Emory University could have provided each undergraduate student on financial aid an additional $14,256 scholarship toward tuition, room, board and fees, on average, if Emory had not colluded with other private, elite universities, a legal brief alleges.
Emory and the 16 other universities listed in the lawsuit — the defendants — filed a motion to dismiss the case, which included arguments about the timeline of Emory’s involvement in the Cartel and the alleged implications of the membership. The defendants' motion was heard by an Illinois federal district court on Aug. 2. The court denied the defendants’ motion to dismiss the case on Aug. 15.
The effort is part of a lawsuit filed in January by nine former students who attended some of the 17 universities named as defendants in the case. The lawsuit is premised on arguments surrounding these universities' current or former involvement in the 568 Presidents Group, or 568 Cartel.
More than 200,000 people across all of the universities are involved in the proposed class. The plaintiffs allege that these institutions violated antitrust laws by engaging in price fixing, which is artificially inflating the net cost of attendance for students receiving financial aid.
Robert Gilbert, Managing Partner of Gilbert Litigators & Counselors and one of the lead lawyers for the plaintiffs, said that this suit aims to bring “substantial restitution for 200,000 students who have been harmed by the collusion.” In the next step of the case, Gilbert said his firm hopes to take depositions from the University officials involved in the alleged “antitrust conspiracy.”
Partner at Roche Freedman LLP Edward Normand, a lead firm for the plaintiffs, further expressed gratitude for the court’s decision to sustain the lawsuit and said “we look forward to vindicating the rights of students.”
The other universities named in the lawsuit include Brown University (R.I.), California Institute of Technology, University of Chicago, Columbia University (N.Y.), Cornell University (N.Y.), Dartmouth College (N.H.), Duke University (N.C.), Georgetown University (D.C.), Johns Hopkins University (Md.), Massachusetts Institute of Technology, University of Notre Dame (Ind.), University of Pennsylvania, Rice University (Texas), Vanderbilt University (Tenn.) and Yale University (Conn.).
Lawsuit background
Formed in 1998 and named after Section 568 of the Improving America’s Schools Act of 1994, all universities in the 568 Presidents Group must practice need-blind admissions. The group established the Consensus Approach Methodology in 2003, which is “a set of common standards” to calculate an applicant’s family’s ability to pay tuition, the 568 Presidents Group website states.
“It seeks to reduce much of the variance in need analysis results that has been experienced in recent years,” reads a statement on the group’s website. “The participating institutions believe that the Consensus Approach, when applied in a consistent manner, serves to diminish or eliminate the divergent results that threaten the long-standing tradition of awarding aid on the basis of need.”
Cartel Chairman and Georgetown President John DeGioia has admitted that Cartel members use a common formula for determining financial aid packages, Gilbert noted.
In a March 2009 student town hall addressing the implications of the Great Recession, DeGioia indicated that Georgetown uses a particular methodology to determine students’ financial assistance packages.
“In an environment as volatile as the one that we are in, we know families are hurting and that some may experience deeper levels of need than they had in previous years,” DeGioia said. “We are anticipating greater need and have built the budget accordingly. As a 568 school, we are committed to using a common and consistent methodology.”
DeGioia added that there is “no doubt at times” that the financial need calculated through this methodology “is less than some families would hope.” At the time of the speech, about 35% of Georgetown undergraduates were receiving financial awards averaging $25,000 a year.
“He has further admitted that Cartel members ask the family to contribute ‘the maximum that they are capable of according to that formula,’” Gilbert added. “That is textbook antitrust price fixing. The table overcharges in the plaintiffs’ court filing illustrates the substantial impact on price.”
The named universities outlined four reasons why the lawsuit should be dropped in their motion to dismiss the case: exemption from antitrust laws, no defined market, speculatory injury claims and an expired statute of limitations.
The plaintiffs say the universities’ arguments are “premature; ignore the plain language of the statutory exemption they invoke as an affirmative defense; misconstrue the controlling precedent; and assume it should have been clear to Class members since 2003 that Defendants have been artificially inflating net prices — which Defendants simultaneously insist they have not been inflating.”
Emory’s involvement in the lawsuit is unique as it is one of three defendants — alongside Brown and the University of Chicago — arguing that they quit the conspiracy. The 568 Presidents Group member roster currently does not list these institutions.
According to the case, Emory joined the Cartel in 1998 and implemented the Consensus Methodology in 2003. Emory allegedly left the Cartel in 2012.
A defendant must take “affirmative acts to disavow the conspiracy and its goals” in order to withdraw from the conspiracy, the plaintiffs explained in response to the defendants’ motion to dismiss the case. The plaintiffs further allege that Brown, the University of Chicago and Emory cannot prove that they took these measures to adequately withdraw from the Cartel.
“The law is clear: unless and until Emory publicly disavows the 568 Cartel and its purposes, Emory remains a member of the price-fixing conspiracy,” Gilbert said. “In fact, under settled law, Emory is liable to students and their families not only for current ongoing overcharges, but for damages going back to 2003.”
In the Aug. 15 decision, the court rejected Emory, Brown and the University of Chicago’s arguments, ruling that the amended complaint indicates that “some of the defendants have claimed to withdraw, but this does not amount to a concession that they did, in fact, withdraw.”
The University did not address the Wheel’s specific questions regarding the steps Emory took to leave the Cartel, whether the University still has access to the Consensus Methodology and whether students were aware of the University’s participation in and alleged withdrawal from the Cartel.
Assistant Vice President of University Communications Laura Diamond told the Wheel that “Emory University thinks the lawsuit has no merit and we will fight this litigation.”
The defendants outline four reasons why the lawsuit should be dropped in their motion to dismiss the case: exemption from antitrust laws, no defined market, speculatory injury claims and an expired statute of limitations.
Exemption from antitrust laws
The defendants rely on Section 568 of the Improving America’s Schools Act as part of their defense. This section allows two or more need-blind higher education institutions to engage in agreements about awarding need-based financial aid that would otherwise be prohibited under antitrust laws, which regulate businesses by forbidding unlawful restraints, price fixing and monopolies.
In this Act, Congress defines “on a need-blind basis” as college admittance “without regard to the financial circumstances of the student involved or the student’s family.” Their definition of “student” is limited to U.S. citizens and lawful permanent residents.
Likewise, Venable Professor of Law at the University of Baltimore School of Law Robert Lande — who is a third party antitrust law expert not affiliated with the lawsuit — noted that this case only pertains to domestic students.
The defendants argue that the antitrust exemption applies to the Cartel because the universities involved are need-blind institutions. Under the universities’ interpretation of need-blind admissions, they contend that they can favor wealthy students in admissions as long as they don’t disfavor applicants in need of financial aid.
Applying the text of the statute, the plaintiffs advocate that the exemption would only apply to a member of the Cartel if all other members admit all their students without considering applicants’ financial circumstances. In other words, even if an institution admits all of their students on a need-blind basis, the antitrust exemption does not apply if they were colluding with another institution that does not admit all its students on a need-blind basis.
“The fact that at least one member of the conspiracy is plausibly alleged not to be, or not to have been, need-blind means that the plaintiffs have plausibly alleged that none of the schools are protected under the 568 Exemption,” the court states in their rejection of the motion to dismiss the case.
A statement of interest from the U.S. Department of Justice also pointed to flaws in these arguments, including that the defendants misinterpreted the Sherman Antitrust Act of 1890, which protects free market competition by outlawing monopolies.
“The Defendants suggest that plaintiffs cannot establish a Sherman Act violation unless Defendants have ‘actual knowledge’ that their conduct was unlawful,” according to the statement. “But that is not the law.”
In other words, the Sherman Act does not require institutions to have “actual knowledge” that another institution is not need-blind, the Department of Justice statement indicated.
The plaintiffs further allege that the defendants do not meet these conditions and outline flaws in the defendants' reasoning.
“With a finite number of seats for undergraduates, any admissions practice that awards spots to the wealthy logically does disfavor those applying for aid; and for their waitlisted and transfer applicants, Defendants specifically disfavor financial-aid applicants,” the plaintiffs argue.
Siding with the plaintiffs, the court explained that the case should not be dismissed because “the plaintiffs have alleged — plausibly — that all of the defendants engage in non-need-blind admissions decisions” with “evidence specific to certain schools as examples.”
Emory’s undergraduate admissions practiced completely need-blind admissions prior to fall 2013, according to an Emory News Center report from January 2013. While Emory College remained need-blind, Oxford College shifted to need-aware practices for some admits, meaning admissions officers could see the amount of financial assistance an applicant would need before deciding whether to admit that applicant.
According to the article, “internal and external financial pressures” spurred this change to help Oxford remain within its financial aid budget.
The University continues to be need-aware for international applicants.
The University did not address the Wheel’s specific questions regarding Emory’s current need-blind practices.
Competition and market definition
While the plaintiffs claim that the alleged price fixing is anticompetitive, the universities contend in their motion to dismiss the case that Congress has recognized the Consensus Methodology’s “procompetitive benefits.”
According to the universities, one procompetitive benefit of the Consensus Methodology is that it results in “lower expected contributions for at least some students.” They add that even if the methodology “theoretically” results in higher contributions for some students, the higher contributions “should not foreclose those students’ access to the school and can in turn ‘increas[e] the financial aid available to needy students,’ further expanding the pool of students who can access an education at a high-quality university.”
Countering the defendants claims, the plaintiffs contend that the universities’ alleged price fixing is not entitled to any procompetitive presumption.
“Such a presumption arises for horizontal competitors only where they collectively offer a product that would not even exist without collusion,” the plaintiffs argue in response to the universities’ arguments in their motion to dismiss the case.
The defendants elaborate that the only court of appeals to have considered a case involving the legality of colleges collaborating and financial aid was with United States v. Brown Univ. in 1993. The court “flatly rejected per se treatment” in this case, the defendants state.
However, the plaintiffs argue that United States v. Brown Univ. does not suggest that competing universities are “presumed to be creating procompetitive effects” when they allegedly participate in price fixing.
The defendants also contend that the plaintiffs have not made tenable arguments regarding the universities’ “actionable market power in any properly defined market.”
“Their claimed product market — private national universities with an average U.S. News & World Report ranking of 25 or higher from 2003 through 2021 — is nonsensical,” the defendants state in their motion to dismiss. “It is cherry-picked from a magazine’s rankings that say nothing about competition, and it implausibly disregards all public universities, all liberal arts colleges and private universities that fall below the arbitrary top-25 ranking.”
This argument was rejected in United States v. Brown Univ., with the plaintiffs in that case demonstrating how what is commonly referred to as the “Ivy Plus” constitute a market for higher education, the plaintiffs write in their response to the motion to dismiss.
The plaintiffs further argue that the universities recognize that they compete within a relevant market. Of the top 25 elite, private universities that the plaintiffs defined as the market, Northwestern President and economist Morton Schapiro has previously identified 24 of the universities — including Emory — as market competitors, the plaintiffs note.
“Without the conspiracy, the plaintiffs allege, the defendants would have competed for students by providing more competitive aid packages,” the court said in their denial to dismiss the case. “This is supported by evidence cited in the amended complaint from Yale and Harvard that suggests that these schools left or declined to join the 568 Group because they concluded that doing so would hinder their ability to provide larger aid awards.”
Alleged financial injuries
The universities claim that the “plaintiffs’ alleged injuries are too speculative to satisfy antitrust injury and standing requirements.” The defendants also contend that the plaintiffs share few details of their own financial circumstances and aid, as well as provide no information on how the Consensus Methodology affected their individual financial aid packages, thus only speculating that they would have received more grant-based aid if not for the Consensus Methodology.
Lande said that the plaintiffs have the burden of proving how much the cost of attendance for students on financial aid would be different without the cartel.
“They’ll have an economist who will say, ‘absent the price fix, we think the amount of financial aid would have been whatever,’ and that will be disputed,” Lande said. “If the plaintiffs’ version of the story is true, a lot of relatively poor students … would have their entire debt canceled by what the plaintiffs hope to get from this lawsuit.”
Lande indicated that this would still likely entail large sums of money, unlike cases that send individuals a relatively minimal amount of money in the mail saying they’ve been a person impacted by a certain class action lawsuit.
“I think we’re not talking about $25 checks,” Lande said. “I think we can easily be talking in the $1,000s if not $10,000s per student.”
Exhibit F, which the plaintiffs filed in June, calculates the average additional financial aid that each of the 17 defendants could award to students on financial aid if the institutions allocated an additional 2% of its unrestricted endowment funds to financial aid.
“One direct result is that scholarship applicants receive scholarships smaller than they would receive in the absence of collusion by the universities,” Gilbert said.
Emory’s unrestricted endowment in 2021 was over $2.35 billion. An additional 2% of that fund is just over $47 million. In the 2020-21 academic year, 3,307 Emory undergraduates received financial aid. With the average need-based grant per Emory student that year being $44,450 and the estimated average net price of attendance for aided students being $33,967, Emory could have provided all students on financial aid with an additional $14,256, the plaintiffs calculated.
Statute of limitations
The defendants argue that the claims of the seven plaintiffs who enrolled in college before January 2018 should be dismissed due to the Sherman Act’s four-year limitations period.
In response to this defense, the plaintiffs highlight the Seventh Circuit Court of Appeals' “discovery rule.” Several federal courts adopted this rule, holding that the start date for a federal statute of limitations does not begin until the plaintiff knew or should have reasonably known that they had been injured.
The court noted that the Seventh Circuit has continued to use the discovery rule in antitrust cases as recently as this year, hindering the defendants’ arguments in their motion to dismiss the case.
“A reasonably diligent person would have not known the Cartel was causing artificially inflated net prices for students receiving financial aid,” the plaintiffs contend.
They add that a reasonably diligent plaintiff would not have known that the Cartel harmed them until two years before the complaint was filed because discovering the claim “required uncovering, assembling and combining the full array and effects of Defendants' unlawful conduct.”
The court added that “the defendants have not provided any basis to reach a conclusion … that this is not conceivable or plausible.”
Although the court denied the universities’ motion to dismiss the case, Lande said that the parties will most likely eventually settle instead of going the trial route, citing that, on average, well over 90% of antitrust cases settle.
Whether the lawsuit faces a jury or is settled, the scope of potential punishment will remain financial consequences, Lande stated.
“Nobody is going to put these people in prison,” Lande said. “The very first time the antitrust authorities bring a novel kind of case, they do so civilly, not criminally.”
Lande elaborated that if none of Emory’s defenses work, they can be required to pay a large sum of money, but if even one of their defenses work, they pay nothing. Likewise, if plaintiffs successfully prove their claims, each student will be awarded the argued amount of financial aid loss, but if they lose, the students are awarded nothing.
