly Defraud Plaintiff into Enrolling in the University
Plaintiff, a resident of Fresno, California, had a goal of becoming a mental health therapist. (Id. at ¶ 167.) After completing her bachelor's degree in 2015, she was unable to begin her graduate studies at that time, so she started working full-time at a high school in Fresno. (Id. at ¶ 168.) In the summer of 2017, to pursue her goal of becoming a mental health therapist in California, plaintiff began to research masters' degree programs and “planned to obtain a master's degree from an accredited school that would allow her to work in California when she completed the degree.” (Id.) She was particularly interested in online programs because they offer flexible schedules and start dates. (Id.) When plaintiff searched on Google for online programs, GCU “came up both in the sponsored search results and the general search results.” (Id. at ¶ 169.) Plaintiff had heard of GCU because she recalled seeing television commercials for their undergraduate program during the basketball season and she had seen posters advertising the University to graduating seniors during her employment at the high school in Fresno. (Id. at ¶ 171.) These advertisements “led her to believe [the University] was a legitimate educational institution.” (Id.)
In the summer of 2017, plaintiff completed an online form on the University's website. (Id. at ¶ 173.) A couple of days later, Michael Granitz, a “Counselor” from the University, called plaintiff in an attempt to enroll her in the University. (Id. at ¶ 174.) “Over the next several weeks, plaintiff had a number of conversations with Mr. Granitz about the possibility of enrolling at the University, ” and “[s]he informed him that her goal was to become a mental health therapist.” (Id. at ¶¶ 175-176.) “Mr. Granitz knew that Ms. Ogdon lived in California, where she intended to practice after graduation, ” and “their conversations naturally centered around obtaining a degree so she could practice in California where she already lived and also wanted to work.” (Id. at ¶ 176.) “Mr. Granitz assured [plaintiff] that the University had an excellent program that would meet her needs.” (Id.)
Because the mental health profession in the state of California is a Regulated Profession, plaintiff “knew she would have to obtain a degree from a program accredited for that purpose.” (Id. at ¶¶ 1, 177.) During a phone call with Mr. Grantiz, plaintiff asked him if the program was approved by the American Psychological Association and appropriately accredited for licensure in California. (Id. at ¶ 177.) “Mr. Granitz assured her that the program was accredited both by the American Psychological Association and California licensing authorities, ” and “the program was covered under the HLC's accreditation, and that that accreditation was like an umbrella that covered everything.” (Id. at ¶¶ 56, 177.) Mr. Granitz told plaintiff “that she would be able to work in her state with the HLC accreditation, ” and he “lied that the umbrella HLC accreditation was superior to other accreditation because with it, she could teach psychology obtain a PhD, or pursue a variety of...
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