Facts
- American Computer Institute, Inc. (ACI) operated private vocational campuses in Fairbanks and Anchorage; students signed enrollment contracts incorporating ACI’s catalog.
- In March 1997 ACI abruptly closed its Fairbanks campus mid-term with little notice, though months remained in the term.
- ACI offered Fairbanks students an accelerated “teach-out” at a different location with increased weekly hours; ACI acknowledged the format might not work for certain programs.
- Six Fairbanks students did not complete the teach-out; the parties disputed whether and how much ACI had to refund them.
- Months later ACI also closed its Anchorage campus mid-term; it did not provide a teach-out.
- Charter College independently offered certain ACI students one quarter of tuition-free coursework (up to 12 credits), but the coursework was more demanding and the program differed from ACI’s.
- Some students did not enroll at Charter or did not complete enough coursework to finish their programs.
- The State (through the Alaska Commission on Postsecondary Education) sought tuition refunds for affected students, including amounts funded by state loans and grants.
Issues
- Whether ACI’s mid-term campus closures breached enrollment contracts incorporating the catalog’s promised programs despite a clause reserving a “right to make changes to the program schedule.”
- Whether ACI had to refund tuition to students unable to complete their programs because of the closures, including tuition paid through loans and grants.
- Whether offering an accelerated teach-out or pointing students to third-party coursework could satisfy ACI’s obligations or reduce refund liability for students who declined or did not complete those alternatives.
- Whether restitution was an available and appropriate remedy to prevent ACI from retaining tuition for undelivered instruction.
Decision
- The Alaska Supreme Court affirmed the judgment requiring ACI to refund tuition to students who could not complete their programs due to the mid-term closures.
- The court held ACI breached its enrollment contracts by failing to provide the educational programs promised in the catalog and contracts.
- The court rejected ACI’s reliance on the catalog’s scheduling-change language as authorization for unscheduled closure and materially different substitute performance.
- The court approved refunds grounded in restitution to prevent unjust enrichment, including repayment of funds originating from student loans and grants.
- Students’ refusal to accept, or inability to complete, materially different alternatives (accelerated teach-out or Charter coursework) did not bar refunds when the shortfall was caused by ACI’s closures.
Legal Principles
- An enrollment contract that incorporates a school catalog obligates the institution to provide the described program; a general right to change schedules permits reasonable adjustments, not unilateral mid-term termination and materially different substitutions.
- When a school’s nonperformance prevents students from completing the contracted program, affected students are entitled to refunds to restore the value paid for undelivered instruction.
- Substitute arrangements must be substantially equivalent to satisfy contractual performance; accelerated or materially different programs, or third-party offerings requiring significant adjustment, may be inadequate.
- Restitution is appropriate when an institution retains tuition after failing to deliver promised educational services; refunds may run to both students and third-party payers to avoid unjust enrichment.
Conclusion
ACI’s unscheduled mid-term closures constituted breach and failure of consideration under contracts incorporating its catalog promises, and the school could not avoid refund liability by offering materially different alternatives; restitutionary refunds, including amounts funded by loans and grants, were required for students unable to complete their programs due to the closures.