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MARJORIE WEBSTER JUNIOR COLLEGE, INC. v. MIDDLE ST

July 23, 1969

Marjorie Webster Junior College, Inc., Plaintiff
v.
Middle States Assn. of Colleges and Secondary Schools, Inc., Defendant


Smith, D.J.


The opinion of the court was delivered by: SMITH

Plaintiff, Marjorie Webster Junior College, Inc., brings this action under the antitrust laws of the United States and specifically under the provisions of Section 3 of the Sherman Antitrust Act *fn1" and Section 16 of the Clayton Act. *fn2" Jurisdiction is invoked under the provisions of 28 U.S.C. § 1337 vesting original jurisdiction of actions involving the antitrust laws in the district courts of the United States and under Section 11-521 of the D.C. Code (1967 ed.). A second count seeks relief under the Constitution and the common law controlling the activities of private associations.

 The case arises out of plaintiff's desire to obtain regional accreditation for the institution it operates in the District of Columbia. Defendant has refused to evaluate the merits of plaintiff's educational program for accreditation, basing its refusal upon defendant's rule of eligibility which provides that to be considered for evaluation for accreditation an institution must be a nonprofit organization with a governing board representing the public interest.

 Marjorie Webster Junior College (herein Webster) is a proprietary corporation organized in 1927 for educational purposes under the District of Columbia law (D.C. Code § 29-601, 1967 ed.). All of the stock is held by members of the Webster family. Since incorporation it has operated in the District of Columbia as a junior college for women with courses in seven departments, including a department of Liberal Arts. It offers both terminal and transfer courses. Most students who take terminal courses seek no additional formal education after graduation. The transfer courses, however, are designed for students who desire to continue their education by transferring with credits earned at Webster to other institutions offering four year courses. Plaintiff was accredited by the District of Columbia Board of Education pursuant to D.C. Code § 31-120 (1967 ed.) in 1947 and has awarded the degree of Associate in Arts to approximately 2,300 graduates who have satisfactorily completed the prescribed course of study.

 Middle States Association of Colleges and Secondary Schools, Inc. (herein Middle States) is a nonprofit educational corporation chartered under the laws of the State of New York on May 27, 1966 for the improvement and development of educational institutions, relationships and services. Its predecessor was Middle States Association of Colleges and Secondary Schools, an unincorporated nonprofit association established in 1887. Defendant conducts a program of evaluation and accreditation of institutions of higher and secondary education located in New York, New Jersey, Pennsylvania, Delaware, Maryland, the District of Columbia, Puerto Rico, the Canal Zone and the Virgin Islands. Middle States, one of six nationally recognized regional accrediting associations, prepares and maintains a list of accredited institutions of higher education which is published and given national distribution by the American Council on Education.

 Accreditation is the process whereby an association or agency recognizes an institution as having met certain predetermined standards. The process as employed by defendant involves establishment of standards of quality and identification of those institutions which have achieved them. It seeks to determine in broad qualitative terms whether an institution has clearly defined and appropriate objectives, whether it has established conditions under which it can reasonably be expected to attain them and whether it appears to be attaining them and may be able to continue to do so. The process involves self-evaluation by the institution, evaluation by a visiting team drawn from Middle States' membership, and action upon the report of that team by the Commission on Institutions of Higher Education. Institutions identified as meeting and maintaining announced standards appropriate to the educational activities in which they are engaged are accredited. Membership in Middle States is concomitant with accreditation by the Commission on Institutions of Higher Education or the Commission on Secondary Schools.

 Defendant's membership includes 346 non-profit institutions of higher education (universities, colleges, junior colleges and specialized institutions). Approximately 106 of these institutions are state or municipal universities, colleges or junior colleges; 83 are private non-sectarian institutions, 137 are private church related or controlled universities, seminaries or junior colleges, 15 are specialized institutions with concentrated courses of instruction in music, optometry, pharmacy and textiles, one is a special private institution for the deaf, three are federally sponsored military academies and one is a federally sponsored junior college. The membership also includes certain institutions outside the United States assigned to Middle States by agreement among the regional associations.

 In 1964 the Commission on Institutions of Higher Education of Middle States, the Commission on Institutions of Higher Education of the New England Association of Colleges and Secondary Schools, Inc., the Commission on Colleges and Universities of the North Central Association of Colleges and Secondary Schools, Inc., the Commission on Higher Schools of the Northwest Association of Secondary and Higher Schools, the Commission on Colleges of the Southern Association of Colleges and Schools, Inc., and the Accrediting Commission for Senior Colleges and Universities and the Accrediting Commission for Junior Colleges of the Western Association of Schools and Colleges established the Federation of Regional Accrediting Commissions of Higher Education (herein the Federation) to represent the six accrediting agencies in matters of common interest, to establish policies and procedures, and to exchange information, experience, and personnel. At its initial meeting in March 1964 the Federation issued a policy statement on eligibility for accreditation. One of the six eligibility criteria was the requirement that "The institution should be a nonprofit organization with a governing board representing the public interest."

 Plaintiff contends that defendant and its members have formed a combination or conspiracy in restraint of the plaintiff's trade in the District of Columbia in violation of Section 3 of the Sherman Act. It alleges that this combination or conspiracy results from the combining of the members into an association which has acquired monopoly power over regional accreditation in this area and is unreasonably exercising this power in such manner as to prevent or inhibit competition from proprietary institutions. Plaintiff claims that many accredited senior colleges and universities have rejected and will continue to reject transfer applications and credits from Webster graduates and that it is handicapped in its recruitment of high school graduates because of its lack of Middle States accreditation. Plaintiff contends that it fulfills all the criteria for accreditation and membership except the nonprofit requirement and that defendant's exclusionary policy is unreasonable per se.

 The second count in the amended complaint alleges that the accrediting function as practiced by defendant is so inherently governmental in nature that its actions are state actions in a constitutional sense subject to the restraint of due process and that the defendant has acted in an arbitrary, discriminatory and unreasonable manner in rejecting plaintiff's application. Plaintiff alleges that membership in the defendant association is necessary if Webster is to continue successfully as an institution of higher education. It contends that defendant's power is subject to judicial control and must be exercised in a reasonable fashion so that a licensed institution may function to serve the public interest in education.

 Webster seeks a permanent injunction enjoining defendant, its officers, trustees, agents, and employees and all persons and organizations acting in concert with it from denying plaintiff eligibility for evaluation and accreditation solely because of its proprietary character and ordering Middle States to accept plaintiff's application for evaluation and to accredit plaintiff if it otherwise qualifies under defendant's standards. Webster also seeks a decree of the court declaring illegal, null and void defendant's requirement that institutions of higher education be "nonprofit organizations with a governing board representing the public interest" to be eligible for evaluation and accreditation by defendant.

 Defendant, inter alia, contends that higher education is not trade or commerce within the regulatory ambit of the Sherman Antitrust Act. Middle States avers that its policy with regard to proprietary institutions is in no way motivated by the desire to protect its members from economic competition from such institutions and that no combination or conspiracy in restraint of trade exists. It denies that it has conspired to eliminate or suppress the competition of proprietary institutions. Defendant admits that accreditation by it is of importance to institutions of higher education but denies that its accreditation is essential to continuing a successful operation of such an institution. If the Sherman Act is applicable, Middle States contends that its actions have been entirely reasonable and completely within the public interest.

 With reference to count two, defendant asserts that it is a voluntary membership organization which has the right to set up its own membership criteria. It claims that it was not organized at the request or under the aegis of any governmental agency. Middle States denies that it is exercising a function ordinarily exercised by a government authority in the United States. Even assuming Middle States to be a quasi-governmental agency, defendant avers that its refusal to consider Webster's application for membership is not arbitrary and unreasonable justifying judicial intervention. Middle States further contends that plaintiff has sustained no legally cognizable damage and has no standing to bring this action.

 A threshold question exists in this proceeding with respect to venue. In addition to challenging the applicability of the Sherman Act, defendant denies that it "may be found or transacts business" in the District of Columbia. The following provisions of the Clayton Act are pertinent:

 
§ 12. Any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found.
 
§ 16. Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws, including sections 13, 14, 18 and 19 of this title, when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rule governing such proceedings . . . .

 At the time of the institution of this suit in June 1966, 28 secondary schools in the District of Columbia were accredited by the Secondary Commission of Middle States and two were candidates for such accreditation. Fifteen institutions of higher education were accredited by the Commission on Higher Education, while two such institutions held "correspondent status." During the period January 1, 1964 to October 16, 1966, 13 secondary schools in the District of Columbia were visited by committees of the Commission on Secondary Schools of Middle States in connection with evaluation for accreditation or review of accreditation. Each visit lasted approximately three days and was preceded by a visit by the Chairman. One of the committees was under the chairmanship of the then Executive Secretary of the defendant's Commission on Secondary Schools. In addition to these visits, the Chairman and Executive Secretary visited the District of Columbia on four occasions between February and May, 1966. Defendant also distributed publications to member schools including "The Selection of a Secondary School", "Middle States Accreditation General Information," and a newsletter to all member institutions in the District of Columbia.

 The Executive Secretary of the Commission on Institutions of Higher Education visited the District of Columbia in connection with the evaluation of institutions for accreditation on ten occasions during the period 1965-1966. Middle States collected dues from its member institutions in the District of Columbia and estimated that its total mail volume to the District of Columbia was 450 pieces annually. It also estimated that staff members placed approximately 275 telephone calls to the District of Columbia between January 1, 1964 and October 15, 1966. The President of Middle States at the time this suit was filed was headmaster of the St. Albans National Cathedral School for Boys in the District of Columbia. During 1966 he attended and arranged meetings of Middle States officers and corresponded and communicated by telephone with the officers and other persons in connection with defendant's affairs. A meeting attended by five of the Middle States officers and the Administrative Secretary was held at St. Albans School in February 1966.

 To support the claim that Middle States transacts business in this jurisdiction, plaintiff relies on Levin v. Joint Commission on Accreditation of Hospitals, 122 U.S.App.D.C. 383, 354 F.2d 515 (1965), involving an analogous situation. In Levin field inspectors of an Illinois hospital accreditation corporation came to the District to conduct inspections for purposes of accreditation. Although noting that the inspection visits accounted for less than one percent of the Joint Commission's activities, the Court held:

 
The business of the Joint Commission is that of accrediting hospitals. Field inspections are an essential aspect of that business. When a field inspector comes to the District of Columbia to inspect a hospital, the Commission is transacting its business there as certainly as when the inspector's report is reviewed and acted upon in Chicago . . . when the Commission's field inspectors come here to perform the inspections without which the Commission's work cannot go forward, we think the Commission can be said to be transacting its business here to such a degree as to make it answerable here to claims of antitrust violation. *fn3"

 The facts in the two cases are strikingly similar. It is evident that Middle States' contacts with the District of Columbia are sufficient in nature and degree to permit suit under Section 12 of the Clayton Act (15 U.S.C. § 22).

 Jurisdiction and venue for count two are premised on the provisions of 28 U.S.C. § 1391; D.C. Code § 11-521 (1967 ed.); and jurisdiction pendent to the court's jurisdiction of the anti-trust action set forth in count one. Jurisdiction under 28 U.S.C. § 1391(c) depends upon whether a corporation is "doing business" and D.C. Code 11-521(a)(1) requires that the party be "found" within the District. In Friedman v. United States Trunk Company, 204 F. Supp. 366 (S.D.N.Y. 1962), the Court found no difference between "transacts business" as used in 15 U.S.C. § 22 and "doing business" in 28 U.S.C. § 1391(c), and United States v. Scophony Corporation of America, 333 U.S. 795, 92 L. Ed. 1091, 68 S. Ct. 855 (1948), equated the concept "found" with the words "transacts business." See also Kelberine v. Societe Internationale, etc., 124 U.S.App.D.C. 257, 363 F.2d 989 (1966); Washington v. Hospital Service Plan of New Jersey, 120 U.S.App.D.C. 211, 345 F.2d 105 (1965); Bilbrey v. Chicago Daily News, 57 F. Supp. 579 (D.C.D.C. 1944); and Stevens v. American Service Mutual Insurance Company, 234 A.2d 305 (D.C. 1967).

 The test of jurisdiction and venue is whether a corporation has made its presence felt in a particular area to advance its essential business purposes. Although it maintains no Washington office, the extent of its activities here clearly indicates that Middle States can be "found" and is "doing business" in the District of Columbia as contemplated by the statutes.

 Since jurisdiction and venue have been established, it is unnecessary to consider Webster's additional reliance on the doctrine of pendent jurisdiction for count two. However, the unanimous opinion of the Supreme Court in United Mine Workers of America v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966), lends support to plaintiff's view:

 
Pendent jurisdiction, in the sense of judicial power, exists whenever there is a claim 'arising under the Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority . . ., U.S. Const., Art. III, § 2, and the relationship between that claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional 'case '. The federal claim must have substance sufficient to confer subject matter jurisdiction on the court. Levering & Garrigues Co. v. Morrin, 289 U.S. 103, 77 L. Ed. 1062, 53 S. Ct. 549. The state and federal claims must derive from a common nucleus of operative fact. But if, considered without regard to their federal or state character, a plaintiff's claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole.

 Both counts of the amended complaint in the instant case allege the identical injury and request the same relief. Common questions of law and fact are involved which can be tried more expeditiously in one judicial proceeding.

 A new and pivotal question here for determination is the applicability of the anti-trust laws to the field of education. Is higher education, including the accreditation of institutions, trade or commerce and thus within the regulatory scope of the Sherman Act? Defendant contends that the legislative history of the Act demonstrates that it was intended to apply to the commercial world and not to the professions. Middle States emphasizes that the law was designed to break up the large trusts formed after the Civil War and to promote competition. Standard Oil Company of New Jersey v. United States, 221 U.S. 1, 49-62, 55 L. Ed. 619, 31 S. Ct. 502 (1911); Apex Hosiery Co. v. Leader, 310 U.S. 469, 493, 84 L. Ed. 1311, 60 S. Ct. 982 (1940); and Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 137, 5 L. Ed. 2d 464, 81 S. Ct. 523 (1961). Denying that it is engaged in commercial activities, defendant cites the traditional definition of "trade" contained in The Schooner Nymph, 1 Sumn. 516, 18 Fed.Cas. 506, No. 10,388 (1834):

 
Whenever any occupation, employment, or business is carried on for the purpose of profit, or gain, or livelihood not in the liberal arts or in the learned professions, it is constantly called a trade.

 Middle States asserts that "trade" has never been interpreted by the courts to extend to non-commercial activities such as the learned professions into which category it should be placed.

 In the first American Medical Association (herein AMA) decision, United States v. American Medical Association et al., 72 App. D.C. 12, 110 F.2d 703 (1940), the United States Court of Appeals for the District of Columbia comprehensively reviewed the genesis and legal development of the word "trade" and held that the term as used in the Sherman Act included the medical profession. Chief Judge Groner concluded that the effect of all the English and American cases was "to enlarge the common acceptation of the word 'trade' when embraced in the phrase 'restraint of trade' to cover all occupations in which men are engaged for a livelihood."

 In the second AMA case, American Medical Association v. United States, 76 U.S.App.D.C. 70, 130 F.2d 233 (1942), the Court of Appeals again included the medical field in the meaning of the word "trade" in the antitrust context. The Court held that Group Health Association, the organization which had been the victim of the AMA restraints, was clearly engaged in trade or commerce even though it was a nonprofit organization. It also found that hospitals in the District of Columbia - some charitable, some nonprofit, some proprietary - were engaged in trade and commerce within the meaning of the Sherman Act. (76 U.S. App. D.C. at 74-75). The Court said at p. 74, "It is not necessary, in order to constitute trade or business, that it shall be carried on for profit," citing Hazen v. National Rifle Ass'n., 69 App.D.C. 339, 345, 101 F.2d 432, 438 (1938).

 The myriad financial considerations involved in building programs, teachers' salaries, tuitions and miscellaneous operating expenses attest to the commercialization which necessarily exists in the field of higher education. Despite the opposition of many educators, there has been a recent trend toward the organization of faculty members to bargain collectively for better salaries and other benefits. Many institutions rent dormitory rooms and operate dining halls, book stores and other service facilities. Also there is a commercial aspect to the sharp competition for government and private contracts and the quest for research grants. In 1967-68 institutions of higher education expended more than 17 billion dollars. The projection for the year 1976-77 is 41 billion. *fn4" Higher education in America today possesses many of the attributes of business. To hold otherwise would ignore the obvious and challenge reality.

 Webster rightly contends that attention should be focused on its activities rather than the defendant's because the question is not whether the defendant association is engaged in trade but whether plaintiff's trade has been restrained. The Supreme Court held in the third AMA case that when the organization at which the restraint is directed is in trade, it is immaterial whether the offending association is so engaged. American Medical Association v. United States, 317 U.S. 519, 528, 529, 87 L. Ed. 434, 63 S. Ct. 326 (1943). Webster is a corporation engaged in business for profit. Its corporate activity consists of offering educational facilities and services in exchange for the tuition charged students. The income received is spent for faculty salaries, maintenance of buildings, equipment and grounds, and board for students. Webster pays all taxes, such as income, property, sales and payroll, customarily paid by business corporations. Middle States can hardly deny that plaintiff is engaged in trade since the plaintiff's proprietary character is the reason for the membership exclusion and the sine qua non of this proceeding.

 The specific section of the Sherman Act upon which count one is based provides:

 
Every contract, combination in form or trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is declared illegal. . . . (15 U.S.C. § 3)

 Plaintiff does not contend that the members of Middle States conspired specifically to restrain its trade nor that the six regional associations formed the Federation for that purpose. The evidence negates the existence of any evil, purposeful plotting by the defendant and Webster concedes that the reason for combining was honorable and laudable. However, it is clearly apparent that the intent to combine was present in each case and that the two associations, by their very formation, represent combinations and did enter into contracts.

 A combination which imposes unreasonable restraints on the trade of others is actionable under the Act. An intent to restrain trade is not an essential element of the proof. The burden is met if it is shown that the consequences flowing from the activity complained of amounted to a restraint of trade. In United States v. Griffith et al., 334 U.S. 100, 92 L. Ed. 1236, 68 S. Ct. 941 (1948), the Court stated:

 
It is, however, not always necessary to find a specific intent to restrain trade or to build a monopoly in order to find that the anti-trust laws have been violated. It is sufficient that a restraint of trade or monopoly results as the consequence of a defendant's conduct or business arrangements.

 See also, United States v. Patten, 226 U.S. 525, 57 L. Ed. 333, 33 S. Ct. 141 (1913); United States v. Masonite Corporation, 316 U.S. 265, 86 L. Ed. 1461, 62 S. Ct. 1070 (1942); and United States v. Columbia Steel Company, 334 U.S. 495, 92 L. Ed. 1533, 68 S. Ct. 1107 (1948). Moreover, a laudatory purpose or intent will not excuse violations of the laws. "Neither the fact that the conspiracy may be intended to promote the public welfare, or that of the industry . . . is sufficient to void the penalties of the Sherman Act." American Medical Association v. United States, 76 App. D.C. 70, 130 F.2d 233 (1942). Also, it is not necessary that the restraint result in total exclusion from the market. A violation of the antitrust laws exists if the combining results in a special advantage to members of an association over non-members or deprives the non-member of a significant business service. Associated Press v. United States, 326 U.S. 1, 89 L. Ed. 2013, 65 S. Ct. 1416 (1945); Silver v. New York Stock Exchange, 373 U.S. 341, 10 L. Ed. 2d 389, 83 S. Ct. 1246 (1963).

 Certain practices, such as price fixing, are conclusively presumed to be unreasonable and therefore illegal per se because of their harmful effect on competition and lack of any redeeming virtue. Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). The combination or contract involved in the instant case is not so devoid of potential benefit or so inherently harmful as to fall into the above category without proof that it actually had the effect of restraining trade. In the absence of a per se violation, proof is essential that the agreement resulted in an unreasonable restraint of trade. Although there is no single test to determine ...


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