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ARMSTRONG v. ACCREDITING COUNCIL FOR CONTINUING ED

September 8, 1993

VANESSA ARMSTRONG, Plaintiff,
v.
ACCREDITING COUNCIL FOR CONTINUING EDUCATION & TRAINING, INC., et al., Defendants.


Lamberth


The opinion of the court was delivered by: LAMBERTH

This case comes before the court on each defendant's motion to dismiss the complaint. Upon consideration of the filings of counsel and the relevant law, and for the reasons stated below, defendants' motions will be granted in full or in part in accordance with this memorandum opinion.

 I. BACKGROUND

 A. The Facts of this Case. *fn1"

 This case is a class-action suit brought by plaintiff on behalf of a putative class of former students of NBS Automotive School ("NBS"), a for-profit vocational school. *fn2" Plaintiff claims that NBS arranged that plaintiff receive a Guaranteed Student Loan ("GSL") under the Higher Education Assistance Act of 1965, as amended, 20 U.S.C. § 1071 *fn3" et seq. ("the HEA"); however, plaintiff alleges that NBS could not - and did not - provide her with the education for which she paid (largely via the proceeds of her student loan). Plaintiff also asserts that she, as well as members of the class she hopes to represent, *fn4" were injured as a result of NBS's misrepresentations and educational practices, which allegedly violated the HEA, the standards of its accrediting body, and various D.C. Code provisions.

 The defendants to this suit are five:

 
b.b Accrediting Council for Continuing Education & Training, Inc. ("ACCET") is the agency which granted accreditation to NBS.
 
b.b California Student Loan Finance Corporation ("CSLFC") is a corporation which acquires student loans under the HEA. It has received proceeds from payments made on plaintiff's GSL.
 
b.b Bank of America ("BA") is an "eligible lender" under 20 U.S.C. § 1085(d) and, having purchased plaintiff's GSL as trustee for - and at the direction of - CSLFC, is the current "holder" of plaintiff's loan. See § 1085(i). *fn5"
 
b.b Higher Education Assistance Foundation, Inc., ("HEAF") is a guarantee agency under 20 U.S.C. §§ 1078 & 1085(j) and is the guarantee agency for plaintiff's GSL.
 
b.b Defendant Secretary of Education, ("the Secretary") is sued in his official capacity. The Secretary is responsible for the GSL program and is the ultimate guarantor of all GSLs. *fn6"

 Plaintiff alleges that in June of 1988, she contacted NBS about its vocational program. NBS explained that its one-year program cost in excess of $ 5000, but that a GSL could be arranged to pay for most of the tuition. Subsequently, plaintiff paid $ 1,317.91 to NBS; NBS presented plaintiff with a loan application and a promissory note for a $ 4000 GSL. Plaintiff alleges that NBS - not the lender, First Independent Trust Company of California *fn7" - prepared the loan application, selected the lender, determined the loan amount, and prepared the promissory note. The loan was then approved by First Independent Trust and HEAF (which, as the guarantee agency, is required to approve all GSLs). Shortly thereafter, BA, as trustee for - and on behalf of - CSLFC, acquired the note from First Independent Trust.

 Plaintiff alleges that NBS, although certified as an eligible institution under the HEA by the Secretary and accredited by ACCET, failed to satisfy the statutory and regulatory requirements imposed upon eligible institutions. Plaintiff also alleges that ACCET failed to withdraw NBS's accreditation even though it knew that NBS failed to meet statutory requirements under the HEA as well as ACCET's own accreditation standards.

 In addition, plaintiff alleges that NBS violated various provisions of the District of Columbia Municipal Regulations, the District of Columbia Code, and federal law in its representations to plaintiff, its conduct under the HEA, and its actual education.

 Based on these facts, plaintiff has filed a four-claim complaint. *fn8" In her first claim for relief, against ACCET, plaintiff (on behalf of the class she purports to represent) requests treble damages under D.C. Code § 28-3905(k) for ACCET's alleged violations of various aspects of § 28-3904 as well as for ACCET's aiding and abetting NBS in violations of the same statute.

 In her second claim, against CSLFC/BA, HEAF, and the Secretary, plaintiff (again on behalf of the putative plaintiff class) seeks to void the GSL contracts for mistake and illegality. Similarly, in the third claim, against the same defendants (and again on behalf of the class), plaintiff seeks to cancel the GSLs based on claims and defenses assertable against NBS. Finally, in the fourth claim, asserted individually against CSLFC/BA, HEAF, and the Secretary, plaintiff seeks to cancel her GSL based upon NBS's fraud, misrepresentation, and unfair trade practices.

 B. The Guaranteed Student Loan Program.

 Before examining defendants' motions, it is appropriate to briefly sketch out the workings of the student loan program.

 Pursuant to the HEA, the Secretary administers the GSL program. Under that program, the Secretary specifies the terms and conditions of GSLs, agrees to make certain payments to schools, lenders, and guarantee agencies if they satisfy the requirements of the program, and serves as the ultimate guarantor of GSLs.

 To receive payments under the GSL program, schools, like NBS, must qualify as "eligible institutions" (defined by 20 U.S.C. § 1085(a)) and meet statutory regulatory requirements set forth in the HEA and 34 C.F.R. § 600.1 et seq. In addition to these requirements, an eligible institution must be accredited by an accrediting agency or reliable authority; in this case, that requirement was fulfilled by defendant ACCET.

 GSLs may be made or held by "eligible lenders" (defined by § 1085(d)). The lender is responsible for processing the loan, but in certain circumstances it may delegate loan-making functions to the eligible institution itself. In plaintiff's case, CSLFC (and BA as its trustee) qualifies as the lender since it is the current holder of plaintiff's loan. *fn9"

 A guarantee agency, like HEAF in this case, has entered into a guarantee agreement with the Secretary whereby the guarantee agency agrees to insure GSL loans while the Secretary agrees to reinsure the loans. The guarantee agency has some responsibility for policing institutions and lenders. See § 682.401(b)(10).

 Typically, if a student defaults, the lender (or holder) assigns the loan to a guarantee agency to collect the loan; the guarantee agency pays the lender the unpaid balance of the loan. In addition, the Secretary agrees to reimburse the guarantee agency for all costs expended in insuring the loan as well as in pursuing collection efforts on the loan.

 II. First Claim for Relief: ACCET's Motion to Dismiss.

 The Accrediting Council for Continuing Education & Training, Inc. ("ACCET") has moved to dismiss the first claim for relief in the complaint under Fed. R. Civ. P. 12(b)(6). (The first claim is the only one that pertains to ACCET.) In the alternative, ACCET has moved for summary judgment under Rule 56. *fn10"

 However, ACCET counters that decisions of the District of Columbia Court of Appeals have narrowed the definition of "person" such that ACCET's activities are not covered by the CPPA. Plaintiff objects to ACCET's motion to dismiss, stating first, that the CPPA governs ACCET; and second, that ACCET ignores plaintiff's common law fraud and misrepresentation claim. As to the first objection, the court accepts ACCET's position; as to the second, the court must accept plaintiff's.

 A. Plaintiff's Claim under the CPPA.

 First, there is no case of the District of Columbia Court of Appeals directly on point. Nor is there a case in which a party successfully sued a person who merely accredited the products or services of another. It is not the place of the federal district court to extend D.C. law so significantly (as plaintiff wishes) and thereby create a new, more rigorous standard of liability for D.C. citizens.

 Moreover, if the court abandoned this principle, it nonetheless would not extend the CPPA to create liability on the part of ACCET because the court believes that Court of Appeals ordinarily would not subject an accrediting agency such as ACCET to the requirements of the CPPA. The case most nearly - if obliquely - addressing this issue is Howard v. Riggs Nat'l Bank, 432 A.2d 701 (D.C. App. 1981). In that case, an employee of Riggs recommended a construction contractor to a loan customer (Howard). Howard eventually contracted with the contractor, but the work was never completed; Howard suffered the loss of her deposit. She sued Riggs under the CPPA, alleging violations of current § 28-3904(a), (b), (d), (e), and (f). The Court of Appeals dismissed her suit, however, holding that the definition of "person" in § 28-3904 contradicted other provisions of the CPPA as well as the legislative history of the act. Therefore, the court narrowed the universe of persons subject to suit under the CPPA to "'persons' connected with the 'supply side of a consumer transaction.'" 432 A.2d at 709 (citing Council of the District of Columbia, Committee on Public Services and Consumer Affairs, Report on Bill 1-253 at 13 (Mar. 24, 1976)). The court also adopted language from the Committee Report which similarly limited the CPPA to "the merchant, or another merchant further along the supply chain who is deemed legally responsible under relevant substantive law. . . ." 432 A.2d at 709 (citing Report at 14). Finally, the court concluded with the following admonition:

 
Even though the CPPA evidently was intended to be a far- reaching consumer protection law, we cannot conclude that the Council sought to impose liability as a guarantor upon any private individual (or his employer) who recommends the goods or services of a particular merchant to another.

 432 A.2d at 710. No subsequent case has amended this holding.

 When the present case is examined in the light of Howard, the court finds that the CPPA does not apply. ACCET is not a merchant; nor does it supply goods or services to or through NBS. Rather, ACCET's accreditation serves merely to recommend the services of a distinct, separate entity. *fn11" Although ACCET technically qualifies as a member of the "supply" side of the NBS-Armstrong transaction (or, more accurately, ACCET is not on the "demand" side of the equation), it is not on the supply side in the manner envisioned by the drafters of the CPPA.

 In addition, although plaintiff later - in her brief in opposition to ACCET's motion to dismiss - asserts that ACCET was "clearly affiliated, both financially and through its governance," with NBS, Plaintiff's Opposition to ACCET Motion to Dismiss at 11, this summary assertion is not supported by plaintiff's own allegations (even when they are viewed in the light most favorable to her). First, plaintiff does not allege that ACCET profited from its accreditation of NBS; on the contrary, plaintiff acknowledges that ACCET is a not-for-profit agency. Second, plaintiff does not claim that NBS controlled ACCET (or vice versa); rather, all the schools accredited by ACCET were members of - and controlled - the organization. Finally, although there may have been a tenuous link between the two organizations, plaintiff does not allege that this link formed the basis for any improper action (or any improper motivation for any action, proper or improper) on the part of ACCET. Thus, plaintiff fails to demonstrate that, under the D.C. Court of Appeals' interpretation of the CPPA in Howard, ACCET should be liable to plaintiff.

 Plaintiff also claims that ACCET aided and abetted NBS in violations of the CPPA, thus creating liability for ACCET as well. This assertion, too, must be rejected. First, no provision of the CPPA creates a cause of action for aider-and- abettor liability; in the absence of such a provision, the court must assume that the Council intended to make liable only those who actually violate the CPPA. *fn12" Second, even if the court believed that the CPPA encompassed secondary liability, it is not clear from the language of the statute why a "person" not subject to primary liability should be subject to secondary liability. Third, despite the fact that Howard was decided twelve years ago (and the CPPA was around long before Howard was decided), plaintiff has presented no case from the District of Columbia Court of Appeals, from the D.C. Superior Court, or from any federal court extending liability under the CPPA to aiders and abettors. And, the only case arguably relevant, Howard, seems to preclude extending the application of the CPPA to secondary parties not subject to primary liability under the Act. In short, the court holds that the CPPA creates only those causes of action specifically enumerated within its provisions; a cause of action creating liability for aiders and abettors of those who allegedly violate the CPPA is not included.

 Thus, even when viewing plaintiff's allegations in the light most favorable to her, the court finds that there is no liability - either primarily or as an aider and abettor - for a non-profit accrediting organization such as ACCET under the CPPA. *fn13"

 B. Plaintiff's Claim under Common Law Misrepresentation.

 Plaintiff further argues that the First Claim should not be dismissed, even if the court finds that the CPPA does not apply, because plaintiff has stated a case for common law misrepresentation. Plaintiff's argument is somewhat questionable as it is patently evident that the only cause of action plaintiff originally and specifically asserted was one under the CPPA. Complaint PP 64-65. This fact is further supported by the fact that plaintiff's only requested relief is treble damages under the CPPA's damages provision, § 28-3905(k), not damages based on common law grounds. In short, plaintiff nowhere alleges that ACCET is guilty of common law fraud or common law misrepresentation; nor does plaintiff claim damages under either theory. *fn14"

 However, as to the class allegations, plaintiff does state each of the elements sufficiently - albeit with less than perfect clarity - to survive ACCET's motion to dismiss. Thus, even though it appears that plaintiff's common law theory was more a post hoc response to ACCET's otherwise successful motion to dismiss than a planned cause of action, the court may not dismiss completely plaintiff's claims against ACCET. *fn15" Accordingly, the court will grant in part defendant ACCET's motion to dismiss: the First Claim of the complaint is dismissed to the extent it is based on D.C. law. To the extent the claim is based on common law grounds, the motion to dismiss is denied without prejudice.

 III. Second Claim for Relief: Mistake and Illegality. *fn16"

 Plaintiff's second claim for relief - on behalf of herself and the putative class - is posited against CSLFC/BA, HEAF, and the Secretary. Plaintiff claims that NBS did not meet the HEA's requirements for an "eligible institution" at the time plaintiff received her GSL. As a result, plaintiff asserts, the GSL is void and unenforceable on two common law theories: that the GSL was an illegal contract; and that there was a mistake as to a basic assumption of the contract. In addition, plaintiff insists that she had no knowledge that NBS did not meet the HEA's requirements and that any risk of mistake properly should be assigned to defendants. Plaintiff seeks restitution of any sums paid on her loan and declares that defendants have a duty to correct any reports indicating that members of the class are in default on the unenforceable loans.

 As a starting point, plaintiff acknowledges - as she must - that NBS was certified as an eligible institution by the Secretary at the time plaintiff agreed to her GSL contract. That admission alone would seem to resolve this issue in favor of defendants. However, plaintiff claims that her allegations, which must be accepted as true at the motion to dismiss stage of this litigation, demonstrate that NBS at that time did not meet the statutory or regulatory requirements of the HEA. Thus, citing to 34 C.F.R. § 600.40(a) ("An institution loses its eligibility on the date that (1) It fails to meet any of the eligibility requirements of this part. . ...


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