School Escapes Surgical Tech Students’ $9M Fraud Award (Law360)

Law360 (July 27, 2018, 8:07 PM EDT) — A New Jersey state appeals court has overturned a $9 million judgment in favor of a class of surgical technician students [at Star Career Academy] who alleged a for-profit career school misrepresented the students’ job prospects, ruling that a lower court wrongly precluded evidence that could have helped the defense at trial.

A three-judge panel on Thursday remanded Shirley Polanco’s suit against the now-defunct Star Career Academy to Camden County Superior Court for more findings, saying the lower court committed “reversible error” by concluding that evidence about jobs class members had, efforts to get positions and the value of diplomas was inadmissible.

Star had wanted to present that evidence to defend against New Jersey Consumer Fraud Act allegations that its surgical technology program didn’t have the programmatic accreditation now required along with institutional accreditation under a 2012 state law, and never informed its students about the change.

“We find that the jobs, reasons for unemployment, and value evidence were relevant to the materiality of the purported misrepresentations, the issue of causation under the CFA and to the quantum of any damages. We therefore conclude that the court abused its discretion in failing to admit such evidence,” the appeals court said in its decision.

The panel likewise reversed the trial court’s certification of the class, finding that classwide claims didn’t predominate over individual allegations by the class members, noting that there was a “disparate series of alleged misrepresentations.”

“The class claims thus pertained to an array of misrepresentations and omissions surrounding the [surgical technician] law and Star’s [surgical technician] program, externship program and job statistics in violation of the [CFA],” the decision said.

The panel also vacated the trial court’s ruling that Polanco couldn’t add new defendants to the suit. The trial court’s decision was based on the “belated nature” of the motion to amend, since it was filed on the eve of trial, but “those concerns no longer exist” given the appeals court’s reversal of the verdict, the panel said.

However, the appeals judges also affirmed the denial of summary judgement to Star, noting the “significant evidence” that the school didn’t inform its students about its lack of programmatic accreditation.

An attorney for the class, Thomas More Marrone of More Marrone LLC, said the decertification allows individual cases to proceed with additional claims.

“Each one of the over 1,000 class members now has the right to file an individual lawsuit,” More Marrone told Law360.

Representatives for the other parties didn’t immediately respond to requests for comment.

The lawsuit, which Superior Court Judge Anthony M. Pugliese certified in July 2014, said Polanco enrolled in Star’s surgical technology program in July 2011, taking out loans to pay off the tuition of more than $18,000, and completed the program in August 2012.

The school allegedly hid its uncertainty about the law imposing stricter accreditation standards, which Gov. Chris Christie signed in January 2012, from the students, who were supposed to be enrolled in a “baggage-free” program, the plaintiff’s attorneys said.

The suit included a single count of violating the New Jersey Consumer Fraud Act and demanded an accounting of all expenses collected from members of the class, compensatory and punitive damages, pre- and post-judgment interest, and attorneys’ fees and court costs.

The school was founded in 1979 and offered allied health, business, cosmetology, culinary, restaurant and hotel management, veterinary assistant, and professional development programs, according to its website at the time.

Following a five-week trial in 2015, an eight-member jury in Camden County Superior Court found by a 7-1 vote that the school had engaged in the unconscionable commercial practice, affirmative misrepresentation or knowing concealment of information. The jury unanimously agreed the students had suffered ascertainable damage and awarded them more than $2.9 million, which the lower court tripled under the Consumer Fraud Act.

The school, which had seven campuses in New Jersey, New York and Pennsylvania, announced it was closing in November 2016.

Appellate Division Judges Clarkson S. Fisher Jr., Thomas W. Sumners and Arnold L. Natali Jr. sat on the panel.

Star is represented by David Jay, Jason H. Kislin and Paige S. Nestel of Greenberg Traurig LLP.

The class is represented by Patricia V. Pierce of Greenblatt Pierce Funt & Flores LLC and Thomas More Marrone of More Marrone LLC.

Intervenor Summer Street Capital Partners LLC was represented by Joseph B. Schmit of Phillips Lytle LLP and John R. Altieri.

Intervenors Andrew Kaplan and Quad Partners LLC were represented by Laurence B. Orloff and Xiao Sun of Orloff Lowenbach Stifelman & Siegel PA, and Arthur H. Aufses III of Kremer Levin Naftalis & Frankel LLP.

Intervenors Gemini Investors IV LP, Gemini Investors V LP, James Rich and Robert Menn were represented by Stephen M. Orlofsky, David C. Kistler and Michael A. Iannucci of Blank Rome LLP.

The case is Shirley Polanco v. Star Career Academy et al., case number A-3756-15T2, in the Superior Court of New Jersey, Appellate Division.

–Editing by Aaron Pelc.

School Escapes Surgical Tech Students’ $9M Fraud AwardBy Jeannie O’SullivanRead More on Law360 (Subscription Required)