Keams v. Tempe Technical Institute, Inc.

• Decision Date: 04 May 1992
• Docket Number: No. CIV 91-0728 PHX RCB.,CIV 91-0728 PHX RCB.
• Citation: 807 F. Supp. 569
• Parties: Grace KEAMS, Jolene Cordero, Pandora Lee, and Bunny McCorkey; individually and on Behalf of all others similarly situated, Plaintiffs, v. TEMPE TECHNICAL INSTITUTE, INC., Carl E. Forsberg, C. Coleen Forsberg, Terry Lass, Jane Doe Lass, Ed Nabors, Jane Doe Nabors, Zions First National Bank, ABC Corporation, Student Loan Marketing Association, Arizona Educational Loan Marketing Corporation, United Student Aid Funds d/b/a Arizona Educational Loan Program, Accrediting Bureau of Health Education Schools/Programs, and National Association of Trade and Technical Schools, Defendants.
• Court: U.S. District Court — District of Arizona

807 F. Supp. 569

Grace KEAMS, Jolene Cordero, Pandora Lee, and Bunny McCorkey; individually and on Behalf of all others similarly situated, Plaintiffs, v. TEMPE TECHNICAL INSTITUTE, INC., Carl E. Forsberg, C. Coleen Forsberg, Terry Lass, Jane Doe Lass, Ed Nabors, Jane Doe Nabors, Zions First National Bank, ABC Corporation, Student Loan Marketing Association, Arizona Educational Loan Marketing Corporation, United Student Aid Funds d/b/a Arizona Educational Loan Program, Accrediting Bureau of Health Education Schools/Programs, and National Association of Trade and Technical Schools, Defendants.

No. CIV 91-0728 PHX RCB.

United States District Court, D. Arizona.

May 4, 1992.

COPYRIGHT MATERIAL OMITTED

Cathy Lesser Mansfield, Community Legal Services, Urban Indian Law Office, Phoenix, AZ, and Erik M. O'Dowd, and Bruce A. Burke, O'Dowd, Burke & Lundquist, P.C., Tucson, AZ, for plaintiffs.

Gary L. Birnbaum and Kathryn A. Krecke, Mariscal, Weeks, McIntyre & Friedlander, P.A., Phoenix, AZ, for Zions First Nat. Bank.

Richard A. Segal, Gust Rosenfeld & Henderson, Phoenix, AZ, for United Student Aid Fund.

Stephen E. Richman, O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, Phoenix, AZ, for Student Loan Marketing Ass'n.

Charles E. James, Jr., Snell & Wilmer, Phoenix, AZ, for Arizona Educational Loan Marketing Corp.

Clint W. Smith, Smith & Evans, Mesa, AZ, for defendants Nabor.

David L. White and Joseph D. Romley, Jennings, Strouss & Salmon, Phoenix, AZ, for Nat. Ass'n of Trade and Technical Schools.

David C. Tierney, Sacks, Tierney, Kasen & Kerrick, Phoenix, AZ, for Accrediting Bureau of Health Educ. Schools/Programs.

ORDER

BROOMFIELD, District Judge.

In this order, the court addresses five motions: (1) Financial Defendants' Joint Motion to Dismiss, (2) United Student Aid Funds' Motion to Dismiss, (3) National Association of Trade and Technical Schools' Restated Motion to Dismiss, (4) Accrediting Bureau of Health Education Schools/Programs' Motion to Dismiss, and (5) Plaintiffs' Motion to Strike Supplemental Memorandum in Support of Financial Defendants' Joint Motion to Dismiss.

I. BACKGROUND INFORMATION

Plaintiffs, on behalf of themselves and former students of Tempe Technical Institute, Inc. ("TTI"), filed a class action against the above named defendants for fraud, consumer fraud, negligent misrepresentation, state racketeering, breach of contract, breach of fiduciary duty, conversion, negligence, and violations of the Higher Education Act of 1965 (the "Act"), 20 U.S.C. § 1070 et seq.

Defendants include (1) TTI and several officers, shareholders, and employees of TTI, collectively known as the "TTI defendants";¹ (2) Zions First National Bank ("Zions"), ABC Corporation (which assumed the assets and liabilities of Merabank), Student Loan Marketing Association ("Sallie Mae"), Arizona Educational Loan Marketing Corporation ("AELMC"), and United Student Aid Funds ("USAF"), collectively known as the "financial defendants"; and (3) the Accrediting Bureau of Health Education Schools/Programs ("ABHES") and National Association of Trade and Technical Schools ("NATTS"), collectively known as the "accreditor defendants."

TTI was a for-profit vocational school that operated from about September 15, 1988 through about April 11, 1990. Tempe Technical Institute, Inc. filed for relief under Chapter 7 of the United States Bankruptcy Code after plaintiffs filed this lawsuit. Plaintiffs were students at TTI who took out guaranteed student loans ("GSL") through either Zions or Merabank. These loans were guaranteed by USAF pursuant to the Act. The loans are now held by either Sallie Mae or AELMC.

Plaintiffs allege that defendants participated in a scheme in which economically deprived individuals were recruited by commissioned sales persons, enrolled in school, and signed up for federally guaranteed loans. Plaintiffs contend that they enrolled in the school because of the school's accreditation and because of oral and written representations made to them by various defendants. Plaintiffs allege that they subsequently discovered that the inducements were fraudulent and that material information had been concealed. Finally, plaintiffs assert that TTI failed to provide them with promised education and services for which TTI was paid by either Zions or Merabank.

Plaintiffs seek rescission of their enrollment contracts, restitution and damages, and a declaratory judgment that student loans are not due and owing. Plaintiffs also seek an injunction against all collection efforts, against the submission of negative credit reports, and against assignment or sale of their loans pending resolution of this case.

Defendants ABHES, NATTS, USAF, and the financial defendants collectively² have filed motions to dismiss for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). Pursuant to the court's June 24, 1991 order, these motions are limited to two issues: (1) whether the Higher Education Act preempts state law claims relating to guaranteed student loans, and (2) whether the Act creates an implied private right of action. Neither the Ninth Circuit nor this district have addressed these issues. Other district courts that have struggled with these issues are split.

II. DEFENDANTS' MOTIONS TO DISMISS

A. Characterization of the motions

All of the defendants have referred to their motions as motions to dismiss. Various defendants, however, have attached documents to their pleadings, thus raising the question of whether the court should treat these pleadings as motions for summary judgment.³ Rule 12(b) states,

If, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

Fed.R.Civ.P. 12(b).

The Ninth Circuit has held that the court may take judicial notice of facts outside the pleadings, administrative records and other "matters of public record" without converting the motion to a motion for summary judgment. Mack v. South Bay Beer Distributors, Inc., 798 F.2d 1279, 1281 (9th Cir.1986).

The following documents have been attached to the pleadings: unpublished case decisions, manuals on accreditation policies and procedures by both NATTS and ABHES, a letter from a pro-tem state judge to counsel, a brief submitted by the Department of Education ("DOE") as defendant in an unrelated case, notices published in the federal register, a DOE memo on "Compromise and Write-Off" procedures, and various correspondence involving the DOE. In reaching its decision, the court considered only the following documents: the unpublished case decisions and notices from the federal register. The court excludes all other attached documents. All of the documents considered by the court are matters of public record. Consequently, the court need not convert defendants' motions to dismiss into motions for summary judgment.

. . . . .

B. Pre-emption of State Law Claims

1. Legal Standard

In determining whether state statutory or common law is preempted by the Higher Education Act, the court must ascertain the intent of Congress. California Federal Savings and Loan Association v. Guerra, 479 U.S. 272, 280, 107 S.Ct. 683, 689, 93 L.Ed.2d 613 (1987). Congressional intent to pre-empt state law may be found in the express language of the statute or may be inferred "where the scheme of federal regulation is sufficiently comprehensive to make reasonable the inference that congress `left no room' for supplementary state regulation." Id. 479 U.S. at 280-81, 107 S.Ct. at 689. Furthermore, federal law may pre-empt state law to the extent that state law actually conflicts with federal law. Id. A conflict can arise "because `compliance with both federal and state regulations is a physical impossibility,'" id. 479 U.S. at 281, 107 S.Ct. at 689 (quoting Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963)) "or because the state law stands `as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). "Pre-emption is not to be lightly presumed." Id.

2. Presumption Against Preemption

Plaintiffs argue that they are entitled to a presumption against pre-emption of their state claims because their claims are in areas traditionally regulated by the states. The financial defendants argue against such a presumption because GSLs are creatures of federal statutory law and are not traditionally regulated by the states. Defendant ABHES argues that while states have a role in certifying schools, regulation of accrediting agencies under a federal statute is not typically accomplished through private actions asserting state common law remedies.

When Congress legislates in a field traditionally occupied by states, the court begins its analysis with a presumption against pre-emption of state law. West v. Northwest Airlines, Inc., 923 F.2d 657, 659 (9th Cir.1990) (common law tort and contract remedies in business relationships warrant presumption against finding preemption of state law). While guaranteed student loans are creations of federal statute, plaintiffs' claims against the financial defendants would exist even if the loans had been "common" loans not guaranteed by the government. In addition, while negligence tort claims are traditional state claims, negligence claims regarding the accreditation of a school for participation in a federal program are not in an area traditionally regulated by the states. Thus, the court considers plaintiffs' claims against the financial defendants to...