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Keams v. Tempe Technical Institute Inc.

filed: October 31, 1994.


Appeal from the United States District Court for the District of Arizona. D.C. No. CV-91-00728-RCB. Robert C. Broomfield, District Judge, Presiding.

Before: Cecil F. Poole, Robert R. Beezer and Andrew J. Kleinfeld, Circuit Judges. Opinion by Judge Kleinfeld.

Author: Kleinfeld

KLEINFELD, Circuit Judge:

This case poses one question. Does the Higher Education Act, 20 U.S.C. § 1001 et seq., preempt state tort claims by students against school accrediting associations? We conclude that it does not.

I. Facts

The action was dismissed in district court for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court did not reach the question of whether under state law a claim might exist. The theory of the dismissal was that, whether there would otherwise be a state tort claim or not, the federal Higher Education Act preempted any such state remedies. Keams v. Tempe Technical Institute, Inc., 807 F. Supp. 569, 578 (D. Ariz. 1992).

Although both sides submitted additional materials or referred to materials outside the pleadings, the district court elected not to convert the motion into one for summary judgment, and resolved it entirely on the basis of whether the claim stated by the complaint was preempted. Id. at 572. A dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) is a ruling on a question of law and is reviewed de novo. Everest and Jennings v. American Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir. 1994). All allegations of material fact must be taken as true and be construed in the light most favorable to the nonmoving party. Id.

Tempe Technical Institute, Inc., according to the complaint, operated for about one year and seven months. It offered courses in medical technology, other health related fields, and architectural drafting. Both Accrediting Bureau of Health Education Schools/Programs and the National Institute of Trade and Technical Schools accredited the school. The complaint alleges, and we take as true for these purposes, that accreditation was granted despite the school's failure to meet the accreditors' written, published criteria.

Grace Keams and the other plaintiffs borrowed money to pay their tuition and expenses. They aver that they did so because of the school's accreditation as well as representations made to them about the education they would get, the job prospects they would enjoy after getting it, and the benefits they could obtain to support themselves while they were in school. They could not have obtained the loans if the school had not been accredited. They could not have enrolled in the school without the loans. The school went out of business, and the students "were left without skills, without jobs, and with thousands of dollars in student loans to repay."

The students sued the owners of the school, the banks and holders of their notes, and others, on numerous theories. The only defendants involved in this appeal, certified under Federal Rule of Civil Procedure 54(b), are the two accrediting agencies. The complaint stated two theories against the accreditors, negligence and violation of the Higher Education Act. The district court concluded that the Higher Education Act did not imply a private right of action in the students, Keams, 807 F. Supp. at 580, but we do not review that determination, because it has not been appealed. The only issue on appeal is the dismissal, because of preemption, of the common law negligence claim. The theory of the claim is that the accreditors negligently accredited and failed to monitor the school, causing the damages to Keams and the other students.

II. Analysis

The theory of the dismissal was preemption. We have found no decision by this or any other circuit directly in point. The closest authority we have found relates to lenders and guarantors, where courts have in several contexts concluded that the Higher Education Act does not preempt all state law.*fn1

To decide whether the Higher Education Act preempts state tort suits against accreditors, we read the Act. "Our sole task is to ascertain the intent of Congress." California Federal Savings & Loan Ass'n v. Guerra, 479 U.S. 272, 280, 93 L. Ed. 2d 613, 107 S. Ct. 683 (1987). If Congress said expressly that such suits are preempted, that is the end of the matter. If it did not, we may nevertheless infer preemption. We draw such an inference if Congress intended to occupy the entire field, leaving no room for the operation of state law. Even if that is not so, we infer preemption of state law if compliance with both state and federal law would be impossible, or state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." California v. ARC America Corp., 490 U.S. 93, 100-01, 104 L. Ed. 2d 86, 109 S. Ct. 1661 (1989). There is a "presumption against finding pre-emption of state law in areas traditionally regulated by the States." Id. at 101; see Cipollone v. Liggett Group, Inc., 120 L. Ed. 2d 407, 112 S. Ct. 2608, 2617 (1992).

The Higher Education Act does not expressly preempt state common law tort claims against accreditors. Worse, for the accreditors' argument, there is express preemption of state law in a number of areas. See 20 U.S.C. § 1099 (loans not subject to state disclosure requirements); 20 U.S.C. § 1078(d) (state usury laws inapplicable); 20 U.S.C. § 1091a(a) (state ...

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