Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Mo. App.: Vatterott to pay student $2.1M for deceptively selling educational programs, (Aug 27, 2014)

By Greg Hammond, J.D.

Vatterott Educational Centers, Inc., doing business as Vatterott College, was unable to overturn a judgment awarding a student more than $2.1 million in actual and punitive damages for violations of the Missouri Merchandise Practices Act (MMPA). In affirming the lower court’s judgment, the Missouri Court of Appeals determined that more than $2 million in punitive damages was justified to deter and punish Vatterott’s egregious conduct (Kerr v. Vatterott Educational Centers, Inc., August 26, 2014, Newton, T.).

Background. Jennifer Kerr, a single mother, decided to return to school to become a registered nurse. When she approached Vatterott, she was informed that the institution did not have a nursing program, but offered a “condensed” Medical Assistant Program (MA Program). The admissions coordinator stated that, “everything [she would] get in medical assisting wa[s] the same as [the classes] in nursing,” and that Kerr could take the credits with her and “get done faster.” Kerr was subsequently enrolled in the Medical Office Assistant Program (MOA Program), which the coordinator stated was “one in the same” as the MA Program. Kerr learned of an additional $10,000 cost to participate in the clinical portion of the MA Program after nearly completing the MOA Program. After refusing to take on the additional debt, Kerr graduated with a Certificate of Completion, as opposed to an Associate of Occupational Studies. She was unable to secure a job in the medical field with the certificate, and could not transfer any credits towards a nursing degree.

Kerr filed suit against Vatterott for actual and punitive damages, alleging that the College “engaged in unlawful merchandising practices in violation of the [MMPA].” She argued that the admissions coordinator’s statements demonstrated the school’s “pattern and practice of using deception, fraud, false pretense, false promise, misrepresentation, and unfair practices in connection with the sale or advertisement of merchandise.” A jury returned a verdict in favor of Kerr, awarding—in part—$13 million in punitive damages. However, the trial court amended the judgment to $27,696.96 in actual damages, $2,078,679.80 in punitive damages, and $388,059 in attorney fees. Vatterott appealed.

MMPA claims. Vatterott made four arguments in support of its appeal: (1) Kerr failed to establish that she purchased merchandise from the school for personal, family or household purposes, as required under the MMPA; (2) Kerr failed to show deception or a causal connection between Vatterott and a loss of money; (3) the trial court erred in giving the general damages jury instruction, as opposed to the benefit-of-the-bargain instruction; and (4) the trial court erred in refusing to amend the punitive damages award, because it violates “substantive due process, in that it is more than 75 times the actual damages.”

According to the court, to prevail on an MMPA claim, Kerr was required to show: (1) she purchased merchandise from Vatterott; (2) for personal, family or household purposes; and (3) suffered an ascertainable loss of money or property; (4) as a result of an act declared unlawful by section 407.020.

The court first noted that there were no Missouri cases that address whether obtaining an education is implicitly for a personal purpose. Nevertheless, it concluded that, based on the evidence in the record regarding the MOA Program not counting towards Kerr’s nursing degree, a jury could reasonably infer that the purpose of Kerr’s purchase was primarily for personal use. Second, it was concluded that the admissions counselor’s oral misrepresentations were connected with the sale of the merchandise, as she mentioned the MA and MOA Programs were “one in the same,” and she did not mention the additional $10,000 fee.

Next, the court found that an exception applies to the general rule that the benefit-of-the-bargain jury instruction be provided in MMPA cases, as other measures of damages may be used in fraud cases where the benefit of the bargain rule is inadequate. Finally, the court concluded that the punitive damages award did not violate substantive due process, as Kerr was financially vulnerable as a single mother who needed to work; Vatterott had developed a pattern and practice of deception as to the MA Program; and Vatterott knew of the affirmative misrepresentations made to students enrolled in the MOA Program. Consequently, the punitive damages award was deemed justified to deter and punish Vatterott, considering its “egregious” conduct.

The case was therefore affirmed, but remanded to the trial court for an award of Kerr’s appellate attorney fees.

The case number is WD76903.

Attorneys: Mark Arnold (Husch Blackwell LLP) for Vatterott Educational Centers Inc. Martin Meyers (The Meyers Law Firm, LC) for Jennifer Kerr.

Companies: Vatterott Educational Centers, Inc.

Cases: StateUnfairTradePractices MissouriNews