UNC warns of ‘massive liability’ if students win suit over disputed 2020 fees

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  • The University of North Carolina System says it could face a "massive liability" if students from UNC Chapel Hill and N.C. State University win their lawsuit over challenged student fees. The dispute sits at the N.C. Supreme Court.
  • The students seek refunds of fees paid in fall 2020, when the two flagship campuses were closed to most students.
  • A unanimous decision from the N.C. Court of Appeals would have allowed the case to move forward. The state Supreme Court blocked the lower court's ruling.

The University of North Carolina System could face a “massive liability” of “tens of millions of dollars” if two students win their lawsuit challenging fees charged at flagship campuses in fall 2020. UNC’s lawyers outlined their concerns in a brief filed Thursday at the N.C. Supreme Court.

An October 2022 ruling from the N.C. Court of Appeals would have allowed the lawsuit to move forward. The state Supreme Court issued an order weeks later blocking the Appeals Court’s decision.

N.C. State grad student Joseph Lannan and UNC Chapel Hill undergrad Landry Kuehn seek refunds of fees paid in fall 2020, when their campuses were closed for most students. That was the first full semester after the COVID-19 pandemic hit North Carolina.

Lannan and Kuehn argue that their schools breached “implied-in-fact” contracts with students at the two flagship campuses.

“This case is about fees that the University is required by statute to collect from students and whether the payment of those fees could form a contract with students,” according to the latest brief from the team of government and private lawyers representing the university. “The Court of Appeals found that Plaintiffs had pled an implied contract related to those fees made up of some unspecified terms and that the University waived its sovereign immunity by entering into that contract.”

“In reaching its decision, the Court of Appeals erred by (i) disregarding the nature of the student fees as statutory requirements, (ii) glossing over bedrock principles of contract law, and (iii) invading the province of the Legislature by expanding waiver of sovereign immunity,” according to UNC’s brief.

“In Fall 2020, the University relied on North Carolina law when it developed a plan for addressing the still-evolving impact of COVID-19 on its students,” the brief added. “The University was transparent, telling its students before they paid the statutorily required fees that the fees would not be refunded even if the manner of instruction changed at any point in the semester.”

“Two of those students – purporting to represent a class of all of their fellow students – sued the University, claiming that it breached some unascertainable contract by failing to refund the fees when North Carolina State University (“NC State”) and The University of North Carolina at Chapel Hill (“UNC Chapel Hill”) switched to remote instruction,” UNC lawyers wrote.

“Because the students’ payment of fees required by statute did not create a contract, their claims are barred by sovereign immunity,” the university argued. “And contrary to the panel decision, Plaintiffs failed to plead sufficient facts to support the creation of an implied-in-fact contract based upon information on the University’s websites and billing statements.”

UNC warned about the potential negative impact of the Appeals Court’s decision.

“The panel decision strips the University – and potentially any other state agency – of any opportunity to rely on settled legal principles to identify, assess, and mitigate its potential legal exposure. If any statement across a state or local agency’s massive network of information could constitute an implied-in-fact contract, it would be impractical, if not impossible, for the agency to identify what information could be cherry-picked and cobbled together to support an implied-in-fact contract claim.”

“In addition, here the decision potentially exposes the University to massive liability – including a money judgment possibly reaching tens of millions of dollars to Plaintiffs and their lawyers – based on an amorphous contract that the University never entered,” UNC warned. “The decision also potentially opens up the University to future lawsuits from its students over any change to any aspect of student life, even if those changes were necessary in the interest of public safety – i.e., changes at East Carolina University or UNC-Wilmington in the event of a devastating hurricane.”

The university warned that the case undermined the “fundamental goal of sovereign immunity.”

“Given the potentially unchecked scope of implied-in-fact contract theory claims across government information platforms, if affirmed, the panel decision could subject governmental agencies to an unnecessary and costly burden of litigation (discovery, motions, and trial), borne by the public, even where the agencies ultimately prevail at trial. The purpose of sovereign immunity is to avoid that very result,” UNC lawyers wrote.

The students’ lawyers outlined their case in a court filing last October.

“In the fall semester of 2020, despite the pandemic, 14 of the 16 constituent universities continued campus life, keeping campus facilities open. 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,” the students’ attorneys argued. “NCSU and UNC-CH charged student fees for many of the activities they shut down.”

“This was not, as Defendant Board of Governors of the University of North Carolina … seeks to euphemize it, a mere change in the mode of instruction: it was a total shutdown of campus, complete with evicting non-athletic students from campus housing,” according to the students’ brief.

“Flouting the constitutional mandate that the people have access to the University of North Carolina free of expense ‘as far as practicable,’ the Board refused to refund a penny of the millions of hard-earned dollars it collected in student fees even though it never provided the services for which those fees were paid,” the students argued.

Lannan and Kuehn will have a chance to respond in writing to the university’s latest arguments.

The state Supreme Court agreed in March to hear the case, titled Lannan v. Board of Governors of UNC. The court has not yet scheduled oral arguments.