Keams v. Tempe Technical Institute, Inc.

• Decision Date: 15 December 1997
• Docket Number: CIV. No. 91-0728 PHX ROS.
• Citation: 993 F.Supp. 714
• Parties: Grace KEAMS, et al., Plaintiffs, v. TEMPE TECHNICAL INSTITUTE, INC., et al., Defendants.
• Court: U.S. District Court — District of Arizona

993 F.Supp. 714

Grace KEAMS, et al., Plaintiffs, v. TEMPE TECHNICAL INSTITUTE, INC., et al., Defendants.

CIV. No. 91-0728 PHX ROS.

United States District Court, D. Arizona.

December 15, 1997.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Bruce A. Burke, O'Dowd, Burke & Lundquist, P.C., Erik M. O'Dowd, Tucson, AZ, for Grace Keams, Jolene Cordero and Bunny McCorkey.

Jeffrey G. Williams, Jeffrey G. Williams PC, Mesa, AZ, for Carl E. Forsberg and C. Colleen Forsberg.

Ed Nabors, Mesa, AZ, pro se.

Martha Nabors, Mesa, AZ, pro se.

P. Bruce Converse, Gary L. Birnbaum, Michael P. West, Kathryn A. Krecke, Mariscal Weeks McIntyre & Friedlander PA, Phoenix, AZ, for Zions First National Bank.

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

Richard A. Segal, Gust Rosenfeld PLC, Phoenix, AZ, Elizabeth Ann Faulkner, K.H. Hunnicutt & Associates, Tempe, AZ, for United Student Aid Funds, Inc.

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

Joseph Dean Romley, Michael J. Farrell, Jennings Strouss & Salmon PLC, Phoenix, AZ, David L. White, White Cummings & Longino PC, Phoenix, AZ, for National Ass'n of Trade and Technical Schools.

ORDER

SILVER, District Judge.

Pending before the Court are (1) Defendant Zions First National Bank's Motion for Summary Judgment, which has been joined by Defendant Student Loan Marketing Association, and (2) Defendants Carl Forsberg and C. Colleen Forsberg's Motion for Summary Judgment.

BACKGROUND

Plaintiffs are a class of former students at Tempe Technical Institute ("TTI"), a for-profit vocational school that operated from September, 1988 to April, 1990. Defendant Carl Forsberg owned TTI and served as its President; C. Colleen Forsberg, his wife, was the corporation's Secretary. Defendant Zions National Bank ("Zions") issued many of the federal student loans obtained by the Plaintiffs in order to finance their education at TTI. Defendant Student Loan Marketing Corporation ("Sallie Mae") purchased Plaintiffs' student loans from Zions.

TTI was incorporated in 1988 by Carl Forsberg, a former employee and part-owner of the Phoenix Institute of Technology, another Phoenix vocational school. TTI purchased the assets of the Southwestern Medical Society Academy, an accredited vocational school specializing in the training of nonphysician medical personnel, and renamed the school. The school continued to offer medical training and expanded its offerings to include courses in drafting, computers, and automotive technology. TTI was in financial trouble for most of its short life due to Carl Forsberg's inability to obtain sufficient financing to operate the school. Upon discovering financial irregularities, a guaranty agency withdrew its accreditation of TTI in March, 1990. TTI soon closed, and later that year both TTI and the Forsbergs filed for bankruptcy pursuant to Chapter 7 of the United States Bankruptcy Code.

Plaintiffs, who are primarily Native Americans, claim that they were recruited from Northern Arizona and New Mexico to attend school in Phoenix and Tempe with promises of practical training, financial aid, guaranteed housing, and job placement assistance. The former students contend that after taking out student loans they discovered that the school was "a sham, incapable financially, administratively and qualitatively of providing the services it marketed." (Pls. Resp. at 25.) Plaintiffs contend that TTI provided an inferior education, failed to provide housing, and did not assist them with job placement.

Plaintiffs commenced this action in the Superior Court of Maricopa County, and it was removed to this Court on May 8, 1991. Plaintiffs' Amended Complaint and Responses¹ allege that Defendant Zions is directly liable to Plaintiffs for breaching duties imposed by Arizona law, and vicariously liable because TTI was acting as an agent for Zions when it injured the Plaintiffs. Plaintiffs also claim that Defendant Sallie Mae is vicariously liable for Zions' misdeeds. On April 18, 1997, Zions moved for summary judgment on all counts. On the same day, Sallie Mae joined Zions' Motion. Plaintiffs also seek to hold Defendants Carl and Colleen Forsberg personally liable for the TTI's wrongdoing under state law. On April 18, 1997, the Forsbergs moved for summary judgment on all counts, arguing that they are entitled to prevail based on state law and federal bankruptcy law. On April 25, 1997, Plaintiffs filed Responses to both Motions. On September 19, 1997, Zions and the Forsbergs filed their Replies.

LEGAL STANDARD

A motion for summary judgment may be granted if the evidence shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). To defeat the motion, the non-moving party must show that there are genuine factual issues "that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the non-moving party will bear the burden of proof at trial as to any element essential to its case, that party can withstand a motion for summary judgment only by making a showing sufficient to establish a genuine issue of fact regarding that element and showing that the dispute properly may be resolved only by the fact finder because it could reasonably be resolved in favor of either party. Celotex Corp. v. Catrett, 477 U.S. 317, 321, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Courts must view the evidence in the light most favorable to the nonmoving party and draw any reasonable inferences in the nonmoving party's favor. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995), cert. denied, 516 U.S. 1171, 116 S.Ct. 1261, 134 L.Ed.2d 209 (1996).

MOTION OF ZIONS

1. Ratification

Plaintiffs first contend that Zions is liable for TTI's alleged wrongdoings because Zions designated TTI as its agent by ratifying its actions.² Ratification creates an agency relationship where "the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him." Restatement (Second) of Agency § 82 (1958); see also Fuqua Homes, Inc. v. Grosvenor, 116 Ariz. 424, 569 P.2d 854, 856 (App.1977) (explaining the concept of ratification). Plaintiffs assert that the act at issue was the assistance that TTI gave to students by providing them with student loan applications and by helping the students complete the forms. Zions then "affirmed" this act by processing the applications and issuing the loans. According to Plaintiffs, because Zions realized the benefits associated with processing the loans, it also "assumed responsibility for the concomitant burdens and liabilities as it would have for any authorized agent's act." (Pls. Resp. at 13.) In its Motion for Summary Judgment, Zions argues that its actions in extending student loans to Plaintiffs did not constitute an affirmance of any of TTI's actions.

The Restatement is clear that "[r]atification does not result from the affirmance of a transaction with a third person unless the one acting purported to be acting for the ratifier." Restatement (Second) of Agency § 85(1). In order for Plaintiffs to sustain a ratification theory of agency, they must show that TTI purported to act for Zions. The allegations of Plaintiffs show only that TTI made representations to the contrary. According to Plaintiffs, they "only dealt with and relied on school personnel as the source of [the] student loans," "TTI certainly held itself out to borrowers as the source of tuition and subsistence funds," and TTI "did not distinguish itself from the bank." (Pls. Resp. at 12-13.) These statements support the conclusion that TTI was acting for itself, not purporting to act for Zions.

Plaintiffs note that a comment in the Restatement provides that "an unauthorized agent need not expressly hold himself out as the principal's agent; it is enough that he undertakes a transaction for the other." (Pls. Resp. at 11); see Restatement (Second) of Agency § 85, cmt. e ("A person purports to act on account of another if he undertakes to act on his behalf and to make the other a party to the transaction...."). The accepted majority view, however, is that the purported agent must disclose to the third party that he is acting as an agent. Harold Gill Reuschlein & William A. Gregory, The Law of Agency and Partnership § 28-29 at 73 (2d ed.1990). This view also prevails in Arizona, where the ratification can occur only when someone is "claiming to act as an agent." Fuqua Homes, 569 P.2d at 856 (citing Phoenix Western Holding Corp. v. Gleeson, 18 Ariz. App. 60, 500 P.2d 320 (App.1972)); Young Mines Co. v. Citizens' State Bank, 37 Ariz. 521, 296 P. 247, 250 (1931) ("A ratification is the subsequent approval by a principal of a previous unauthorized act by one claiming to act as an agent...."). Evidence provided by Plaintiffs shows that TTI claimed that it did not act as an agent. Accordingly, there can be no genuine issue of material fact that this essential element of ratification is present.

2. Duty of Care

"An action in negligence may be maintained upon the plaintiff's showing that the defendant owed a duty to him, that the duty was breached, and that the breach proximately caused an injury which resulted in actual damages." Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 945 P.2d 317, 339 (App.1996) (quoting Ontiveros v. Borak, 136 Ariz. 500, 667 P.2d 200 (1983)). Plaintiffs argue that the common law of torts imposes a duty of care on lenders of student loans and that Zions breached that duty of care by making student loans to Plaintiffs. According to Plaint...