details necessary to establish that the alleged mailings and wire communications were made in furtherance of the claimed fraud. Defendants also assert that Plaintiffs fail to show that Defendants caused the mailings and wire communications. We disagree.
Any uncertainty regarding inferences that may be drawn from a complaint's contentions must be determined in the light most favorable to the plaintiff. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Applying this standard, the Complaint in the instant action establishes a cause of action for mail and wire fraud under civil RICO.
This case is analogous to Beth Israel Medical Ctr. v. Smith, 576 F. Supp. 1061 (S.D.N.Y. 1983) [hereinafter Beth Israel]. In Beth Israel, the court held that the complaint's failure to include the dates and contents of either mailings or telephone calls did not preclude it from satisfactorily alleging fraud. Despite its omission, the complaint satisfied Rule 9(b) because it specified the nature and operation of a bribery and mail fraud scheme, and it also included the exact dates and amounts of numerous alleged payments.
Like Beth Israel, the Complaint here Specifies the nature and operation of a scheme to defraud the government and students out of loan monies and the use of the mail system to further the scheme. Compl. PP 61-67. The failure to describe particular telephone calls or to identify the exact speaker is not fatal to the Complaint as it amply details the existence of a scheme to defraud students, and it also reveals that harm and injury to Plaintiffs was contemplated by the Defendants' plan. United States v. Winans, 612 F. Supp. 827, 845 (S.D.N.Y. 1985) (quoting United States v. London, 753 F.2d 202, 206 (2d Cir. 1985)). Plaintiffs also provide ample detail as to the purpose the mailings served within Defendants' scheme. Compl. PP 62-67; see McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir. 1992). In addition, the Complaint details the total amount of loan money received by Adelphi through the mail system. Compl. PP 54-59; see, e.g., City of New York v. Joseph L. Balkan, Inc., 656 F. Supp. 536, 545-546 (E.D.N.Y. 1987). Accordingly, the Complaint specifies sufficient information to maintain a cause of action alleging nail and wire fraud.
Defendants claim that the Complaint fails to allege the scienter necessary to maintain a claim of fraud under RICO. First, Defendants contend that the Complaint does not provide sufficient facts to infer that Defendants knew that recruiters made fraudulent representations to potential students. This argument lacks merit for the same reasons as discussed above. Adelphi is held vicariously liable for the actions of its employees when the employee acts within the scope of his/her employment. Davis, 666 F. Supp. at 643. As the recruiters were furthering the interests of Adelphi by soliciting new students, Defendants are held liable for the representations made by them, regardless of whether or not they knew of the statements.
Under Rule 9(b) Plaintiffs are required to "allege facts which give rise to a strong inference that the Defendants possessed the requisite fraudulent intent." Cosmas, 886 F.2d at 12-13. A strong inference of scienter may be established either be alleging facts that show a motive for committing fraud and a clear opportunity to do so or by identifying circumstances indicating conscious behavior by defendants. See, e.g., In re Ann Taylor, 807 F. Supp. at 1006; Cosmas, 886 F.2d at 12-13.
Defendants claim that the Complaint fails to make adequate allegations that the proceeds of the alleged fraud flowed to them. Yet, the Complaint alleges facts that allow the Court to infer a motive for committing fraud. The Complaint shows that Defendants had a clear opportunity to commit fraud as government financial aid is readily available to the type of students Adelphi solicited, namely, those who are poor and uneducated. An inference may be drawn that, as executive officers of Adelphi, Defendants had much to gain financially from large student bodies funded by government loans. The Complaint, therefore, meets the criteria set out in Rule ebb to establish scienter in a cause of action for fraud.
III. Violation of Title IV of the Higher Education Act
Plaintiffs' second claim asks this Court to recognize a private cause of action under Title IV of the Higher Education Resources and Assistance Act ("HEA"), 20 U.S.C. § 1070. Plaintiffs allege that Defendants violated the HEA by not providing the benefits of post-secondary education and not fulfilling the required obligations. Compl. PP 87-89. This issue is one of first impression for this Court, and after careful review, we find that the HEA does not provide Plaintiffs with a private cause of action.
Plaintiffs concede that the statute does not expressly create a right for Plaintiffs. As such, the burden falls on Plaintiffs to demonstrate that an implied right of action exists. Superintendent of Ins. v. Bankers Life & Casualty Co., 404 U.S. 6, 30 L. Ed. 2d 128, 92 S. Ct. 165 (1971). In its Memorandum, Plaintiffs correctly refer to Cort v. Ash as the measuring rod for determining whether or not an implied right of action exists under a federal statute. 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975). The Cort decision established the following criteria to infer that a cause of action exists under a federal statute:
First, is the plaintiff "one of the class for who especial benefit the statute was enacted," -- that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff. And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the states, so that it would be inappropriate to infer a cause of action based solely on federal law.
Id. at 78 (internal citations omitted). The four factors, however, are not given equal consideration; instead, courts weigh the second and third factors more heavily. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 145, 87 L. Ed. 2d 96, 105 S. Ct. 3085 (1985).
Plaintiffs rely upon the persuasive precedent found in DeJesus Chavez v. LTV Aerospace Corp., 412 F. Supp. 4 (N.D. Tex. 1976). In DeJesus Chavez, a student borrower alleged that the defendants violated the HEA by charging her for items not authorized by the HEA, and that the defendants' charge exceeded the maximum interest rate allowable for a student loan. Following the Cort analysis, the court declared that a private claim exists under the terms of 20 U.S.C. § 1071.
The DeJesus Sanchez court regarded the student borrowers as a primary concern of the HEA, and as such, the plaintiff satisfied the first prong of the Cort standard. Id. at 6. The second prong was satisfied in that Congress did not make an "explicit attempt to deny jurisdiction." Id. at 7. The court determined that a private action was consistent with the underlying purpose and declared Cort's fourth criteria met as federal regulation of commerce is not traditionally relegated to state law. Id.
This Court disagrees with the analysis set forth in DeJesus Chavez as to the third and fourth factors of the Cort test.
Our holding joins the majority of district courts that also regard DeJesus Chavez as excessively broad. See, e.g., Keams v. Tempe Technical Inst. Inc., 807 F. Supp. 569 (D. Ariz. 1992); Jackson v. Culinary Sch., 788 F. Supp. 1233 (D.D.C. 1992); Hudson v. Academy of Court Reporting, Inc., 746 F. Supp. 718 (S.D. Ohio 1990); St. Mary of the Plains College v. Higher Educ. Loan Program, 724 F. Supp. 803 (D. Kan. 1989).
Cort's second prong requires a court to examine whether or not the legislature intended to create or prohibit a private cause of action. The Supreme Court mandates that "unless such congressional intent can be inferred from the language of the statute, the statutory structure, or some other source, the essential predicate for implication of a private remedy simply does not exist." Karahalios v. National Fed'n. of Fed. Employees, Local 1263, 489 U.S. 527, 532-3, 103 L. Ed. 2d 539, 109 S. Ct. 1282 (1989) (quoting Thompson v. Thompson 484 U.S. 174, 98 L. Ed. 2d 512, 108 S. Ct. 513 (1988). In addition, when construing a statute, courts should be hesitant to create additional remedies where a statute expressly provides one. Id.
Here, Plaintiff offers no evidence of congressional intent to create a private cause of action. Instead, Plaintiffs' Memorandum draws sweeping conclusions that because Congress designed the HEA to meet the special needs of continuing educational adult programs, "Congress unmistakably created rights for the special benefit of individuals in Plaintiffs' position." Class Pl.'s Mem. in Opp. to Mot. to Dismiss at 42. [hereinafter Pl.'s Mem. in Opp.]. Yet, in 20 U.S.C. § 1094(c)(2)(A) and (B) the statute expressly provides remedies to rectify the very issues raised by Plaintiffs.
Without more evidence indicating otherwise, this Court concludes that Congress did not intend to create a private right of action.
The third Cort factor requires the Court to consider whether or not implying a remedy for students is consistent with the underlying purposes of the statute. The purpose of 20 U.S.C. § 1070 is "to assist in making available the benefits of postsecondary education to eligible students . . . in institutions of higher education." Permitting students to bring suit against institutions which do not provide purported educational services will not further these specific aims.
Despite the decision set forth in DeJesus Chavez, the Court concludes that the HEA neither expressly nor impliedly provides Plaintiffs with a private right of action. Accordingly, the second cause of action is dismissed.
IV. Common Law Fraud, Misrepresentation, and Fraudulent Inducement
Defendants puts forth two reasons to dismiss claims four and seven. First, Defendants contend that neither claim is pled with the requisite particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. For the reasons discussed in section I of this opinion, Defendants' contention lacks merit. Second, Defendants argue that Plaintiffs' fail to allege a prima facie case of fraud. For the foregoing reasons, Defendants' second argument also lacks merit.
To state a claim for fraud in New York, a plaintiff must allege:
(1) that the defendant made a misrepresentation, (2) as to a material fact, (3) which was false, (4) and known to be false by the defendant, (5) that the representation was made for the purpose of inducing the other party to rely upon it, (6) that the other party rightfully did so rely, (7) in ignorance of its falsity, (8) to his injury.