Trouble in Paradise: Thomas Jefferson Law School is sued by one of its graduates, who accuses the school of "fraudulent business practices"

Law school, it has been said, is the best option for people who want to make a lot of money but are risk adverse.

Once, there was once a lot of truth in that observation. Twenty-five years ago, law-school graduates had great employment opportunities.  People graduating from the most prestigious law schools commanded very high salaries, and even people who graduated from second-tier schools and had mediocre grades had a fair chance at earning a decent living.

But that is no longer true. The job market for attorneys has collapsed. There is a massive glut of lawyers in the United States, and there is now only about one job available for every two law-school graduates.

At the same time, tuition rates at the nation's law schools has shot up.  To cite one example, it now costs 36 times more to attend the University of Texas School of Law than it did when I was a student there 35 years ago (from $1,000 a year to $36,000 a year).

Today, most people can't attend law school without borrowing a lot of money, and job prospects for people who graduated from second- and third-tier law schools are not good. Thousands of law-school graduates are carrying student-loan debt that they can't repay.

Unfortunately, some law schools continued to tout high employment rates for their graduates--rates that bore no resemblance to reality in a falling job market. Some graduates are claiming they were enticed into attending law school by false representations that there were good jobs awaiting them when they graduated.

Clark Moffatt sues his alma mater for "fraudulant and deceptive business practices."

This brings me to the case of Moffatt v. Thomas Jefferson School of Law. Clark Moffatt, a 2009 graduate of TJSL,  filed a lawsuit against his alma mater in 2014, alleging "fraudulent and deceptive business practices."

Moffatt claims he decided to enroll in TJSL based on the school's representation that a high percentage of its graduates got jobs. The law school's employment statistics were published in U.S. News & World Report. Reasonably relying on TJSL's representations, Moffatt says, he borrowed about $100,000 to pay TJSL's tuition.

TJSL's representations, Moffatt alleged, were "false, misleading, inflated, and inaccurate." According to Moffatt, TJSL claimed that 92.1 percent of its 2009 graduating class were employed nine months after graduation, which suggested that more than 90  percent of its graduates were working in full-time, law-related positions.

In fact, Moffatt charges, those employment figures included people who were working part time or in non-law related jobs. "In other words, if graduates accept part-time employment working as a waiter or a clerk at a convenience store, they are considered to be 'employed nine months after graduation.'"

Moffatt claimed that TJSL categorized many people who were not working in law jobs as being employed in "business/industry," including people working in unskilled positions. "TJSL admits that its policy is to categorize all unskilled labor positions as 'business/industry,' including TJSL graduates who are employed as a stripper, cocktail waitresses, and restaurant servers."

In spite of a plummeting job market for lawyers, Moffatt said in his complaint, TJSL increased the number of students it enrolled each year, and it also lowered its admission standards. In 2005, the law school accepted only about one applicant out of four. By 2012, "TJSL's acceptance rate jumped to 73 percent. In 2013, according to Moffatt, TJSL accepted more than 4 out of 5 applicants.

Most of TJSL's students borrowed money. Indeed, Moffatt's complaint alleges, the New York Times reported in 2011 that TJSL led the nation's law schools in student indebtedness, with 95 percent of students graduating with debt.  The average debt load for TJSL graduates, Moffatt said in his complaint, is $180,000!

Moffatt's complaint in Moffatt v. Thomas Jefferson School of Law is 18 pages long and well worth reading. Its description of TJSL's policies, if accurate, shows a a mediocre law school with very high tuition and high levels of student debt increasing its enrollment and dropping its admission standards during a falling job market for lawyers. Not a pretty picture.

Will Clark Moffatt win his law suit?

The Moffatt case is scheduled for trial in March of this year. It may be settled before trial; and in fact, the case may already have been settled under terms that were not publicly disclosed.  It is common for institutions to settle high-profile litigation like the Moffatt case under terms that forbid the parties from disclosing any details. This is how the Catholic Church settled many of the priest abuse lawsuits that were filed against it.

Even if the case goes to trial, Clark Moffatt may lose. Graduates of Thomas M. Cooley Law School lost their fraud case against a Michigan non-profit law school. The Sixth Circuit Court of Appeals ruled that it was unreasonable for the law school's graduates to rely on the school's salary statistics. And a student at Arizona Summit Law School lost her fraud claim against a for-profit law school operated by Infilaw Corporation.

Judges may be reluctant to rule against law schools in cases like Mr. Moffatt's. If he wins, then hundreds of Thomas Jefferson law graduates might also have valid claims. And a fraud judgment against a law school would open the door for former students to petition the Department of Education for student-loan forgiveness. One judgement against a law school based on facts like those Moffatt alleged could have cascading financial consequences.

Why is Moffatt v. Thomas Jefferson School of Law significant?

Regardless of the outcome, Moffatt v. Thomas Jefferson School of Law is a significant case because it illustrates the high risks that students run when they borrow money to enroll in law school--particularly second- and third-tier schools like Thomas Jefferson, Arizona Summit, and Thomas M. Cooley.

Tuition at all these schools is extremely high, and most students must take out student loans in order to pay their tuition bills. Obviously, people who attend these schools hope they will find a good job after graduation that will justify six-figure debt loads. As Clark Moffatt said in his complaint, "Nobody attends law school to get a job as a convenience store clerk."

Nationwide, law-school enrollment levels are dropping as many intelligent individuals conclude that going to law school is not longer a good financial bet.  But law schools have not lowered their enrollments enough to match the falling demand for lawyers.

Instead, many have kept their enrollment-levels high while lowering their admission standards.  Some law schools have admission standards so low that a majority of their graduates are at high risk of failing the bar exam.

The law schools have not been responsible in addressing the imploding job market for lawyers.  They admit too many students, and their tuition rates are too high. In my view, there is no justification for the stratospheric rise in law-school tuition.

Some law-school graduates who were unable to find well-paying legal jobs have filed for bankruptcy, but the courts have not always been sympathetic.  In Tetzlaff v Educational Credit Management Corporation, for example, the Seventh Circuit Court of Appeals refused to discharge the student-loan debt of a law-school graduate who graduated from a bottom-tier law school with mountains of debt and who had failed the bar exam twice.

In my opinion, American law schools have put revenues ahead of their students' welfare, and the American Bar Association has not policed legal education in a responsible way. Thus far, unemployed and underemployed lawyers who are swamped by student-loan debt have only two options for relief. They can file for bankruptcy, hoping to discharge their debts in the bankruptcy courts. Or they can do what Clark Moffatt did and sue their alma maters for misrepresentation.

References

Steven J. Harper. Too Many Law Students, Too Few Legal Jobs, New York Times, August 25, 2015. Accessible at: http://www.nytimes.com/2015/08/25/opinion/too-many-law-students-too-few-legal-jobs.html

Lorona v. Arizona Summit Law School, No. CV-15-00972-PHX-NVW, 2015 U.S. Dist. LEXIS 168862 (D. Ariz. Dec. 16, 2015).

McDonald v. Thomas M. Cooley Law School, 724 F.3d 654 (6th Cir. 2013).

Moffatt v. Thomas Jefferson Law School, No. 37-2014-00033723-CU-PN-CTL, filed in California Superior Court for the County of San Diego, Oct. 2, 2014.

David Segal, Is Law School A Losing Game? New York Times, January 8, 2011. Accessible at: http://www.nytimes.com/2011/01/09/business/09law.html?_r=0

Joshua Wright. The Oversaturated Job Market for Lawyers Continues and On-the-Side Legal Work Grows. EMSI blog, January 10, 2014. Accessible at: http://www.economicmodeling.com/2014/01/10/the-oversatured-job-market-for-lawyers-continues/

American Law Schools Have Embraced Greed And Have Become Poor Models for the Ethical Practice of Law

Many years ago when I was a practicing lawyer, my senior law partner made an observation I never forgot. Law graduates become the kind of attorney they will always be, he remarked, based on their first law job.

And based on my experience, my law partner's assessment is 100 percent accurate. Young people who graduate from law school and begin working for an ethical law firm are molded into ethical lawyers and remain ethical lawyers all their lives. Fledgling attorneys who join firms with sloppy ethics or an undue focus on making money become ethically sloppy themselves, and the slipshod ethical standards of their first employer shape their entire careers.

But of course attorneys' ethical values are being shaped even before they take their first law jobs. Law students first begin developing their ethical standards while in law school. In their classroom interactions and their examinations, they learn the value of honesty and fair dealing.

And if this is true, then it is important for law students to attend law schools that model the highest ethical standards. For if law students see their law schools make decisions based on greed and self-promotion, it seems likely that the students themselves will adopt similar attitudes about the legal  profession.

And this brings me to an editorial in today's Sunday Times entitled "The Law School Debt Crisis." In 2012, the Times reported, the average law graduate accumulated $140,000 in debt; and yet newly minted attorneys are entering a job market in which 43 percent of them cannot find long-term, full time jobs in the legal field.

Simply put, the market for lawyers is flooded. Many sensible young people have analyzed their job prospects if they go to law school and have decided to choose other professions. In fact, as Steven J. Harper reported in a New Times op ed essay a few months ago, law-school enrollment has slipped from 52,000 in 2010 to 38,000 last year.

But the drop in law-school enrollments has not kept pace with the slump in demand for lawyers. Most law schools depend on tuition money for the vast majority of their income; they simply must attract students to maintain their revenue streams. Consequently, they have lowered admissions standards to keep heir enrollments up. In 2014, the Times pointed out, test scores on the common portion of the LSAT were the lowest they have been in 25 years.

In sum, this is the state of the legal field. Law schools all over the United States hiked their tuition in response to a change in federal law that allowed students to borrow the full amount of their graduate education. And law schools also admitted more students to boost revenues. When the market for lawyers crashed, law schools did not reduce their fees or cut their enrollments sufficiently. The result, to use the Times' language, is a "death spiral" in the legal job market with unemployed or under-employed attorneys carrying mountains of student-load debt that they can't pay off.

Ironically, the glut in lawyers is occurring at the same time distressed student-loan debtors are filing for bankruptcy without the aid of  attorneys. When these overburdened student-loan borrowers file adversary proceedings to discharge their student loans through bankruptcy, they are opposed by loan collection companies that have plenty of high-paid legal talent.

How can this disaster be turned around? The Times recommends expanding the Obama administration's so-called gainful employment rules that tie an institution's eligibility for federal student-aid money to its success in preparing graduates for good jobs. Currently the rule only applies to for-profit law schools, but the Times urges the rule be amended to cover nonprofit law schools as well.

The Times also thinks a cap should be placed on the amount of federal student loans a student can obtain. A cap in federal loan money, the Times believes, would drive tuition down.

 I support both these ideas, but I would go further. I would shut off federal student-aid money to all for-profit schools, including for-profit law schools, which charge extraordinarily high tuition and have lousy records for placing their graduates in good jobs that require law degrees.

For the American people, the stakes are high. Our society is based on the rule of law, and our law schools must produce graduates who are intelligent and have the highest ethical standards. But American law schools have set a poor ethical example for their students. They have bloated their student rolls and raised their tuition for the sole purpose of sucking up student-loan money and enhancing their revenues.

Our justice system will break down completely if our nation's lawyers adopt the ethical standards of the law schools they attended and begin thinking of their profession solely as a way to get rich.

References

Editorial. The Law School Debt Crisis. New York Times, October 25, 2015. Accessible at: http://www.nytimes.com/2015/10/25/opinion/sunday/the-law-school-debt-crisis.html

Steven J. Harper. Too Many Law Students, Too Few Legal Jobs. New York Times, August 25, 2015.  Accessible at: http://www.nytimes.com/2015/08/25/opinion/too-many-law-students-too-few-legal-jobs.html

Elizabeth Olsen. Burdened With Debt, Law School Graduates Struggle In Job Market. New York Times, April 26, 2015. Accessible at: http://www.nytimes.com/2015/04/27/business/dealbook/burdened-with-debt-law-school-graduates-struggle-in-job-market.html