The opinion of the court was delivered by: HOGAN
This matter is before the Court on plaintiffs' motion for partial summary judgment or preliminary injunction and defendants' cross-motion for summary judgment. Affidavits and relevant documents have been considered by the Court, as have the parties' supporting memoranda of law. Oral argument was heard on November 8, 1984, at which time the Court granted summary judgment for the defendant on all counts. This opinion will supplement the Court's ruling from the bench.
The underlying factual dispute in this case is somewhat complex, involving as it does the financial interrelationship of four or more parties including the North Jersey Secretarial School, Inc. (N.J.S.S.), the American Technical Institute School (A.T.I. School), and the past and present owners of the A.T.I. School. However, the Court need not, and in fact, may not, reach the underlying issue of the "financial stability" of A.T.I. School. Nevertheless, a brief synopsis of the undisputed factual background of this litigation is appropriate.
A.T.I. School is a trade and technical school in Pittsburgh, Pennsylvania. A.T.I. School, formerly operated by the American Technical Institute through its general partner Jerry Kokalis, was sold in February, 1984 to plaintiff Jean-Claude Levy, owner and operator of plaintiff N.J.S.S. of Passaic Park, New Jersey. At the time of the sale, the A.T.I. School was accredited by the defendant National Association of Trade and Technical Schools, Inc. (NATTS). NATTS is a non-profit organization engaged in the process of evaluating and accrediting eligible trade and technical schools. Accreditation by NATTS, as a recognized national accrediting agency, is a prerequisite to the receipt of federal (Department of Education) financial assistance. See 34 C.F.R. § 603.1.
Unknown to plaintiffs, the continued accreditation of A.T.I. School was in jeopardy at the time of their purchase because of NATTS' concern with the school's financial stability. This uncertainty about the financial stability of A.T.I. originated at the time of the initial accreditation in 1982. See Declaration of Bernard H. Ehrlich at 4. Finally, based on a "major concern with apparent discrepancies between [A.T.I.'s] June 30 and September 30, 1983 statements," NATTS issued a show cause order on February 13, 1984 directing A.T.I. School to submit balance sheets, operating statements and other financial data necessary to insure NATTS of the continued financial stability and reliability of the school. The penalty for failure to comply with these requests was immediate removal of accreditation. Following a review of the incomplete submission by A.T.I., NATTS deferred action on its show cause order and requested, by letter dated May 15, that A.T.I. supplement its original filing.
In response to these letters, Mr. Kokalis submitted a response notifying NATTS of the change in ownership. It is undisputed that neither Mr. Kokalis nor Mr. Levy supplied the requested balance sheets and operating statements. On May 30, approximately four months after the sale of the school, the new owner and plaintiffs in the present action, Mr. and Mrs. Levy, learned of the "true situation," and began submitting voluminous change of ownership forms and supporting documentation. Plaintiffs submitted, inter alia, an unaudited A.T.I. School balance sheet, which, according to the preparing accountant, was "merely a representation of information supplied by management." Current financial information on N.J.S.S. and other schools owned by Mr. Levy was also provided. However, plaintiffs do not dispute that certain information, including a proper balance sheet for A.T.I. showing its financial condition after the sale as well as the information requested in the show cause orders, was not provided to NATTS prior to the July, 1984 deadline.
Based on the "failure to satisfy the show cause order," A.T.I. School was removed from the accredited list. In taking this action, the NATTS Accrediting Commission did not consider the information submitted in reference to the change of ownership. A.T.I. then submitted a notice of appeal as well as a motion to extend the time from August 29 to September 24, 1984 "to file a documented appeal, including [the] required financial statements." The motion was denied. However, counsel for NATTS informed plaintiffs that "notwithstanding deadlines for perfecting the appeal, [plaintiffs] could and should bring whatever financial information [they] could develop concerning the operating and financial condition of the school under its ownership to the appeals panel hearing and that it would be considered."
Ehrlich Affidavit at 12.
An appeals panel was selected without objection and, following a short postponement, a hearing was held on October 17, 1984. Mr. and Mrs. Levy, as well their legal counsel and accountant, appeared at the hearing and presented oral and written information to the panel. Despite the efforts of the plaintiffs, the appeals panel voted unanimously to uphold the Commission. Perhaps the most important factor in this decision was the fact that the required financial data for the A.T.I. School had still not been submitted. See Janssen Affidavit.
The Proceedings In This Court
Within days after receiving notice of the appeals panel decision, plaintiffs filed their "Complaint for Damages, Declaratory Judgment, and Injunctive Relief."
The complaint asserts three causes of action: 1) Breach of contract; 2) Breach of fiduciary duty; 3) Intentional interference with contractual relations.
The first two counts of the complaint are based on the alleged breach of "Procedural Rules and Accreditation Standards" of NATTS. Essentially, plaintiffs claim that NATTS, as a "quasi-public" institution, owes its members a general duty to provide fair and impartial procedures, to base its decisions on the evidence, and to avoid arbitrary and capricious actions. The plaintiffs' argument finds support in the case law, see Marjorie Webster Junior College, Inc. v. Middle States Association of Colleges and Secondary Schools, Inc., 139 U.S. App. D.C. 217, 432 F.2d 650, 655 (D.C. Cir.), cert. denied, 400 U.S. 965, 27 L. Ed. 2d 384, 91 S. Ct. 367 (1970). See also Marlboro Corporation v. Association of Independent Colleges and Schools, Inc., 556 F.2d 78 (1st Cir. 1977); Rockland Institute, Division of Amistad Vocational Schools, Inc. v. Association of Independent Colleges and Schools, 412 F. Supp. 1015 (C.D. Calif. 1976); Parsons College v. North Central Association of Colleges and Secondary Schools, 271 F. Supp. 65 (N.D. Ill. 1967); Wisconsin Avenue Associates, Inc. v. 2720 Wisconsin Avenue Cooperative Association, Inc., 441 A.2d 956, 963 (D.C. 1982) (fiduciary concepts may apply to membership in voluntary association); Gashgai v. Maine Medical Association, 350 A.2d 571 (Me. 1976) (bylaws of voluntary association may be judicially enforced as contract), and the defendants do not contest the plaintiffs' position on the law. In fact, defendants have used the term "due process" to describe their duty to the plaintiffs during the accreditation process. The Court finds this analogy appropriate.
The flaw in the plaintiffs' argument to the Court is that defendant has provided all the process due. Plaintiff argues that the accrediting commission wrongfully refused to consider the change of ownership in connection with its hearing on the disaccreditation proceeding. However, it is clear that NATTS' bylaws and procedural rules treat the disaccreditation process and change of ownership process differently, with the latter requiring an extensive investigation including on-site visits to the school. See Exhibit 1 to Plaintiffs' Statement of Points and Authorities in Support of Motion for Restraining Order at 4 and Change of Ownership Form, Exhibit B of Erlich Declaration at 21. While NATTS could have postponed the hearing on disaccreditation for the months or weeks it would have taken to complete the change of ownership process, it was not bound to do so by its rules or by any generally accepted notion of due process. In fact, it is undisputed NATTS told plaintiff it would engage in an accelerated change of ownership review process, which offer plaintiff has failed to accept. Clearly, it is not the place of a federal court to instruct an experienced, professional body in the proper criteria to consider in an accreditation proceeding. NATTS is fully within its rights in treating the change of ownership application from A.T.I. in the manner provided in its rules; that is, it may process the application as an initial request for accreditation.
Plaintiffs also argue that the NATTS appeals panel treated them unfairly by failing to make the change of ownership information "part of the official file" and in failing to "consider the presentation" in reaching the decision. NATTS responds to this argument on two levels. According to NATTS' procedural rules, the appeals panel "is limited to consideration of only the evidence in the record up to the time of the commission's decision" in deciding whether to reverse the commission. Exhibit B of Ehrlich Declaration at 18. Additionally, the panel may, in its discretion, informally consider additional evidence in deciding ...