Liquidated Damages or Penalties for Unpaid Private School Tuition

Thanks to Elizabeth Winston (right) of Catholic University’s Columbus School of Law for sharing with me O’Brien v. Langley School, a nice, short teaching case on liquidated damages versus penalty clauses. She also shared Brittany Shammas’s reporting in The Washington Post, which suggests that case is the illustrative of a wider problem. 

O’Brien is a very simple case. The family paid a $1000 deposit to hold a a spot at the school. When the O’Briens withdrew without proper notice, the school informed them that they had to pay a full year’s tuition, as provided in the contract. The trial court sided with the school, as the contractual language was clear. The Circuit Court remanded to allow the O’Briens discovery so that they could make out their claim that the liquidated damages clause was in fact an unenforceable penalty.

Brittany Shammas’s reporting indicates the scope of the problem and why it exists as a problem. In D.C. and the surrounding suburbs in Virginia and Maryland, private schools have filed 140 cases in the past decade seeking to recover $1.6 million in lost tuition. The issue is especially dire this year, with so many federal employees having lost their jobs. The schools are between a rock and a hard place. They try to fill their classrooms by May or June. If parents decide to pull out their children after the deadline for notice has passed, a school will have a hard time filling the spots, which means that, unless the schools can collect tuition from the parents who have elected to send their children elsewhere, they will face budget shortfalls.

Those shortfalls are no joke. The school that was the focus of the Brittany Shammas’s reporting had nearly closed, but was able to get $15 million in pledges from its community of parents. Another local private school allocates $5.2 million to providing financial aid to needy families. The schools are not heartless. They rely on the parents of their students to provide timely notice of their intentions. But it does sound like the schools could do more, especially when working with a family for the first time and especially when the school knows that the family will be dependent on financial aid, to put families on notice that they must withdraw by the deadline or face liability for a full year’s tuition.

It does seem like a situation in which the liquidated damages clause would be upheld. The school may have no actual damages, but it also may lose the entirety of the tuition it is expecting, and the latter seems more likely, as it is hard to recruit new students after the deadlines for enrollment have all passed. It’s a game of musical chairs. The music has stopped, and all the chairs are taken. 

But some of the cases are quite troubling. The schools sign parents up for contracts even when they know that the parents will not be able to make a decision until after the deadline for withdrawal has passed. Students might be dismissed from the school for behavioral problems, but the schools demand full tuition nonetheless, alleging that the parents failed to disclose their child’s propensity for behavioral problems. What if a student’s parents want to remove their child from school because the school is not doing enough to protect the child from systematic bullying? There is also a case of woman whose ex-husband signed the child up for a private school. Notwithstanding a divorce decree that made the husband alone responsible for paying tuition, the school came after the mother when he did not pay.

Some children are getting a special vocabulary boost from their encounters with private school. They know what the word “garnishment” means.