Appeals Court rules UNC, NCSU students can pursue COVID-related breach-of-contract suits

(CJ photo by Maya Reagan)

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  • A unanimous ruling from the N.C. Court of Appeals permits a COVID-related breach-of-contract lawsuit to move forward against UNC-Chapel Hill and N.C. State.
  • Appellate judges rejected the university system's argument that sovereign immunity blocked the suit.

A unanimous three-judge panel of the N.C. Court of Appeals has ruled that students at UNC-Chapel Hill and N.C. State University can move forward with breach-of-contract lawsuits against their schools. The students say the schools should have refunded fees paid for services that were unavailable during COVID-related shutdowns.

The university system had claimed that sovereign immunity blocked the students’ legal action.

“[T]he trial court properly denied Defendant’s Motion to Dismiss the contract claims on sovereign immunity grounds because Plaintiffs adequately pled a valid implied-in-fact contract and such a contract can waive sovereign immunity,” wrote Chief Appeals Court Judge Donna Stroud. “The trial court also properly denied the Motion as to the contract claims … because Plaintiffs’ Amended Complaint properly pleads breach of contract claim.”

NCSU graduate student Joseph Lannan and UNC-CH undergrad Landry Kuehn argue their schools should have refunded student fees in 2020 after blocking access to services tied to those fees.

The lawsuit distinguishes UNC’s two flagship schools from the rest of the state university system.

“In the fall semester of 2020, despite the pandemic, 14 of the 16 constituent universities continued campus life, keeping campus facilities open,” according to a brief from Lannan and Kuehn’s attorneys. “However, two universities, North Carolina State University (NCSU) and the University of North Carolina at Chapel Hill (UNC-CH), shut down their campuses, evicted students (other than athletes) from campus, shuttered student unions and recreation facilities, canceled all arts performances, and banned access to sporting events. NCSU and UNC-CH had charged student fees for many of the activities they shut down.”

“Flouting the constitutional mandate that the people have access to the University free of expense ‘as far as practicable,’ Defendant Board of Governors refused to refund a penny of the millions of hard-earned dollars it collected from students for services it never provided,” the brief continued.

“Notably, this is not a case in which Plaintiffs complain about the quality of education they received, or even the quality of non-educational services,” according to the brief. “Rather, Plaintiffs contend that they paid for specific services and Defendant’s institutions outright failed to provide those services.”

Among Lannan’s fees at N.C. State were $439 for computer and science labs, $407 for the student health center, and $232 for campus sporting events. Kuehn’s UNC-CH fees included $442 for education technology on campus, $201 for student transit, and $159 for student union operations.

“As a result of NCSU’s and UNC-CH’s unnecessary campus closures, Plaintiffs were deprived of the use and benefit of all of the above facilities,” according to the students’ legal brief. “Further, because the campuses were essentially locked down, Plaintiffs got no benefit from either the campus bus system or from campus parking for which they had paid fees.”

“Despite depriving Plaintiffs and tens of thousands of other students of the services, benefits, and opportunities for which they paid, Defendant has refused to refund a penny of student fees.”

Lannan and Kuehn argue that their payment of fees to the schools created an “implied-in-fact contract.” Failure to provide services funded by fees amounted to a breach of that contract.

Stroud’s majority opinion noted the similarity of the students’ claims to breach-of-contract cases dealing with employees.

“In the employment cases, an employee agrees to work for the employer, and the employer agrees to pay the employee; based upon these facts, the terms of the implied contract are clear, even without an express written contract,” Stroud wrote. “In the educational context, as alleged by Plaintiffs’ Amended Complaint, the educational institutions agreed to accept and enroll the students, and the students have agreed to pay certain fees for particular services to be provided as part of the educational program. The parameters of the alleged implied contract are quite clear, and … ‘the State may, with a fair degree of accuracy, estimate the extent of its liability for a breach of contract.’”

The appellate ruling would return the case to a trial court, where a judge would decide whether Lannan and Kuehn win or lose their fight for refunds.

The university could appeal the ruling in Lannan v. Board of Governors. Since the Appeals Court panel’s decision was unanimous, the state’s highest court faces no obligation to take the case.