N.C. Supreme Court greenlights student lawsuit seeking refunds from COVID-19 closures

The N.C. Supreme Court unanimously ruled last week that two students can proceed with their breach-of-contract lawsuit against the UNC Board of Governors. The students are seeking refunds for fees they paid to UNC and N.C. State University during the fall 2020 semester. 

The lawsuit stems from August 2020 when plaintiffs Joseph Lannan and Landry Kuehn, who were enrolled at N.C. State and UNC, respectively, were sent home after their campuses closed due to rising COVID-19 cases two weeks into the semester. 

For the rest of fall 2020, both universities canceled in-person classes, evicted students from on-campus housing, restricted transportation and closed campus facilities such as libraries, student unions, recreation centers and dining halls.

No other UNC System schools closed their campuses for the fall 2020 semester.

The lawsuit, filed in 2021, alleges that despite sending students home, N.C. State and UNC still charged students with mandatory fees for many of the on-campus services and activities they shut down. These expenses include student health services fees, campus security fees, transportation fees and others that were required to be paid for students to register for fall 2020 classes.

When campuses closed, students were no longer able to access the services covered by the mandatory student fees they already paid. By charging students but limiting access to the corresponding services, the lawsuit alleges that UNC and N.C. State breached their contracts with their student bodies.

The fees Lannan and Kuehn paid totaled $1,288.80 and $976.25, respectively. The plaintiffs filed the suit on behalf of themselves and other similarly situated students.

“The universities can't just make decisions willy-nilly that affect folks and then walk away from the consequences,” the plaintiffs' attorney David Stradley said.

After the lawsuit was initially filed, the BOG responded with a motion to dismiss on the grounds of sovereign immunity, a doctrine that prohibits the government, and arms of the government such as a public university, from being sued. 

“We don't want the government constantly litigating private citizens,” UNC School of Law professor Kathleen DeLaney Thomas said while explaining the reason behind the existence of sovereign immunity.

Thomas said there are certain exceptions to sovereign immunity, including when the government enters into a contract. One of Thomas’ teaching specialties is contract law.

The N.C. Court of Appeals ruled that Lannan and Kuehn could proceed with their lawsuit in October 2022, finding that N.C. State and UNC waived their rights to sovereign immunity by entering into an implied-in-fact contract with students. This affirmed a June 2021 order by a trial judge. 

The N.C. Supreme Court's March 21 ruling modified the Appeals Court’s judgment, writing in its opinion that it found the existence of an express contract, not an implied-in-fact contract between the universities and their students.

UNC School of Law professor Kara Bruce said that an express contract is a clear written or verbal agreement, while an implied-in-fact contract is an agreement that can be understood based on the parties’ actions. 

However, Bruce said, an express contract does not have to be a highly formalized document.

“That is just not the case,” Bruce said. “Contracts can be formed very informally.”

The lawsuit alleges that pages on the UNC and N.C. State websites detailing mandatory fees and written communication from the universities, including the bills that students received, formed the contract between the schools and the students. 

Stradley said that with the state Supreme Court’s ruling, the lawsuit will proceed to the discovery process, which will involve reviewing documents and taking depositions.

“Despite the fact that it's a fairly old lawsuit, it’s really the very beginning stages of things,” Stradley said.

In a 2023 legal brief, the BOG wrote that the UNC System could face a “massive liability” that could total as much as tens of millions of dollars if the plaintiffs win their case. UNC System Media Relations wrote in an email to The Daily Tar Heel that it could not comment on an ongoing lawsuit.

Stradley said that he believes the universities should still have the money students paid because those fees are considered to be trust funds, meaning they can only be used for their intended purpose. 

If the universities still have that money, Stradley said he doesn’t see how refunding students would create such a liability for the System.

“If they didn't spend it, it ought to still be sitting there,” he said. “If they spent it, you know, it'll be interesting to hear what the explanation for that was.”

The state Supreme Court wrote in its opinion that even though it ruled that the lawsuit can proceed, that doesn’t mean the students will win their case. If evidence produced in discovery confirms the BOG’s argument that students were not entitled to refunds the students could lose.

With the lawsuit greenlit to proceed, Stradley said he expects a lengthy litigation process.

“This case is probably going to go to the [state] Supreme Court at least once, if not twice, more,” he said. “These cases take a long time to churn through the system.”

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