Found. Interior Design Edu. v. Savannah Col. of Art, PLAINTIFF-APPELLEE

• Decision Date: 02 November 2000
• Docket Number: DEFENDANT-APPELLANT,PLAINTIFF-APPELLEE,No. 99-2122,99-2122
• Citation: 244 F.3d 521
• Parties: (6th Cir. 2001) FOUNDATION FOR INTERIOR DESIGN EDUCATION RESEARCH,, v. SAVANNAH COLLEGE OF ART & DESIGN, Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 521

244 F.3d 521 (6th Cir. 2001)

FOUNDATION FOR INTERIOR DESIGN EDUCATION RESEARCH, PLAINTIFF-APPELLEE, v. SAVANNAH COLLEGE OF ART & DESIGN, DEFENDANT-APPELLANT.

No. 99-2122

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: November 2, 2000

Decided and Filed: March 27, 2001

Appeal from the United States District Court for the Western District of Michigan at Grand Rapids. No. 98-00346--Gordon J. Quist, District Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Douglas M. Mangel (argued), James A. Meyers (briefed), Drinker, Biddle & Reath, Washington, D.C., Douglas W. Van Essen, Stenger & Stenger, Grand Rapids, MI, for Appellee.

Todd R. Dickinson, David L. Harrison (briefed), Tolley Vandenbosch, Walton, Korolewicz & Brengle, Grand Rapids, MI, Peter M. Degnan (briefed), Anne S. Rampacek (briefed), Frank G. Smith III (argued and briefed), Alston & Bird, Atlanta, GA, for Appellant.

Before: Merritt, Wellford, and Siler, Circuit Judges.

MERRITT, J., delivered the opinion of the court, in which SILER, J., joined. WELLFORD, J. (pp. __-__), delivered a separate concurring opinion.

OPINION

Merritt, Circuit Judge.

The Foundation for Interior Design Education Research brought an action seeking a declaratory judgment that it did not violate the rights of Savannah College of Art & Design in denying accreditation to the College's interior design program. Savannah College of Art appeals the district court's decision granting summary judgment to the Foundation on its claim and dismissing the College's antitrust, breach of contract, common law due process, breach of fiduciary duty, and fraud counterclaims. We affirm the district court's decisions on all claims.

I. Facts

Savannah College of Art & Design, a private, non-profit institution located in Savannah, Georgia, offers a variety of educational programs in the fields of art and design, including interior design. The College is accredited by the Commission on Colleges of the Southern Association of Colleges and Schools. The Foundation for Interior Design Education Research, also a non-profit organization, is the sole accrediting body for interior design education programs in the United States. The Foundation is organized under the laws of New York. It is located in Grand Rapids, Michigan.

In January 1995, the College applied to the Foundation for accreditation of the College's interior design program. In April 1995, the Foundation sent a group of three interior design practitioners/educators to the College to conduct an evaluation of the College's interior design program. The visiting team prepared a report that generally praised the College's program, but that recommended a denial of accreditation. The team based its recommendation on deficiencies it found in ten areas of "student achievement" at the College. The Foundation's accreditation committee reviewed both the team's report and comments from the College in response to the report. Three members of that committee responded to the report. One member agreed with the visiting team's recommendation; two others disagreed with the recommendation. One of the committee members who disagreed with the visiting team found that "the report is written in such a manner that it sets the program up for denial."

The Foundation's board of trustees, the organ responsible for making accreditation decisions, reviewed the team report, the College's comments, and the comments of members of the accreditation committee. The board decided to deny the College's application for accreditation on August 22, 1995. The College appealed this decision to the Foundation's internal board of appeals. The Foundation's board of appeals determined that the visiting team's findings concerning the College's student achievement deficiencies were not sufficiently substantiated in the team report, and it decided that the board of trustees should reconsider the College's application. Upon reconsideration, the Foundation's board of trustees recommended that the Foundation conduct a second on-site evaluation of the College's interior design program.

The Foundation conducted a second on-site evaluation of the College in December 1996. The second team of visitors to the College did not include any members of the first visiting team, and it did not read the first team's report before visiting the College. The second team identified deficiencies in twenty areas of "student achievement" at the College, and it recommended that the Foundation reject the College's application for accreditation of its interior design program. The accreditation committee then reviewed a combination of the reports prepared by both visiting teams. Five members of the accreditation committee responded to the combined report; each agreed that the Foundation should deny the College's application. The Foundation's board of trustees denied the College's application once again, and it informed the College of this decision on August 25, 1997.

The College appealed the Foundation's second decision to deny accreditation to the Foundation's appeal panel, the successor organ to the board of appeals. At this time, the College also demanded that the Foundation provide the College with its accreditation reports dating from 1994 forward to enable the College to prove that it had been disparately treated. The Foundation refused this demand. The College then submitted to the appeal panel eleven of the Foundation's accreditation reports that it had obtained from other sources. On April 22, 1998, the appeal panel notified the College that, based on its finding that the board's decision was supported by substantial evidence, it had affirmed the board's decision to deny the College's application for accreditation. The appeal panel also found that the board's decision was not inconsistent with its previous accreditation decisions cited by the College because the other successful schools had not been as deficient as the College.

On at least three occasions during the pendency of its application for accreditation, the College suggested to the Foundation that it was considering taking legal action against the Foundation. In a letter to the Foundation concerning the Foundation's second on-site evaluation, sent on July 31, 1996, the College's attorney wrote: "While we prefer to resolve this matter privately and confidentially, should [the Foundation] decline to award earned accreditation, the College will consider all of its options, including the filing of a lawsuit...." In another letter sent to the Foundation on September 16, 1996, in the midst of discussions about the second on-site visit, the College's attorney suggested that, if discussions broke off, "the College [would] explore the numerous options available." Finally, on February 9, 1998, less than two months before the College's second appeal of the Foundation's decision to deny it accreditation, the College's attorney informed the Foundation that, if the Foundation did not grant accreditation upon appeal, "the College will have no choice but to pursue its claims against [the Foundation], and expose its disparate practices to a public whose trust in [the Foundation's] ability to objectively evaluate applicant programs is clearly misplaced."

Anticipating legal action by the College, the Foundation filed a complaint on April 22, 1998, seeking a declaratory judgment that its decision to deny the College's accreditation application was lawful. This complaint was filed ten minutes after the Foundation transmitted to the College its decision to affirm its second denial of the College's application for accreditation. The College subsequently filed counterclaims against the Foundation alleging breach of contract, violation of common law due process, breach of fiduciary duty, antitrust violations, and fraud. On December 21, 1998, the district court granted the Foundation's motion for summary judgment on its declaratory judgment claim. On September 3, 1999, the district court granted the Foundation's motion to dismiss each of the College's counterclaims for failure to state a claim.

II. Jurisdiction over the Foundation's declaratory judgment claim

As an initial matter, the College argues that the district court did not have subject matter jurisdiction over the Foundation's claim for declaratory judgment because the claim did not present a justiciable controversy. Federal courts are empowered to entertain declaratory judgment actions only when a party alleges facts that "show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality...." Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941); Kelley v. E.I. DuPont de Nemours & Co., 17 F.3d 836, 844-45 (6th Cir. 1994).

Even if the district court did not initially have jurisdiction to hear the Foundation's declaratory action -- a question we need not, and do not, decide -- the College conferred jurisdiction by filing its counterclaims. See Gopher Oil Co. v. Bunker, 84 F.3d 1047, 1050-51 (8th Cir. 1996). In Gopher Oil, a case the district court relied upon, the Environmental Protection Agency threatened to sue Gopher Oil for cleanup costs. Gopher Oil brought a declaratory judgment claim against the representative of the previous owners of the property alleging that they would be liable for the cleanup costs if Gopher Oil was in fact sued by the government. The Eighth Circuit found that, while the plaintiff's declaratory judgment claim may not have been ripe when filed, it had ripened by the time of appeal because the government had in fact brought its claim. See id. at 1051.

While Gopher Oil did not involve compulsory counterclaims, it stands for the proposition that a federal court can, in certain circumstances, acquire subject matter jurisdiction over a declaratory judgment claim that was arguably unripe when filed. This case presents such a circumstance. We note that a defendant can...