Armstrong v. Accrediting Council for Continuing Ed.

• Decision Date: 30 September 1997
• Docket Number: No. CIV. A. 91-3135.,CIV. A. 91-3135.
• Citation: 980 F.Supp. 53
• Parties: Vanessa ARMSTRONG, Plaintiff, v. ACCREDITING COUNCIL FOR CONTINUING EDUCATION & TRAINING, INC., et al., Defendants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

980 F.Supp. 53

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

No. CIV. A. 91-3135.

United States District Court, District Court of Columbia.

September 30, 1997.

As Amended October 31, 1997.

COPYRIGHT MATERIAL OMITTED

Michael Tankersley, Washington, DC, for Plaintiff.

Mary G. Fenske, Kenneth Ingram, Whiteford, Taylor & Preston, Washington, DC, Anthony Alexis, Fred E. Haynes, Asst. U.S. Attys., Washington, DC, Henry Weinstock, Nossaman, Guthner & Knox, Los Angeles, CA, for Defendants.

MEMORANDUM OPINION

LAMBERTH, District Judge.

This matter comes before the court on remand from the Court of Appeals, Armstrong v. Accrediting Council for Continuing Education and Training, Inc., 84 F.3d 1452 (D.C.Cir.1996) (unpublished table decision), and on defendants' renewed motions to dismiss plaintiff's remaining claims pursuant to Fed.R.Civ.P. 12(b)(2) and (6). In the alternative, defendants seek summary judgment on these claims. For the reasons stated below, defendants Bank of America, California Student Loan Finance Corporation, Higher Education Assistance Foundation and the Secretary of Education's motions to dismiss are granted in full in accordance with this opinion.

I. BACKGROUND

A. Factual Background

As this motion comes before the court under Fed.R.Civ.P. 12(b)(2) and (6), defendants must prove that there is no set of facts upon which plaintiff is entitled to relief as a matter of law. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957) All allegations set forth in the complaint must be accepted as true and liberally construed in favor of plaintiff and all reasonable inferences must be drawn in favor of plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). The complaint should be dismissed only if it appears beyond doubt that there is no set of facts proffered in support of plaintiff's claim that would entitle her to relief. Conley, 355 U.S. at 45-46, 78 S.Ct. at 101-02; Haynesworth v. Miller, 820 F.2d 1245, 1254 (D.C.Cir.1987).

Plaintiff Vanessa Armstrong enrolled in the Washington, D.C. campus of NBS Automotive School ("NBS"), a for-profit vocational school, in June 1988. At the time of her enrollment, NBS informed plaintiff that tuition for the program would exceed $5,000 but that the school could arrange a guaranteed student loan ("GSL") to pay most of the charges. According to plaintiff's amended complaint, NBS represented to her that its program was accredited by the Accrediting Council for Continuing Education and Training ("ACCET"), approved by the D.C. Educational Licensure Commission and certified by the Department of Education ("DOE" or "Department") as an "eligible institution" under the GSL program and the Higher Education Act of 1965, 20 U.S.C. § 1070 et. seq. ("HEA"). Plaintiff Armstrong paid $1,317.91 directly to NBS, and NBS presented her with a loan application and promissory note for a GSL loan of $4,000, representing the balance of the tuition and fees.

According to the amended complaint, NBS "prepared the loan application and promissory note presented to plaintiff Armstrong, selected the lender and guarantee agency, specified the type of loan, determined the loan amount, made disclosures concerning the terms of the GSL loan, had plaintiff sign the promissory note, and disbursed the loan proceeds." Plaintiff's Amended Complaint at 8. The note provided that the loan was to be issued by First Independent Trust Company of California ("FITCO"), with the Higher Education Assistance Foundation ("HEAF") acting as guarantor. Plaintiff signed the application and the note on July 19, 1988. NBS certified that plaintiff met eligibility requirements for the loan, at which time FITCO and HEAF approved the loan and paid the proceeds to NBS.

Bank of America ("BA"), an eligible lender under 20 U.S.C. § 1085(d), subsequently purchased the plaintiff's GSL as trustee for the California Student Loan Finance Corporation ("CSLFC"), a corporation which acquires student loans under the HEA. BA is the current "holder" of the note. See 20 U.S.C. § 1085(i). FITCO, the original lender, was not named as a defendant in this action.

In or about December 1989, NBS closed its school in the District of Columbia. At the time of the filing of her amended complaint, plaintiff had made payments on her GSL loan of over $1,500. Over the ten year repayment period of the loan, the total of the monthly payments and interest is $7,565.76.

The gravamen of plaintiff's complaint is that she was defrauded by NBS, that the school was "a sham because it did not meet the standards for accreditation and failed to provide the educational training it promised," Plaintiff's Amended Complaint at 1-2, and that she should not be required to repay her creditors for an education she never received. She claims that NBS was falsely accredited, and that she reasonably relied on NBS's representations concerning its program in deciding to enroll. Plaintiff initially filed a four-claim complaint, naming as defendants CSLFC, BA, HEAF, the Secretary of Education ("the Secretary") (as ultimate guarantor of all GSLs) and ACCET, the agency that granted accreditation to NBS, allowing the school to qualify for federal funds under the HEA. Plaintiff filed her amended complaint in October 1993 pursuant to this court's order in Armstrong v. Accrediting Council for Continuing Education & Training, Inc., 832 F.Supp. 419, 435 (D.D.C.1993) ("Armstrong I"), revising her claims against the Secretary and ACCET. Significantly, NBS has never been a party to this action.

B. Procedural History

In Armstrong I, this court held first that plaintiff could not assert a cause of action against defendants CSLFC/BA¹, HEAF, or the Secretary on common-law contract grounds of mistake or illegality.² Armstrong I, 832 F.Supp. at 426-27. Second, the court dismissed claims asserted under various sections of the D.C.Code, including §§ 28-3807, 3809 and 3813(f), concluding that although the HEA does not explicitly or implicitly preempt all state law, the particular statutory claims asserted by plaintiff were preempted because it was either impossible for an individual to abide by both the state law and the HEA, or enforcement of the D.C. statutory claims would preclude execution of the purposes and objectives of the HEA. See id. at 427-31. Third, the court dismissed both federal law and D.C. statutory/regulatory claims purportedly arising under the FTC Holder Rule, 16 C.F.R. § 433.2. See id. at 431-33. Finally, this court dismissed plaintiff's claims based on the existence of an "origination relationship" under 34 C.F.R. § 682.200 between the school and the initial lender against all defendants except the Secretary. See id. at 433-34.

On appeal, the D.C.Circuit vacated the above ruling and remanded the matter for further consideration. Armstrong v. Accrediting Council for Continuing Education & Training, Inc., 84 F.3d 1452 (D.C.Cir.1996) ("Armstrong II") (unpublished table decision). The Court of Appeals directed this court to consider first whether, in the absence of any remaining federal law claims, jurisdiction should be maintained under 28 U.S.C. § 1367(C)(3). After reviewing the written submissions and oral arguments of all parties, the court decided to exercise jurisdiction and reach the merits of plaintiff's case, and further determined that declaratory relief was appropriate as to the pendent state claims. Armstrong v. Accrediting Council for Continuing Education & Training, Inc., 950 F.Supp. 1 (D.D.C.1996) ("Armstrong III").

Having decided to exercise its jurisdiction, this court must now consider the remaining questions presented to it by the Court of Appeals. Specifically, this court is called upon to: 1. determine applicable state law under contemporary choice of law principles; 2. consider whether that law is preempted by the federal Higher Education Act; and, 3. if the state law is not preempted, review the application of the relevant law to plaintiff's claims.

Second, the Secretary has now moved to dismiss the claims against him based upon an alleged "origination relationship" between NBS and FITCO. This court will address that question pursuant to the Secretary's and HEAF's Renewed Motion to Dismiss.

Finally, in plaintiff's amended complaint, her second claim for relief alleges a cause of action against the Secretary under 20 U.S.C. §§ 1087(c)(1), (5) which directs the Secretary to discharge a borrower's liability by repaying the amount owed on the loan on all GSLs received on or after January 1, 1986 and report such discharge to credit bureaus if the student's eligibility under the HEA was falsely certified by the institution or if the student was unable to complete the program due to closure of the institution. Plaintiff alleges that she has been injured by the failure of the Secretary to perform these statutory obligations, and asks for relief in the form of a declaratory judgment and a writ of mandamus compelling the Secretary to perform his duties.

II. CHOICE OF LAW

In her complaint, plaintiff asserted a number of causes of action under District of Columbia law, including, inter alia, D.C.Code §§ 28-3809(a)(1), 28-3904(a), (b), (e), (f), (r); 28-3807; and 16 D.C.Mun.Regs. § 1212.1. However, the Supplemental Loan for Students (SLS) Application/Promissory Note signed by plaintiff included the following provision:

To the extent not governed by federal law, this note shall be governed by the laws of the jurisdiction where the lender is located.

The original lender, FITCO, was located in Sacramento, California; BA/CSLFC are also California based. If the contractual choice of law provision is held operative and binding, California law would govern this case, thereby rendering all of plaintiff's District of Columbia claims invalid, with the exception of her claims based upon common-law principles of mistake and illegality,...