Der Boghossian v. Capella University, LLC

Background

Nicole Der Boghossian, Andria L. Connell, Erica Browning, Alisha JnoBaptiste, Denise Tejada, and Rami Yazar sued Capella University, LLC and Strategic Education, Inc. in a proposed class action. The plaintiffs alleged violations of Sections 349 and 350 of the New York General Business Law, fraud, and negligent misrepresentation involving Capella’s Doctor of Psychology programs.

Capella’s psychology programs were not accredited by the American Psychological Association and were not registered with the New York State Education Department. The plaintiffs alleged that Capella relied on a New York statutory exemption that allowed students of unaccredited programs to complete clinical training at state- or local-government-funded programs or services. The New York Legislature revoked that exemption on June 24, 2021, effective June 24, 2022. The plaintiffs alleged that Capella did not tell them about the revocation and, in some instances, continued to represent that they could complete their clinical training in New York.

The plaintiffs enrolled between 2018 and 2020, completed their required coursework, and paid substantial tuition and fees. The opinion states that they could not complete the required New York clinical training after the exemption was revoked. Defendants moved to dismiss the First Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legal claim.

New York consumer-protection claims

The court granted the motion to dismiss the claims under New York General Business Law Sections 349 and 350. The plaintiffs argued that Capella deceptively failed to disclose that the exemption could be revoked and affirmatively misrepresented that its program would allow students to complete clinical training in New York and pursue licensure.

The court held that the plaintiffs had not adequately alleged that Capella possessed information about the exemption that was uniquely unavailable to them. The relevant licensing requirements and statutory exemptions were publicly available, and the possibility that a statute could be changed was not uniquely known by Capella. The court also held that statements made before the plaintiffs enrolled were not false when made because the exemption was then in effect and the complaint did not allege that Capella knew the Legislature would later revoke it.

The court considered Capella’s disclaimers and licensure disclosures, which stated that Capella did not guarantee licensure and that students were responsible for reviewing state requirements. The court concluded that a reasonable consumer would not have been misled by the challenged statements when viewed together with those disclosures. The court also rejected the argument that federal higher-education rules and the State Authorization Reciprocity Agreement required the broader disclosures asserted by the plaintiffs. Leave to amend these claims was denied.

Fraud claims

The court treated the fraud allegations as involving both fraudulent misrepresentation and fraudulent concealment. Statements made before enrollment could not support fraud because the exemption was still in effect at that time. Many allegations about later statements also failed to meet Rule 9(b), which requires fraud to be pleaded with particularity, including the who, what, when, where, and how of the alleged misconduct.

The court held that Connell and JnoBaptiste adequately alleged fraudulent misrepresentation based on statements made after the exemption was revoked. The complaint alleged that Capella faculty told them in 2021 that they could qualify for New York licensure if they completed clinical training at state-funded sites. The court found those statements materially false after the revocation, and found sufficient allegations of intent, reliance, and financial harm at the pleading stage. Defendants’ motion to dismiss those post-revocation misrepresentation claims was denied.

The court granted the motion to dismiss the remaining fraudulent-misrepresentation claims. It also held that Connell and JnoBaptiste adequately alleged fraudulent concealment for the period between June 24, 2021, and April 6, 2023, when Capella allegedly informed students that they could no longer continue their New York practicums and internships. The court found it reasonable at this stage to infer that Capella knew about the revocation and knew that students were relying on the belief that they could complete their clinical education in New York. The other plaintiffs’ concealment claims were dismissed for lack of the required particularity.

Negligent misrepresentation

The court dismissed Count V, the negligent-misrepresentation claim. It held that the plaintiffs had not alleged the special relationship required for this type of claim; universities generally do not have such a relationship with their students. The court also held that the economic-loss doctrine barred recovery because the plaintiffs sought economic damages without alleging personal injury or property damage. Leave to amend this claim was denied.

Disposition and further proceedings

Judge Valerie Caproni granted in part and denied in part defendants’ motion to dismiss. The motion to dismiss the New York General Business Law and negligent-misrepresentation claims was granted. The motion to dismiss Connell and JnoBaptiste’s fraud claims was denied as to alleged misrepresentations made after June 24, 2021. The motion to dismiss the remaining plaintiffs’ fraud claims was granted with leave to file a Second Amended Complaint by May 2, 2025.

The court also lifted the previously imposed discovery stay. The parties were directed to confer about a civil case-management plan and scheduling order and to submit that plan by May 9, 2025. The opinion separately notes that the plaintiffs conceded their unjust-enrichment claim was duplicative, and that claim was dismissed.