New Jersey Appellate Division Finds Individual Causation Issues Related to Ascertainable Loss Detrimental to Class Certification

In Polanco v. Star Career Academy, the New Jersey Appellate Division vacated a $10.7 million final verdict against Star Career Academy (“Star”), a New Jersey for-profit school. At issue in the New Jersey Consumer Fraud Act (“CFA”) class action trial below was whether Star concealed and failed to disclose necessary information to Surgical Technology (“ST”) program applicants and students. Specifically, it was alleged that the school did not have the required accreditation needed for students to gain employment upon graduation. Trial resulted in a verdict against Star in the amount of $9 million, with a $1.7 million fee award.

On appeal, the appellate panel first found that students seeking an education from a school like Star have the right to know, before enrollment, whether the school has proper accreditation. This is to afford students the opportunity to attend an accredited institution instead. The panel found that because the record contained evidence that Star had made material misrepresentations to students regarding the lack of proper accreditation, Star’s pre-trial summary judgment motion had properly been denied.

However, the appellate panel concluded that the trial court had improperly certified the class because the class-wide claims did not predominate over individual allegations by the class members for the following reasons: First, there was a “disparate series of alleged misrepresentations,” and the claims pertained to an array of misrepresentations and omissions regarding the law surrounding ST employment (N.J.S.A. 26:H-12.63), as well as Star’s ST program, externship program, and job statistics. Second, the court expressed concerns about the inherent individualized causation inquiries related to the issue of ascertainable loss, and relied on the third Circuit’s holding in Harnish v. Widener that the “fact of damage” is a separate inquiry from the “amount of damage.” Specifically, the Court explained that “individualized factual inquiries surrounding Star’s misrepresentations and the nexus between those misrepresentations and omissions and the class members’ ascertainable loss compels decertification.” Further, the court noted that although class members’ damage calculations may differ, the real concern was that the class could not “demonstrate economic loss . . . on a common basis.” The panel noted that many of the proposed class members suffered no ascertainable loss whatsoever because they found work after attending the school and therefore, typicality, commonality and predominance failed to exist.

Finally, the appellate panel found that the trial court committed reversible error when it precluded Star from introducing evidence at trial relating to jobs the class members held, reasons for class members’ unemployment, and the value of a Star diploma to members of the class. This evidence was necessary to prove or disprove whether Star’s actions caused the class to suffer an ascertainable loss.

The Polanco ruling is an important reminder that in CFA actions there are often inherent individualized causation and “fact of damage” inquiries related to the class’ ascertainable loss. A cognizable class-wide theory of damages supported by common evidence needs to exist in order to be certified as a class.

Arielle E. Katz is an Associate in the Gibbons Commercial & Criminal Litigation Department.
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