Top NC court says UNC, NCSU students can pursue suit seeking fall 2020 refunds

A unanimous North Carolina Supreme Court will allow students from the University of North Carolina at Chapel Hill and North Carolina State University to move forward with a lawsuit seeking refunds from the university.

The students challenged mandatory fees they paid in fall 2020, when the two flagship UNC System campuses closed for most students. All other system campuses remained open that semester after the COVID-19 pandemic had closed the entire system to in-person instruction midway through the spring semester.

A 3-3 split at the state Supreme Court last December ended a similar lawsuit. In a case titled Dieckhaus v. Board of Governors of UNC, students and parents across the UNC System sought refunds related to the spring 2020 campus shutdowns. Justice Tamara Barringer did not take part in considering either case.

In Lannan v. Board of Governors of UNC, the state Court of Appeals ruled in October 2022 that a UNC-CH undergraduate and NC State grad student could move forward with their lawsuit.

With a 6-0 vote, the state Supreme Court modified that decision on Friday.

“We agree with the Court of Appeals that sovereign immunity does not foreclose plaintiffs’ breach of contract claims against the Board at this stage of litigation; however, we read the lawsuit to allege the existence of express — not implied — contracts between plaintiffs and the Board,” wrote Justice Trey Allen.

“In August 2020, NCSU and UNC-CH ‘voluntarily’ and ‘unnecessarily’ took a series of drastic actions effective for the duration of the Fall 2020 semester, to include: cancelling all in-person, on-campus instruction; evicting all students from on-campus housing; severely limiting campus transportation; prohibiting students from accessing on-campus student athletic and recreation facilities; and closing libraries, student unions, dining halls, and other on-campus facilities,” Allen quoted from the lawsuit.

“Those actions rendered many of the facilities and services funded by the mandatory fees ‘of no value whatsoever’ to plaintiffs and other NCSU and UNC-CH students enrolled during the Fall 2020 semester. Nonetheless, the fees ‘were not adjusted, pro-rated, or rebated in any way,’” Allen added.

Yet the students still might not ultimately win their case, Allen warned.

“As we have repeatedly emphasized, the procedural posture of this case requires us to accept the amended complaint’s factual allegations as true,” he wrote. “Plaintiffs could lose at a later stage, however, if the evidence produced in discovery confirms the Board’s contention that they were not entitled to refunds.”

“Moreover, the Board correctly observes that many of the fee descriptions in the amended complaint lack any explicit promise to provide services to students who paid those fees,” Allen added. “The description of the ‘Transit Operations Fee,’ for instance, merely says that ‘[t]his fee of $205.00 partially funds the campus transit system.’ Plaintiffs have overcome the Board’s … motion [to dismiss] because the amended complaint alleges other facts sufficient to establish the existence of express contracts between the parties. To win at trial, plaintiffs will have to prove their allegations with evidence.”

The Supreme Court heard oral arguments in the case in October.

“The university warned students ‘tuition and fees will not be refunded,’” when preparing for the fall 2020 semester, argued lawyer Troy Shelton, representing the UNC System. “That statement was in the cover email sending students their billing statements for fees, and it was in bold and italics.”

Arguing for the plaintiffs, lawyer David Stradley rejected the university’s defense of its actions.

“When one takes money in exchange for something, that person must provide what was paid for,” Stradley argued. “It matters not whether that person happens to be the State of North Carolina. A deal is a deal. On that point, law and common sense agree.”

Justice Richard Dietz compared the university fee payments to other contractual obligations, including payments for lawn-mowing and haircuts offered in a barbershop.

“If the state puts out a lemonade stand and it says ‘Lemonade: $1’ … and people come up and they hand a dollar and they’re still standing there and the person says, ‘Well, goodbye, have a nice day,’ and keeps the dollar, it would seem to me that’s exactly the sort of contract that we would  say waives sovereign immunity,” Dietz said.

Allen asked Stradley whether the court should consider the potential financial impact of ruling in favor of his clients.

“How concerned should we be that if we do say that this is an implied-in-fact contract as alleged and that it waives sovereign immunity that we could be exposing the state to massive and unexpected financial liability, which ultimately rests on the taxpayers?” Allen asked.

“The size of the contract ought not change the law,” Stradley responded.

A May 2023 court filing warned the court that the UNC System could face a “massive liability” of “tens of millions of dollars” if the students ultimately win their case.

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