Court Opinion

ID: 2662493
Source: CourtListenerOpinion
Date Created: 2014-04-03 12:24:27.129996+00
Date Added: 2024-06-11T12:59:27.189355
License: Public Domain

UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF COLUMBIA
______________________________
MARY MORGAN, et al.,           )
                               )
          Plaintiffs,          )
                               )
     v.                        )    Civil Action No. 11-1066 (GK)
                               )
RICHMOND SCHOOL OF HEALTH AND )
TECHNOLOGY, INC.,              )
                               )
          Defendant.           )
______________________________)

                           MEMORANDUM OPINION

     Plaintiffs are or have been students at Defendant Richmond

School of Health and Technology, Inc. (“RSHT”). They bring this

suit on behalf of themselves and others similarly-situated for

violations of the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691

et seq., Title VI of the Civil Rights Act of 1964, 42 U.S.C. §§

2000d et seq., and the Virginia Consumer Protection Act, Va. Code

Ann. §§ 59.1-196 et seq., and for breach of contract and fraudulent

inducement to contract. The matter is now before the Court on

Defendant’s Motion to Dismiss or Transfer [Dkt. No. 22]. Upon

consideration   of   the   Motion,   Opposition,   Reply,   Supplemental

Briefs, and the entire record herein, and for the reasons stated

below, Defendant’s Motion to Dismiss or Transfer is granted.
I. Background1

       Plaintiffs,         who    are    dissatisfied      students    at    RSHT,   have

brought this case as a breach of contract action. RSHT is a for-

profit vocational college with campuses in Richmond, Virginia, and

Chester, Virginia. RSHT offers vocational degrees for occupations

such       as   surgical    technician,       medical      assistant,   and      pharmacy

technician.

       To summarize, Plaintiffs allege that RSHT does not provide the

education it promises its prospective students. Notably, despite

representation to the contrary, RSHT fails to prepare its students

for tests necessary for certification or licensing in their fields,

fails to place students in necessary externships, and fails to

provide critical equipment or, at times, even teachers.

       Nevertheless, tuition at RSHT ranges from $10,000 to $20,000

per program, depending on the program. The vast majority of RSHT’s

students finance their education through federal financial aid.

RSHT itself participates in the financial aid process by filling

out and         submitting       forms   to   the United      States    Department of

Education        (“DOE”)     on    behalf     of    the   student.    Once   a   student

qualifies for a loan, RSHT receives funding directly from the

       1
       For purposes of ruling on a motion to dismiss, the factual
allegations of the complaint must be presumed to be true and
liberally construed in favor of the plaintiff. Aktieselskabet AF
21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir.
2008); Shear v. Nat’l Rifle Ass’n of Am., 606 F.2d 1251, 1253 (D.C.
Cir. 1979). Therefore, the facts set forth herein are taken from
the Second Amended Complaint.

                                              -2-
United States and credits the student’s account to pay for tuition

and other charges. The student must later repay the loan with any

applicable interest. RSHT graduates often fail to obtain a job in

their    field   of   study   and   thereafter   find     themselves     heavily

burdened by tuition debt.

     On June 8, 2011, Plaintiffs filed their first Complaint [Dkt.

No. 3]. On August 3, 2011, Plaintiffs filed an Amended Complaint

[Dkt. No. 3]. On December 7, 2011, the Court granted leave for

Plaintiffs to file their Second Amended Complaint [Dkt. No. 21].

     The Second Amended Complaint sets forth five causes of action.

First,    Plaintiffs    claim   that    RSHT   violated    the   Equal    Credit

Opportunity Act, 15 U.S.C. §§ 1691 et seq., because its use of

financial aid intentionally discriminated and disparately impacted

African Americans. Second, Plaintiffs claim that RSHT violated

Title VI of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000d et

seq., because its acts, policies, and practices intentionally

discriminated against African Americans. Third, Plaintiffs claim

that RSHT violated the Virginia Consumer Protection Act, Va. Code

Ann. §§ 59.1-196 et seq., by committing fraudulent acts relating to

Plaintiffs’ enrollment. Fourth, Plaintiffs claim that RSHT breached

its contracts with them by violating the implied covenant of good

faith and fair dealing and failing to provide Plaintiffs with an

adequate education. Fifth, Plaintiffs claim that RSHT fraudulently

induced them to contract.

                                       -3-
       On December 15, 2011, RSHT filed this Motion to Dismiss or

Transfer pursuant to Federal Rules of Civil Procedure 12(b)(2) and

12(b)(3). On January 13, 2012, Plaintiffs filed their Opposition

[Dkt. No. 13]. On January 20, 2012, RSHT filed its Reply [Dkt. No.

25].

II.    Standard of Review

       On a motion to dismiss for lack of personal jurisdiction under

Rule 12(b)(2), the plaintiff bears the burden of establishing

personal jurisdiction over each defendant. FC Inv. Grp. LC v. IFX

Mkts., Ltd., 529 F.3d 1087, 1091 (D.C. Cir. 2008). In order to

satisfy   this    burden,   a   plaintiff    must   establish   the    court's

jurisdiction over each defendant through specific allegations in

his or her complaint. Kopff v. Battaglia, 425 F. Supp. 2d 76, 80-81

(D.D.C.    2006).     Additionally,    the   plaintiff    cannot      rely   on

conclusory allegations; rather, he or she must allege the specific

facts on which personal jurisdiction is based. First Chicago Int'l

v. United Exchange Co., 836 F.2d 1375, 1378 (D.C. Cir. 1988).

       On a motion to dismiss for improper venue under Rule 12(b)(3),

“the court accepts the plaintiff's well-pled factual allegations

regarding venue as true, draws all reasonable inferences from those

allegations      in   plaintiff's   favor,    and   resolves    any    factual

conflicts in the plaintiff's favor.” Pendleton v. Mukasey, 552 F.

Supp. 2d 14, 17 (D.D.C. 2008) (citation and internal quotations

omitted). “Because it is the plaintiff's obligation to institute

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the action in a permissible forum, the plaintiff usually bears the

burden of establishing that venue is proper.” Freeman v. Fallin,

254 F. Supp. 2d 52, 56 (D.D.C. 2003).

III. Analysis

      A.        Personal Jurisdiction

      RSHT contends that Plaintiffs have failed to carry their

burden     of     establishing   personal     jurisdiction.    “To   establish

personal jurisdiction, plaintiffs must (1) plead facts sufficient

to show that jurisdiction is appropriate under the District of

Columbia's long-arm statute and (2) satisfy the ‘minimum contacts’

demands of constitutional due process.” Fuentes-Fernandez & Co. v.

Caballero & Castellanos, PL, 770 F. Supp. 2d 277, 281 (D.D.C. 2011)

(citing United States v. Ferrara, 54 F.3d 825, 828 (D.C. Cir.

1995)).

      In relevant part, the District of Columbia’s long-arm statute

reads, “[a] District of Columbia court may exercise personal

jurisdiction over a person, who acts directly or by an agent, as to

a claim for relief arising from the person's . . . transacting any

business in the District of Columbia.” D.C. Code § 13-423(a). “The

plaintiff bears the burden of establishing the factual basis for

the   exercise       of   personal   jurisdiction   over   a   defendant   by

demonstrating that (1) the defendant transacted business in the

District; (2) the claim arose from the business transacted in the

District; and (3) the defendant had minimum contacts with the

                                        -5-
District such that the Court's exercise of personal jurisdiction

would not offend traditional notions of fair play and substantial

justice.” Gibbons & Co. v. Roskamp Inst., Civ. No. 06-720 (EGS),

2006 WL 2506646, at *2 (D.D.C. Aug. 28, 2006) (citing Cellutech,

Inc. v. Centennial Cellular Corp., 871 F. Supp. 46, 48 (D.D.C.

1994)); Koteen v. Bermuda Cablevision, Ltd., 913 F.2d 973, 974

(D.C. Cir. 1990).

     The parties agree that RSHT’s only contacts with the District

of Columbia flow from its participation in federal financial aid

programs through DOE under Title IV of the Higher Education Act of

1965. See Def.’s Mot. 25; Pls.’ Opp’n 17-22; 2d Am. Compl. ¶¶ 4,

69-78, 83-91. Therefore, if, as RSHT argues, its contacts with DOE

are legally insufficient to establish personal jurisdiction under

the government contacts exception, then the case must be dismissed.

NBC-USA Housing, Inc. Twenty-Six v. Donovan, 741 F. Supp. 2d 55, 59

(D.D.C. 2010) (no personal jurisdiction where defendant’s only

contact with the District of Columbia was a “government contact.”).

     “[T]he traditional ‘government contacts’ principle . . .

denies personal jurisdiction over non-residents whose only contact

with this jurisdiction involves uniquely governmental activities.”

Siam Kraft Paper Co. v. Parsons & Whittemore, Inc., 400 F. Supp.

810, 812 (D.D.C. 1975); Naartex Consulting Corp. v. Watt, 722 F.2d

779, 786-87 (D.C. Cir. 1983). This exception “finds its source in

the unique character of the District as the seat of national

                               -6-
government and in the correlative need for unfettered access to

federal      departments    and   agencies   for      the   entire   national

citizenry.” Envtl. Research Int’l, Inc. v. Lockwood Green Eng’rs,

Inc., 355 A.2d 808, 813 (D.C. 1976) (en banc). Indeed, “[t]o permit

our local courts to assert personal jurisdiction over nonresidents

whose sole contact with the District consists of dealing with a

federal instrumentality not only would pose a threat to free public

participation in government, but also would threaten to convert the

District of Columbia into a national judicial forum.” Id.

     Therefore, “certain contacts with the federal government--such

as meeting with federal officials in Washington, D.C., or receiving

federal      funding--are     insufficient       to    establish     personal

jurisdiction.” Fuentes-Fernandez & Co., 770 F. Supp. 2d at 281. In

order   to    come   within   the   government     contacts    exception,   a

defendant’s only contacts with the District of Columbia must

involve uniquely governmental activities. Id. at 281-82 (citing

Siam Kraft Paper Co., 400 F. Supp. at 812).

        Accordingly, the government contacts exception has been

applied to instances where a defendant was in administrative

receivership and therefore managed by the Department of Housing and

Urban Development, Fuentes-Fernandez & Co., 770 F. Supp. 2d at 280-

82; where a defendant entered into a sales contract with the

Department of Housing and Urban Development, NBC-USA Housing, Inc.

Twenty-Six, 741 F. Supp. 2d at 59; where a defendant school

                                     -7-
received funds from the Department of State, Ficken v. Rice, 594 F.

Supp. 2d 71, 75 (D.D.C. 2009); where a defendant entered into

contracts to sell vaccines to the Department of Defense, Savage v.

Bioport, Inc., 560 F. Supp. 2d 55, 62 (D.D.C. 2006); and where a

defendant visited the Environmental Protection Agency to procure

grants, Envtl. Resources Int’l, 355 A.2d at 813.

     Participating in federal financial aid programs through DOE is

no different than receiving federal grants, or, indeed, from

receiving direct financial support for education services from the

federal government. See id.; Siam Kraft Paper Co., 400 F. Supp. at

812; Ficken, 594 F. Supp. 2d at 75. Use of federal financial aid

under Title IV of the Higher Education Act is obviously a uniquely

governmental    activity.     Hence,       contacts   with    the    District   of

Columbia   in   furtherance       of   this   activity   do    not    suffice   to

establish personal jurisdiction. Fuentes-Fernandez & Co., 770 F.

Supp. 2d at 281-82; Siam Kraft Paper Co., 400 F. Supp. at 812.

     Moreover, the situation presented here is precisely the type

that the government contacts exception seeks to prevent. As the

District of Columbia Court of Appeals stated en banc, permitting

“local courts to assert personal jurisdiction over nonresidents

whose sole contact with the District consists of dealing with a

federal instrumentality       .    .   .   would   threaten    to    convert    the

District of Columbia into a national judicial forum.” Envtl.

Research Int’l, 355 A.2d at 813. If interacting with the Department

                                       -8-
of Education in order to secure federal financial aid for students

were sufficient to establish personal jurisdiction, the District of

Columbia would become a national judicial forum for litigation

against schools, colleges, and universities throughout the country.

Indeed, by Plaintiffs’ own estimation, approximately 2000 for-

profit colleges would find themselves liable to be haled into court

in the District for any manner of dispute. 2d Am. Compl. ¶ 69. The

government contacts exception does not permit this result.

     In response to RSHT’s contentions, Plaintiffs rely, almost

entirely, on a single, short, unpublished decision in United States

v. Wilfred Am. Educ. Corp., No. 86-333, 1987 WL 10501 (D.D.C. Apr.

23, 1987). See Pls.’ Opp’n 13-22. According to Plaintiffs, “in

Wilfred, this Court squarely rejected the precise jurisdictional

argument advanced by RSHT on virtually identical facts.” Id. at 13.

Although it is true that the Wilfred case held that the defendant’s

contacts with the government relating to federal financial aid were

sufficient to establish personal jurisdiction, Plaintiffs have

ignored a critical distinction. In that case, the Inspector General

of the Department of Education, i.e. the government itself, sought

to enforce subpoenas, which were enforceable in any appropriate

United States district court under the Inspector General Act of

1978, and which were designed to investigate the defendant’s use,

or misuse, of financial aid. Wilfred, 1987 WL 10501, at *1. Relying

on this important fact, Judge Pratt found that “[t]he additional

                               -9-
burden on the District of Columbia courts resulting from cases

brought   by   government   agencies    carrying   on   investigations    in

Washington will not flood or cripple the local courts.” Id. at *4.

In short, even if Wilfred had any precedential value, which is

doubtful, it is clearly distinguishable from the case at hand.

     Finally, in a Notice of Supplemental Authority (“Pls.’ Supp.

Mem.”) [Dkt. No. 26], Plaintiffs argue that this case falls under

a newly-delineated fraud exception to the government contacts

exception. Plaintiffs contend that because RSHT made fraudulent

representations to DOE when submitting student loan paperwork, the

government contacts exception should not shield it from personal

jurisdiction in Washington, D.C.        Pls.’ Supp. Mem. 2-6.

     In answer to a certified question from the Court of Appeals

for the D.C. Circuit, the District of Columbia Court of Appeals

recently held that the government contacts exception contains a

very narrow fraud exception. Companhia Brasileira Carbureto De

Calcio-CBCC v. Applied Indus. Materials Corp., 35 A.3d 1127, 1134

(D.C. 2012). The contours of this exception to the exception are

crystal   clear:    “a   person   who    uses   the     government   as   an

instrumentality of fraud . . . and thereby causes unwarranted

government action against another, forfeits the protection of the

government contacts exception.” Id.        This holding is very narrow,

and “[c]ases in which this fraud exception applies should be rare

indeed.” Id.

                                  -10-
       Here, there is simply no allegation that RSHT used “the

government as an instrumentality of fraud” or “fraudulently induced

unwarranted government action against the plaintiff.” Id.; see

Pls.’   Supp.    Mem.   4-5   (summarizing   Plaintiffs’   allegations   of

fraud). If anything, Plaintiffs’ allegations suggest that RSHT

assisted students in obtaining funding they desired and needed.

Certainly, though, there is no allegation that RSHT employed the

allegedly fraudulent statements to coax the government into action

against any Plaintiff, as was the case in Companhia. 35 A.3d at

1132. The fraud exception to the government contacts exception is

therefore inapplicable.

       In sum, RSHT’s sole contacts with the District of Columbia

come    within    the   government    contacts    exception.   Therefore,

Plaintiffs have failed to carry their burden of establishing

personal jurisdiction over RSHT. FC Inv. Grp. LC, 529 F.3d at 1091;

Naartex, 722 F.2d at 786-87; Siam Kraft Paper Co., 400 F. Supp. at

812.

       B.   Venue

       “A court may transfer a case to another district even though

it lacks personal jurisdiction over the defendants.” Naartex, 722

F.2d at 789; Sweetgreen, Inc. v. Sweet Leaf, Inc., ___F. Supp.

2d___, Civil Action No. 11-cv-00859 (JDB), 2012 WL 975415, at *5

(D.D.C. Mar. 23, 2012). “Transfer is appropriate under 28 U.S.C. §

1406(a) ‘when procedural obstacles [such as lack of personal

                                     -11-
jurisdiction or improper venue] impede an expeditious and orderly

adjudication . . . on the merits.’” Id. (quoting Sinclair v.

Kleindienst, 711 F.2d 291, 293–94 (D.C. Cir. 1983) (alterations in

original). “The decision whether a transfer or a dismissal is in

the interest of justice . . . rests within the sound discretion of

the district court.” Naartex, 722 F.2d at 789. Transfer of a case

is usually preferable to dismissal. Jones v. United States, 820 F.

Supp. 2d 58, 61 (D.D.C. 2011).

     It is clear that this case should be transferred to the

Eastern District of Virginia.2 As an initial matter, Plaintiffs do

not dispute RSHT’s contention that venue would be proper in the

Eastern District of Virginia. See Defs.’ Mot. 35-36; Pls.’ Opp’n

34-35; 28 U.S.C. § 1406(a). More to the point, all parties, all

events related to the case, and all known witnesses reside or

occurred in the Eastern District of Virginia. See generally 2d Am.

Compl. Because this Court does not have personal jurisdiction over

     2
       RSHT argues alternatively that the Court should transfer the
case to the Eastern District of Virginia, Richmond Division, under
the similar provisions of 28 U.S.C. § 1404(a). Def.’s Mot. 35-36.
Section 1404(a) reads, “[f]or the convenience of parties and
witnesses, in the interest of justice, a district court may
transfer any civil action to any other district or division where
it might have been brought or to any district or division to which
all parties have consented.” 28 U.S.C. § 1404(a). As under §
1406(a), § 1404(a) “vests discretion in the District Court to
adjudicate motions for transfer on an ‘individualized, case-by-case
consideration of convenience and fairness.’” Otter v. Salazar, 718
F. Supp. 2d 62, 63-64 (D.D.C. 2010) (quoting Stewart Org., Inc. v.
Ricoh Corp., 487 U.S. 22, 29 (1988)). There is no doubt the case
would also properly be transferred under § 1404(a), for the reasons
outlined above.

                                 -12-
RSHT, and because the Eastern District of Virginia is a proper

venue, it is in the interest of justice to transfer this case to

the Eastern District of Virginia.

IV.   Conclusion

      For the reasons set forth above, RSHT’s Motion to Dismiss or

Transfer is granted, and the case shall be transferred to the

Eastern District of Virginia, Richmond Division.

      An Order will issue with this opinion.

                                /s/
April 30, 2012                 Gladys Kessler
                               United States District Judge

Copies via ECF to all counsel of record

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