judgment in favor of Armstrong on the issue of reliance.
2. Statute of Limitations
Defendant ACCET argues that plaintiff's claim is barred by the statute of limitations. Plaintiff began attending NBS in August of 1988, and began noticing problems with the facility within a few weeks. These problems, defendant argues, should have put her on notice that ACCET had made the alleged misrepresentations about NBS.
This court, when deciding a cause of action under state law, must apply the limitations period of the forum in which it sits. Walker v. Armco Steel Corp., 446 U.S. 740, 753, 64 L. Ed. 2d 659, 100 S. Ct. 1978 (1980). In the District of Columbia, allegations of fraud must be brought within three years of the time the fraud is discovered or reasonably should have been discovered. D.C. Code Ann. § 12-301(8)(1995). This suit was filed on December 10, 1991. Thus, if plaintiff discovered the alleged fraud in late August of 1988, as defendant advances, the claim would be barred.
Once again, if defendant ACCET was correct in their portrayal of plaintiff's claim as an argument that ACCET's accreditation guaranteed the plaintiff class that NBS would meet their every expectation, defendant would have a potentially successful argument because if plaintiff was arguing that the accreditation guaranteed a perfect education, then learning of anything less than perfection would be knowledge of fraud.
But, as discussed above, plaintiff's claim is not that simple. Plaintiff does not argue that the accreditation was a promise that they would receive an education that met their every concern. Instead, plaintiff contends that ACCET's accreditation was a statement that NBS's quality of education met ACCET's standards. And, ACCET continued to extend NBS' accreditation even though the organization had not investigated the school during the required time frame.
Therefore, knowledge of a few problems at the school does not give plaintiff the knowledge that ACCET had fraudulently accredited the school. Every school has problems, and plaintiff has never argued that a school which has some problems should not be accredited. And, drawing inferences in favor of the plaintiff, it is not evident from the summary judgment record when in fact plaintiff should have discovered the extent of the problems at NBS, and thus had reason to know of ACCET's alleged fraud. Thus summary judgement on this issue would be inappropriate.
Defendant ACCET attempts to rely on Winkelman v. Blyth, a Ninth Circuit case mentioned in a footnote by the D.C. Circuit. 518 F.2d 530 (9th Cir. 1975). In this case, plaintiffs were suing their stockbrokers for fraud arising out of the stockbrokers failure to disclose their financial interests in the sale of various stocks. Id. The Ninth Circuit held that the statute of limitations began to run when the plaintiffs discovered the falsity of defendants' representations as to the value of the stock because this gave plaintiffs sufficient notice that they had been defrauded. Id. at 531. The court does not disagree with the underlying proposition that once one becomes aware of the fraud, the statute of limitations began to run. The issue is when did plaintiff become aware of the alleged fraud, and the fact that Armstrong noticed some problems three weeks into her NBS schooling is not the same as Armstrong knowing that the education she was receiving was a sham.
Plaintiff has argued that she could not known of the fraud until the closing of NBS, which occurred in 1990. The court does agree with defendant that plaintiff has not demonstrated why NBS's closing is the appropriate date. It appears that Armstrong had become convinced that her educational experiences were worthless at least by the time she dropped out of the school. At trial, both parties will have the ability to produce evidence on when it was reasonable for Armstrong to have knowledge of the fraud, which will be an issue for the decision maker to decide.
3. Deference, the Business Judgment Rule & Public Policy
Defendant ACCET argues that the court should defer to the actions of the accrediting agency for several reasons. ACCET first asserts that courts, when analyzing the decisions of accrediting agencies, have traditionally applied the deferential approach embodied in administrative law. Decisions of agencies are overturned only when they are capricious or arbitrary, and in a similar manner this court should examine the actions of ACCET focusing only on whether its decisions were capricious or arbitrary. See Chigaco School of Automatic Transmissions, Inc., v. Accreditation Alliance of Career Schools and Colleges, 44 F.3d 447 (7 Cir. 1994). Defendant ACCET compares this administrative rule to the business judgment rule that is used in corporate settings. Second, ACCET argues that public policy requires that students should not be able to sue accrediting agencies when they are unhappy about the quality of education they receive.
To understand the flaws in ACCET's argument, it is again vital to understand what this case is not. This case is not a situation in which an accrediting agency, after thoughtful consideration and examination, decided to accredit a school and subsequent students are challenging the decision to accredit based on their dissatisfaction with the school. Nor is this the case of a school challenging an accrediting agency's decision to deny or withdraw accreditation. See Wilfred Academy of Hair and Beauty Culture v. The Southern Ass'n of Colleges and Schools, 957 F.2d 210, 214 (5th Cir. 1992); Peoria School of Business v. Accrediting Council for Continuing Educ. and Training, 805 F. Supp. 579 (N.D.Ill. 1992.) When a decision on the merits to accredit had been reached by an agency, courts have then been reluctant to enter the foray.
Here, however, the problem is that there was no decision by ACCET on the merits. ACCET did not go through the reaccreditation procedure as it was supposed to do according to its own regulations. Because ACCET did not do this, there is no decision which the court can analyze under either a deferential approach or the business judgment rule.
Furthermore, the court refuses to hold that public policy demands that an accrediting agency escape liability for intentional or reckless misrepresentations. The court concludes that students who rely on the representation of an accrediting agency do have a cause of action against the accrediting agency if the representation was false and intentional. Public policy requires that ACCET, which has recognized and encouraged prospective students to rely on its decisions to accredit schools, be held liable for any fraudulent accreditations.
Defendant ACCET argues throughout the pleadings that ACCET has no duty to the students, who, according to defendant, are just members of the general public because they have no relationship with ACCET. Defendant relies on Nader v. Allegheny Airlines, Inc., 167 U.S. App. D.C. 350, 512 F.2d 527 (D.C.Cir. 1975) rev'd on other grounds, 426 U.S. 290, 48 L. Ed. 2d 643, 96 S. Ct. 1978 (1976). This case involved the overbooking of an airplane. As a result, Ralph Nader was bumped to another flight and was unable to attend a fundraising rally for the Connecticut Citizen Action Group (CCAG). Both Nader and CCAG sued the airlines. However, the D.C. Court of Appeals concluded that while Nader was within an identifiable class of persons that the airline intended to influence, the CCAG was far more remote to the transaction and the airline had no reason to know of CCAG's reliance.
The situation before the court is far different from than in Nader. Unlike Allegheny Airlines, ACCET had reason to know of the potential students' reliance. In fact, ACCET encouraged such reliance as discussed above. It is true that ACCET could not identify each of the individual plaintiffs in this case. But, this is not required.
ACCET has also pointed the court to the Ninth Circuit's unpublished affirmance of a district court's dismissal of a case brought by former students of a school against two accrediting agencies. Keams v. Tempe Technical Institute, 110 F.3d 44, 1996 U.S. App. LEXIS 32837, 1996 WL 713069 (9th Cir. 1996). The students had alleged that two accrediting agencies had negligently accredited their school, and the district court dismissed the claim for failure to state a claim upon which relief could be granted. In affirming this dismissal, the Ninth Circuit concluded that the accrediting agencies did not owe a duty to the students upon which a negligence action could be brought.
Again, this is not the situation before this court. Plaintiff has not brought a claim based on negligence, but on fraud. In fact, the plaintiffs in Keams had attempted to amend their complaint to state a cause of action for misrepresentation, but were not allowed to do so because the district court found the plaintiffs were unable to provide a factual basis for such a cause of action. Because of the different causes of action, Keams does not provide any support for defendant's position.
Defendant ACCET refers many times to the District of Columbia case Brantley v. District of Columbia and concludes that because "it seems clear that an institution's own representations as to its quality are not actionable in the District of Columbia, . . ., it is hard to see how such alleged representations by an accrediting agency would be actionable." Def. Memo. in Opp. to Pl. Cross-Motion at 18, fn. 27. In Brantley, the D.C. Court of Appeals held that public school officials do not have an actionable duty of care in the discharge of their educational duties that would subject them to a negligence claim. 640 A.2d 181, 185. Defendant ACCET is unable to produce a case in which a court has held that a private school would not be liable for making representations that it had a program that in fact did not exist. That is the situation that is analogous to the one currently before the court. Plaintiff has alleged that ACCET made a representation that NBS met its standards for accreditation, when in fact ACCET had not investigated the school, and had reason to believe that NBS would not meet the appropriate standards. This court concludes that under D.C. law this constitutes fraud, and there is a cause of action available to the plaintiff.
A separate order shall issue today.
Royce C. Lamberth
United States District Judge
For the reasons expressed in the Court's accompanying Memorandum Opinion, it is
ORDERED that plaintiff's motion for summary judgment is DENIED, and it is further
ORDERED that defendant ACCET's motion for summary judgment is DENIED.
Royce C. Lamberth
United States District Judge