Sojourner-Douglass College v. Middle States Association of Colleges and Schools
MEMORANDUM OPINION. Signed by Judge Ellen L. Hollander on 8/27/2015. (hmls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
MIDDLE STATES ASSOCIATION
OF COLLEGES AND SCHOOLS,
Civil Action No. ELH-15-01926
This suit arises as the latest step in the multi-year effort of plaintiff, Sojourner-Douglass
College (“College” or “SDC”), to secure continued accreditation from defendant, the MidAtlantic Region Commission on Higher Education, doing business as Middle States Commission
on Higher Education (“Commission,” “MSCHE,” or “Middle States”). ECF 2.1 “Accreditation
means the status of public recognition that an accrediting agency grants to an educational
institution or program that meets the agency’s standards and requirements.” 34 Code of Federal
Regulations (“C.F.R.”) § 602.3.
Pursuant to federal law, the “accreditation process operates as an instrument of quality
control on educational institutions.”
Professional Massage Training Center, Inc. v.
Accreditation Alliance of Career Schools and Colleges, 781 F.3d 161, 171 (4th Cir. 2015).
“[A]mong other things,” accreditation “entitles educational institutions to access Title IV federal
The Commission states that it is “improperly identified in the caption” of the suit as the
Middle States Association of Colleges and Schools. ECF 38.
student aid funding.” Id. at 167. As discussed, infra, only students who attend institutions
accredited by accrediting agencies are eligible for federally subsidized loans and federal grants.
The College’s finances depend largely on tuition revenue. And, because more than 80%
of SDC’s students rely for their tuition on federal loans and grants, for which accreditation is a
prerequisite, the College’s continued existence depends upon the Commission’s favorable
On November 18, 2011, Middle States informed the College that its accreditation was at
risk, due in part to concerns about the College’s finances that surfaced during a regular, periodic
review. Between November 2011 and November 2014, a representative of the Commission
visited the College twice to assist the College with the review process; representatives visited
three times to evaluate the College’s compliance with the Commission’s standards; and the
parties exchanged more than a dozen written assessments. On November 20, 2014, the College
appeared before the
more than twenty volunteer
commissioners—to make its case for continued accreditation.
On November 21, 2014, Middle States informed the College that, effective June 30,
2015, it would withdraw the College’s accreditation, due wholly to concerns about the College’s
financial viability and sustainability. SDC noted an appeal and, on February 2, 2015, the College
appeared before a three-person appellate panel (the “Panel”), challenging the Commission’s
November 2014 decision to withdraw accreditation. On February 10, 2015, the Panel affirmed
the Commission’s decision.
Although the College knew since at least February 10, 2015, that it faced the loss of
accreditation on Tuesday, June 30, 2015, it waited until approximately 10:30 p.m. on Monday,
June 29, 2015, to file suit—just hours before the Commission’s accreditation decision was to go
into effect. See ECF 2.
The College alleges, inter alia, that the Commission “has proceeded in an arbitrary and
capricious manner in deciding to withdraw the accreditation of the College . . . , in the absence of
standards allowing the accrediting agency . . . to reject out of hand any demonstration offered by
the College to justify the retention of its accreditation.” ECF 2 at 2. According to the College,
the Commission’s actions violated federal common law due process (Count I). Id. It further
alleges breach of contract (Count III) and negligence (Count IV), as well as violation of the Civil
Rights Act of 1867, codified at 42 U.S.C. § 1981, for “discrimination in the enforcement of
contract” (Count II).
Id. Along with its Complaint, SDC filed an “Emergency Motion for
Temporary Restraining Order” (“TRO Motion,” ECF 1), as well as a memorandum of law (ECF
1-1, “Memo”), and eighteen exhibits. ECF 1-2 through ECF 1-19.2
On June 30, 2015, the Court held an emergency hearing on the Motion, attended by
counsel for both sides. ECF 7.3 After argument, I issued an oral ruling denying plaintiff’s TRO
Motion. See ECF 14 (transcript of TRO hearing) at 69-84; see also ECF 6 (Order).
As discussed, infra, the College also claimed that the Commission’s decisionmaking
was the result of racial bias. See, e.g., ECF 1-1 at 2, 5-6, 8 (alleging, inter alia, that
“predominantly White Institutions” received more favorable treatment from MSCHE); ECF 1-17
(supporting affidavit); ECF 11 at 1 (relying on ECF 1-1 and 1-17). Indeed, SDC’s allegations of
racial discrimination permeated SDC’s claims, and played a significant part in the Court’s
decision to hear the Commission’s testimonial defense of its decision, beyond the administrative
record itself. But, during closing arguments on August 17, 2015, the College abandoned this
contention with respect to Count I.
Notice of the suit and the TRO Motion were provided to defendant mid-day on June 30,
2015, after the Court advised counsel for plaintiff that, under Fed. R. Civ. P. 65, it was obligated
to attempt to provide notice. See ECF 4.
The College filed a Motion for Preliminary Injunction on July 3, 2015 (ECF 11, “PI
Motion”), which is pending. In support of its Motion, the College relies on the same legal
memorandum (ECF 1-1, “Memo”) that it submitted with its TRO Motion. See ECF 11-1
(referring the Court to ECF 1-1). It also submitted two new declarations, with ten attachments.
See ECF 11-2 through ECF 11-13. The Commission opposes the Motion. See ECF 32 (“PI
Opposition”). It submitted fifteen exhibits and eight attachments. See ECF 15-2 through ECF
15-24. The College has replied. ECF 16 (“PI Reply”).
The Court held evidentiary hearings on the PI Motion on July 14, 2015, July 17, 2014,
and July 20, 2015, and heard argument on August 17, 2015. See ECF 20, ECF 25, ECF 29, ECF
46.4 I will refer to these sessions collectively as the “Motion Hearing.” At the Motion Hearing,
each side presented witnesses as well as exhibits. The Commission’s exhibits included the
“Record of Appeal,” consisting of approximately 3500 pages. See Def.’s Ex. 45. 5
The transcript of the final day of the hearing, August 17, 2014, was not filed as of the
date of this Memorandum Opinion. Therefore, where necessary, I have relied on my notes.
As I indicated to counsel at the outset of the proceedings, ECF 44 at 2-5, I am aware of
the Fourth Circuit’s admonition in Professional Massage, supra, 781 F.3d at 172, with respect to
the scope of review of an accreditation dispute. At the start of the Motion Hearing, I reminded
the parties that they would not be permitted to re-litigate the Commission’s decision. See ECF
44 at 2-5. Nonetheless, in light of SDC’s allegations of racial bias; the length of the
administrative record; the benefit to the Court from an explanation of the accreditation process;
and the need to consider harm to SDC and the public interest in deciding the PI Motion, I agreed
to hear evidence from the parties. Specifically, I heard evidence pertaining generally to Middle
States’ accreditation process, its dealings with SDC prior to the Commission’s final decision, and
the bases for its decision. As discussed, infra, I have not considered any evidence that the parties
submitted that was not relevant to these points, and/or that was not before the Commission at the
time of its decision.
The Record of Appeal was the subject of consideration by the Panel.6 Many of the
exhibits submitted during the Motion Hearing or with the parties’ memoranda are also contained
in the Record of Appeal. However, as discussed, infra, the parties also presented exhibits that
were not before the Commission when it decided to withdraw plaintiff’s accreditation, nor were
they before the Panel. Although plaintiff submitted evidence that was not presented to the
Commission, it has objected to certain exhibits offered by the Commission that are outside of the
administrative record and which were not before the Commission when it withdrew SDC’s
After the evidentiary submissions, each party submitted proposed Findings of Fact and
Conclusions of Law. See ECF 34 (SDC’s submission); ECF 38 (Commission’s submission).
The College also replied to the Commission’s submission. See ECF 39.
Also pending is a “Motion to Dismiss Counts II and III of Plaintiff’s Complaint” (ECF
27, “MTD”), filed by the Commission on July 21, 2015. The College opposes the MTD (ECF
40, “MTD Opposition”), and the Commission has replied. ECF 45.7
The motions have been fully briefed. For the reasons that follow, I will deny the PI
Motion, and I will grant the MTD, with leave to amend.
Although the “Record of Appeal” is extensive, it was not the only material before the
Panel. For example, the Commission’s decision to withdraw SDC’s accreditation, some written
communications between the Commission and SDC, and some internal Commission memoranda
are not part of the Record of Appeal. However, these materials were available to the Panel. See
Motion Hearing, Testimony of Joseph Bascuas, Panel Chair, ECF 47 at 139. And, these
materials are part of the administrative record.
At the request of plaintiff’s counsel, the Court did not hear oral argument on August 17,
2015, as to the MTD. At that time, the College’s attorney preferred to focus on the PI Motion.
However, no hearing is necessary to decide the MTD. Local Rule 105.6.
I. Factual Background
A. The College
According to Charles Simmons, Ph.D., the President of SDC, the College “is a private
independent 501(c)(3) institution that offers Baccalaureate and Masters Degrees with a focus on
the Applied Arts and Sciences.” Declaration of Charles Simmons (“Simmons Decl.”), ECF 1-2 ¶
4. The school was founded in 1972 as a branch of Antioch College, in order to “serve the
African-American community by working toward community self-reliance and provide a
‘culturally pluralistic learning environment.’” Id. In 1980, the College “became an independent
institution under Maryland law.” Id. ¶ 5. Dr. Simmons has been President of SDC since it “spun
off” from Antioch College in 1980. Motion Hearing, Testimony of Charles Simmons, ECF 44 at
SDC’s student body is “predominantly African-American,” id., and the average age of its
students is thirty-eight. Id. Dr. Simmons asserts that the College plays a role “as a vital
institution in a community of people still marginalized in a larger society that continues to this
day to operate in the false belief that it offers equal opportunity to this same group of people who
continue to be marginalized.” Supplemental Declaration of Charles Simmons (“Supp. Simmons
Decl.”), ECF 11-2 ¶ 3. Because “the College conceived its focus on the adult student looking to
enhance his or her educational profile in the least amount of time, [the College] offered a
program of study in which a student could complete a 4-year program in 3-years of study,” by
completing three semesters each year. Simmons Decl., ECF 1-2 ¶ 6.
The College’s “main campus is located in East Baltimore and it has six other centers in
Maryland located in Annapolis, Calvert [County], Cambridge, Salisbury, Prince George’s’ [sic]
and Baltimore counties.” Id. ¶ 5. The College also has a “fully accredited campus in Nassau,
Bahamas.” Id. “At the height of its growth, in 2010,” the College “enjoyed its largest student
population of about 1,400 students.” Id. ¶ 6. For a variety of reasons, when SDC filed its PI
Motion, it expected to enroll only about 300 students for its next semester, i.e., the Fall of 2015,
“including nearly 100 students who will be entering the final semester of their studies … .” Id.
¶ 27. (As stated infra, in November 2014, when the Commission determined that it would
withdraw SDC’s accreditation in June 2015, the Commission directed SDC to help its current
students transfer or transition to other institutions of higher education. SDC also attributes the
decline in enrollment to other conduct of the Commission.)
The Fall 2015 semester was
scheduled to begin in late July. Id. ¶ 8.
B. Federal Tuition Subsidies and Accreditation Requirements
“[N]early all” of the College’s students “depend on grants and loans provided through the
federal student aid programs pursuant to Title IV of the Higher Education Act of 1965
[(“HEA”)], as amended, 20 U.S.C. §§ 1070, et seq. [(“Title IV”)] … to pay for their education
… .” ECF 1-2 ¶ 7. In turn, “at least 80% of the College’s tuition revenue is derived from this
funding … .” Id.
In order for a higher education student to qualify for the receipt of any “grant, loan, or
work assistance” under Title IV, a student must be “enrolled or accepted … in a … program …
leading to a recognized … credential at an institution of higher education that is an eligible
institution in accordance with [the HEA].” 20 U.S.C. § 1091 (emphasis added). “In order to be
an eligible institution,” a school must “enter into a program participation agreement” with the
Secretary (“Secretary”) of the U.S. Department of Education (“USDE” or “Department”). 20
U.S.C. § 1094(a).
The participation agreement “shall condition the initial and continuing
eligibility of an institution to participate” on a number of requirements, including the following,
id.: “(21) The institution will meet the requirements established by the Secretary and accrediting
agencies or associations … .”
The Fourth Circuit has explained that, through the HEA, Congress has effectively
“delegated to accreditation agencies a decisionmaking power that affects student access to
federal education funding.”
Professional Massage, supra, 781 F.3d at 170.
accreditation “is a prerequisite to Title IV funding,” the process “provides assurance that the
federal loans and grants are awarded to students who will get the education for which they are
Under the framework established by Congress in the HEA, the Secretary “recognizes”
“reliable” accrediting agencies, and the accrediting agencies, in turn, “accredit” institutions of
higher education. The Secretary recognizes an accrediting agency as a “reliable authority as to
the quality of education or training offered” by a school when it meets criteria set forth in 20
U.S.C. § 1099b and in the Code of Federal Regulations, at 34 C.F.R. §§ 602 et seq. The
agencies “conduct accrediting activities through voluntary, non-Federal peer review,” id. §
602.3, and establish their own accreditation standards and requirements, see, e.g., id. § 602.16,
within the bounds set by the Secretary and Congress. For example, the Secretary’s criteria for
recognition of an accrediting agency as a reliable authority require that an agency’s own
standards “address the quality of the institution” seeking accreditation in a variety of “areas,”
including “[f]iscal and administrative capacity as appropriate to the specified scale of
operations.” Id. § 602.16(1)(v).
Of particular relevance here, the Secretary’s criteria also circumscribe an agency’s
protocols for enforcing its own standards, id. § 602.20, and for ensuring that “the procedures [an
agency] uses throughout the accrediting process satisfy due process.” Id. § 602.25.
Title 34 C.F.R. § 602.20, on “Enforcement of standards,” is pertinent. It states:
(a) If the agency’s review of an institution or program under any standard
indicates that the institution or program is not in compliance with that standard,
the agency must—
(1) Immediately initiate adverse action against the institution or program;
(2) Require the institution or program to take appropriate action to bring
itself into compliance with the agency’s standards within a time period
that must not exceed—
(iii) Two years, if the program, or the longest program offered by
the institution, is at least two years in length.
(b) If the institution or program does not bring itself into compliance within the
specified period, the agency must take immediate adverse action unless the
agency, for good cause, extends the period for achieving compliance.
Section 602.3 of Title 34 of the C.F.R. defines “adverse action”. It means “the denial,
withdrawal, suspension, revocation, or termination of accreditation or preaccreditation, or any
comparable accrediting action an agency may take against an institution or program.” Id.
As noted, SDC complains that it was not afforded due process in the accreditation
process. Because of the allegations, I have set forth below the way in which the Secretary has
said that an “agency meets” the requirements of due process. Section 602.25 of Title 34 of the
C.F.R. states that due process is met “if the agency does the following,” id.:
(a) Provides adequate written specification of its requirements, including clear
standards, for an institution or program to be accredited or preaccredited.
(b) Uses procedures that afford an institution or program a reasonable period of
time to comply with the agency’s requests for information and documents.
(c) Provides written specification of any deficiencies identified at the institution
or program examined.
(d) Provides sufficient opportunity for a written response by an institution or
program regarding any deficiencies identified by the agency, to be considered by
the agency within a timeframe determined by the agency, and before any adverse
action is taken.
(e) Notifies the institution or program in writing of any adverse accrediting action
or an action to place the institution or program on probation or show cause. The
notice describes the basis for the action.
(f) Provides an opportunity, upon written request of an institution or program, for
the institution or program to appeal any adverse action prior to the action
(1) The appeal must take place at a hearing before an appeals panel that—
(i) May not include current members of the agency’s decisionmaking body that took the initial adverse action;
(ii) Is subject to a conflict of interest policy;
(iii) Does not serve only an advisory or procedural role, and has
and uses the authority to make the following decisions: to affirm,
amend, or reverse adverse actions of the original decision-making
(iv) Affirms, amends, reverses, or remands the adverse action. A
decision to affirm, amend, or reverse the adverse action is
implemented by the appeals panel or by the original decisionmaking body, at the agency’s option. In a decision to remand the
adverse action to the original decision-making body for further
consideration, the appeals panel must identify specific issues that
the original decision-making body must address. In a decision that
is implemented by or remanded to the original decision-making
body, that body must act in a manner consistent with the appeals
panel's decisions or instructions.
(2) The agency must recognize the right of the institution or program to
employ counsel to represent the institution or program during its appeal,
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including to make any presentation that the agency permits the institution
or program to make on its own during the appeal.
(g) The agency notifies the institution or program in writing of the result of its
appeal and the basis for that result.
(h)(1) The agency must provide for a process, in accordance with written
procedures, through which an institution or program may, before the agency
reaches a final adverse action decision, seek review of new financial information
if all of the following conditions are met:
(i) The financial information was unavailable to the institution or
program until after the decision subject to appeal was made.
(ii) The financial information is significant and bears materially on
the financial deficiencies identified by the agency. The criteria of
significance and materiality are determined by the agency.
(iii) The only remaining deficiency cited by the agency in support
of a final adverse action decision is the institution’s or program’s
failure to meet an agency standard pertaining to finances.
(2) An institution or program may seek the review of new financial information
described in paragraph (h)(1) of this section only once and any determination by
the agency made with respect to that review does not provide a basis for an
In sum, to ensure due process, the Code of Federal Regulations requires accrediting
agencies to set clear standards; identify deficiencies at particular institutions in writing; provide
those institutions with an opportunity to respond and comply within a reasonable time frame, set
by the agency; permit appeal to an independent panel; on appeal, permit introduction of
significant and material information relevant to an institution’s finances, if the institution is
threatened with adverse action solely on account of its finances, and the financial information
was not available to the institution after the accreditation decision that led to the appeal; and the
appeal panel transmits its final decision, with reasons, in writing.
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Of relevance here, the Commission’s requirements for affiliation and standards for
accreditation are published in a seventy-five page document titled “Characteristics of Excellence
in Higher Education: Requirements of Affiliation and Standards of Accreditation.” Motion
Hearing, Def.’s Ex. 47 (“Standards Guide”).
In total, there are ten “Requirements of
Affiliation,” id. at xii, and fourteen “Standards for Accreditation.” Id. at ix-xi. These are
C. The Commission and Accreditation Procedures
Since 1952, “The Commission has been recognized by the U.S. Department of Education
as the regional accreditation agency for institutions of higher education in Delaware, the District
of Columbia, Maryland, New Jersey, New York, Pennsylvania, Puerto Rico and the U.S. Virgin
Islands . . . .” PI Opposition, ECF 15 at 5. The Commission describes itself as “the USDE’s
Id.; see also Motion Hearing Testimony of Elizabeth Sibolski (“Sibolski
Testimony”), ECF 44 at 59-60. According to Elizabeth Sibolski, Ph.D., the President of the
Commission, id. at 55-56, there are “534 member and candidate institutions” in the
Commission’s region. Id. at 57. The Commission does not receive federal funding of any sort,
id. at 78, but its members pay dues to the Commission. Id. at 58. However, there is no written
membership agreement. Instead, there is “an understanding that the institutions that are part of
the Commission will abide by …. the policies and the standards of the Commission.” Id. at 77.
These policies and standards are published. See Motion Hearing, Def.’s Ex. 47.
Middle States is comprised of twenty-six volunteer Commissioners, some of whom are
“representative of faculty and administration” at institutions of higher education, ECF 44 at 58,
and some of whom are “public members ... not directly involved in a higher education institution
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currently.” Id. at 59. The Commissioners are elected by the Commission’s member institutions.
Id. at 69. There are also “several thousand peer reviewers” the Commission may call upon, id. at
58, including the Commissioners, who also serve in that role. Id. at 68. In addition, there is a
“modest professional staff that is used to facilitate the work of accreditation.” Id. at 56.
The Commission’s staff members do not make accreditation decisions. Id. at 58-59, 65.
Rather, the peer reviewers “are the folks that are sent out to do … reviews” and evaluations, id.
at 58, and “it is the responsibility of those volunteers to render the decisions about an individual
review of an institution, all the way up through the Commission making the final decision on
accreditation.” Id. at 59.
Institutions apply for accreditation from the Commission by completing an accreditation
process. See id. at 62. Initially, an institution must “demonstrate that, within a candidacy period,
it has the capacity to come into compliance with all of” the Commission’s “standards and
requirements.” Id. The Standards Guide (Def.’s Ex. 47) explains: “To be eligible for Candidacy
status, Initial Accreditation or Reaffirmation of Accreditation, an institution must demonstrate
that it meets or continues to meet the … Requirements of Affiliation … . Once eligibility is
established, institutions then must demonstrate that they meet the standards for accreditation.”
Id. at xii.
After the initial application, the process begins in earnest with an institution’s self-study
report to the Commission. Sibolski Testimony, ECF 44 at 62. The institution is then visited by a
peer evaluation team, id., which in turn prepares an assessment of the institution’s compliance
with the Commission’s standards for accreditation. Id. at 63. The institution has an opportunity
to respond in writing to the team’s report. Id. The reports are then reviewed by a “standing
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committee of the Commission … .” Id. “The evaluation committee may either uphold the
decisions that the evaluation team … made,” or it can modify the decision. Id. Finally, the
reports and recommendations are forwarded “to the Commission for a final decision.” Id. The
Commission’s accreditation process largely tracks the requirements for “Application of standards
in reaching an accrediting decision,” established by the Secretary at 34 C.F.R. § 602.17.
Once an institution achieves accreditation, the Commission continues to review its
accreditation through what Dr. Sibolski referred to as a “decennial review” cycle. Id. at 65. See
also 34 C.F.R. § 602.19 (requiring agencies to “reevaluate, at regularly established intervals, the
institutions it has accredited”). The decennial review process is very similar to the initial
“In the middle of a ten-year timeframe,” i.e., in year five following accreditation, an
institution must submit “what’s called a periodic review report” (“Periodic Review Report” or
“PRR”). ECF 44 at 64. According to Dr. Sibolski, “basically it’s an update” on “changes that
had taken place …, current financials and enrollment, and changes that were suggested by the
evaluation committee at the first year point.” Id. No on-site evaluation is conducted; rather, a
team of three peer reviewers, which “consists of two primary reviewers and a financial
reviewer,” reads “documents supplied by the institution.” Id. Debra Klinman, Ph.D., who serves
as Vice President of the Commission, explained that the peer review teams for the periodic
reviews are selected by the Commission’s staff members. Motion Hearing, Testimony of Debra
Klinman (“Klinman Testimony”), ECF 44 at 87. The staff aims to select peer reviewers who are
“a good match in terms of expertise,” meaning that they come from “institutions that serve
similar populations of students.” Id.
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According to Dr. Sibolski, if, during the periodic review, “there is a sense that there
needs to be some follow-up with an institution either because there is concern about whether it
will remain in compliance or [because] the reviewers and the Commission have found that [the
institution] is out of compliance with one or more standards,” someone representing the
Commission will ask for follow-up. Sibolski Testimony, ECF 44 at 66. If the periodic review
team determines that an institution is “out of compliance” with one or more of the Commission’s
standards, the institution will be “placed on warning,” and a peer review team will be sent to
conduct an on-site evaluation. Id. If the institution is in compliance at the time of the periodic
review, and no follow-up is required, no further action will be taken until the ten-year mark in
the cycle, which essentially becomes the first-year mark in the next cycle. Id. at 75.
In “year one,” the institution again submits a self-study report to the Commission
assessing its compliance with the Commission’s standards; the institution is then visited by a
team of peer reviewers, who evaluate the institution’s compliance and make a recommendation
regarding accreditation; the team’s decision is then reviewed by a standing committee of the
Commission and then the full Commission. ECF 44 at 64, 65.
D. The Commission’s Requirements and Standards
The Commission has ten Requirements for Affiliation (“Requirements”) and fourteen
Standards for Accreditation (“Standards”). See Standards Guide, Def.’s Ex. 47 at ix-xiii. The
Requirements are one or two sentences each and are presented as a simple list. Id. at xii-xiii. Of
importance here, Requirement of Affiliation 5 states:
“The institution complies with all
applicable government (usually federal and state) policies, regulations, and requirements.” Id. at
xii. Requirement 8 states: “The institution has documented financial resources, funding base,
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and plans for financial development adequate to support its educational purposes and programs
to ensure financial stability.” Id. at xii,.
The Standards are also expressed in one or two sentences each. E.g., Standards Guide,
Def.’s Ex. 47 at ix-xi. But, each standard is followed in the Standards Guide by a narrative text
titled “Context,” a list of factors titled “Fundamental Elements of Institutional Resources,” and a
list of factors titled “Optional Analysis and Evidence.” E.g., id. at 1-3.
“Standard 3,” titled “Institutional Resources,” is of importance here. It states, Standards
Guide, Def.’s Ex. 47 at 9:
The human, financial, technical, facilities, and other resources necessary to
achieve an institution’s mission and goals are available and accessible. In the
context of the institution’s mission, the effective and efficient uses of the
institution’s resources are analyzed as part of ongoing outcomes assessment.
In the “Context” section applicable to Standard 3, the Standards Guide states, in relevant
The efficient and effective use of institutional resources requires sound
financial planning linked to institutional goals and strategies. … The institution
should demonstrate through an analysis of financial data and its financial plan that
it has sufficient financial resources and a financial plan to carry out its mission
and execute its plans, and if necessary, a realistic plan to implement corrective
action to strengthen the institution financially within an acceptable time period.
At the end of the “Fundamental Elements of Institutional Resources” section applicable
to Standard 3, the Standards Guide states, in relevant part, id. at 11:
Institutions and evaluators must consider the totality that is created by the
fundamental elements and any other relevant institutional information or analysis.
Fundamental elements and contextual statements should not be applied separately
as checklists. Where an institution does not possess or demonstrate evidence of a
particular Fundamental Element, the institution may demonstrate through
alternative information and analysis that it meets the standard.
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In sum, the Commission’s Requirements and its Standards demand, among other things,
that an institution seeking accreditation or continued accreditation demonstrate that the
institution has “available and accessible” the financial resources necessary “to achieve” its
“mission and goals” (Standard 3) as well as programs to “ensure financial stability”
Notably, the text is written almost entirely in the present tense.
interpretive text accompanying Standard 3 also makes clear that assessment of an institution’s
compliance with Standard 3 requires consideration of “the totality that is created by” the
identified “fundamental elements and any other relevant institutional information or analysis.”
Id. at 11 (emphasis added).8
E. The College’s Accreditation Status
Middle States first accredited the College in 1980. Simmons Decl., ECF 1-2 ¶ 5; Sibolski
Testimony, ECF 44 at 65. It most recently reaffirmed the College’s accreditation in 2006.
Sibolski Testimony, ECF 44 at 73. However, the College’s accreditation has been in question
On June 1, 2011, the College submitted a Period Review Report (“PRR”) in accordance
with the five-year mark in the Commission’s decennial review process, discussed supra. Record
of Appeal, Def.’s Ex. 45 at 1-112; see also Motion Hearing, Def.’s Ex. 17 (same). The PRR
The Commission also expressed concern with the College’s compliance with Standard 7
and Standard 14. However, the College was later found to have complied with those standards.
Standard 7 states: “The institution has developed and implemented an assessment
process that evaluates its overall effectiveness in achieving its mission and goals and its
compliance with accreditation standards.” Standards Guide, Def.’s Ex. 47 at x. Standard 14
states: “Assessment of student learning demonstrates that, at graduation, or other appropriate
points, the institution’s students have knowledge, skills, and competencies consistent with
institutional and appropriate higher education goals.” Id. at xi.
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outlined what the College described as “major institutional curricula change” implemented since
the Commission’s 2006 review, including new degree “programs in health related fields.”
Record of Appeal, Def.’s Ex. 45 at 7. With respect to finances, the College reported that, “after
experiencing deficit spending from 2006-2009,” the College was “operating with a surplus of
revenue over expenditures” at the time of the report. Id. at 38. The PRR pointed to select hiring
and pay freezes, “increases in enrollment driven by the addition of high demand programs such
as Nursing,” id. at 35, new State and federal grants, and rising values of real estate owned by the
College to explain its budget turnaround. Id. at 35-38. The PRR also included an executed
“Certification Statement,” in which the College certified that the College “meets” all of the
Commission’s Requirements of Affiliation. Id. at 62. The College did not submit audited
financial statements along with its PRR, despite an apparent Commission policy requiring
submission of such statements. See id. at 118.
The College’s PRR was reviewed by three peer reviewers selected by the Commission’s
staff. See Sibolski Testimony, ECF 44 at 87-88. The reviewers produced a “Report to Faculty,
Administrators, Trustees, [and] Students of” the College, dated August 1, 2011 (“August 2011
Report”). See Record of Appeal, Def.’s Ex. 45 at 113-124; see also Motion Hearing, Def.’s Ex.
18 (same). In the August 2011 Report, the reviewers generally commended the College for its
response to recommendations from the 2005-2006 review cycle. Record of Appeal, Def.’s Ex.
45 at 114-16.9 However, the reviewers also determined that “the evidence provided by the
College suggests that the financial stability of Sojourner-Douglass College is fragile.” Id. at 117.
The reviewers outlined progress on recommendations from 2006 pursuant to
Commission Standards 7 and 11, in particular, but also stated that they “could find little evidence
in the PRR or support documents that the College has in fact implemented a cycle of planning,
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In an addendum, id. at 123-25, see also Motion Hearing, Def.’s Ex. 19 (same), created by
the peer reviewer responsible for financial evaluation, see Sibolski Testimony, ECF 44 at 64, the
August 2011 Report stated, in part, Record of Appeal, Def.’s Ex. 45 at 123:
Based on the financial information provided … , the financial condition of this
college is challenging at best. Amounts reported indicate significant operating
losses compared to budgeted surpluses for 2008 and 2009, but a significant
improvement, both in actual surplus and comparison to budget, in 2010.
Projected amounts for the ensuing three years reflect significant surpluses, but a
15% reduction in projected government grants in those years would turn those
projected surpluses into projected deficits.
As noted by the institution in its PRR, [the College] is very reliant on
tuition dollars and government grants and therefore unexpected negative changes
in either enrollment or the availability of government grants could be very
negative. In recent years and in projected budgets almost 60% of total revenue is
tuition and slightly less is government grants. Considering the current financial
issues being addressed in both federal and state governments, this is a significant
financial concern that may not be accurately projected.
The financial reviewer’s addendum also observed that in 2009 the College “was in
default of its long term debt,”10 and that the College reported “liabilities to the IRS for delinquent
payments of withheld payroll tax, a material weakness in internal control and a significant
deficiency in controls due to the lack of a financial controller, which resulted in a lack of
adequate controls and timeliness of financial reports.” Id.
It appears that between August 1 and 11, 2011, the College provided the Commission
with audited financial statements for the previous fiscal year; the financial reviewer’s addendum
itself contains an addendum dated August 11, 2011, which the reviewer created after receipt of
assessment and evaluations for its academic programs as recommended by the 2006 visiting
team.” Record of Appeal at 119.
The August 2011 Report does not explain the “debt” to which it referred, or how the
College defaulted on that debt.
The August 2011 Report does not identify the amount of the tax liabilities.
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the College’s previously unavailable “2010 audited financial statements.” Record of Appeal,
Def.’s Ex. 45 at 124. The reviewer concluded that these statements “reported a significantly
worse financial position than was included in the preliminary internal financial results.” Id. The
statements also revealed that the College failed “to return unearned Title VI funds as required,”
that it was not meeting the Department’s “financial stability requirements,” and that “[i]nterest
rates on the institution’s debt, in the current financial environment of low interest are 15% on
their short-term loan and 8.75% on their long-term debt.” Id.
At some point in August 2011, the College also submitted a “substantive change
proposal” to the Commission, seeking approval to create new on-line programs. “Substantive
change” is a technical term defined in part by 34 C.F.R. § 602.22 and in part by accrediting
agencies. Specifically, § 602.22 requires that an accrediting agency “must maintain adequate
substantive change policies that ensure that any substantive change to the educational mission,
program, or programs of an institution after the agency has accredited or preaccredited the
institution does not adversely affect the capacity of the institution to continue to meet the
agency’s standards,” and that the “agency’s definition of substantive change includes at least the
“addition of courses or programs that represent a significant departure from the existing offerings
… or method of delivery … .”
The Commission’s policy on substantive changes reflects that it considers a change as
substantive if it involves the “initiation or expansion of distance education or correspondence
education,” including on-line education, “wherein 50% or more of the courses or credits in one
or more academic programs are provided through alternative delivery … .” ECF 15-9 at 2 (copy
of Commission’s “Substantive Change” policy, current as of June 26, 2014, submitted to the
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Panel). Moreover, the Commission considers any change that requires “in-depth review” or
“requires the Commission to engage a consultant with expertise in a particular area” to be a
“Complex Substantive Change.” ECF 15-9 at 1. Notably, a substantive change requires preapproval by the Commission. See id.
According to Dr. Simmons, in 2011 the College’s Board of Directors “entered into an
agreement with Latimer Education finalizing negotiations that began in 2010 with a company
organized to enable minority serving community oriented institutions such as [the College] to
more effectively serve [the College’s] target populations through on-line programs.” Record of
Appeal, Def.’s Ex. 45 at 3426 (transcript of hearing of Nov. 20, 2014, before the Commission).
The College believed that “Latimer would have been able to bring in the investment capital
needed to fund a development and implementation of on-line programs, as well as expertise and
business aspects of higher education.” Id. at 3436-37. However, MSCHE did not grant the
requested approval at that time. See, e.g., Motion Hearing, Def.’s Ex. 21 (MSCHE letter to
The College submitted a written response to the August 2011 Report on August 30, 2011.
Record of Appeal, Def.’s Ex. 45 at 125-138; see also Motion Hearing, Def.’s Ex. 20 (same).
SDC “acknowledge[d] the difficulties the College has encountered with respect to its financial
position.” Record of Appeal, Def.’s Ex. 45 at 131. However, it disagreed with “the Finance
[reviewer’s] characterization of the results of the 2010 audited financial statements … .” Id. at
132. The College observed that it had “reduced the deficit from a high of $1.7 million in fiscal
year 2007 to a $687,00 surplus in fiscal year 2010,” id.; had already received a number of multiyear grants; and outlined “a series of unfortunate personnel matters” in its finance department
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spanning the years 2005 to 2008 that it had rectified. Record of Appeal, Def.’s Ex. 45 at 134.
The College also “acknowledge[d]” the debt to the IRS but stated: “The College expects to
resolve this issue during fiscal year 2012.” Id. at 136.
The peer reviewers who drafted the August 2011 Report completed a confidential “Brief
to the Commission on Higher Education,” dated September 2, 2011. Record of Appeal, Def.’s
Ex. 45 at 139-142. The reviewers summarized their findings in the August 2011 Report and
recommended that “the Commission reaffirm accreditation and request a monitoring report by
April 1, 2012 documenting progress on the following: stability of key personnel within the
financing department; strengthening of internal financial controls; financial issues arising from
long term debt obligations; budget projections assuming continuing availability of government
grant support; compliance with [USDE] stability requirements; and the KPMG financial ratios
that are currently below suggested minimum levels.” Id. at 141-42.
On November 18, 2011, the Commission sent a letter to the College informing it of the
Commission’s decision to “accept the [PRR] and to warn the institution that its accreditation may
be in jeopardy because of insufficient evidence that the institution is currently in compliance
with Standard 3 (Institutional Resources) … ..” Motion Hearing, Def.’s Ex. 21 (“2011 Warning
Letter”).12 The Commission also requested a monitoring report, due September 1, 2012, id.,
documenting that the institution has achieved and can sustain compliance with
Standards 3 … including but not limited to evidence of (1) additional steps taken
to improve the institution’s short- and long-term financial viability and the
institution’s sustainability, including adequate institutional controls to deal with
The 2011 Warning Letter is another example of a commission document that is not
contained in the Record of Appeal. In the 2011 Warning Letter, the Commission also found
insufficient evidence of compliance with Standard 7 (Institutional Assessment) and Standard 14
(Assessment of Student Learning), discussed earlier. However, as noted, these Standards were
later satisfied by SDC. Therefore, I have not included detail as to them.
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financial, administrative and auxiliary operations and the development of
alternative funding sources (Standard 3) … .
The 2011 Warning Letter further informed the College that a “Commission liaison
guidance visit to discuss the Commission’s expectations” would follow, as well as another
“small team visit” after submission of the requested monitoring report. 2011 Warning Letter,
Def.’s Ex. 21. In the 2011 Warning Letter, the Commission also “acknowledge[d] receipt of the
complex substantive change request to enter into a contractual agreement for the purpose of
developing a new online division of the college,” but stated that the Commission would “not
consider this or any other substantive change request until accreditation has been reaffirmed.”
Dr. Klinman, “the Commission liaison” to the College, Klinman Testimony, ECF 44 at
84, visited the College on January 31, 2012. Motion Hearing, Def.’s Ex. 22 (“Klinman Memo”);
Klinman Testimony, ECF 44 at 96.
She met with dozens of persons in the College’s
administration and on its faculty, and prepared a brief memo to the Commission, summarizing
her visit. Klinman Memo, Def.’s Ex. 22. In her memo, Dr. Klinman stated, in part, id.:
In each meeting throughout the day, I provided an overview of the current
accreditation issues that the College is facing relevant to Commission Standard 3,
… . I presented both a “best case” and a “worst case” scenario, ranging from
reaccreditation in November 2012 … , to the possibility of an adverse action by
the Commission. I made it clear that the entire process will be framed by federal
regulations, which stipulate a two-year timeline for the resolution of the College’s
Dr. Klinman also observed that Dr. Simmons “was very interested in understanding the
time line for resubmission of the SDC Complex Substantive Change proposal, to develop a forprofit online division of the institution.”
Klinman Memo, Def.’s Ex. 22.
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“explained that the institution’s warning status needs to be resolved before the Commission will
consider the re-submission.” Id.
On August 29, 2012, the College submitted the monitoring report that the Commission
had requested in the 2011 Warning Letter (“First Monitoring Report”). See Record of Appeal,
Def.’s Ex. 45 at 143-2334; see also Motion Hearing, Def.’s Ex. 23 (same).
described, at length, and with numerous attachments, the progress it believed it had made toward
achieving compliance with the Commission’s standards. Id. A few weeks later, on September
19 and 20, 2012, another small team of three peer reviewers visited the College to evaluate its
compliance (“September 2012 Report”). See Record of Appeal, Def.’s Ex. 45 at 2335-46; see
also Motion Hearing, Def.’s Ex. 24 (same).
In the September 2012 Report, the peer reviewers concluded that the College was not in
compliance with Standard 3, “due to a pattern of late financial audits and the fact that the
institution has not met its tax obligations because of cash flow and other factors.” Record of
Appeal, Def.’s Ex. 45 at 2346.13 More specifically, the team reported the following, id. at 2339:
Through its review of the audited financial statements and interviews with
[College administrators], the team found that the College has an outstanding
obligation with the IRS regarding current as well as prior year Federal
withholding tax, interest and penalty payments. Preliminary negotiations for a
repayment schedule have been held but not concluded.
The College has contracted with SB & Company to complete its audit for
the fiscal year ended June 30, 2012. The audit fieldwork is scheduled to begin
October 15, 2012 with a November 30, 2012 target completion date. The
November 30th completion date will not, however, allow the College to comply
with a loan covenant with American Bank that requires submission of annual
audited financial statements within ninety days of the close of the fiscal year.
The review team determined that the College was in compliance with Standards 7 and
14, Record of Appeal at 2346, which the Commission had indicated were in question in its 2011
Warning Letter. Def.’s Ex. 21.
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The team also commended the College for making “several critical hires in the business
office” and for drafting new policies and procedures for the office, and noted that the College
had two consecutive years of operating surpluses. Record of Appeal, Def.’s Ex. 45 at 2339. The
team issued two “requirements”: 1) complete the College’s “annual audit by September 30, 2013
to comply with its loan covenant”; and 2) “have an external tax audit conducted to determine the
total outstanding liability to the IRS … .” Id. at 2340. The team added: “The external audit
should be used by [the College] to develop a repayment plan for the outstanding obligation and
to detail strategies that the College will implement to remain current with its Federal withholding
tax obligations.” Id. The team also recommended that the College refinance its “term loan with
American Bank … with the goal of having the loan refinanced before the October 1, 2013
balloon payment deadline.” Id. I shall refer to this “term loan with American Bank” as the
“American Bank Debt.”
The College submitted an “Institutional Response” to the September 2012 Report.
Record of Appeal, Def.’s Ex. 45 at 2347-2356; see also Motion Hearing, Def.’s Ex. 25 (same).
Notably, the College accepted the team’s “requirements” and recommendation with respect to
Standard 3, as just discussed. E.g., Record of Appeal, Def.’s Ex. 45 at 2350 (“The College
accepts the team’s requirement to complete its annual audit by September 30, 2013.”); id. (“The
College accepts the team’s requirement to have an external tax audit.”). It explained that it had
advanced the timeline for completion of its FY 2012 audit; obtained a waiver of the applicable
loan covenant for 2012; hired a firm “to negotiate a payment plan acceptable to the IRS and
College as well as monitor the timely deposit of withholding taxes,” id. at 2350; and opened
discussions with American Bank and other banks regarding refinancing of its loan with
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American Bank. Record of Appeal, Def.’s Ex. 45 at 2351. In addition, the College outlined
planned efforts to enable it to “remain current” on tax obligations, including the launch of a $2
million capital campaign, an increase in fees and tuition, a hiring freeze, and a targeted increase
in enrollment of 2% each year. Id. at 2350-51.
On November 19, 2012, the Commission sent a letter to the College informing it of
actions taken by the Commission with respect to the College’s monitoring report (“2012
Warning Letter”). See Motion Hearing, Def.’s Ex. 26. The Commission again warned the
College that “its accreditation may be in jeopardy because of insufficient evidence that it is in
compliance with Standard 3.”14 Id. It requested another monitoring report, due in just over one
year, as follows, id.:
[The Commission acted to:] request a monitoring report, due November 1, 2013,
documenting evidence that the institution has achieved and can sustain
compliance with Standard 3 (Institutional Resources). To request that the
monitoring report include, but not be limited to (1) a completed FY 13 audit; (2) a
completed external audit to determine the total of all outstanding financial
liabilities, including penalties and interest payments; and (3) the development and
implementation of a payment plan to address all outstanding financial obligations
and to remain current in meeting subsequent obligations (Standard 3). …
The Commission informed the College that another small team visit would follow
submission of the monitoring report. Notably, the Commission also decided to “extend the
period for demonstrating compliance by one year,” for good cause, because the College
“demonstrated significant progress towards the resolution of its non-compliance issues,” was
“making a good faith effort to remedy existing deficiencies,” and the Commission had a
“reasonable expectation … that such deficiencies” would be “remedied within the period of
The Commission also affirmed the small team’s determination that the College was in
compliance with Standards 7 and 14.
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The one-year extension extended the College’s time frame to come into
compliance from two years, i.e., November 2013, to the maximum of three years, i.e. November
2014. See 34 C.F.R. §§ 602.3, 602.20; 2011 Warning Letter, Def.’s Ex. 21; Klinman Memo,
Def.’s Ex. 22.
The 2012 Warning Letter also reiterated that the Commission would not consider the
College’s “substantive change request” related to development of a new online division of the
College “until accreditation has been reaffirmed.” Def.’s Ex. 26.
On November 1, 2013, the College submitted the monitoring report that the Commission
requested in its 2012 Warning Letter (“Second Monitoring Report”). See Record of Appeal,
Def.’s Ex. 45 at 2367-2790; see also Motion Hearing, Def.’s Ex. 28 (same). In the introduction
to the Second Monitoring Report, the College described the report’s “main thrust” as follows:
“to provide a credible account that the College has the human, financial, technical, facilities and
other resources necessary to achieve [the] institution’s mission and goals, [and] the resources are
available and accessible … .” Record of Appeal, Def.’s Ex. 45 at 2370. It acknowledged that in
November 2012, the Commission “continued the warning that the institution’s accreditation may
be in jeopardy because of insufficient evidence that it is in compliance with Standard 3
(Institutional Resources).” Id. at 2371.
The College responded, point by point, to the specific information requested in the 2012
Warning Letter. Id. at 2373-2381. It also explained its understanding of the Commission’s
reasons for the continued warning, as follows:
This warning came as a result of the following concerns noted during the site
visit and evidence submitted:
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that the College would not be able to repay all liabilities including the
IRS debt while demonstrating an ability to remain current with all
that the College would not be able to obtain a refinance agreement
once the current finance balloon payment ended in October 2013;
that the College would not be able to complete an unqualified ‘clean
audit’ prior to the monitoring report due date of November 1, 2013.
The Second Monitoring Report showed little progress with respect to the concerns that
the College itself stated it believed had led to the Commission’s continued warning. See Record
of Appeal, Def.’s Ex. 45 at 2371. With respect to its tax obligations, the College represented that
it had “completed” all “tax filings” with the IRS, and that it had been working to negotiate a
repayment plan since May 2013, but that it had not yet been able “to establish a payment plan.”
Id. at 2375. SDC stated that its “goal” was to “establish an ‘offer and compromise’ settlement
plan with the IRS that will reduce the amount of the penalty and interest that has accrued,” id.,
and that its agent would begin negotiations again “expeditiously.” Id. at 2381. With regard to
the debt set to mature in October 2013— i.e., the American Bank Debt— the College explained
that it had not refinanced the debt. Rather, it was “working under a month to month extension,”
and, “[i]n the next 90 days,” it “expect[ed] to consolidate” the debt “and other outstanding
obligations into one loan at a significantly lower interest rate with another” unidentified bank.
Def.’s Ex. 45, Record of Appeal at 2381.
The College submitted a FY 2013 audit, completed externally by SB & Company, LLC.
(“2013 Audit”). See Record of Appeal, Def.’s Ex. 45 at 2460-79; see also Motion Hearing,
Def.’s Ex. 30 (same). Notably, the 2013 Audit stated: “The College had certain negative factors
during the year ended June 30, 2013, which raises substantial doubt about the College’s ability to
continue as a going concern.” Record of Appeal, Def.’s Ex. 45 at 2465. Specifically, the 2013
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Audit “‘indicated the College has ‘suffered reductions in grant and tuition revenue; reoccurring
negative results from operations; has a deficit of expenses over revenue of $5,235,783, for the
year ended June 30, 2013; has a cumulative net deficit of $2,758,245, as of June 30, 2013, and
has a bank overdraft of $412,855, as of June 30, 2013.’” Second Monitoring Report, Record of
Appeal, Def.’s Ex. 45 at 2373 (quoting 2013 Audit at 2461). In addition, the 2013 Audit showed
that the College had “a ‘debt of $7,754,710 that matured on October 1, 2013 [(presumably the
American Bank Debt)] and has a $5,814,337, liability to the Federal and state government due to
the College’s failure to pay payroll taxes due.’” Second Monitoring Report, Record of Appeal,
Def.’s Ex. 45 at 2373 (quoting 2013 Audit at 2461).
The Second Monitoring Report also articulated, in brief, the College’s response to each
of the concerns identified in the FY 2013 audit. One of these responses related the College’s
plan to pay down its outstanding debt through a sale/leaseback plan (the “Sale/Leaseback Plan”),
as follows, id. at 2375:
Auditor’s Going Concern Issue #4—The College needs to improve working
College’s Response to Going Concern Issue #4—The College currently owns
property and buildings with an assessed value of $24,570,000. The College is in
current negotiations to execute a sale leaseback deal for one building for
$13,000,000. Appraisals and a copy of the contract are provided (Attachment D).
When the deal is consummated proceeds from the sale will be used to pay down
current liabilities and provide operating cash that will increase the current assets.
This action will improve working capital. It will also increase our current ratio
percentages and release cash reserves that are being held in escrow. This will also
improve our financial position and decrease our need for short term borrowing
while reducing the College’s interest expense costs.
In conjunction with the Sale/Leaseback Plan, the College attached to its Second
Monitoring Report a contract for sale for one of the College’s properties, located at 200 N.
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Central Avenue, in Baltimore, Maryland, for a sale price of $13 million, executed by the College
and the purchaser on October 4, 2013. Record of Appeal, Def.’s Ex. 45 at 2409-2420. The
contract specified a closing date on or before November 15, 2013, “provided that all conditions”
specified in the contract were satisfied. Id. at 2414.
Notably, in its Second Monitoring Report, the College also referenced “federal changes
in the Pell Grant program”15 that “had a negative effect on many colleges but particularly on
Sojourner-Douglass College.” Id. at 2376. It explained that “the Lifetime Eligibility Used
statute … restricts the amount of Pell grants awarded to students during their lifetime.” Id.
According to SDC, changes in this program resulted in a 7% decrease in federal grants awarded
to the College in FY 2012 because “the average age of Sojourner’s student body is 36 and those
affected were transfer students.” Id. at 2376.
A team of two peer reviewers visited the College on December 16 through 18, 2013
(“December 2013 Report”). See Record of Appeal, Def.’s Ex. 45 at 2791-2802; see also Motion
Hearing, Def.’s Ex. 29 (same). The small team was chaired by George Pruitt, Ph.D., President of
Thomas Edison State College in New Jersey, who is also the Chair of the Commission. Motion
Hearing, Testimony of George Pruitt (“Pruitt Testimony”), ECF 47 at 4. He stated that the
average student at his institution is 39 years of age, and he believes his institution serves a
“similar demographic[ ]” to that of the College. Id. at 5.
At the Motion Hearing, Dr. Klinman explained Pell grants and the relevant changes as
follows: “Pell grants are available to students who have documented financial need, and as of
July first, 2012, the federal government put a lifetime eligibility cap on those awards, and it also
remitted the number of sessions per year that a student could draw down Pell funds.” ECF 44 at
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Dr. Pruitt has been a college president for 33 years, a dean at Towson University in
Maryland, and a vice-president at two other institutions, including Morgan State University in
Baltimore. ECF 47 at 9, 22. He also testified that he has been “deeply embedded in the federal
oversight of accreditation for over 25 years,” and for 19 years, by appointment of several
presidential administrations, he served on a national committee responsible for evaluating the
accrediting agencies themselves, to assure that “they are compliant with the standards set forth
by the Secretary and federal regulation and the statute.” Id. at 4-5.
The team also included Henry Mauermeyer, Senior Vice President for Administration
and Chief Fiscal Officer of the New Jersey Institute of Technology. December 2013 Report,
Def.’s Ex. 45 at 2791; Pruitt Testimony, ECF 47 at 7. At the Motion Hearing, Dr. Pruitt referred
to Mauermeyer as a “fiscal expert.” Id. at 9.
Dr. Pruitt described his expectations and findings on the visit to SDC in December 2013
in part, as follows: “The two-year customary period had exhausted itself . . . I was hoping to find
substantial progress had been made, because, by December of 2013, [SDC] had about eleven
months before [it] hit a cliff, because, at the end of that period, we would have no option but
either to determine that they were in compliance or withdraw their accreditation.” ECF 47 at 8,
9. Further, Dr. Pruitt stated, id. at 12: “The purpose of the visit was to ascertain whether the
institution was in compliance, not whether it had good plans.” He elaborated, id. at 12-13:
“[E]very time we went there, we saw about plans about coming into compliance, but the standard
is not to have a plan to be in compliance; the standard is to be in compliance, and, in December
of 2013, they were a long way, by any reasonable measure, of being in compliance . . . .”
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In addition, Dr. Pruitt recalled:
“I was hoping to find an institution that was well
underway [sic] of satisfying the requirements of Standard 3. Instead, I found an institution that
had four fire alarms blaring.” ECF 47 at 9; see also id. at 11 (stating that four fires were
“raging” at SDC). He identified the “four fire alarms” as follows: 1) the College’s “inability to
service its debt with its creditors”; 2) the “going concern letter issued by its own auditor”; 3)
“significant tax liabilities”; and 4) that the College “was in continuous deficit and had not been
able to come into balance with its revenues and its expenditures since 2011.” Id. at 10. Further,
he testified that the Commission was not only concerned about the fires. Id. at 11.
In Dr. Pruitt’s view, the College “was in continuing decline.” Id. at 10. He explained, id.
[W]e were concerned about putting the fires out, but just putting the fires out in
and of itself would not have been sufficient to indicate that the institution satisfied
the requirements of financial sufficiency to carry out its mission. But, if you
hadn’t put the fire out, you can’t get to the other indices until those four are
solved, and so the Commission spent a lot of time focusing on those four specific
According to Dr. Pruitt, even if all four issues were addressed by the College, it “still
would have had to demonstrate that, after surviving that; that they had the sufficient resources
going forward to be able to prosecute their mission and offer reasonable, quality educational
services. . . .” Id. Dr. Pruitt related these matters to Dr. Simmons and to the College’s Board of
Directors during the site visit. Id. at 12. He tried to convey a “sense of urgency” because “there
were clear time lines here that were controlled by federal requirement that would not allow us
legally to grant any further time.” Id.16
As discussed, supra, at the time of Dr. Pruitt’s testimony, SDC was still pressing its
race-based discrimination claims with respect to Count I. Accordingly, on that point, Dr. Pruitt
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In the small team’s report to the College about the visit, the team concluded that the
College had not “provided sufficient evidence” of its compliance with Standard 3. December
2013 Report, Record of Appeal, Def.’s Ex. 45 at 2794. The team reviewed the same four issues
that “the Commission noted in [its] request for a monitoring report,” id. at 2794-95, and which
the College addressed in its Second Monitoring Report.
It observed that the College had
completed and submitted a FY 2013 audit, but that the audit contained “a ‘going concern’
opinion.” Id. at 2794. Further, it related that the College reported it is “now paying their taxes,
but that payments may not always be on time,” and the College “indicated that there would be a
meeting with the IRS in mid-January 2014.” Id. The College “did provide a financial plan,
including assumptions, to address its deficit position,” but the reviewers found that the College
was already off track to meet its FY 2014 revenue target, and that the plan included what
appeared to be some “overly optimistic” estimates for reducing expenses for bad debt. Id. With
respect to the intended refinancing of the College’s American Bank Debt, the report stated that
the “term loan had not been refinanced.” Id. at 2795. Referring to the Sale/Leaseback Plan, the
report explained that the College “intended to retire the debt” by selling “certain properties,” and
disputed SDC’s contention that MSCHE’s decisions were the product of racial discrimination.
He said, inter alia, the following, ECF 47 at 23-24:
This country has a lot of problems with race that still have to be addressed.
This city has a lot of problems with race that has [sic] to be addressed, but this is
not one of them. There is no way that I would chair a Commission that in any
way disadvantaged an individual, a student, and certainly an institution because of
its race. Neither would Dr. Jones that did the fiscal work on the subsequent team
visit. Neither would my African-American colleagues that sit on this Commission
have in any way tolerated such a— such action.
We are not here because of race, culture, or mission. We are here because
of finances. . . . I am very disappointed that one of the bases of this hearing and
proceedings is the allegation that race was a factor. It absolutely and
unequivocally was not. This is not about race. This is about finances and money.
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that a sale agreement had been executed, but stated that: “there is no closing date at this time.”
Record of Appeal, Def.’s Ex. 45 at 2795.
The team’s report also related a handful of other financial concerns. It concluded, id.:
In conclusion, [the College] is still working through several outstanding
financial issues that raise serious concern for the team: The property sale has not
been completed, the debt has not been refinanced, the federal tax issue has not
been settled, there is a projected loss in tuition and fee income, the College has
very limited working capital, and the auditors have expressed a ‘going concern’
opinion. Therefore the team concludes that there is not sufficient evidence that
[the College] has the financial resources to continue to support and sustain its
The team set out one “recommendation” and six non-exclusive “requirements” with
respect to Standard 3.
The team recommended that the College “review its fiscal planning process” and develop
a “cash flow model” so that the College “could identify issues before they occur and … permit
more timely resolution so that [the College] would not need to rely on its prior practice of nonpayment of federal and state taxes.” December 2013 Report, Record of Appeal, Def.’s Ex. 45 at
2795. It set out the following six “requirements” (hereinafter, “Six Points”), id. at 2792-93
Sojourner-Douglass College must demonstrate that it has developed and
implemented a financial planning and budgeting process, aligned with the
institution’s mission and goals, that provides for multi-year budgets and realistic
enrollment projections and demonstrates that the institution has sufficient
resources to carry out its mission and execute its plans. More specifically, the
institution must provide documentation that includes, but is not limited to (1) the
completion of the planned sale/lease-back of property and an analysis of its
impact on institutional debt and operating expenses; (2) the implementation of a
satisfactory plan for the repayment of unpaid federal and state taxes, interest and
penalties; (3) the completion of efforts to consolidate and refinance the
institution’s term loan; (4) the implementation of additional efforts to remediate
the institution’s deficit position, including budget projections and analysis of
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underlying assumptions for FY 2015, FY 2016, and FY 2017; and (5) the
completion of an audit that removes the ‘going concern’ opinion (Standard 3).
The Six Points were clearly intended to address and satisfy the overarching objective also
set out in the small team’s report: demonstration by SDC that it “has sufficient resources to
carry out its mission and execute its plans.” Record of Appeal, Def.’s Ex. 45 at 2795. The need
to show sufficient resources was not prospective. The small team emphasized—twice in its sixpage report—that the College’s time frame for compliance was limited by federal regulations
and the Commission’s one-time, one-year extension for good cause. Id. at 2792, 2797.
The small team also outlined the next steps in the process. It explained that the College
would “have the opportunity to prepare and submit a formal Institutional Response to the team’s
findings,” which would then be considered in January 2014, by the “Committee on Follow Up,”
along with “all relevant materials (the monitoring report and its attachments, the team report and
the Chair’s confidential brief, and the institutional response),” and considered again by “the full
Commission … in early March 2014.” Id. at 2797.
On January 3, 2014, the College provided a two-page “formal institutional response” to
the December 2013 Report (“2014 Response”). See Record of Appeal, Def.’s Ex. 45 at 2798-99;
see also Motion Hearing, Def.’s Ex. 31 (same). In its 2014 Response, the College praised the
small team for the way the team “conducted themselves professionally and always with a
concern for the mission of the College and its uniqueness,” as well as “the work of the Team and
the balanced report that the Team provided.” Record of Appeal, Def.’s Ex. 45 at 2798. Further,
the College stated: “The College agrees with the Team Report and accepts the challenges to
As is apparent, the paragraph contains only five numbered points; one point is
unnumbered, for a total of six points.
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make improvements where they are indicated.”
Record of Appeal, Def.’s Ex. 45 at 2798
(emphasis added). It committed to “provide documentation that includes” each of the Six Points
set forth in the December 2013 Report, as well as the recommendation to develop a cash flow
model. Id. at 2799.
As Chair of the small team, Dr. Pruitt prepared a confidential “Chair’s Brief” for the
Commission. See Record of Appeal, Def.’s Ex. 45 at 2800-2806; see also Pruitt Testimony, ECF
47 at 20-22. The Chairs’ Brief reviewed the findings just discussed, and recommended that the
Commission “require the [College] to show cause, by September 1, 2014, as to why its
accreditation should not be removed.” Record of Appeal, Def.’s Ex. 45 at 2801. Dr. Pruitt also
recommended that the College submit another follow-up report, id., and that another “on-site
visit” follow submission of the report, “to verify the information provided … and the
institution’s ongoing and sustainable compliance with the Commission’s accreditation
standards.” Id. at 2802. In addition, Dr. Pruitt suggested that the “substantive report document
evidence that the institution has achieved and can sustain ongoing compliance …including, but
not limited to documented evidence” of the requirements the small team included in its
December 2013 Report to the College. Id. Finally, he requested that SDC complete a “teach-out
plan describing how, if the Commission terminates accreditation, any students requiring access
to Title VI funding will be accommodated.” Id.
On March 6, 2014, the Commission acted to adopt all of the small team’s
recommendations, essentially verbatim, as stated by Dr. Pruitt in the Chair’s Brief to the
Commission. Compare Motion Hearing, Def.’s Ex. 15 (“Show Cause Letter”) (letter dated Mar.
7, 2014, describing MSCHE action of Mar. 6, 2014) with Chair’s Brief, Record of Appeal, Def.’s
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Ex. 45 at 2800 and December 2013 Report, Record of Appeal, Def.’s Ex. 45 at 2792-93. The
Commission informed the College of its actions by letter dated March 7, 2014. Show Cause
Letter, Def.’s Ex. 15. In the Show Cause Letter, the Commission restated the requirements set
forth by Dr. Pruitt (see December 2013 Report, Record of Appeal at 2795-96, supra) as six
points (the “Six Points,” supra, at 34) for which the College needed to submit “documented
evidence” with its anticipated report. Show Cause Letter, Def.’s Ex. 15. Additionally, the
Commission directed completion of “a prompt liaison guidance visit to discuss Commission
expectations … .” Id.
Dr. Klinman, the Commission’s liaison to the College, visited the College again on
March 21, 2014. See Motion Hearing, Def.’s Ex. 32 (Klinman Letter dated April 3, 2014
discussing visit). She testified that the Commission’s decision to “make yet another [liaison]
visit” to the College was “unusual.” Klinman Testimony, ECF 44 at 127. Dr. Klinman added:
“Typically, that happens only once after a warning is issued.” Id.
After Dr. Klinman visited SDC, she wrote a letter to Dr. Simmons dated April 3, 2014,
summarizing her visit. Motion Hearing, Def.’s Ex. 32. Dr. Klinman reiterated “the serious
nature of the show cause action … .” Id. She also stated that the monitoring report due on
September 1, 2014, “must provide evidence in response to each of the topics raised by the
Commission” and “may also document the results of other initiatives undertaken to strengthen its
short- and long-term financial viability and sustainability.” Id. And, she outlined the next steps
in the process, including the Commission’s appeals procedure and policy, as well as the time
frame for compliance. Dr. Klinman said, id.:
As you know, USDE regulations outlining the federal criteria for recognizing
accrediting agencies specify a federally-mandated time frame for the resolution
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of accreditation problems (see 34 CFR 602.20). In keeping with those criteria,
when the full Commission meets on November 20, 2014, it will render a final
On September 1, 2014, the College timely submitted its report, titled “SojournerDouglass College Middle States Substantive Report 2014” (“Substantive Report”). See Record
of Appeal, Def.’s Ex. 45 at 2807-3170; see also Motion Hearing, Def.’s Ex. 33 (same). The
Substantive Report included a number of attachments responsive to the Six Points identified in
the Show Cause Letter and the December 2013 Report. Notably, the College attached copies of
contracts of sale for two properties owned by the College, Record of Appeal, Def.’s Ex. 45 at
2872-2956, relevant to its Sale/Leaseback Plan to pay down its debt; a series of letters from the
IRS, id. at 2957-2961; a Note Allonge showing the refinancing of the College’s American Bank
Debt, id. 2962-2974; and a FY 2014 audit, id. at 3149-3179, with no “going concern” opinion. It
also submitted tables showing that degree programs offered by the College match many of the
most popular degree programs for online enrollment, various agreements for cross-enrollment
executed with institutions of higher education in foreign countries, and letters of support from
community and business leaders. Id. at 2975-3119.
The College included as an attachment to the Substantive Report a letter from an IRS
“Revenue Officer,” dated August 25, 2014. It stated, Record of Appeal, Def.’s Ex. 45 at 2960:
This letter is a follow up to our conversation last week. We discussed the need
for the College to be in full compliance before any type of Installment Agreement
or Offer in Compromise can be entered into. The College has taken measures to
reduce payroll expenses and the expectation is that they will be in full compliance
by September 1, 2014.
The College’s plan to resolve their tax delinquencies is to pay over available net
proceeds from the sale lease back and then enter into an Installment Agreement or
an Offer in Compromise to resolve the remaining balance due. This is an
acceptable collection alternative; however, at this time, there is no formal
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agreement in place. Once the College is in full compliance with Federal tax
deposits, we can move forward with a resolution.
On September 9, 2014, Bronte Jones, Ph.D., the Vice President for Finance and
Administration at Dickinson College and a member of the small team that was to visit the
College to follow up on the Substantive Report, sent an email to Dr. Simmons requesting
additional information. Motion Hearing, Pl.’s Ex. 4 (“Jones Email”). Dr. Jones reminded Dr.
Simmons that the “purpose of the evaluation team is to verify the information provided in the
substantive report and the institution’s on-going and sustainable compliance with the
Commission’s accreditation standards.” Id. Toward that end, she asked the College to deliver
additional documents “to the hotel for our team review on Sunday, September 21, 2014.” Id.
Among other things, Dr. Jones requested a “report detailing the total outstanding balance
on unpaid federal and state taxes, interest and penalties with appropriate supporting
documentation”; a “schedule detailing tax payments made in FY14”; additional information
about the purchasers named in the contracts for sale of real property included as attachments to
the Substantive Report; “[b]udget to actual data for the past two fiscal years with a specific
emphasis on budget to actual enrollment totals and the resulting net tuition revenue”; information
on “the selection process used to select [the College’s] new audit firm”; and a “cash flow model
for the current fiscal year.” Id. She added: “It is important that the team understand how you
plan to address your financial obligations before and after the execution of the sale/lease back
agreement.” Id. (emphasis added). She also restated the Six Points included in the December
2013 Report and the Show Cause Letter; she emphasized, by underlining and printing in bold
font, the following words in each of the Six Points, respectively: “implementation,”
“completion,” “implementation,” “completion,” “implementation,” “completion.” Id.
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As requested, the College delivered a packet of responsive documents to Dr. Jones on
September 21, 2014. Motion Hearing, Testimony of Dr. Charles Simmons, ECF 37 at 44-45; see
also Pl.’s Ex. 5 (SDC documents delivered to Dr. Jones). Notably, a letter from the College’s
accountant to Dr. Simmons, dated September 19, 2014, showed that the balance of unpaid
federal taxes, interest, and penalties stood at $5,639,298.28 through July 2014. Pl.’s Ex. 5. The
documents also included a list of “Federal Tax Payments Made July 1, 2013 thru June 30, 2014,”
which showed, inter alia, that the College had not paid any monies toward tax amounts due in
June 2014. Id.
On September 22 and 23, 2014, a small team of peer reviewers, composed of Dr. Jones
and an Executive Vice President for Administration at Bryant & Stratton College, visited the
College to follow up on the College’s Substantive Report. They prepared a report of their visit
(“September 2014 Report”). See Record of Appeal, Def.’s Ex. 45 at 3172-3179; see also Motion
Hearing, Def.’s Ex. 34 (same). “[A]fter reviewing the Substantive Report and conducting on
campus interviews,” Record of Appeal, Def.’s Ex. 45 at 3179, the team concluded that the
College “does not meet Standard 3.” Id. at 3175. The small team observed that, “[i]n addition,
the institution appears to be out of compliance with requirements for affiliation #5 and #8.” Id.
The September 2014 Report also reviewed and assessed the documentation submitted by
the College relevant to each of the Six Points included in the Show Cause Letter of March 7,
2014. With respect to SDC’s budget, it pointed out a number of reasons why it felt that the
College’s projections were unrealistic. Id. It noted that the College’s enrollment declined in
2014. Id. The College attributed the decline to “the change in regulations regarding the Pell
grant program,” discussed supra, “and the apparent negative publicity regarding [the
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Commission’s] show cause” action. September 2014 Report, Record of Appeal, Def.’s Ex. 45 at
3175. The College’s projections for 2015, 2016, and 2017 “assume[d] enrollment increases to
previous levels … due to the removal of the … show cause, a Substantive Change approval to
offer online programs, and a Substantive Change approval for contractual agreements for
international programs.” Id. However, the team was “concerned that the … enrollment and
related financial projections might be unrealistic since the institution has minimal experience
with online and international programs and the change in the Pell grant program that originally
negatively impacted enrollments has not been reversed.” Id. It concluded: “Therefore, while
the Substantive Report showed … surpluses in 2014/2015, 2015/2016, and 2016/2017, there is
minimal documented history to support that the surpluses will materialize.” Id. at 3175-76.
As to the Sale/Leaseback Plan, the September 2014 Report noted that the College had
submitted executed sales agreements for two properties, but observed that the transactions were
not completed and, based on the contingencies and closing dates specified in the contracts, the
deals were more or less impossible to close as written. Id. at 3176. It pointed out, for example,
that the team was “concerned about the institution’s ability to comply with the requirements set
forth in paragraphs 7.a.(iv) and (v)” of the sales contract for the property at 200 N. Central
Avenue. Id. Those provisions specify that the sales contract was contingent upon the College
“deliver[ing] evidence, in a form reasonably satisfactory to Purchaser, that all liens, including
certain IRS Liens referenced in Circuit Court of Maryland for Baltimore City, Case Numbers:
[excerpted], have been discharged,” and upon satisfactory evidence, at closing, that the “Seller
[i.e., the College] is in good standing with, and duly accredited by, [the Commission], and not
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subject to any investigation which may result in the loss of said accreditation.” September 2014
Report, Record of Appeal, Def.’s Ex. 45 at 2879.
With respect to the College’s outstanding tax liabilities, the September 2014 Report
related that the College “had not executed an agreement with either federal or state [tax]
authorities,” and that the College had “accrued additional unpaid federal and state payroll tax
liabilities in 2014.” Id. at 3177. The College’s cash flow analysis revealed that it expected the
IRS to enter into an offer and compromise that would bring its liability down to $2 million (from
liabilities “in excess of $7M”). Id.
As to SDC’s refinancing of the American Bank Debt, the team noted that the College had
completed a refinancing agreement, but the new “outstanding balance, plus interest accrued, and
all fees and costs” were due and payable on September 1, 2016. Record of Appeal, Def.’s Ex. 45
at 3178; see also Motion Hearing, Def.’s Ex. 6 (copy of “Second Modification Agreement” for
American Bank Debt). And, during “on campus interviews, management informed [the team] of
a $1.3M penalty payment” that would be due and payable on the same date. Id.18
At the Motion Hearing, SDC called James E. Plack, President and CEO of American
Bank in Bethesda, Maryland, as a rebuttal witness. See Motion Hearing, ECF 47 at 106-118.
Mr. Plack testified that $1,604,003.54 was added to the total due on the American Bank Debt
when SDC refinanced the loan. Id. at 123. The additional sum represented “default interest” due
on the loan, id., dating back to a default that occurred in 2008. Id. at 124.
As discussed, infra, Middle States introduced a number of exhibits at the Motion Hearing
to which SDC objected. Most of those exhibits related to additional debts secured by the real
property that also constituted the security for the American Bank Debt. According to Mr. Plack,
SDC technically defaulted on the American Bank Debt because SDC added the liens without
American Bank’s “knowledge or consent”. E.g., ECF 47 at 120-21; see also Motion Hearing,
Def.’s Ex. 6 (copy of SDC’s “Second Modification Agreement” with American Bank) at 1
(“Debtors have defaulted on the Loan by encumbering the Property with certain subordinate
liens in violation of the terms of the Deed of Trust … .”); Record of Appeal, Def.’s Ex. 45 at
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Further, the team believed that even if the Sale/Leaseback Plan were consummated, SDC
would still lack sufficient resources to bring it into compliance. September 2014 Report, Record
of Appeal, Def.’s Ex. 45 at 3178. It stated, id.:
The sale/leaseback transactions are the primary strategy for the institution to
eliminate its substantial governmental and lender obligations.
sale/leaseback transactions are consummated, the proceeds would be sufficient to
eliminate all lender debt and related penalties. However, absent any formal
agreements (to abate penalties and interest) with the federal and state tax
authorities, there will be insufficient funds to eliminate all of the outstanding tax
liabilities. More importantly, there will be no proceeds remaining to fund current
operations. As noted above, generating surpluses in the near future are uncertain.
Hence, even if the sales/leaseback transactions close, there do not appear to be
adequate resources to support the short- and long-term financial stability of the
The College submitted a written response to the September 2014 Report on October 23,
2014 (“October 2014 Response”). See Record of Appeal, Def.’s Ex. 45 at 3180-3375. In the
October 2014 Response, SDC disagreed with “certain observations and conclusions” in the team
report and asserted: “[T]he College has conclusively satisfied most of the six directives from
MSCHE and for the remaining, we have instituted a comprehensive set of actions to ensure rapid
completion as soon as the Commission reaffirms accreditation.” Id. at 3180. The College
included a number of new attachments, including a new letter from the IRS, addressed to Dr.
Simmons, dated October 23, 2014. Id. at 3201. That letter stated, in relevant part, id.: “The
College’s plan is to immediately be in full compliance with Federal tax deposits. This letter
Middle States maintained that SDC had never revealed to the Commission the full extent
of its debt, owing to the subordinated liens. SDC argued that it produced what was required, and
that, in any event, the Commission’s evidence on this point was outside the Court’s scope of
review. In my view, I need not consider the disputed documents because they would not change
the outcome of my decisions on the pending motions.
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confirms that you, on behalf of the College, have an acceptable collection plan to resolve your
delinquent tax obligations.” The letter did not provide any particulars to the plan, however.
Dr. Jones prepared a confidential “Chair’s Brief” for the Commission with the small
team’s recommendation that the Commission “withdraw accreditation from Sojourner-Douglass
College effective June 30, 2015.” Id. at 3376-3381, 3376. Dr. Jones noted that the decision was
“based on” each of the reports and responses described above. She concluded: “These and prior
institutional reports and responses have failed to document that the institution has achieved and
can sustain ongoing compliance with the Commission’s Requirements of Affiliation #5,
Requirement of Affiliation #8, and with Commission Standard 3 … .” Id. at 3376.
At some point between the completion of the September 2014 Report and November 20,
2014, the “follow up committee” of the Commission recommended that the Commission
“remove accreditation” for SDC. Motion Hearing, Testimony of Gary Wirt, Ph.D. (Vice-Chair
of Middle States and President of Goldey-Beacom College), ECF 47 at 63.
On November 11, 2014, the Commission sent a letter to Dr. Simmons informing him that
the College could appear before the full Commission at its meeting on November 20, 2014, to
present its case for accreditation in person, and that the College could submit “any additional
information” by noon on Friday, November 14, 2014. Record of Appeal, Def.’s Ex. 45 at 338286. The College submitted additional information to the Commission by letters dated November
11, 2014, id. at 3387-3400, and November 14, 2014. Id. at 3401-05. In its letter of November
14, 2014, the College reported that it had established a repayment plan with the Comptroller of
Maryland, id. at 3401, as evidenced by a letter from the Comptroller. See id. at 3406. It added
that “[n]egotiations” with the IRS were “ongoing” and the College “remain[e]d optimistic that
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similar arrangements—and documentation confirming the accepted plan—will follow in the near
future.” Record of Appeal, Def.’s Ex. 45 at 3401.
On November 19, 2014, see ECF 1-14 at 4, the College submitted an additional letter to
the Commission from the IRS. It stated, in part, id. at 3408 (emphasis added):
This letter is to confirm that [the College] has established a plan to resolve
the outstanding tax liability with the [IRS] and has implemented that plan by
making an initial payment of $154,962. The plan includes restructuring the
financial obligations of the College and using the equity in the real estate to pay a
substantial portion of the IRS obligation. Any remaining balance due to the IRS
will be addressed through the request for an Offer in Compromise.
You have implemented a satisfactory plan to resolve the outstanding tax
obligations of the College and we appreciate your efforts.
On November 20, 2014, the College appeared before the Commission to make the case
for reaffirmation of accreditation. See id. at 3410-3481 (transcript of proceeding); see also Wirt
Testimony, Ex. 47 at 63. Specifically, the College was represented by Dr. Simmons; Donald
Hutchins, Vice-President for Administrative and Fiscal Affairs at SDC; Oliver Patrick Scott,
Chairman of SDC’s Board of Directors; and Jay Vaughn, counsel for SDC. Record of Appeal,
Def.’s Ex. 45 at 3410-11. Dr. Simmons stated his belief that the College’s accomplishments had
“gotten lost in the discussion focused solely on what has evolved into a checklist.” Id. at 3421.
He maintained that the Commission’s warning and show cause actions had a severe “adverse
impact” on the College. Id. at 3424-25. He also noted that changes in the federal Pell Grant
program “had a substantial impact.” Id. at 3435. In addition, Dr. Simmons asserted that, had the
College been permitted to move forward with its plan for online education in 2011, he had “no
doubt” that “there would be no need” for his presence before the Commission that day. Id. at
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With respect to the Sale/Leaseback Plan, Dr. Simmons represented that a purchaser
remained ready to complete the transaction once the Commission affirmed the College’s
accreditation. Further, he stated that the purchaser would “waive the tax contingency” in the
sales agreement, and that the IRS had “agreed to subordinate its position” with respect to the
secured property “to allow the sale to take place.” Record of Appeal, Def.’s Ex. 45 at 3439.
However, upon questioning, one of the Commissioners observed that no documentation of these
representations was before the Commission. Id. at 3477. Dr. Simmons responded, id. at 344647:
We did everything we were told. And for the one remaining element did
everything we could while we remain in this accreditation status. If we’re not
allowed to continue it is because of what you think we can’t do instead of what
we have already done and are doing. … Give us a year until the next
comprehensive visit and we can show you remarkable things.
In a lengthy letter dated November 21, 2014, the Commission informed the College that
it had determined to withdraw the College’s accreditation, effective June 30, 2014. See ECF 114 (“Withdrawal Letter”); see also Motion Hearing, Def.’s Ex. 36 (same). The Commission
explained that the decision was “based on” all of the reports and responses, discussed supra,
which it detailed by date. ECF 1-14 at 1, 3-4.19 It noted that “its concerns about the financial
The first paragraph of the Withdrawal Letter states as follows, ECF 1-14 at 1:
At its session on November 20, 2014, the Middle States Commission on
Higher Education acted as follows:
To withdraw accreditation from Sojourner-Douglass College effective
June 30, 2015. This decision is based on the institution’s June 1, 2011
Periodic Review Report, the report of peer reviewers, and the institutional
response to the peer reviewers’ report; the institution’s September 1, 2012,
monitoring report, the report of a subsequent visit by Commission
representatives on September 19, 2012, and the institution’s response to
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viability of [the College] are long-standing,” and that the Commission had granted the College a
“one-year extension for good cause in November, 2013,” which represented “the maximum
amount of time stipulated in its policy on ‘Range of Actions.’” ECF 1-14 at 3.
Further, the Commission set forth “[e]xamples of the specific bases for the Commission’s
Id. at 2.
It observed that “[t]o be eligible for reaffirmation of accreditation, an
institution must demonstrate that it meets or continues to meet” the Commission’s Requirements
The Commission “found deficiencies in relation” to Requirement of
Affiliation numbers 5 and 8, and Commission Standard 3. Id.
Middle States reviewed the procedural history described above and its findings as to the
College’s evidence on each of the Six Points. Id. at 3-5. The Commission essentially reiterated
the concerns expressed in the September 2014 Report. Id. These included the same concerns
with the College’s budget projections and the contingencies holding up the Sale/Leaseback Plan,
id. at 4, and the terms of the College’s refinancing of its American Bank Debt. Id. at 5. The
Commission acknowledged that the College had provided an external audit for the period ending
June 30, 2013 which “removed the going concern opinion” found in the FY 2013 audit. Id. at 5.
the representatives’ report; a second monitoring report submitted by the
institution on November 1, 2013, the report of a subsequent visit by
Commission representatives on December 17, 2013, and the institution’s
response to the representatives’ report; and a substantive report submitted
by the institution on September 1, 2014, the report of a subsequent visit by
Commission representatives on September 22, 2014, the institution’s
response to the representatives’ report, and additional information
submitted by the institution on November 11, November 14, and
November 19, 2014, and provided during a Hearing before the
Commission on November 20, 2014. These and prior institutional reports
and responses have failed to document that the institution has achieved
and can sustain ongoing compliance with the Commission's Requirement
of Affiliation #5, Requirement of Affiliation #8, and with Commission
Standard 3 (Institutional Resources).
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With respect to the College’s tax obligations, the Commission offered the following
analysis, ECF 1-14 at 5:
As of the date of the most recent small team visit … , the College was unable to
document the implementation of a plan for the repayment of its outstanding state
or federal taxes. Furthermore, the IRS has placed tax liens on the College’s real
estate holdings. As noted above, the College submitted a letter on November 14,
2014 asserting that it had reached an agreement in this matter with the
Comptroller of the State of Maryland. In that same letter, the College
acknowledged that no repayment plan had yet been accepted by the [IRS]. The
November 19 letter from the [IRS] noted that the College has an interim payment
arrangement but has yet to request an Offer in Compromise to settle the
outstanding debt and remove the liens from the real estate. Beyond the fact that
these unpaid taxes (plus interest and penalties) represent a considerable debt
burden, [the College] did not present the Commission with clear evidence of
compliance with federal and state tax policies, regulations and requirements.
On December 1, 2014, via a letter from Dr. Simmons to the Commission, and in
accordance with the Commission’s “Procedures for Appeals from Adverse Accrediting
Decisions,” the College appealed the Commission’s decision to withdraw accreditation. See
ECF 11-4 (appeal letter); see also ECF 15-5 (copy of Commission’s policy regarding “Appeals
from Adverse Accrediting Decisions”) (“Appeal Policy”). According to the Appeal Policy, the
“purpose of the Appeal” is “to provide an independent review to make certain that the
Commission’s action was not arbitrary and capricious and the accreditation process was
conducted in accordance with the policies and procedures of the Commission.” ECF 15-5 at 4.
The Panel’s review is limited to “the Record and the condition of the Appellant existing
at the time of the Commission’s decision.” Id. at 4. However, the Chair of the Panel, see id. at
7, may admit “new and verifiable information relating to changes in the institution’s financial
status.” ECF 15-5 at 4. But, “such information” may “only be offered if (1) the information was
not available to the institution at the time the Commission voted for the adverse action, and (2)
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the information [was] deemed to be so substantial and material that had it been available it is
likely to have had a bearing on the decision of the Commission to issue an adverse decision.” Id.
The Panel has “authority to affirm, remand or reverse the accrediting action.” Id. at 8.
But, the Appeal Policy directs the Panel to “affirm the Commission’s decision unless the
Appellant provides, by clear and convincing evidence, that the Commission’s evidence was
arbitrary and without substantial evidence in the Record or that there was an error in the
proceedings of the Commission that materially affected its decision.” Id.
A representative of the Commission selected a panel of three persons to hear the
College’s appeal, id. at 2, from a roster of sixteen persons “with substantial experience and
participation in the education community and accreditation process,” none of whom was a
member of the Commission.
Id. at 1.
The College submitted a written statement dated
December 30, 2014, in support of its appeal, along with a number of exhibits. See ECF 1-15.
The Commission submitted a written response, dated January 14, 2015, also with a number of
exhibits. ECF 15-2 through ECF 15-10; see also Motion Hearing, Def.’s Ex. 37 (same).
On February 2, 2015, the Panel held a hearing on the College’s appeal. See Motion
Hearing, Def.’s Ex. 48 (transcript of appeal hearing) (“Appeal Transcript”); ECF 1-16 (report of
appeal panel) (“Appeal Decision”); see also Motion Hearing, Def.’s Ex. 39 (same). Joseph
Bascuas, Ph.D., a visiting professor of psychology at Florida Gulf Coast University, served as
Chair of the Panel. Motion Hearing, Testimony of Joseph Bascuas (“Bascuas Testimony”), ECF
47 at 133-36. At the Motion Hearing, Dr. Bascuas explained that the Panel heard arguments
from both the College and the Commission, ECF 47 at 150, and “had access to the entire record
… going back to 2011, of all the different action letters and different reports … .” Id. at 139. It
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also had the Record of Appeal, Def.’s Ex. 45 (record submitted by Commission administrator to
Panel). See also Appeal Policy, ECF 15-5 at 1-2 (stating administrator compiles the “Record”).
The College sought to introduce new evidence at the appeal hearing. Specifically, it
sought to introduce “two letters” from the IRS, one letter from the “Maryland Higher Education
Commission,” Appeal Transcript, Def.’s Ex. 48 at 9, and a “copy of a presentation” that included
“prospective” financial information “based upon subsequent events between the Commission
hearing” of November 20, 2014 and the appeal hearing. Id. at 9-10; see also Appeal Decision,
ECF 1-16 at 2 (describing letters).
SDC submitted a copy of the presentation at issue as an exhibit at the Motion Hearing.
See Pl.’s Ex. 13. The presentation was prepared by Carl Marks Advisors.20 Id. at 1. The
presentation contains SDC’s revenue and expenses for the months of July 2014 through
December 2014, id. at 4; monthly revenue and expense projections for January 2015 through
June 2015, id. at 5; a comparison of actual budget numbers from 2014 with projected numbers
for 2015, id. at 6; quarterly projections for fiscal years 2016 and 2017, id. at 7; a description of
assumptions made, id. at 8-11; a “balance sheet” projecting the “impact” of the Sale/Leaseback
Plan, if consummated, id. at 12; a table indicating the “sources and uses of Sale/Leaseback
Transaction” monies, id. at 13; and a list of “risks and opportunities”. Id. at 14.
At the Motion Hearing, Dr. Bascuas testified that he believed, pursuant to federal
regulations and the Commission’s policy, ECF 47 at 145-46, that new evidence could only be
admitted under “certain conditions,” ECF 47 at 145, namely, the evidence had to be
“[s]ubstantive and material; new, meaning had not been available on November 20th; and, most
Another of plaintiff’s exhibits indicates that the full name of the report’s author is Carl
Marks Advisory Group LLC. See Motion Hearing, Pl.’s Ex. 12.
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important to [the Panel], verifiable.” Id. at 196; see also Appeal Transcript, Def.’s Ex. 48 at 30;
34 C.F.R. § 602.25(h)(1).
After a brief recess to deliberate, the Panel decided to admit the letters, but not the
Appeal Transcript, Def.’s Ex. 48 at 12-36.
The Panel determined that the
presentation “talk[ed] about the condition of the College going forward,” id. at 13, and was not
relevant to the Panel’s charge to decide whether “the decision that the Commission made” was
“appropriate based on what was in front of them at the time.” Id. at 12. The Panel also
determined that the information was not “verifiable,” id. at 13, as required by the Commission’s
Appeal Policy. See id. at 30; ECF 15-5 at 4. Dr. Bascuas explained: “[I]t’s not verifiable
because it can happen—it can only happen in the future.” Appeal Transcript, Def.’s Ex. 48 at 13.
Counsel for SDC objected to the Panel’s ruling.
At the conclusion of the discussion on new evidence, counsel for the College reiterated
an objection lodged by telephone call to Dr. Bascuas the night before the appeal hearing. See
Bascuas Testimony, ECF 47 at 144. Specifically, SDC’s lawyer objected to the fact that the
attorney available to the Panel for consultation, Jean Hemphill, was the same attorney who had
served as counsel to the full Commission when the College appeared before the Commission on
November 20, 2014. See Appeal Transcript, Def.’s Ex. 48 at 22-23; id. at 2; Bascuas Testimony,
ECF 47 at 142-43; Record of Appeal at 3411 (transcript of Nov. 20, 2014 meeting). At the
Motion Hearing, Dr. Bascuas testified that the Panel did not consult Ms. Hemphill during the
hearing, nor did it discuss the “merits” of either side’s position with her. ECF 47 at 144.
In a written opinion dated February 10, 2015, the Panel issued its decision affirming the
Commission’s decision to withdraw the College’s accreditation. Appeal Decision, ECF 1-16.
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The Appeal Decision stated, inter alia, id. at 3: “Based on a careful and thorough review of the
record, including the Appeal-specific written and oral presentations, the Appeal Panel
unanimously concluded that Sojourner-Douglass College did not provide clear and convincing
evidence that the accreditation action taken by [the Commission] on November 20, 2015 was
capricious or arbitrary.” The Panel’s specific reasoning focused on failure and insufficiency of
the Sale/Leaseback Plan, and SDC’s continuing failure to pay federal taxes. Id. at 2-3. It stated,
id. (emphasis in original):
SDC confirmed to the Appeal Hearing Panel that the primary strategy to resolve
its current illiquid financial position is the sale/leaseback of its real estate
holdings. However, the executed contract included in the Record stipulates that
the sale/leaseback cannot occur without the release of the Federal Tax Liens and
the reaffirmation of the SDC’s accreditation by MSCHE.
SDC asserted that the proceeds from the sale/leaseback would yield
approximately $11,556,000 which would be used to pay both its first and second
mortgage obligations, the initial federal tax lien of $948,612 (which included
approximately $300,000 of unpaid federal tax withholdings for the 4th quarter
of 2014), and generate approximately $951,000 in cash infusion for working
capital. An examination of the Records by the Appeal Hearing Panel, revealed
SDC first mortgage (American Bank) = $9,653,272.43 @ August 28, 2014
SDC second lien (bridge loan)
Payroll tax, interest and penalties
= $7,034,578.00 @ June 30, 2014
Based on the facts stated above, it is clearly evident to the Appeal Hearing Panel
that the anticipated proceeds of $11,556,000 from the sale/leaseback transaction
will not produce adequate cash infusion to satisfy SDC’s first and second
mortgage obligations that are liens on the property, pay the initial Federal Tax
payment of $948,612 and generate excess cash of $951,000 for working capital.
In-addition [sic], SDC did not provide any evidence to the Appeal Hearing Panel
of a plan that was satisfactory to the IRS for the payment of unpaid federal taxes
that SDC withheld from its employee paychecks for a number of years. It is
important to note that during the Appeal Hearing, SDC acknowledged that it had
again failed to remit withheld payroll taxes for the fourth quarter of 2014.
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As stated, the College filed the instant suit against the Commission late in the evening of
June 29, 2015. ECF 2. On June 30, 2015, I denied the College’s TRO Motion, see ECF 6
(Order), and the Commission withdrew the College’s accreditation. See, e.g., ECF 15-23. On
the same day, the State of Maryland notified the College that it “is no longer approved to operate
in the State of Maryland, commensurate with its loss of accreditation … .” ECF 15-22 (letter
from Maryland’s Acting Secretary of Higher Education to College, dated June 30, 2015). On
July 1, 2015, the USDE informed the College that it is no longer eligible “to participate in the
student financial assistance programs authorized pursuant to Title IV” of the HEA. ECF 15-23
(letter from USDE to College, dated July 1, 2015).
As indicated, supra, the College alleges four counts against the Commission: 1) denial of
federal common law due process (“Count I”); 2) discrimination in the enforcement of contract in
violation of 42 U.S.C. § 1981 (“Count II”); 3) breach of contract (“Count III”); and 4) negligence
(“Count IV”). ECF 2 at 24, 26-28. The College seeks a preliminary injunction only on the basis
of Count I; at this stage in the litigation, it does not seek relief with respect to Counts II, III, or
IV. E.g., ECF 39 at 5 n.1.
The College argued at the hearing on its TRO Motion and in its legal memorandum
supporting the PI Motion that the Commission acted with racial bias; that its decision was
arbitrary because it reflected “a double standard” favorable to “Predominantly White
Institutions,” ECF 1-1 at 2; and that “race” was a “factor” in the “assessment” of SDC. Id. at 6.
Moreover, SDC argued that the Commission’s decision “troublingly flags race.” Id. at 8. See
also ECF 1-17 (supporting affidavit of Kareem Aziz, an administrator at SDC); ECF 11 at 1
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(relying on ECF 1-1 and ECF 1-17). However, the College eventually abandoned this line of
argument at closing argument on August 17, 2015. And, the College made clear at the Motion
Hearing that its argument as to Count I “has nothing to do with whether [MSCHE] had all the
facts”, i.e., on whether the Commission had substantial evidence to support its decision. See
Motion Hearing, ECF 47 at 219 (argument of SDC’s counsel); see also Memo, ECF 1-1 (arguing
MSCHE’s decision was arbitrary and capricious, but not arguing MSCHE lacked substantial
evidence for its decision); ECF 16 at 3-5 (SDC Reply); ECF 14 (transcript of TRO hearing) at
Accordingly, the PI Motion presents only the questions of whether the College is entitled
to preliminary relief based on its claim that the Commission’s decision to withdraw accreditation
was arbitrary and capricious because the Commission failed to adhere to its own standards and/or
procedures; instead, it created “moving targets and circular, impossible-to-fill post hoc
requirements” that were ”fundamentally unfair” because they amounted to new terms for which
SDC had no notice. ECF 16 (SDC Reply) at 4. See also, e.g., ECF 47 at 219 (argument of
SDC’s counsel) (“The question before the Court is: Did [MSCHE] change the standards that it
articulated to Sojourner that it was going to use to assess its compliance?”).
I will discuss the PI Motion first, then briefly address evidentiary objections raised at the
Motion Hearing, then turn to defendant’s Motion to Dismiss Counts II and III.
A. Motion for Preliminary Injunction
A preliminary injunction is an extraordinary and drastic remedy. See Munaf v. Geren,
553 U.S. 674, 689-90 (2008). As the Fourth Circuit observed in Centro Tepeyac v. Montgomery
Cnty., 722 F.3d 184, 188 (4th Cir. 2013), a preliminary injunction involves “the exercise of a
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very far-reaching power, which is to be applied only in the limited circumstances which clearly
demand it.” (Quotation marks and citation omitted.) It is a remedy that is “‘is granted only
sparingly and in limited circumstances.’” Micro Strategy, Inc. v. Motorola, Inc., 245 F.3d 335,
339 (4th Cir. 2001) (citation omitted).
To obtain injunctive relief, the claimant must establish that “he is likely to succeed on the
merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the
balance of the equities tips in his favor, and that an injunction is in the public interest.” Winter v.
Natural Resources Defense Council, Inc., 555 U.S. 7, 19 (2008). All four requirements must be
satisfied. See Real Truth About Obama, Inc. v. Fed. Election Comm’n, 575 F.3d 342, 346 (4th
Cir. 2009), vacated on other grounds, 559 U.S. 1089 (2010), reinstated in relevant part on
remand, 607 F.3d 355 (4th Cir. 2010) (per curiam). Under Winter, 555 U.S. at 22, the party
seeking the preliminary injunction must make a “clear showing” that SDC is likely to succeed on
the merits. See also Dewhurst v. Century Aluminum Co., 649 F.3d 287, 290 (4th Cir. 2011).
In my view, the College has failed to make a clear showing that it is entitled to such
extraordinary relief with respect to Count I. In particular, I am not persuaded that SDC is likely
to succeed on the merits of its claim.
“Congress has given exclusive jurisdiction to United States district courts over ‘any civil
action brought by an institution of higher education seeking accreditation from, or accredited by,
an accrediting agency ... involving the denial, withdrawal, or termination of accreditation.’”
Prof’l Massage, supra, 781 F.3d at 170 (quoting 20 U.S.C. § 1099b(f)). The HEA, “which
governs the administration of federal student aid programs and the accreditation of institutions of
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higher education,” does not provide a private right of action against accreditation agencies. Id.21
And, because accreditation agencies “are private entities, not state actors,” they are “not subject
to the strictures of constitutional due process requirements.” Id.
Nonetheless, “there exists a ‘common law duty on the part of ‘quasi-public’ private
professional organizations or accreditation associations to employ fair procedures when making
decisions affecting their members.’” Prof’l Massage, 781 F.3d at 169 (quoting McKeesport
Hosp. v. Accreditation Council for Graduate Med. Educ., 24 F.3d 519, 534-35 (3d Cir. 1994)).
The common law duty has “several underpinnings,” including the gatekeeping-nature of the
agencies’ roles under the HEA, as discussed, supra, and the HEA’s grant of exclusive federal
jurisdiction over accreditation disputes. Prof’l Massage, 781 F.3d at 170. The duty, “put
simply, is to play it straight.” Id.
“[R]ecognition that such a common law duty exists does not authorize courts to
undertake a wide-ranging review of decisionmaking by accreditation agencies.”
“judicial inquiry” is limited, “drawing on principles of administrative law and judicial
deference.” Id. As the Fourth Circuit explained in Professional Massage, “due process claims
dovetail nicely with administrative law concepts . . . because the prominent point of emphasis of
due process is one of procedure.” Id. at 172. Thus, a reviewing court may consider “‘only
whether the decision of an accrediting agency … is arbitrary and unreasonable or an abuse of
discretion and whether the decision is based on substantial evidence.” Id. at 171 (quoting
Thomas M. Cooley Law Sch. v. Am. Bar Ass’n, 459 F.3d 705, 712 (6th Cir. 2006)). As the
Fourth Circuit has said, “[w]hen adjudicating common law due process claims against
The HEA does provide “for suit by or against the Secretary of Education.” Prof’l
Massage, 781 F.3d at 170.
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accreditation agencies, courts should focus primarily on whether the accrediting body’s internal
rules provided a fair and impartial procedure and whether it followed its rules in reaching its
decision.” Prof’l Massage, 781 F.3d at 172 (citation and alterations in Prof’l Massage omitted)
(alteration added by this Court).
Notably, courts are “‘not free to conduct a de novo review or to substitute their judgment
for the professional judgment of the educators involved in the accreditation process.’” Id. at 171
(citation omitted). Rather, the reviewing court must “confine” itself “to the record that was
considered by the accrediting agency at the time of the final decision.” Id. at 174-75. The
standard also commands “significant, though not total, deference to decisionmaking by
accreditation agencies.” Id. at 169. This deference respects “the accreditation agency’s expertise
and knowledge” in the field. Id. at 171. Indeed, reviewing courts have consistently emphasized
that “‘standards of accreditation are not guides for the layman but for professionals in the field of
education.’” Id. at 171 (quoting Wilfred Academy of Hair & Beauty Culture v. The Southern
Assoc. of Colleges & Schools, 957 F.2d at 214 (5th Cir. 1992) (additional citation omitted)). As
the Professional Massage Court said, 781 F.3d at 171: “[I]t is not realistic to think courts
possess either the expertise or the resources to perform the accreditation function ab initio.”
That said, the Fourth Circuit “has made clear that an impartial decisionmaker is an
essential element of due process.” Id. at 177 (citations omitted). Therefore, consistent with
principles of federal administrative law, a court “may be justified in conducting a more searching
inquiry into the motivations of administrative decisionmakers in the case of ‘a strong showing of
bad faith or improper behavior.’” Id. at 177-78 (quoting Citizens to Preserve Overton Park, Inc.
v. Volpe, 401 U.S. 402, 420 (1971), abrogated on other grounds by Califano v. Sanders, 430
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U.S. 99 (1977)). A strong showing of bad faith or improper behavior may “justify departure
from the deferential standard ordinarily due to the accreditation agency under a common law due
Id. at 180.
But, the claimant’s showing must be measured against the
“presumption of honesty and integrity” ordinarily due to administrative decisionmakers. Id. at
178 (citations omitted).
In this case, as stated, SDC initially alleged, among other things, racial bias in the
withdrawal of accreditation. That claim was abandoned at closing argument. At this juncture,
SDC presses the claims that it was denied due process as to the Commission’s decision to
withdraw the College’s accreditation, and that the Commission’s decision was arbitrary and
capricious. See ECF 16 (SDC Reply) at 3. The College asserts: “Under the federal common
law right of due process that is owed to [the College], MSCHE could not simply impose
arbitrary, ever-changing requirements to satisfy the broad economic stability requirements of the
accreditation standards.” Id. Relying on “[b]asic principles of administrative law apply,” SDC
contends that “one of those tenets is that the goalposts cannot be moved in the middle of the
game without fair notice and opportunity to address” changes in requirements. Id. at 4. As SDC
puts it, MSCHE “made [the College] jump through all of these hoops only to be told, just as it
was nearing the finish line, that MSCHE would not provide any consents . . . and that the lack of
such relief meant that accreditation had to be denied.” ECF 16 at 5.
In particular, the College complains that the Commission’s decision to withdraw
accreditation was arbitrary and capricious because the Commission made its decision based on
standards that the Commission repeatedly “changed over time,” without affording the College
notice of the change and “due opportunity to respond before an adverse decision.” SDC Facts
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Reply, ECF 39 at 3-4 (emphasis in original). According to SDC, it “produced documented
evidence” on each of the Six Points set forth in the Commission’s December 2013 Report and
the Show Cause Letter, see PI Reply, ECF 16 at 5-7, but the Commission “rejected [the
College’s] proffered documented evidence on considerations other than those specified in the
March 6, 2014 Commission Action,” i.e., the Show Cause Letter. Id. at 6-7. SDC adds: “Such
arbitrariness is precisely what ‘moving the goal posts’ involves.” ECF 39 at 4.
In response, the Commission argues that its standards never changed. Specifically, the
Commission states in its Opposition: “In documenting its decision to revoke accreditation, the
Commission addressed each of the six requirements outlined nine months earlier and found SDC
had presented substantial evidence of compliance with only one” of the six requirements. ECF
15 at 25. Moreover, the Commission asserts that the overall guiding criterion was always
whether the College could show compliance with Standard 3, i.e., whether it could show that it
currently possessed the financial resources necessary to achieve its mission and goals. E.g., id. at
6, 10, 12, 14, 23; see also ECF 14 (transcript of TRO Hearing) at 31, 33. According to the
Commission, it made clear to the College that the Commission was not asking the College to
complete a checklist; rather, the Commission needed the College to show, with documentary
evidence, that, as of November 20, 2014, it was financially viable and also financially
sustainable in the long-term.
In its Reply, the College tucked assorted arguments, framed as objections (see ECF 39) to
the Commission’s proposed findings of fact and law. See ECF 38. There, it asserts that Middle
State’s “policy limiting the time for resolving an accreditation dispute cannot supersede common
law due process.” ECF 39 at 8. This argument appears to depend on the College’s contention
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that the Commission changed its requirements near the end of the review process. The College
argues that, accordingly, “[d]ue process would dictate new time for response following this
refinement of the earlier notice.” Id. at 9. In effect, this would amount to an extension of the
three-year period granted to the College to show compliance with Standard 3. Id. at 8-9.
Additionally, SDC asserts: It “is a denial of fundamental fairness for MSCHE … to deny
[accreditation] solely to justify its own decision-making.” Id. at 10. In this regard, the College
argues: “MSCHE itself has been the only obstacle in the way of the College’s completing” the
Sale/Leaseback Plan “that MSCHE directed [the College] to complete.” Id. at 11. In the
College’s view, if only the Commission had reaffirmed SDC’s accreditation, then the only
contingency preventing the College from closing the contracts underlying its Sale/Leaseback
Plan would have been removed; the sales would have gone through; the IRS would have lifted its
liens on the property; the College would have paid a substantial enough amount to the IRS that
the IRS would have entered into an Offer in Compromise; the College would have been able to
pay off its American Bank Debt and other loans secured by the properties; the College would
have had enough working capital to sustain and expand its operations; and the College’s growing
budget would soon result in regular budget surpluses. Id. at 10-11, 2-3. It concludes: “No
decision-making body with a specific regulatory mission may, consistent with due process,
withhold its consent for no supportable reason other than willfulness.” Id. at 11.
Finally, the College also contends that the appeal hearing violated due process. It argues
that the “College’s showing of compliance at the Appeal Hearing was arbitrarily blocked by the
evidentiary rulings of the [Panel].” ECF 39 at 12; id. at 12-21. And, in a footnote, it vaguely
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implies that the Panel’s use of the same attorney who represented the Commission when it
decided to withdraw accreditation “raises questions.” Id. at 13 n.4.
The Commission has not responded to these last three claims in its written submissions,
presumably because the College first asserted them its Reply to the Commission’s proposed
findings of facts and law.
I will address the College’s “moving goalposts” argument, and then its additional
1. “Moving Goalposts”
As noted, the College argues vigorously that it was denied due process because it was not
afforded notice and an opportunity to respond to arbitrarily changing accreditation criteria. The
contention borders on specious.
Contrary to SDC’s assertions, the issue is not that Middle States was unhappy because
SDC has substantial debt. The matter concerned SDC’s inability to service its debt. The record
overwhelmingly showed that the Commission followed its own procedures as well as federal
regulations, essentially to a tee; that it repeatedly made clear, in writing and through interactive
dialogue, that it was concerned about the College’s financial status, including its prolonged
inability to pay its bills, such as State and federal taxes; and that it ultimately decided to
withdraw accreditation when, within extended timelines set by the Commission and federal
regulations, the College could not execute the turn-around plans the College set for itself.
Middle States afforded SDC ample notice of its decisionmaking criteria and the opportunity to
respond, and there was nothing otherwise arbitrary or capricious about the process.
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The basis for this conclusion is outlined at length in the Factual Background. But, by
way of example, I will recap the evidence with respect to just one of the grounds for the
Commission’s Withdrawal Decision, i.e., the College’s failure to implement a plan to resolve its
liability to the IRS for years of unpaid employee-withholding taxes.22
Representatives of the Commission first learned of, and expressed concern about, the
College’s federal tax liabilities in the Summer of 2011. See, e.g., August 2011 Report, Record of
Appeal, Def.’s Ex. 45 at 123. Notably, the College itself offered as early as August 2011 that it
“expect[ed] to resolve” its debt with the IRS “during fiscal year 2012.” 2011 Response, Record
of Appeal, Def.’s Ex. 45 at 136. Nonetheless, in September 2012—more than one year later—
peer reviewers found that the College had both “current as well as prior year” tax obligations that
were outstanding, and that “negotiations for a repayment schedule” had been “held but not
concluded.” September 2012 Report, Def.’s Ex. 45, Record of Appeal at 2339. At this point—
again, a year after the College itself had represented it would resolve the matter, but did not do
so—peer reviewers asked the College to conduct an external audit to determine “total
outstanding liability to the IRS,” and added that the audit “should be used to develop a
repayment plan for the outstanding obligation and to detail strategies that the College will
implement to remain current with its Federal withholding tax obligations.” Id. at 2340.
In SDC’s response to the September 2012 Report, the College did not dispute the need
for it to complete the audit, or to enter into a repayment plan. Nor is there any evidence that
The College also owed State taxes, and submitted a repayment plan to resolve those
obligations. See Record of Appeal, Def.’s Ex. 45 at 3406 (letter of November 14, 2014, from the
Comptroller of Maryland reporting that the Comptroller received a deposit of $101,000.00 and
acknowledging a repayment plan calling for $5,000 payments per month plus a set percentage of
certain State grant money).
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SDC did not understand the meaning of the directive. See Record of Appeal, Def.’s Ex. 45 at
2347-2356. The College, in fact, expressly accepted “the team’s requirement to have an external
tax audit,” id. at 2350, and represented that it had hired a firm “to negotiate a payment plan
acceptable to the IRS and College as well as monitor the timely deposit of withholding taxes.”
Roughly one year later, in the College’s Second Monitoring Report, submitted in
November 2013, the College again expressly acknowledged the Commission’s concern about
SDC’s tax liabilities. See Record of Appeal, Def.’s Ex. 45 at 2371. The College put that
concern into context, and in its own words, stating, id.: “[The 2012 Warning Letter] came as a
result of the following concerns noted during the site visit and evidence submitted: that the
College would not be able to repay all liabilities including the IRS debt while demonstrating an
ability to remain current with all payments … .”
By November 2013, the College still had not been able “to establish a repayment plan”
with the IRS.
Id. at 2375.
But, it explained that its agent would begin negotiations
“expeditiously,” id. at 2381, and that its “goal” was to “establish an ‘offer and compromise’
settlement plan with the IRS” that would “reduce the amount of penalty and interest that has
accrued.” Id. at 2375. In response, in the December 2013 Report, a second round of peer
reviewers recommended that the College be required to “provide documentation” with its next
report to the Commission, showing “the implementation of a satisfactory plan for the repayment
of unpaid federal and state taxes, interest and penalties” as well as, inter alia, “implement[ation]
[of] a financial planning and budgeting process … that … demonstrates that the institution has
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sufficient resources to carry out its mission and execute its plans.” December 2013 Report,
Record of Appeal, Def.’s Ex. 45 at 2795.
In response to the December 2013 Report, the College again expressly “accept[ed] the
challenges to make improvements where they are indicated,” and agreed to “provide
documentation,” as requested.
2014 Response, Record of Appeal, Def.’s Ex. 45 at 2799.
Nonetheless, ten months later, in September 2014, SDC did not produce evidence of a repayment
plan with the IRS, nor had it paid all taxes that had come due in 2014. See September 2014
Report, Record of Appeal, Def.’s Ex. 45 at 3177 (reviewing 2014 Substantive Report and
reporting that the College “had not executed an agreement with either federal or state [tax]
authorities, and that it had “accrued additional unpaid federal and state payroll tax liabilities in
Further, the College contemporaneously represented, without explanation, that it
believed it would reduce its tax debt, then “in excess of $7M,” to a liability of only $2 million
through an offer in compromise. Id.
As late as November 19, 2014—one day before the full Commission was to make its final
decision on whether to withdraw accreditation—the College provided a letter from the IRS (ECF
1-14), “confirm[ing] that [the College] has established a plan to resolve the outstanding tax
liability . . . and [it had made] an initial payment of $154,962.” Record of Appeal, Def.’s Ex. 45
at 3408. The letter further stated: “The plan includes restructuring the financial obligations of
the College and using the equity in the real estate to pay a substantial portion of the IRS
obligation. Any remaining balance due to the IRS will be addressed through the request for an
Offer in Compromise.” Id. The next day, the College responded to the Commission’s requests
for additional explanation of the plan, with little additional detail. Specifically, Dr. Simmons
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stated: “With the [IRS] we will make long-term payments until such time that we enter into the
sale lease back. At which time we will enter into an offer and compromise.” Def.’s Ex. 45,
Record of Appeal, Def.’s Ex. 45 at 3455 (transcript). He added: “[W]e owe approximately $6 to
$7 million, of which over $2 million of that is penalties. The discussion we’ve had with them
[i.e., the IRS] is that we would offer approximately $2 million to resolve the matter.” Id. at
3456. However, the record is devoid of any assurance or even an indication that the IRS would
accept that sum in satisfaction of the debt.
In its Withdrawal Decision, issued November 21, 2014, the Commission made clear that
its determination that SDC was not in compliance with Standard 3 was “based on” the totality of
the record. See Withdrawal Letter, ECF 1-14 at 1. But, it also gave “examples of the specific
bases for the Commission action,” id. at 2, including the following, id. at 5:
As of the date of the most recent small team visit … , the College was unable to
document the implementation of a plan for the repayment of its outstanding state
or federal taxes. Furthermore, the IRS has placed tax liens on the College’s real
estate holdings. As noted above, the College submitted a letter on November 14,
2014 asserting that it had reached an agreement in this matter with the
Comptroller of the State of Maryland. In that same letter, the College
acknowledged that no repayment plan had yet been accepted by the [IRS]. The
November 19 letter from the [IRS] noted that the College has an interim payment
arrangement but has yet to request an Offer in Compromise to settle the
outstanding debt and remove the liens from the real estate. Beyond the fact that
these unpaid taxes (plus interest and penalties) represent a considerable debt
burden, [the College] did not present the Commission with clear evidence of
compliance with federal and state tax policies, regulations and requirements.
Now, before this Court, based on the language contained in the Show Cause Letter and
the Commission’s explanation in the Withdrawal Decision, the College argues that the
“goalposts” have shifted because, inter alia, it believes the Commission changed its accreditation
criteria by requiring evidence of a payment plan or an Offer in Compromise with the IRS,
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satisfactory to the Commission, when it had only asked for evidence of “a plan,” and which SDC
obtained and produced. See, e.g., ECF 39 (SDC’s reply to MSCHE’s proposed facts) at 17 (“In
its [Withdrawal Decision], MSCHE rejected the [College’s plan] because the College had failed
to present an Offer in Compromise. Nothing in the Commission Action of March 6, 2014
requested for anything more than a plan. To the extent that MSCHE wanted more, this added
showing was a new requirement … .”); Motion Hearing, Testimony of Dr. Simmons, ECF 44 at
42 (“Middle States asked us to develop a plan with the Internal Revenue to pay it back. Middle
States … did not ask us to submit an installment plan.”).
This argument is unpersuasive because it rips the Commission’s tax-plan directive out of
both the specific and general contexts in which it was issued.
Specifically, even if the
Commission’s decision was based on this one issue alone, the College’s own representations
show that it had notice that the Commission was looking for something like an “installment
plan” and/or an Offer in Compromise, because that is what the College said it would provide.
See Record of Appeal, Def.’s Ex. 45 at 2350 (2012 institutional response); Second Monitoring
Report, id. at 2375.
Further, SDC had repeated opportunities to respond to the stated
requirement, and each time, it accepted the Commission’s findings and agreed to provide the
requested documentation. See, e.g., 2014 Response, Def.’s Ex. 45, Record of Appeal at 2799.
Generally, and more important, the College’s own documents show that, at least by
November 2013, it understood the Commission’s basic concern with respect to tax debt to be
“that the College would not be able to repay all liabilities including the IRS debt while
demonstrating an ability to remain current with all payments … .” Second Monitoring Report,
Record of Appeal, Def.’s Ex. 45 at 2371. The conclusory letter from the IRS that SDC provided
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to the Commission on November 19, 2014, stating that the College had a plan, does not in any
way address the longstanding, underlying concern as to the College’s ability to pay its bills.
SDC seems to contend that so long as it had a plan with the IRS, it fulfilled the
requirement set by MSCHE. In other words, SDC suggests that whatever plan it had, regardless
of its terms, automatically satisfied MSCHE’s requirements, because it was a plan. E.g., Motion
Hearing, Testimony of Dr. Simmons, ECF 44 at 42. From SDC’s perspective, Middle States had
no basis to review the merits of a plan, so as to determine its effect on other obligations of the
This position defies logic.
Clearly, the Commission was entitled to know the
parameters of a plan with the IRS and had a duty to consider its terms and its implications for the
College. If the College had a plan, hypothetically, to pay almost all tuition revenue to the IRS,
so as to satisfy the IRS, such a plan would severely affect other components of SDC’s
operations. Therefore, the Commission had to consider the terms of a plan.
In addition, and at an even more basic level, the College’s narrow focus on its
compliance with the Six Points set forth in the Show Cause Letter misrepresents the bigger
picture, i.e., the Commission’s unambiguous and unwavering requirement that the College
demonstrate, within the timeframes set, current compliance with Standard 3.
At the Motion Hearing, the College argued that Standard 3 is worded too vaguely to
provide notice in accord with due process.23 The Fourth Circuit has made clear, however, that
the common law duty of due process does not require an accrediting agency to outline “specific
numerical goals.” Professional Massage, 781 F.3d at 174. Accrediting agencies’ standards
According to my notes, SDC advanced this argument on August 17, 2015, the last day
of the Motion Hearing. The transcript for the final day of the Motion Hearing has not been filed
as of the date of this Memorandum Opinion.
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“must maintain a balance between specificity, to provide notice to those seeking accreditation,
and generality, to allow itself flexibility in accrediting varied institutions ranging over many
different fields and disciplines.”
In sum, I see no evidence that the Commission acted arbitrarily or capriciously by
shifting the “goalposts” set for the College, or that the College was deprived of notice or an
opportunity to be heard with respect to the Commission’s reasons for withdrawing its
accreditation. It is quite clear that the College disagrees with the Commission’s decision, and
that the two sides see the facts presented to the Commission very differently. However, it is not
my place to second-guess the Commission’s conclusion as to what those facts required it to do.
See, e.g., Professional Massage, 781 F.3d at 171.
2. Additional Assertions
As stated, SDC also argued in its Reply to Middle States’s proposed findings of fact and
law that Middle States was arbitrary and capricious in its decision not to extend further SDC’s
deadline for compliance, ECF 39 at 8; that SDC was denied “fundamental fairness” because the
Commission was the only thing standing in the way of its compliance, id. at 10-11; that the
Appeal Panel’s decision to exclude certain newly proffered evidence was arbitrary, id. at 12; and
that counsel representing the Panel had a conflict of interest that tainted the proceeding. Id. at 13
In my view, the College has fallen far short of persuading me that it is likely to succeed
on the merits of Count I based on any of these additional arguments. With respect to the
compliance-deadline, for example, SDC is arguing in effect that the Commission acted
capriciously when it followed its own policy, which limits extensions for good cause to one year.
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See, e.g., Withdrawal Letter, ECF 1-14 at 3. The College’s position is at odds with what the
Fourth Circuit has said due process requires. See Professional Massage, 781 F.3d at 172 (“When
adjudicating common law due process claims against accrediting agencies, courts should focus
primarily on whether the accrediting body’s internal rules provided a fair and impartial
procedure and whether it followed its rules in reaching the decision.”).
With respect to SDC’s argument that the Commission arbitrarily stood in the way of the
College coming into compliance with Standard 3 by refusing to reaffirm accreditation, see ECF
39 at 10-11, again, the record shows that the Commission “provided a fair and impartial
procedure” and “followed its rules in reaching” its decision. SDC had notice of the rules and the
reasons for the withdrawal decision, as well as an opportunity to respond to the Commission’s
concerns before the Commission acted. Perhaps, if the Commission had believed SDC could
accomplish its goals, and had reaffirmed accreditation, and if SDC had successfully sold its
property, and if it had successfully entered into an Offer in Compromise with the IRS, and if it
had successfully expanded enrollment or found some other source of revenue, then perhaps the
College would, within a few years’ time, have had ready access to the resources needed to satisfy
Standard 3. However, again, it is not this Court’s job to assess the likelihood of all of that
happening; it is the Commission’s. See Professional Massage, 781 F.3d at 171. That is the point
of the accreditation process. See id. at 170 (accreditation “provides assurance that the federal
loans and grants are awarded to students who will get the education for which they are paying”).
Finally, SDC’s arguments related to its Appeal Hearing are similarly unavailing. The
Panel’s decision to exclude one of the four pieces of new evidence proffered at the hearing
complied with the evidentiary rules promulgated by the USDE, see 34 C.F.R. § 602.20(h), and
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by the Commission. See Appeal Policy, ECF 15-5 at 4. And, even if the Panel’s attorney had a
conflict of interest, there is no indication that the Panel relied on her advice in any material way.
See Bascuas Testimony, ECF 47 at 144. Accordingly, there is no evidence that the alleged
conflict had any effect on the Panel’s decision.
B. Evidentiary Objections
As stated, at the hearing on SDC’s PI Motion, the Commission introduced forty-eight
exhibits. Many of the exhibits were simply copies of key documents that appear, sometimes
repeatedly, elsewhere in the record before me and before the Commission. However, at the
Motion Hearing, the College objected to the admission of certain exhibits that it argued could not
be considered because they were not before the Commission when it decided to withdraw SDC’s
accreditation. See Motion Hearing, ECF 44 at 16-18, 24-27, 30-31, 50. Counsel for the College
could not say for sure whether the evidence in question was before the Commission at the time
of its withdrawal decision. E.g., id. at 18. Counsel for Middle States contended that he would,
through the course of the hearing, connect the evidence in question to the record before the
Commission through witness testimony. Id. at 18-19.
Towards the end of the Motion Hearing, counsel for SDC narrowed his objections to
defendant’s exhibits 3-5, 7-14, 16. See Motion Hearing, ECF 47 at 200-201. Counsel for
Middle States argued that SDC had “opened the door” to new evidence by introducing its own
new evidence, id. at 203-04; that, in any event, the exhibits should be considered because they
were relevant to “the claim of the college that they were meeting Standard 3 … ,” id. at 202; that
they were relevant to my assessment of the credibility of Dr. Simmons’s testimony, id. at 203-04;
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and that if the Commission did not have them as part of the record, it is because SDC failed to
As discussed above, and as I stated at the outset of the Motion Hearing, my role with
respect to Count I is not to decide for myself whether SDC deserves accreditation, by conducting
a de novo hearing.
It is to decide, inter alia, whether SDC was afforded due process.
Accordingly, I have relied only on evidence relevant to the procedures Middle States employed
and evidence relevant to the basis for its decision. I have not considered defendant’s Motion
Hearing exhibits numbered 3-5, 7-14, and 16.
B. Motion to Dismiss Counts II and III
Middle States urges the Court to dismiss Counts II and III, pursuant to Fed. R. Civ. P.
12(b)(6), for failure to state a claim. MTD, ECF 27-1.25 With respect to Count III, for breach of
contract, defendant argues the claim fails as a matter of law under the Fourth Circuit’s reasoning
in Professional Massage, supra, 781 F.3d at 181, because SDC has not adequately alleged the
existence of a contract. ECF 27-1 at 4-5. Middle States also contends that “any facts pertaining
to the formation, terms, performance, consideration, or enforcement of a purported contract” are
“[n]oticeably absent” from the Complaint. Id. at 5 (citing Ashcroft v. Iqbal, 556 U.S. 662, 677
(2009)). Further, Middle States argues that Count II, alleging violation of 42 U.S.C. § 1981, fails
for the same reason, because the existence of a contractual interest is an element of the claim. Id.
at 5-6. Alternatively, Middle States argues that Count II must be dismissed because SDC has not
According to my notes, MSCHE advanced this argument on August 17, 2015. As
noted, I do not have a transcript for that date.
The motion does not address Count IV (negligence). Therefore, that count remains
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alleged facts sufficient to show plausibly that Middle States discriminated against it on the basis
of race. Id. at 6-7. The College opposes the MTD (MTD Opposition, ECF 40), and Middle
States replied (MTD Reply, ECF 45).
The Complaint does not specify in which state SDC believes the contract was formed, or
otherwise clarify which State law applies. Based on the arguments put forth at the hearing on the
PI Motion, it appears that the parties believe Maryland contract law applies.26 As noted, the
parties did not argue the MTD during the hearing conducted on the PI Motion.27
However, during the Motion Hearing, and after the parties completed briefing on the
MTD, I asked Middle States to point the Court to those parts of the Complaint it believed
showed SDC’s failure to allege the existence of a contract. Counsel for Middle States responded
that the only contract alleged is the accreditation relationship between SDC and Middle States. It
also claimed that this claim fails as a matter of law because the Fourth Circuit made clear in
Professional Massage that the accreditation relationship was not contractual under Virginia law;
and that Maryland and Virginia law are the same in relevant part.
The parties have not addressed choice of law. See Chattery Int’l, Inc. v. Jo Lida, Inc.,
WDQ-10-02236, 2012 WL 14 54158, at *3 n.10 (D. Md. Apr. 24, 2012) (“Federal courts with
supplemental jurisdiction over a state law claim apply the choice of law rules of the forum
state.”); Baker v. Antwerpen Motorcars Ltd., 807 F. Supp. 2d 386, 389 n.13 (D. Md. 2011)
(same). See also Cleaning Auth., Inc. v. Neubert, 739 F. Supp. 2d 807, 820 (D. Md. 2010)
(“‘Choice-of-law analysis becomes necessary . . . only if the relevant laws of the different states
lead to different outcomes.’”) (citation omitted). As to contract claims, Maryland applies the law
of the state in which the contract was formed (“lex loci contractus”), unless the parties to the
contract agreed to be bound by the law of another state. See, e.g., Am. Motorists Ins. Co. v.
ARTRA Group, Inc., 338 Md. 560, 573, 659 A.2d 1295, 1301 (1995); TIG Ins. Co. v.
Monongahela Power Co., 209 Md. App. 146, 161, 58 A.3d 497, 507 (2012), aff'd, 437 Md. 372,
86 A.3d 1245 (2014).
The Commission stated it believed the Court could decide the MTD based on the
pleadings alone. The College stated it was not prepared to present arguments on the MTD, but it
did not request a separate hearing or object to the Commission’s request.
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1. Standard of Review
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) tests the adequacy of a complaint. To
survive a Rule 12(b)(6) motion, a complaint must satisfy the pleading standard articulated in Fed.
R. Civ. P. 8(a)(2), which requires a “short and plain statement of the claim showing that the
pleader is entitled to relief.” The purpose of the rule is to provide the defendant with “fair
notice” of the claim and the “grounds” for entitlement to relief. Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555-56 & n.3 (2007). That showing must consist of more than “a formulaic recitation
of the elements of a cause of action” or “naked assertion[s] devoid of further factual
enhancement.” Iqbal, supra, 556 U.S. at 678 (internal citations omitted); see Painter’s Mill
Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013).
To defeat a motion under Rule 12(b)(6), a complaint “must plead facts sufficient to show
that [the] claim has substantive plausibility.” Johnson v. City of Shelby, Miss., ____ U.S. ____,
135 S. Ct. 346, 347 (2014); see Iqbal, 556 U.S. at 684 (“Our decision in Twombly expounded the
pleading standard for ‘all civil actions’ . . . .”) (citation omitted); Twombly, 550 U.S. at 570; see
also Epps v. JP Morgan Chase Bank, N.A., 675 F.3d 315, 320 (4th Cir. 2012); Simmons v.
United Mortg. & Loan Inv., LLC, 634 F.3d 754, 768 (4th Cir. 2011). If the “well-pleaded facts
do not permit the court to infer more than the mere possibility of misconduct,” the complaint has
not shown that “‘the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (citation omitted).
In reviewing a Rule 12(b)(6) motion, a court “‘must accept as true all of the factual
allegations contained in the complaint,’” and must “‘draw all reasonable inferences [from those
facts] in favor of the plaintiff.’” E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d
435, 440 (4th Cir. 2011) (citations omitted); Kendall v. Balcerzak, 650 F.3d 515, 522 (4th Cir.
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2011), cert. denied, ____ U.S. ____, 132 S. Ct. 402 (2011). The complaint must contain
sufficient factual detail to “nudge[ ] [the plaintiff’s] claims across the line from conceivable to
plausible.” Twombly, 550 U.S. at 570; accord Iqbal, 556 U.S. at 680.
Dismissal “is inappropriate unless, accepting as true the well-pled facts in the complaint
and viewing them in the light most favorable to the plaintiff, the plaintiff is unable to ‘state a
claim to relief . . . .’” Brockington v. Boykins, 637 F.3d 503, 505-06 (4th Cir. 2011) (citation
omitted). But, the court need not accept unsupported or conclusory factual allegations devoid of
any reference to actual events. See Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009).
Nor must it accept legal conclusions couched as factual allegations, Iqbal, 556 U.S. at 678, or
legal conclusions drawn from the facts. See Papasan v. Allain, 478 U.S. 265, 286 (1986);
Monroe v. City of Charlottesville, 579 F.3d 380, 385-86 (4th Cir. 2009), cert. denied, 559 U.S.
2. Count III (Breach of Contract)
According to SDC, see ECF 40 at 4, the Complaint sufficiently alleges a breach of
contract, as follows, ECF 2:
82. By applying to receive accreditation from MSCHE and MSCHE’s
agreement to undertake the accreditation process, [SDC] and MSCHE formed a
83. Through the acts set forth above, MSCHE has breached the contract
by failing to apply its standards in a way consistent with the warning notice it
earlier provided to the College. By departing from the terms of the expectations
of [SDC] articulated in those warning terms in order arbitrarily to find an [sic]
level of performance by [SDC] to be lacking, MSCHE breached its contract with
[SDC] to perform its oversight in a fair and even-handed manner. Such
performance, MSCHE failed to provide.
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At paragraph 74, the Complaint alleges that the College “operates within a contractual
relationship with” the Commission. It adds: “In exchange for the fees it pays”, the College
“secures the accrediting agency’s good faith oversight of its operation and certification of that
operation to third parties such as students and the USDE.” Id.
As stated, in its MTD Middle States argues that, under the reasoning of Professional
Massage, supra, the accreditation relationship is not a contractual relationship, as a matter of
law. Specifically, the Commission contends, ECF 27-1 at 4:
The Fourth Circuit has recently held that application for accreditation and
use of accreditation standards do not create a binding contract between the
accrediting agency and the educational institution. [Professional Massage, 781
F.3d at 181.] Specifically, accreditation standards “do not constitute a binding
contract between the agency and the accredited educational institutions because
the [commission] can alter the alleged ‘contract’ at will, and, thus, is not bound by
its terms.” Id.[ ] “[The accreditation body has] an unquestionable right to revoke
[a school’s] accreditation if compliance with the Standards was not demonstrated.
Exercising one’s lawful rights is not a breach of contract.” Id. at 181. In fact, a
school does not ‘apply’ to ‘join’ an accreditation agency. Instead a school
‘want[s] a key that would unlock the federal Treasury. An accrediting agency is a
proxy for the federal department whose spigot it opens and closes.” Chicago Sch.
of Automatic Transmissions, Inc. v. Accreditation Alliance of Career Sch. &
Colleges, 44 F.3d 447, 449 (7th Cir. 1994).
Middles States also maintains that the Complaint fails sufficiently to allege the existence
of a contract because it lacks “any facts pertaining to the formation, terms, performance,
consideration, or enforcement of a purported contract”. Id. at 5.
In response, SDC argues, in effect, that Middle States reads Professional Massage too
broadly. SDC correctly observes that the Fourth Circuit’s reasoning, although broadly stated,
was specifically applied to the terms of different accreditation standards set by a different
accrediting agency at issue in the case sub judice, and under a different State’s common law. See
ECF 40 at 6; see also Professional Massage, 781 F.3d at 181. SDC further argues that it “does
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not contend that the denial of accreditation constitutes a breach of contract. Rather, it reads an
implied covenant of good faith in the ‘contractual relationship’ alleged between the parties and
contends that other than even-handed treatment of [SDC] by MSCHE constitutes a breach.”
ECF 40 at 6.
In reply, the Commission argues that “the law in Maryland and Virginia are [sic]
identical” with respect to the “basic, fundamental point of contract law” relied upon in
Professional Massage. ECF 45 at 2. Moreover, in response to SDC’s explanation that the
Complaint alleges Middle States breached an implied covenant of good faith, see ECF 40 at 6,
Middle States argues that “Maryland law does not recognize an independent cause of action for
breach of the implied contractual duty of good faith and fair dealing.” ECF 45 at 2 (citing cases).
In my view, SDC is correct that the Commission reads Professional Massage too
broadly. Professional Massage does not say that any breach of contract claim brought by an
institution of higher education against an accrediting agency on the basis of the accreditation
relationship fails as a matter of law. Rather, it said that the specific terms of the defendantagency’s accreditation standards made clear that the agency “had an unquestionable right to
revoke” an institution’s accreditation “if compliance with the Standards was not demonstrated.”
781 F.3d at 181.
Nonetheless, the Commission is also correct that the Complaint does not plausibly allege
the existence of a contract, or “any of the necessary bases for a breach of contract claim.” ECF
27-1 at 5. Under Maryland law, it is “‘well-established’” that “‘a complaint alleging a breach of
contract ‘must of necessity allege with certainty and definiteness facts showing a contractual
obligation owed by the defendant to the plaintiff and a breach of that obligation by defendant.’”
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RRC Northeast, LLC v. BAA Maryland, Inc., 413 Md. 638, 655, 994 A.2d 430, 440 (2010)
(quoting Continental Masonry Co. v. Verdel Construction Co., 279 Md. 476, 480, 369 A.2d 566,
569 (1977)) (emphasis in original). Further, it “is universally accepted that a manifestation of
mutual assent is an essential prerequisite to the creation or formation of a contract.” Cochran v.
Norkunas, 398 Md. 1, 14, 919 A.2d 700, 708 (2007). “Manifestation of mutual assent includes
two issues: (1) intent to be bound, and (2) definiteness of terms.” Id.
Here, the Complaint fails to allege facts that plausibly show the parties agreed to any
particular terms, and/or that the parties intended to be bound by the unidentified terms, and/or
that Commission breached a particular one of the unidentified terms.
Indeed, the College
conceded in its response that the Complaint does not allege breach of any particular term of the
“contract”: SDC argues only that it is relying on an implied covenant of good faith, without
explaining what contractual term or promise Middle States failed to perform in good faith. See
ECF 40 at 6. At best, the Complaint alleges that Middle States was supposed “to perform its
[accreditation] oversight in a fair and even-handed manner”, and that Middle States “failed to
provide” “[s]uch performance”. ECF 2 ¶ 84. Although it is conceivable that an accrediting
agency could contract to perform accreditation, the Complaint does not contain sufficient factual
detail to “nudge” SDC’s claim “across the line from conceivable to plausible.” Twombly, 550
U.S. at 570.
Accordingly, I will grant defendant’s motion to dismiss Count II. But, I will grant
plaintiff leave to amend the Complaint, provided that any amended complaint alleges a specific
contract, oral or written, with definite terms mutually agreed to by the parties.
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3. Count II (42 U.S.C. § 1981)
As stated, the Commission argues, inter alia, that Count III of the Complaint also fails to
state a claim upon which relief may be granted, because it fails to allege sufficiently the
existence of a contract. ECF 27-1 at 5-6.
Section 1981(a) of Title 42 provides, in part:
All persons within the jurisdiction of the United States shall have the same right
in every State and Territory to make and enforce contracts, to sue, be parties, give
evidence, and to the full and equal benefit of all laws and proceedings for the
security of persons and property as is enjoyed by white citizens … .
Subsection (b) further defines what it means to “make and enforce contracts.”
provides: “For purposes of this section, the term ‘make and enforce contracts’ includes the
making, performance, modification, and termination of contracts, and the enjoyment of all
benefits, privileges, terms, and conditions of the contractual relationship.” Subsection (c) states
that the “rights protected by this section are protected against impairment by nongovernmental
discrimination and impairment under color of State law.”
Generally, to state a § 1981 claim, the plaintiff must show that “he or she is a member of
a racial minority; (2) the defendant intended to discriminate on the basis of race; and (3) the
discrimination concerned one or more of the activities protected by the statute.” Buchanan v.
Consol. Stores Corp., 125 F. Supp. 2d 730, 734 (D. Md. 2001). Thus, “[t]o prove a § 1981 claim
... a plaintiff must ultimately establish both that the defendant intended to discriminate on the
basis of race, and that the discrimination interfered with a contractual interest.”
Elizabeth Arden Salons, Inc., 456 F.3d 427, 434 (4th Cir. 2006). As to the latter requirement, “a
plaintiff cannot state a claim under § 1981 unless he has (or would have) rights under the
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existing (or proposed) contract that he wishes ‘to make and enforce.’” Domino’s Pizza, Inc. v.
McDonald, 546 U.S. 470, 479-80 (2006).
In this case, I have already determined that the Complaint does not plausibly allege the
existence of a contract. For the same reason, the Complaint fails to state a claim for relief under
§ 1981. Accordingly, I will grant defendant’s motion to dismiss Count II, with leave to amend
the Complaint, provided that any amended complaint alleges a specific contractual interest.
Sojourner-Douglass College, its faculty, and alumni have much for which to be proud.
As put by a Maryland State Senator, for example, SDC’s “impact on the lives of families and
communities in Baltimore city and the surrounding counties has not gone unnoticed.” Record of
Appeal, Def.’s Ex. 45 at 3107 (letter dated Aug. 18, 2014 from Md. Sen. Joan Carter Conway to
Similarly, U.S. Representative Elijah Cummings said in a letter to the
Commission dated June 24, 2015, ECF 1-4:
For more than 40 years Sojourner-Douglass has served thousands of Marylanders
with a quality education. This is a unique institution, begun from a heartfelt,
grassroots effort to better the conditions of African American adults who had
given up all hope of attending college … . Sojourner gave so many a renewed
hope that they could rise above what others had determined they could be, and
what they even believe about themselves.
To be sure, the College met the Commission’s Standards with respect to the quality of its
programs and teaching. Nonetheless, federal regulations oblige the Commission to enforce
financial standards designed to ensure that SDC, like any other accredited institution, can afford
to keep its doors open long enough for current and newly entering students to complete their
degrees. See Klinman Testimony, ECF 44 at 124 (“The purpose of the financial standards is …
assurance that when a student enrolls in a program … , that there is evidence of financial
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wherewithal so that the student has … the opportunity to complete [the] educational program,
because students frequently incur indebtedness … to undertake [the] program, and should the
institution not have sufficiently solid financial bases, that institution may not be able to award
that degree three years down the road, five years down the road.”).
Perhaps most important, the question before me is a narrow one: Is the College likely to
succeed on its claim that the Commission failed to afford the College due process in the manner
of its enforcement of its standards. For the reasons discussed above, I am of the view that the
College is not likely to succeed on the merits. Therefore, I will deny SDC’s motion for
preliminary injunction (ECF 11).
Further, for the reasons discussed, supra, I will grant the MTD (ECF 27), without
prejudice, and with leave to amend.
A separate Order follows, consistent with this Memorandum.
Date: August 27, 2015
Ellen Lipton Hollander
United States District Judge
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