Wards Corner Beauty Academy v. National Accrediting Commission of Career Arts & Sciences
Filing
153
OPINION AND ORDER - Having carefully examined the remoteness of Mr. Bouman's interest and the extent/degree of such interest, judgment is to be entered infavor of Defendant. Signed by District Judge Mark S. Davis on 2/12/18. (afar)
UNITED STATES DISTRICT COURT
FEB 1 2 2018
EASTERN DISTRICT OF VIRGINIA
Norfolk Division
WARDS CORNER BEAUTY ACADEMY,
Plaintiff,
V.
Civil No.
2;16cv639
NATIONAL ACCREDITING COMMISSION
OF CAREER ARTS & SCIENCES,
Defendant.
OPINION AND ORDER
This
Opinion
and
Order
follows
hearing/bench
trial
withdrawal
of
Plaintiff's
("Wards
and
cosmetology
academy.
barbering
trial
transcript,
associated
a
with
two
day
evidentiary
Defendant's
Corner")
("NACCAS")
accreditation
With
the
benefit
as
of
a
the
the parties have submitted proposed findings
of fact and conclusions of law.
Therefore,
the matter is ripe
for review.
I.
In November of 2014,
Report
to
NACCAS,
Findings of Fact
Wards Corner submitted its 2013 Annual
self-reporting
that
below the required threshold of 50%.
Defendant
outcomes
informed
Plaintiff
monitoring"
and
that
that
it
its
graduation rate
In early December,
was
Plaintiff
being placed on
had
bring its graduation rate into compliance.
within
the
twelve-month
window.
Plaintiff
twelve
was
2014,
"low
months
to
In the fall of 2015,
submitted
its
2014
annual report to NACCAS.
Upon review of such submission, NACCAS
determined that Plaintiff failed to demonstrate a compliant 2014
graduate
rate.
NACCAS
opportunity to submit
nevertheless
supplemental
allowed
Plaintiff
one
information in an effort
demonstrate an accurate and compliant 2014 graduation rate,
after requesting and receiving an extension.
a
supplement
held a
in January of 2016.
Defendant
determined
withdrawn.
that
Plaintiff's
the NACCAS appeals process.
2016,
NACCAS
and at such meeting.
accreditation
The withdrawal decision was
and
Plaintiff submitted
In February of
week-long "Commissioner's Meeting,"
to
should
be
later affirmed through
While the instant lawsuit initially
challenged several aspects of the withdrawal decision,
the sole
issue addressed at the evidentiary hearing was whether Plaintiff
was
denied
its
accreditation
Michael
common
review
Bouman
law
right
process
("Mr.
as
to
"fair
a
a
Bouman"),
result
procedure"
of
NACCAS
the
in
the
fact
that
Commissioner
that
participated in such process, was an executive and part owner of
a competitor cosmetology academy.
NACCAS'
Commission
is
made
up
of
thirteen
Commissioners,
including seven Commissioners that are owners or administrators
of
schools
includes
in
fields
of
cosmetology
Commissioners
"Professional
training
and
representing
Services,"
within NACCAS'
barbering),
each
of
"Academics,"
as
the
and
scope
well
as
following
"Public
{which
two
areas:
Interest."
During the relevant timeframe,
Commission,"
and he
was
one
Mr.
of
Bouman was the "Chair of the
the
seven Commissioners
in
the
school owner/administrator category as he is employed by Empire
Education Group,
Inc.
("EEG"), a privately held corporation that
operates cosmetology schools in twenty-one states.
NACCAS'
1.
written Code of Ethics states as follows:
INTEGRITY OF NACCAS
-
Each
commissioner,
officer
and employee of NACCAS is expected to respect the
integrity of NACCAS.
Accordingly, no commissioner,
officer or employee of NACCAS should be subject to
influences, interests or relationships which conflict
with the best interest of NACCAS and its objectives
and
purposes
as
set
forth
in
its
Articles
of
Incorporation and By-laws.
3.
CONFLICT
OF
INTEREST
-
A
conflict
of
interest
exists when the duty of loyalty to NACCAS, including
the furtherance of its objects and purposes as set
forth in its Articles of Incorporation and By-laws,
can be prejudiced by actual or potential personal
benefit
officer,
from
and
investment,
another
source.
employee
interest
is
or
Each
expected
association
commissioner,
to
which
avoid
any
interferes
with the independent exercise of judgment in the best
interest of NACCAS and those persons for whose benefit
NACCAS was formed. Disclosures of personal interests
or
other
circumstances
which
might
constitute
conflicts of interest are to be reported promptly by
the commissioner, officer, or employee to the Chairman
of
NACCAS
for
resolution
in
the
manner
best
suited
to
the interests of NACCAS and such individual.
6.
ABUSE
OF
POSITION
-
No
commissioner
shall
abuse
her position to gain for himself,
herself or
improper personal, material or pecuniary benefits.
his
or
others
Joint Ex. 3.
In addition to the above quoted excerpts,
unquoted
portions of the Code of Ethics provide specifically enumerated
conflicts
which
conflict
Id.
of
exist,
interest
These
in
and
"the
additional
Commissioner
from
order
to
control
perception
provisions
participating
of
against
such
expressly
in
voting
both
a
conflicts."
preclude
or
a
discussion
involving any school owned or operated by the Commissioner,
any
school
in
the
state
and
any
school
in
the
same
headquarters of
the
in which
state
as
Commissioner's i n s t i t u t i o n .
the
the
Commissioner
corporate
lives,
Id.
Based on the NACCAS conflict of interest policy, Mr. Bouman
was
automatically disqualified from participating in voting or
discussions involving any EEG school,
Montana
or
conflicts,
basis
Pennsylvania.
Mr.
when he
school,
such
Bouman
had
as
In
would
some
when
he
addition
recuse
known
as well as any schools in
himself
interest
had
to
prior
or
his
on
a
automatic
case-by-case
relationship
contact
with
a
with a
school
regarding EEC's possible acquisition of such school.
Turning to the facts surrounding the competitive "conflict"
alleged
by
cosmetology
twelve
Corner's
Plaintiff
in
school
Virginia
miles
in
from
cosmetology
the
this
case,
Beach,
Norfolk,
and barbering
in
2013,
Virginia,
Virginia
academy.
EEG
opened
a
approximately
location
When
of
Wards
identifying
this
location,
school,
a
and
key
any
factor
transportation because
rely
on
other
public
locations
for
EEG
60-65%
is
of
Bouman,
and 24 years old,
to
EEG opens
accessibility
EEG's
transportation
described by Mr.
where
students,
commute
to
to
a
new
public
companywide,
school.
As
the average EEG student is between 19
and the majority of students are single women
with dependent children, a fact that can further complicate such
students'
ability
to
arrive
to
opened
school
its
on
time
through public
transportation.
When
Corner
EEG
was
first
operating
both
its
Virginia
Beach
long-established
School,
Norfolk
Wards
school
and a second more recently established school in Virginia Beach.
Wards
Corner's
miles
from
December
location,
the
of
Virginia
location
2014,
with
Beach
such
Wards
school
where
was
EEG
opened
Corner
closure
due
closed
in
part
approximately
its
its
to
school.^
Virginia
the
fact
three
In
Beach
that
Plaintiff's lease was expiring as the building where the school
^ Wards Corner's Virginia Beach location opened in 2004 when Wards Corner
purchased an unaccredited Virginia Beach beauty school.
In 2006, the
Plaintiff's Virginia Beach school moved to a different location in
Virginia Beach, where the school remained until its closure at the end of
2014.
Wards Corner made the decision to expand into Virginia Beach
because the opportunity was available, and while the President of Wards
Corner viewed the two locations as competing with each other "in a
way,"
he viewed the opening of the second school as "just expanding into a
larger market."
Tr. 26, 40-41.
Wards Corner's Chief Operating Officer
("COO") characterized the opening of the Virginia Beach location as an
opportunity to "expand within the market," noting that it would be more
convenient for students in that area, but she also testified that opening
the Virginia Beach school had no impact on the number of enrollments at
the Norfolk school.
Tr.
72-74.
was
located
housing.
most
being
torn
down
and
turned
the
to
students
go
dropped out.^
students
to
transferred
EEG's
to
Virginia
residential
the
that
Beach
did
not
transfer
to
school,
the
they rode
trek from Virginia Beach to Norfolk."
Although
School,
and
a
some
few
just
the
parties
evidentiary
strongly
hearing
Norfolk
location
the bus and
it
had
is
"a
Logan Depo. 13.
dispute
competition between Wards Corner and EEG,
the
Norfolk
A former Wards Corner manager believed that those
transportation issues because
at
into
When Wards Corner closed its Virginia Beach location,
of
decided
was
the
degree
of
the evidence presented
unquestionably
established
that
Plaintiff's Norfolk school and EEG's Virginia Beach school are
"competitors" at some level.
the
contiguous
Portsmouth,
cities
Suffolk,
media market.
of
The Hampton Roads area,
Norfolk,
Hampton,
Television,
and
radio
Virginia
Newport
and
local
all extend across city lines into what,
a
single
factors
metropolitan
impacting students
EEG's schools have a
each
school
lacking
area.
can
access
that
substantial
attract
to
That
Chesapeake,
News,
is
online
said,
the
a
single
advertising
in some ways,
resembles
socioeconomic
attend both Wards
Corner's and
impact on the area from which
students,
private
Beach,
including
with
many
transportation.
of
the
Such
students
students
^ Because Wards Corner knew that the Virginia Beach location was going to
close at the end of 2014, it stopped enrolling students at that location
and its enrollment decreased to only approximately twenty students at the
time it closed.
Logan Depo. 8-9.
naturally favor a
school in close proximity to their homes due
to the constraints involved in relying on public transportation,
particularly for those students with young children.
because
the
developing
include
cosmetology
a
clientele
friends
associated
and
with
education
during
the
family,
attending
process
period
there
a
school
also
of
are
Moreover,
involves
instruction,
additional
near
an
to
benefits
individual's
residence.
During
through
the
timeframe
February
of
cosmetology
schools
(Norfolk),
EEG
(Newport
in
the
(Virginia
Rudy
or
Virginia
Wards
Beach)
was
in
one
were
this
area:
Academy
and
Wards
(located
was
2016,
Corner
Institute
either
Beauty
the
(2015
accredited
Beauty
Suffolk
school
case
five
Regency
2015
of
to
Roads
and
Norfolk
Corner
Virginia Beach school
Hampton
Kelly
Plaintiff's
operated
there
Beach),
&
(Suffolk).^
by
relevant
2016),
News),
Chesapeake
most
only
whereas
in
Academy
school
EEG's
approximately ninety schools
operated by EEG in numerous states.^
Mr. Bouman estimated that
EEG's Virginia Beach school accounted for slightly more than IJ^
percent
of
EEG's
total
revenue,
with
such
school
expected
to
generate a profit of approximately $50,000 to $60,000 a year.
^ Suffolk Beauty Academy is co-owned by the President of Wards Corner,
with day-to-day operations of the Suffolk school handled by his ex-wife.
'' The number of schools operated by EEG fluctuated over the relevant time
period, but was always roughly one hundred schools located in over twenty
states.
In early 2016 when Wards Corner's accreditation was being
evaluated
by
the
NACCAS
Commission,
Mr.
Bouman
was
EEG's
"President and COO" and earned an annual salary of approximately
$260,000.
than 1%)
Additionally, Mr. Bouman owned a small fraction (less
of EEC s stock that he had acquired through an employee
stock program.
Mr. Bouman acquired his stock through executing
a promissory note,
and in 2016,
the stock that Mr. Bouman owned
was worth less than the balance owed on the note.®
Bouman
testified
that,
as
of
February
Although Mr.
2016,
he
was
confused/ignorant as to whether he was actually a legal "owner"
of
EEG
never
{because he never paid out-of-pocket
personally
misconceptions
possessed
do not
the
change
fact a partial "owner" of EEG.
personal financial
stock
the
He
fact
for
the
certificates),
that
Mr.
stock and
any
such
Bouman was
in
therefore had at least some
interest in EEG performing well because his
gain or loss on the company stock would presumably be determined
(at some point in the future) based on EEG's performance/value.
In addition to his salary and small ownership interest, Mr.
Bouman had in the past received bonuses from EEG.
Specifically,
he received an incentive bonus of over $137,000 in September of
2013
based
See PI.
Ex.
on
92.
company-wide
performance
Also paid to Mr.
for
fiscal
year
2012.
Bouman in September of 2013
® The original balance on the note was approximately $300,000, and while
payments were not required, and were not made,
note.
interest did accrue on the
was a $10,000 bonus representing a 2012 "Christmas" bonus.
Id.
Due
Mr.
to
Bouman
an
overall
did
bonuses,
not
decline
receive
although
he
in
any
did
the
subsequent
receive
bonuses of approximately $5,000,
December of
2014.
kind in 2015,
EEG's
Id.
cosmetology
Mr.
incentive/performance
two
additional
Christmas
paid in December of
2013
Bouman received no bonuses
and as of February 2016,
performance
industry,
and performance
of
and
any
being very familiar with
goals,
Mr.
Bouman was
aware
that it was very unlikely that he would receive a bonus in that
year
(and he ultimately did not receive a bonus in 2016) .
Mr.
Bouman credibly testified that EEG, and many other companies in
the
industry,
had been
less
profitable
for
several
years
due
primarily to changes in government policy regarding the issuance
of student loans.®
Turning
to
participated
in
Wards
the
2016,
week-long
Mr.
NACCAS
Bouman
meeting,
Mr.
Bouman
presided
over
which occurred late in the week,
and moderating
the
discussion.
was
present
Commission Meeting
Corner's accreditation was withdrawn.
Commission,
items
February
He
As
the
and
where
Chairman of
full
the
Commission
by calling the agenda
did not
vote
on any
® Such decline in the industry also resulted in EEG ending its salary
merit increases for its five senior managers (which included Mr. Bouman)
sometime aroxand 2013.
Mr. Bouman explained that because the senior
managers were already so highly compensated, EEG made the decision to take
such managers out of the merit pool to allow for larger salary increases
for EEG's other 1,500 employees.
The year after such decision was made,
EEG elected to also take its sixteen vice presidents out of the merit
increase pool.
individual school actions at the meeting of the full Commission,
but
he
was
After Mr.
available
to
Bouman called the
Commissioner
presented
discussion and voting,
the
vote
Commission
the
in
the
Wards
matter
event
there
Corner agenda
to
the
full
was
a
item,
tie.
another
Commission
for
and at the conclusion of such discussion,
unanimously
voted
(11-0)
to
withdraw
Wards
Corner's accreditation.
Although
Mr.
Bouman
Corner's accreditation,
the
full
Commission,
not
"vote"
to
personally
participated
of
four
full
NACCAS
in
Commission meets
"File
Review
upcoming agenda items.
and a
to vote on school actions,
Teams"
meets
to
review
one
several
Each of the NACCAS File Review Teams is
the same three Commissioners,
together
potential
investigate
recommendation
to
present
week.
of
a
Members
the
day or two
an established group of
to
Ward
reviewing
As explained in detail in open court,
NACCAS annual meeting lasts for several days,
before the
withdraw
in the days leading up to the meeting of
he
Wards Corner's file.
did
File
to
the
Review
action
full
Team
items
and
Commission
do
not
know
who work
develop
later
which
a
that
school
actions they will work on until they meet on the designated day
of the multi-day Commission meeting
(the files
are assigned by
NACCAS staff).
As Chairman of the Commission,
to any of the four NACCAS file
Mr.
Bouman was not assigned
review teams.
10
However,
because
File Review Team Two was
the
February
meeting,
missing one
Mr.
member of such team.
Bouman
of
its
filled
three members
in
as
a
at
substitute
Wards Corner's file was assigned to File
Review Team Two.
Mr.
of
any
specific discussions that Team Two had about Wards Corner,
but
he
Bouman
acknowledges
some part of
the
Wards
includes
does
that
not
he
have
was
limited
"Action
a
"School
information,
"Academic
Owner
but
a
the
room
a
two
does
Mr.
page
for
at
least
Bouman signed
document
expressly
that
recommend
Such form was signed by Mr. Bouman
Commissioner,"
Commissioner"
in
recollection
Additionally,
Form,"
withdrawal of accreditation.
as
clear
present
the discussion.
Corner
a
"Public
well as two NACCAS "Staff Members."
and
was
also
Interest
signed
by
Commissioner,"
Joint Ex.
17.
an
as
During his
time acting as a substitute member of File Review Team Two, Mr.
Bouman was vinaware of Wards Corner's proximity to EEC's Virginia
Beach School, and he had no prior dealings with Wards Corner.'
Tr.
251-52,
"conflict,"
from
262,
Mr.
reviewing
264.
Bouman
such
Being
never
file,
and
\inaware
even
of
the
considered
existence
recusing
recommended withdrawal
of
a
himself
based on
the merits of the f i l e he examined.
' Overall, the Court found Mr. Bouman's testimony to be very credible, to
include his testimony that he joined File Review Team Two with good
intentions.
Mr. Bouman's testimony revealed that he performed all aspects
of his role as a NACCAS Commissioner with honesty and integrity.
11
As noted above,
accreditation,
Plaintiff
through NACCAS'
the
instant
after the full Commission voted to withdraw
unsuccessfully
appeal procedures.
lawsuit
was
filed.
appealed
Subsequent
This
Court
such
ruling
to the appeal,
previously granted
partial summary judgment in favor of Defendant, but the disputed
evidence and conflicting inferences associated with Mr. Bouman's
interest
in the outcome of Wards Corner's accreditation decision
required an evidentiary hearing/bench trial.
II.
Conclusions of Law & Analysis
A. Legal Standard for Judicial Review
of an Accreditation Decision
The
Fourth
Training
Center,
Schools
Circuit's
Inc.
v.
opinion
781
F.3d 161
governing
the
instant
explained
in
Prof'l
private entities,
to the strictures
Id.
at 169.
and
"wield
employ
fair
simplest
might
accreditation
of
Career
provides
action.
"[a]ccreditation
the
As
agencies
are
and as such are not subject
because such agencies are
power
say,"
at 169-70
terms,
2015)
Massage
of constitutional due process requirements."
procedures
Id.
Alliance
(4th Cir.
not state actors,
enormous
some
members."
Massage,
However,
power,
Professional
Accreditation
& Colleges,
standard
in
the
they
when
over
owe
institutions—life
a
making
"common
to
12
law duty
decisions
(citations omitted).
right
"quasi-public"
"fair
and
death
...
affecting
to
their
Distilled to the
procedure"
requires
accreditation agencies
2 William
A.
Education
§
federal
"to play it straight."
Kaplin
&
15.3.2.2
Barbara
(5th ed.
A.
Lee,
2013)
Id.
The
at 170;
Law
(explaining
of
that
see
Higher
state
or
"common law" has been applied by various courts both to
require an accreditation agency to "follow its own rules" and to
follow
"a
dealings
variously
with
requirement
described
members,"
seems
institutions
with
to
standard
and
be
that
that
procedural
of
the
the
due
fairness
in
"primary
agency
process
their
'fairness'
must
provide
before
denying,
withdrawing, or refusing to renew their accreditation").
In
addition
to
establishing
accreditation agencies,
the
legal
duty
owed
by
Prof'l Massage defines the scope of the
Court's inquiry and the degree of deference that is owed to an
accreditation decision.
Importantly,
"recognition that
...
a
common law duty exists does not authorize courts to vindertake a
wide-ranging
agencies."
scope
of
review
of
decisionmaking
Prof'l Massage,
the
fairness
by
781 F.3d at 170.
review
authorizes
accreditation
Rather,
reviewing
the proper
courts
"to
consider only whether the decision of an accrediting agency such
as
[NACCAS]
discretion
is
and
evidence."
Id.
omitted).
A
arbitrary
whether
at
171
district
the
and
unreasonable
decision
(internal
court
is
is
or
based
an
on
quotation marks
therefore
abuse
of
substantial
and
citation
prohibited
from
substituting its judgment for that of the accrediting agency and
13
may not
When
"conduct a ^
performing
novo review."
the
deferential
Id.
review
decision to determine whether it
{citation omitted).
of
an
accreditation
"was supported by substantial
evidence," a district court should generally confine itself "to
the record that was considered by the accrediting agency at the
time of the final decision."®
Id. at 174-75.
In light of the Fourth Circuit's admonition that a district
court confine itself to the record considered by the accrediting
agency,
the
discovery
tools
typically
available
to
a
civil
litigant are either unavailable, or greatly circumscribed, in an
accreditation action.
however,
See id.
at 172.
The Fourth Circuit,
has,
acknowledged that the scope of the Court's inquiry may
be expanded if a plaintiff makes "a strong showing of bad faith
or
improper
citation
behavior."
omitted).
Id.
Such
at
rule
177-78
exists
(quotation
because
"an
marks
and
impartial
decisionmaker is an essential element of due process" regardless
of whether a
district
process claim or a
fair
procedure.
® Applying
such
court
is addressing a
constitutional due
claim grounded in the common law right
Id.
at
deferential
177
(internal
standard,
this
quotation
Court
marks
previously
to
and
granted
partial summary judgment in favor of Defendant, with the Court providing
an intentionally circumscribed analysis in light of the potential for
remand of this case to NACCAS due to the alleged conflict of interest.
ECF No. 140, at 8-11.
Although the Court's reasoning was concise, in
light of the substantial deference this Court owed to NACCAS's decision,
as well as
the process/procedure Plaintiff was afforded prior to
accreditation being withdrawn {including repeated notices and multiple
opportunities to remedy its deficient graduation rate over a 15 month
period), Defendant's merits-based summary judgment motion was plainly
meritorious.
14
citations
omitted).
Therefore,
in
limited
circumstances,
a
district court "may be justified in conducting a more searching
inquiry into the motivations of administrative decisionmakers."
Id.
When
performing
decisionmaker
integrity,"
evidence
bias."
is
entitled
although
inquiry,
to
a
that
"[a]n
presumption
such presumption
demonstrating
Id.
such
an
can be
adjudicator
administrative
of
honesty
overcome
has
a
and
through
"personal
(internal quotation marks and citation omitted).
A
long-recognized form of disqualifying personal bias occurs when
an "adjudicator has a pecuniary interest in the outcome."
Id.
at
the
178
(quotation
marks
and
citation
omitted).
Here,
Magistrate Judge assigned to this case concluded that there was
sufficient
evidence
discovery.
support
targeted
discovery,
and
after
Plaintiff presented sufficient evidence to warrant an
evidentiary
material
to
hearing/bench
facts
that
trial,
were
having
not
identified
adjudicated
disputed
during
the
accreditation review process and that bore on whether Plaintiff
was denied its
Simmons v.
Sept. 12,
right
Jarvis,
2016)
No.
to an
"impartial decisionmaker."®
8:13cv98,
2016 WL 4742256,
at *9
Cf.
(D. Neb.
{"The burden of proof required for supplementing
' The pre-hearing disputed facts, and inferences to be drawn therefrom,
included the degree of competition between Wards Corner and EEG, the
degree to which Mr. Bouman had a financial interest in EEC's success, and
the degree to which Mr. Bouman participated in the accreditation review
process in February of 2016.
Notably, it appears that Mr. Bouman's
participation as a member of the File Review Team was not known or
knowable
to
Wards
Corner
at
the
time
that
accreditation
was
withdrawn
(explaining why his participation was not challenged at the time).
15
the
administrative
record
is
lower
than
that
demonstrating bad faith or bias on the merits."
Bowes
327,
Government
332
Solutions,
Inc.
v.
required
for
(quoting Pitney
United States,
93
Fed.
Cl.
that
the
(2010))).
B. A Disqualifying Pecuniary Interest must
be
While
procedural
"Direct"
Prof'l
Massage
right
to
an
and "Substantial"
expressly
recognizes
impartial
both
decisionmaker
extends
accreditation actions and that an adjudicator with a
pecuniary
interest in the outcome violates such procedural right,
Massage
does
pecuniary
not
clarify
interest
the
because
contours
the
case
capable of supporting such a claim.
178.
Turning
to
other
relevant
of
did
a
not
law on
Prof'1
disqualifying
involve
Prof'l Massage,
case
to
the
facts
781 F.3d at
subject,
as
explained by the United States Supreme Court long before Prof'1
Massage was decided:
It is sufficiently
with
substantial
proceedings
should
clear from our cases that those
pecuniary
interest
in
legal
not adjudicate
these disputes.
Tumey v. Ohio,
273 U.S. 510,
(1927) .
And Ward v.
Village of Monroeville, 409 U.S. 57 (1972), indicates
that
the
financial
stake
need
not
be
as
direct
or
positive as i t appeared to be in Tumey.
It has also
come to be the prevailing view that "(m)ost of the law
concerning
disqualification
because
of
interest
applies with equal force to .
.
. administrative
adjudicators."
K.
Davis,
Administrative Law Text
§ 12.04, p. 250 (1972), and cases cited.
Gibson V.
Berryhill,
411 U.S.
564,
579
(alteration and omission in original).
16
(1973)
(emphasis added)
In Gibson,
the Supreme
Court
affirmed
Alabama
"State
pecuniary
the
district
Board
interest
of
court's
Optometry
that
it
determination
was
could not
so
biased
that
by
.
the
.
.
constitutionally conduct
hearings" addressing the potential revocation of licenses for a
large
block
district
of
corporate
court's
Gibson did not
optometrists.
analysis
turn on
were actually biased,"
of
at
constitutional
"whether
the
but rather,
natural course of events,
Id.
there
due
[Optometry]
578.
The
process
Board members
considered "whether,
is an indication of a
temptation to an average man sitting as a
in the
possible
judge to try the case
with bias for or against any issue presented to him."
571
(quotation
temptation
marks
standard
and
was
citation
met
in
omitted).
Gibson
Such
because
evaluating whether to revoke the licenses of
in
the
State
category of
who
were
individuals
employed
by
scale
Board,
revocations
along
occurred,
with
other
"the
private
would fall heir to this business."
On
those
overturn
had
a
facts,
the
the
district
disqualifying
likelihood
that
a
the
Id.
Board
corporations,"
Id. at 578.
practitioners
court's
conclusion
pecuniary
successful
found
interest
revocation
17
members
Id. at 571
due
all
of
of
the
optometry,
(emphasis added).
"no
that
a
If such large-
individual
Court
was
"all optometrists
business
Supreme
at
objective
that accounted for nearly half of
practicing optometrists in Alabama.
in
good
the
to
effort
reason"
to
Board members
the
by
degree
the
of
Board
"would possibly redound to
the Board."
at
Subsequent
Gibson,
due
clarified
that
a
decisionmaker when a
interest"
personal,
Ins.
V.
Co.
original)
Supreme
too
of
a
as
contrasted
analysis involved here,
is
not
denied
with
Court
went
remote
and
constraints.'""
an
impartial
"a slight pecviniary
as contrasted with an interest that is
U.S.
[and]
813,
pecuniary."
825-26
on
to
and
contingent"
(1986)
clarify
insubstantial
at
(quoting Marshall v.
(1980)).
More recently,
(2009),
to
826
original)
868
that
is
an
Aetna
not
violate
the
(alteration
Jerrico,
in Caperton v.
that
disqualifying,
.
Inc.,
A.T.
and
Life
(alteration
interest
'[t]he biasing influence
Id.
the
the Supreme
(internal quotation marks and citations omitted),
"at some point,
556 U.S.
members
involving
case
judge or justice has
475
"highly speculative
that
analysis,
siabstantial,
Lavoie,
another
litigant
in the outcome,
"direct,
in
process
common law "fair procedure"
Court
benefit of
578-79.
to
constitutional
the personal
.
.
in
The
is
and
[will be]
constitutional
omission
446 U.S.
238,
in
243
Massey Coal Co.,
the Supreme Court summarized the facts and
As quoted above, Gibson recognizes that case law governing conflicts in
judicial
adjudications
is
generally
applied,
but
not
necessarily
controlling, to decisions made by administrative adjudicators.
Gibson,
411 U.S. at 579.
Arguably, an accreditation decision made by a private
accreditation body such as NACCAS (owing a right to fair procedure),
rather than a state licensing board {owing a right to constitutional due
process), is one step further removed from the standard applicable to a
judicial adjudication.
That said, as established in Prof'l Massage, the
common law fair procedure right applicable to a private accreditation body
such as NACCAS still requires an unbiased adjudicator.
18
holdings of its earlier decisions in Tumey,
id. at 877-79,
the
Ward,
and Lavoie,
explaining that the Lavoie opinion stressed that
constitutional
due
process
standard
applicable
to
judges,
and mayors sitting as judges, did not turn on whether the judge
was actually influenced by the alleged pecuniary motivation,
at
878.
Rather,
the
position/interest
average
.
balance
.
opinion
"would
clear
further
.
.
.
475
Id.
at
U.S.
at
the
the
to
the
not to hold the
879
(omissions
825).
The
"'degree
to disqualify a
judge's
temptation
[or her]
although
that
whether
possible
true."
sufficient
on
lead him
and
noted
.
.
turns
a
Lavoie,
(quoting
interest
offer
. judge to .
nice,
original)
standard
id.
judge
in
Caperton
or
kind
from
of
sitting
cannot be defined with precision,'" in the Supreme Court's view,
it
Id.
is
"important
(quoting
Illinois
presiding
Lavoie,
Dep't
(explaining,
that
of
in
over
question
is,
disqualification,"
test
U.S.
31
have
at
F.3d
context
criminal
whether some possible
the
475
Corr.,
the
a
the
of
case,
an
objective
822) ;
cf.
1363,
an
1375
Del
Vecchio
(7th
Cir.
1994)
biased
judge
allegedly
that
"[t]he
component."
question
temptation to be biased exists;
when
does
further
required
only
when
the
overcome
[the
presumption
a
holding
biasing
of
biasing
that
19
and
influence
is
strong
integrity],
not
instead,
require
"[d] isqualification
influence
honesty
is
v.
enough
that
is
to
is.
when
the
influence
is
so
strong
that
we
may
presume
actual
bias").
Consistent with such Supreme Court precedent acknowledging
the
difference
interest
and
between
a
a
"remote"
"direct"
or
"slight"
Fourth Circuit has held that,
rules
applicable
to
unnecessary/improper
if
F.2d
357,
368
(4th
"remote contingent
"substantial"
pecuniary
financial
such
plaintiff
1976) .
In
possibility that
electric
litigation
led
company
to
a
if
that
[the
the
customer
incorrectly calculated fuel costs.
of
the
electric
company,
the
is
at
is
case,
judge]
there
may
authorities
district
did
not
judge
require
recent amendment to 28 U.S.C.
to
explained
by
the
Fourth
recusal,"
Circuit,
in futuro
at 366.
adjust
As a
potential
in
for
customer
financial
a
that
he
Id. at 360.
"existing
determined
the
legal
that
a
statue governing judicial
disqualification, did require recusal.Id. at 363.
As
a
although such sum could have
concluded
§ 455,
was
success
been refunded over a period as long as forty years.
the
539
to all customers of
plaintiff's
judge's
issue
& Power Co.,
refund
Id.
interest was between $70 and $100,
Although
the
recusal
interest
share in any refund that might be ordered"
the
interest,
judges,
In re Virginia Elec.
Cir.
pecuniary
even under the stringent ethical
federal
the
remote and contingent.
and
district
judge
relied on the then-recent amendments to § 455 as they were not
Consistent
incorrectly
applicable
to that case due to their date of passage; however, the error in "applying
20
with applicable
federal
canons of
statute provided that a
recuse
himself
if
federal
" [h] e
judicial ethics,
district
knows
that
he
the amended
judge is
.
.
.
has
required to
a
financial
interest in the subject matter in controversy or in a party to
the
proceeding,
or
any
other
interest
that
could
substantially affected by the outcome of the proceeding,"
be
with
the statue further defining financial interest as "ownership of
a
legal
or
equitable
{emphasis omitted)
broad
definition
noted
the
interest,
however
(quoting 28 U.S.C.
of
absence
"financial
of
a
small."
§ 455).
interest,"
disqualifying
Id.
at
362
Even under such
the
district
financial
judge
interest,
concluding that he did not have a "direct and personal pecuniary
interest
in
nevertheless
the
case."
Id.
determined
that
However,
recusal
was
the
district
necessary
judge
because
he
had "any other interest that could be substantially affected by
the outcome of the proceeding."
In
reviewing
the
Id.
district
court's
analysis,
the
Fourth
Circuit agreed that the district judge did not have a
financial
interest
held,
most,
a
judgment
in
the
outcome
because
the
district
judge
at
"contingent interest" that was dependent upon not only a
in
favor
of
the
plaintiff
electric
as the law of the case a statute not yet in effect . .
consequence with respect to the result . . . because
closely tracks
[Judicial]
Canon 3C,
appropriately examined Canon 3C as a
sound discretion."
In re Virginia Elec.
21
company,
but
a
. is of no great
the new statute
and clearly the district judge
guideline in the exercise of his
& Power Co.,
539 F.2d at 366.
subsequent "independent decision of a state agency, the Virginia
State
Corporation
determine
Commission,"
"whether to order a
refund,
what period of time."
Id.
the
interest
judge's
financial
expectancy" in property law.
Having
found
no
which
at 366.
to
would
be
in what amount,
outcome
interest
of
conclude"
what
attempting
Circuit
the
to
noted
that
proceeding,"
such
be
what
is
known
"financial
substantially
noting
alternative
define
that
such
a
term
that
"the
it
means.
"imprecise"
leading
suggested consideration of
and over
as
a
"bare
Id. at 366-67.
disqualifying
could
interest,"
affected
was
"not
Id.
at
standard,
treatise
on
by
easy
367.
the
federal
interaction of
(quotation marks citations omitted).
difference
is
a
practice
two variables:
Id.
The Fourth Circuit
sensible
one.
A
monetary or financial interest is by its very nature
such an interest that may generate doubt as to a
judge's impartiality.
What is a small sum to one
person may not be to another.
But a "bare expectancy"
or chance to ultimately benefit on an equal basis with
22
to
Fourth
It is quite significant, we think, that the words
"however small" apply only to a "financial interest."
Their meaning is perfectly clear.
If a judge has an
ownership interest in a party or in the subject matter
in controversy, it matters not at all whether the
interest is a large or infinitesimally small amount.
But that
is not
so with respect
to
"any other
The
the
In
then explained as follows:
interest."
the
judge held "any
the remoteness of the interest and its extent or degree."
at 368
to
The Fourth Circuit likened
Fourth Circuit considered whether the district
other
required
all other customers is not so suspect in nature.
And
that is why, we think, Congress did not see fit to add
the words
"however small"
to modify "any other
interest."
Thus a judge who is a customer of a
company
the
must
necessarily
interest
already
and
its
demonstrated
consider
extent
that
the
or
remoteness
degree.
We
interest
of
here
[the]
have
is
remote and speculative and that whether [the judge]
ever gets any refund benefit will not be determined by
him nor by the result of this litigation.
Id.
a t 368.
C. Competitive Pecuniary Interest in
Accreditation/Licensing Cases
With that backdrop,
constitutional
due
decisionmaking,
consisting primarily of cases involving
process
rights
in
the
context
of
judicial
the Court turns its attention to placing a finer
point on what constitutes an "impartial decisionmaker" under the
common
law
right
to
"fair
procedure"
in
the
context
accreditation or licensing administrative decisionmaking.
specifically,
competitive
licensing
the
Court
interest
in
decision
must
must
the
determine
outcome
exist
to
"substantial" pecuniary interest.
on
such
reliance,
issue,
at
the
least
requisite
in
part,
of
constitute
More
degree
of
accreditation
a
"direct"
or
and
In light of limited case law
analysis
on
an
what
of
necessitates
cases
involving
F.3d 732
(9th Cir.
the
continued
right
to
constitutional due process.
In Stivers v.
involving the
Pierce,
71
constitutional right
licensing board,
to due process
the plaintiffs asserted that
23
1995),
from a
a
case
state
"one of the Board
members had a
pecuniary interest in the outcome and was biased
against them," and that such bias influenced other board members
and employees,
a
causing them to deny plaintiffs'
license in the
Finding that
fair
trial
field of private investigation.
Id.
at 736.
the plaintiffs had the constitutional right
in
a
fair
tribunal,"
plaintiff may demonstrate
demonstrating:
or (2)
application for
(1)
a
the
Court
violation of
explained
to
"a
that
a
such right either by
"actual bias on the part of the adjudicator";
that "the adjudicator's pecuniary or personal interest in
the outcome of the proceedings" was significant enough to create
an
"appearance
of
partiality
that
without any showing of actual bias,"
411 U.S. at 578) .
violates
due
Id. at 741
process,
(citing Gibson,
Analyzing the siibset of facts relevant to the
claim grounded in an asserted
"appearance of
partiality,"
Ninth Circuit explained as follows:
Stivers has introduced evidence showing that Pierce
had a pecuniary interest in ensuring that Stivers'
license applications were denied.
A short time before
the licensing proceedings began. Stivers had entered
into
direct
competition
with
Dick
Pierce
and
Associates.
Stivers asserts that Pierce's pecuniary
interest
in
stifling
competition
rendered
his
participation
in
the
licensing
proceedings
constitutionally objectionable.
Among the cases in which the appearance of bias is
"too high to be constitutionally tolerable" are those
in which the adjudicator has a direct and substantial
pecuniary interest in the outcome of the case before
him.
Withrow v.
such
cases,
constitutes a
even
Larkin,
the
per se
421
U.S.
35,
47
(1975).
In
adjudicator's
participation
violation of due process—the
24
the
appearance
of
partiality
in
itself
renders
the
proceedings objectionable, without any showing that
the adjudicator was actually biased.
[Lavoie], 475
U.S. at 825; Utica Packing Co.
77-78 (6th cir. 1986).
v.
Block,
781 F.2d 71,
The Supreme Court has held that a state licensing
tribunal violates due process when its members have a
direct and substantial competitive interest in the
outcome of the proceedings before them.
Gibson,
411
U.S. at 578-79. . . .
Without requiring any showing
that the board's decision was actually influenced by
impermissible bias,
the Court upheld the district
court's
conclusion
that
the
board
members'
"substantial pecuniary interest" in denying licenses
to competitors constituted a per se violation of the
plaintiffs' right to due process.
Id. at 579.
The
Court's
decision
in Gibson
did not
invalidate
all
licensing
boards
that
include
industry
representatives.
After Gibson, the Court upheld a
state statute requiring that a majority of optometry
board members
be
drawn
from
an organization of
professional optometrists.
Friedman v. Rogers, 440
U.S.
1,
18
(1979) .
More recently,
the Court has made
clear
that due process
is not violated by the
participation of adjudicators who "might conceivably
have had a slight pecuniary interest" in the outcome
of
the
case before
them.
[Lavoie] ,
475
U.S.
at
825.
An
adjudicator
is,
however,
precluded
from
participating in decisions in which he has a "direct,
personal, substantial, pecuniary interest." 475 U.S.
at
The
822.
fact
that
competed for a
sufficient
to
Pierce
and
Stivers
have
in
the
past
few specific contracts is not in itself
meet
this
standard.
While
under
Stivers' management,
[his company]
outbid Pierce's
company for the convention business at Bally's and
other
business
totaling
$55,000,
the
contracts
constituted a relatively small portion of Dick Pierce
and
Associates'
$5
million
annual
receipts.
Nevertheless,
there may be a
genuine issue as to
whether
Pierce had a
sufficient
interest
in
the
denial
of Stivers' application to necessitate his recusal.
Unlike most other license applicants before the Board,
who sought
to do business
in the more populous
25
Southern Nevada region. Stivers intended to enter into
business in the Reno area, where he would operate in
direct competition with Pierce.
See Wilkerson v.
Johnson, 699 F.2d 325, 328 (6th Cir. 1983) (licensing
board member's interest in preventing barber shop from
opening next door to his own created "unconstitutional
risk of bias").
There are other pertinent facts that
do not appear in the record as developed thus far.
We
do not know, for example, how many similar businesses
are currently licensed in the Reno area, what effect
one more business is likely to have, or even much
about the nature of the market or the particular
qualifications or attributes that Stivers and Pierce
may
possess.
Such
facts
may
be
critical
in
determining
whether
Pierce
had
a
"direct"
and
"substantial" pecuniary interest that would constitute
a per se due process violation.
There are undoubtedly cases in which the appearance of
partiality
arising
from
competitive
interests
is
sufficiently strong to warrant recusal.
See Gibson,
411
for
U.S.
at
example,
578-79.
would
A
lawyer
probably
in a
one-lawyer
have
a
"direct"
town,
and
"substantial" pecuniary interest in the licensing of a
competitor planning to hang a
shingle across
the
street.
On the other hand, i t is unlikely that any
attorney practicing in a city like Los Angeles would
have a
competitive interest sufficiently strong to
require that he be disqualified from considering the
licensing of an additional lawyer.
We note that any per se rule governing the appearance
of partiality must take into accoxmt the fact that the
system of
industry representation on governing or
licensing bodies is an accepted practice throughout
the
Due
the
its
nation.
As the Supreme Court has pointed out, the
Process Clause imposes "only broad limits . . . on
exercise by the State of its authority to regulate
economic life, and particularly the conduct of its
professions."
Friedman,
440 U.S.
at 18 n.l9.
If
members
of
a
licensing
board
were
disqualified
whenever they have "some" competitive interest in the
outcome of proceedings before them, practitioners in
the field would as a practical matter be excluded from
becoming members of such boards.
26
There are, of course, advantages to the involvement of
industry
representatives
in
licensing
decisions.
Private
investigators,
for
example,
can
bring
a
particular practical understanding and perspective to
the proceedings.
It is presumably for this reason
that the Board, by statute, must include a private
investigator, a private patrolman, and a polygraphic
examiner.
See Nev. Rev. Statute § 648.020(1).
Were
we to hold Pierce'5 participation impermissible, based
solely on the fact that there may on occasion be
"some" competition for clients, we would call into
question
the
composition
not
only
of
the
Board
involved in the case before us but many other boards
throughout
the
circuit
that
include
industry
representatives among their membership.
That we do
not wish to do.
Without more facts, i t does not appear that Pierce's
economic interest is such as to warrant a per se
disqualification.
Upon remand, however. Stivers is
free
to
introduce evidence
tending to
show that
Pierce's pecuniary interest is in fact sufficient to
warrant application of the per se rule.
Stivers, 71 F.3d at 742-44 (emphasis added)."
Subsequent
allegation
to
that
quasi-judicial
In Stivers,
competition,
defendant,
Stivers,
members
capacity
of
the
a
were
First
dairy
biased
Circuit
commission
based
on
addressed
sitting
their
an
in
a
financial
the Ninth Circuit went on to evaluate whether the alleged
past business association,
prior negative statements by the
etc. were sufficient to demonstrate "actual bias."
F,3d at 744-46.
opinion, ECF No.
Stivers,
71
Here, as suggested by this Court's summary judgment
140, .at 18-19, and as further bolstered by Mr. Bouman's
credible testimony in open court,
there is no evidence on which a
reasonable juror could conclude that "actual bias" had any impact on the
outcome of the accreditation review process.
Cf. Marlboro Corp. v. Ass'n
of
Indep.
Colleges
&
Sch.,
Inc.,
556
F.2d
78,
82
(1st
Cir.
1977)
(describing the "risk of actual prejudice [as] quite remote" in light of
the fact that the plaintiff had no evidence that "the decision was in fact
tainted
by
bias,"
but
instead
"points
only
to
the
presence
of
one
individual at the final step in a prolonged process of evaluation and
review as evidence of bias").
Accordingly, utilizing the nomenclature set
forth in Stivers, the question before this Court is limited to whether Mr.
Bouman's
position
at
EEG
created
an
warrants "per se disqualification."
27
impermissible
risk
of
bias
that
interest
in the
York
State
F.3d
1,
outcome of
Dairy
14
Foods,
(1st
Cir.
an administrative proceeding.
Inc.
v.
1999) .
Ne»
Dairy
Applying
Compact
New
198
constitutional
the
Common,
due
process standard articulated in Lavoie that requires more than a
possibility of a
case-specific
potential
slight pecuniary interest,
facts,
financial
the
First
interest
on
Circuit
the
and considering the
determined
part
of
that
individual
"any
panel
members is highly attenuated," noting that "a panel member would
have
to be swayed by his own pro rata
profits
{assuming
that
there
are
share
any)
of
proportion of the Compact milk" at issue.
on
the
Stivers
Circuit
similarities
to
opinion,
First
that
adjudicator's
the
at
some
interest
the
lawyer
level
of
1996)
Id.
too
tiny
Relying in part
contained
attenuation,
becomes
of Optometry,
relatively
"agree[d]
constitutionally deficient effect."
Missouri State Bd.
a
example
Circuit
in the additional
remote
in
with
the
as
here,
to
the
Ninth
have
the
a
Id. at 14-15; see Marler v.
102
F.3d 1453,
1457
{8th Cir.
(rejecting the plaintiff's assertion of bias based on his
contention that he was in "direct economic competition" with one
of the Board members who participated in revoking his license to
practice optometry because the case-specific facts demonstrated
that
the plaintiff
Center"
and
that
"was
"the
an optometrist
Wal-Mart
Vision
at
the
Center
Wal-Mart Vision
would
continue
to
employ an optometrist and remain in competition with the Board
28
member,
regardless of the status of
[the plaintiff's]
license,"
resulting in the Board member having "at most a slight pecuniary
interest in the outcome of the proceedings");
V.
Gov't of Virgin Islands Ed.
297,
300
"he was
Board
{3d Cir.
in direct
that
plaintiff,
2010)
of Med.
(rejecting
competition"
conducted
see also Williams
Examiners,
360 F.
the plaintiff's
with a
disciplinary
doctor
that
proceedings
claim that
sat on the
against
noting that the plaintiff "presented little,
persuasive evidence"
App'x
the
if any,
that he competed with such doctor or that
such doctor had "even a slight pecuniary interest in the outcome
of the Board's proceedings against [the plaintiff]").
In
a
conceptually
involving a
jury
similar
case
state licensing board,
verdict
for
the
plaintiffs
to
the
(6th
Cir.
1983) .
In
based
on
case,
one
"Tennessee Board of Barber Examiners,
operated
a
barber
shop
next
plaintiff's proposed business.
characterized
licensing of
direct
and
the
trial
a
door
Id.
evidence
competition
agency's
699 F.2d 325,
the
the
at 326.
as
state
members
of
328
the
state licensing agency,"
to
the new barber shop next
significant
of
a
efforts to operate
Wilkerson v. Johnson,
that
matter
the Sixth Circuit affirmed a
improper actions surrounding the plaintiffs'
a licensed barber shop.
instant
location
that
door would have
the
the
The Sixth Circuit
establishing
for"
of
"the
created
interested
Board
member, noting that he "clearly had the kind of interest in the
29
licensing
decision
bias."
562
which
creates
an
unconstitutional
risk
of
at 328; cf_^ Klein v. Sobol, 167 A.D.2d 625, 629-30,
N.Y.S.2d
856,
860-61
(1990)
(rejecting
the
petitioners'
assertion that they were denied an impartial decisionmaker in a
case involving a
Podiatry,"
the
practicing
petitioners'
offer
Panel
"Panel of the State Board of
noting that notwithstanding the fact that
podiatrists
approximately
not
hearing before a
14
blocks,
respective
sufficient
members
on
had a
the
four
to
were
miles
offices,"
evidence
Panel
the
disqualifying
located
and
10
that"
within
miles
petitioners
establish
"three of
from
"simply
the
did
identified
"pecuniary interest"
in
the
outcome of the hearing).
In light of the authorities cited herein,
degree
of
competition
sufficiently
renders
"interested"
in
the
an
determining what
industry
outcome
of
an
practitioner
accreditation
decision to require recusal under the common law right to "fair
procedure"
must
necessarily
turn
on
the
case-specific
facts.
Mindful of the Fourth Circuit's analysis in Prof'l Massage,
this
Court does not suggest that the legal test for "impartiality" is
subject
to
situations,
examples
although
materially
formulations
rather,
holds
context
helpful
illustration
but
offer
it
different
is
that
well-established
of
that
is
this
a
in
different
critical.
point.
judge
Two
First,
or
other
adjudicator should not preside over a matter where he or she has
30
a
close
personal
relationship
with
one
of
the
parties,
the
contours of what constitutes a "close" personal relationship are
certainly different in a
city with five million residents than
they are in a rural town with five hundred residents.
Murchison,
349 U.S.
133,
136
(1955)
See In re
(explaining that while
"no
man is permitted to try cases where he has an interest in the
outcome,"
a
precision,"
disqualifying
requiring
considered);
Inc.,
556
"td] ecision
process
by
78,
an
under any
realities'
"circumstances
Marlboro Corp.
F.2d
interest
82
v.
(1st
impartial
standard,"
"cannot
and
Ass'n of
Cir.
the
defined
relationships"
Indep.
1977)
tribunal
be
Colleges
(noting
is
an
"particular
that
to
be
& Sch.,
while
element
facts
with
and
of
a
due
*local
of any given case must determine whether there is an
actual or apparent impropriety that amounts to a denial of due
process").
in
a
Second,
"one-lawyer
licensing
different
of
a
as explained by the Ninth Circuit, a lawyer
town"
who
second
"competitive"
is
attorney
called
in
upon
such
to
town
consider
faces
the
vastly
motivation than an attorney considering
the "licensing of an additional lawyer" in a large city like Los
Angeles.
The
Stivers, 71 F.3d at 743.
need
to
relationships"
and
elevated where:
(1)
was
focus
on
"local
case-specific
realities"
as in Stivers,
is
"circumstances
arguably
and
further
the Board/Committee at issue
intentionally designed to require participation of industry
31
practitioners
who,
unlike
an
Article
III
judge,
actively
participate/practice in the very industry that they are called
on to evaluate;
and
(2)
the alleged interest at issue is not a
"direct" monetary interest in the outcome of the case
(such as a
judge imposing a fine that will fund his salary, or a member of
a
licensing
commission
license
for
a
rather,
is
an
voting
business
that
indirect
against
he
or
the
she
competitive
suspension
partially
of
a
but
involving
interest
owns) ,
the
elimination of a purported "competitor" within a given field,
interest that may,
for
the
or may not,
allegedly
pragmatic
desire
administrative
participation
interested
to
have
board
of
a
commission
truly
fair
"interested"
that
in
administrative
F.3d at 743
certain
competition
for
dec is ionmaker' s
composition"
Charles
H.
practitioners
cannot
on
excuse
adjudicator,
the
an
the
practical
some
degree
of
"independence"
contexts.
See
Stivers,
be
71
(noting that if a disqualifying conflict were found
"based solely on the fact
before the
Although
consistent with the common law right
procedure,
forfeited
financial gain
adjudicator.
industry
or
realities appear to allow,
to
translate into a
an
that there may on occasion be
clients"
company and
licensing board,
of
Koch,
numerous
Jr.
between
the
"[it]
boards
& Richard
32
the
company with a
'some'
practitioner-
matter pending
would call into question the
across
Murphy,
various
industries);
Administrative
Law
2
&
Practice
§ 6:10
disqualifying
{3d
ed.)
conflict
(explaining
may
be
based
that,
on
although
"'an
a
unacceptable
probability of actual bias on the part of those who have actual
decisionmaking power,'
.
[a]bsolute
impartiality
is
not
required" in the administrative context, even when the right at
issue is constitutional due process)
In sum,
(citations omitted).
this Court finds that the degree to which prudence
and caution support a finding of a disqualifying conflict in the
face of an indirect pecuniary interest cannot be evenly applied
across all possible adjudications.
899,
907
not
(4th Cir.
to
require
flexible
and
particular
due
1984)
for
of
such
authority
negates
any
that
procedural
situation demands.'
process
Indeed,
concept
of
due
process
protections
367 U.S.
886,
895
inflexible
(quoting Cafeteria Workers
(1961))).
as
'[t]he very nature
is
the
of
procedures
universally applicable to every imaginable situation.'"
alteration in original)
747 F.2d
("'[I]t has been said so often . . . as
citation
calls
See Pinar v. Dole,
v.
(second
McElroy,
The attendant differences are clear
when drawing a comparison between a federal judge presiding over
a criminal bench trial,
whether
to
revoke
a
and an administrative panel determining
professional accreditation.
The
such hypothetical is presumed to be starting from a
neutral position,
pecuniary
interest
and in the rare instances where a
is
identified
33
that
judge
in
completely
conflict or
even arguably calls
the
judge's impartiality into question, prudence often dictates that
the judge be recused and the case reassigned to another judge.
In
contrast,
a
commission
made
up
of
multiple
industry
practitioners determining whether to withdraw the accreditation
or license of a
itself
fellow practitioner is presumed to often find
starting
from
conflict/pecuniary
accreditation
given field,
or
a
position
interest
a
license
where
exists,
to
operate
some
because
is
slight
whenever
withdrawn
within
a
some potential benefit will necessarily inure to a
practitioner-decisionmaker based on the fact that an additional
person/entity has been removed from the pool of competitors.^^
See 2 Koch & Murphy,
titled
"Nonconstitutional
"Administrative
capable of
basis
supra § 6:10
of
are
on bias
their
may
own
presumed
circumstances,"
not
have
they may be
decisionmaking").
the
held
Stated
and
to
that
independence
to
the
subsection
in adjudication"
judging particular controversies
adjudicators
judge but
officials
limits
(explaining in a
same
differently,
be
objective
fairly
and on
that
and
the
"[a]dministrative
of
an Article
standard of
whether
III
impartial
an
alleged
pecuniary conflict grounded in the competitive impact of a court
As noted above,
here,
the NACCAS Board of Commissioners included seven
industry practitioners that were school owners or administrators.
Each of
these individuals had at least some potential competitive interest in
closing Plaintiff's school because even if none of the practitioners
directly competed with Wards Corner as of February of 2016, the closure of
such school manufactures
the
opportunity for a
Norfolk market and fill the void
cosmetology and barbering academy.
left
34
by
the
new
school
closure
of
to enter
the
Plaintiff's
case
or
administrative
adjudication
is
"direct"
and
"substantial" or whether it is "indirect" or "slight" appears to
depend on
question,
the
nature
of
the
adjudication,
the
the degree of competition in the case,
the allegedly biased adjudicator played.
industry
in
and the role
As characterized by
the Supreme Court of Connecticut:
The
applicable
due
process
standards
for
disqualification of administrative adjudicators do not
rise to the heights of those prescribed for judicial
disqualification. . . .
The mere appearance of bias
that might disqualify a judge will not disqualify an
arbitrator. . . .
Moreover, there is a presumption
that
administrative
board members
acting
in
an
adjudicative capacity are not biased.
...
To
overcome the presumption, the plaintiff . .
. must
demonstrate actual bias, rather than mere potential
bias, of the board members challenged, unless the
circumstances indicate a probability of such bias too
high to be constitutionally tolerable.
.
. .
The
plaintiff
has
the
burden
of
establishing
a
disqualifying interest.
Moraski
v.
Directors,
Connecticut
Bd.
291
242,
Conn.
(omissions in original)
Such
standard
was
of
Examiners
262,
967
of
Embalmers
A.2d
1199,
&
Funeral
1213
(2009)
(quotation marks and citations omitted).
subsequently
applied
by
a
federal
court as part of its due process analysis in Fromer v.
Windsor,
2011),
No.
aff'd,
3:10cvl780,
2011
472 p. App'x 40
WL
10604771
(2d Cir.
(D.
2012),
Conn.
district
Town of
Apr.
15,
with the district
court noting both the presumption of honesty and integrity and
the
Connecticut
standards
for
Supreme
Court's
administrative
holding
adjudications
35
that
are
due
process
something
less
than that applicable to judges.
Norwich
Free
Acad.,
199
Conn.
Id. at *11
231,
238,
(citing Petrowski v.
506
A.2d
139,
142-43
(1986)) .
D.
Competitive Pecuniary Interest in this Case
Returning
addresses
to
the
the
following
alleged
interest
review:
(a)
Corner;
and
(b)
(c)
degree
As
the
instant
areas
relevant
outcome
of
of
case,
are
Prof'l Massage,
a
Here,
has
"potential for bias
the
Court
Bouman's
accreditation
EEG
and Ward's
to
a
absence
burden
[that]
Massage,
interest
to
of
178.
honesty
that
and
and "the burden
on
the
456 U.S.
evidence
demonstrate
of
rests
McClure,
withdrawal
administrative
presumption
781 F.3d at 177-78,
Schweiker v.
the
accreditation
party
188,
of
actual
Mr.
Bouman
196
bias.
had
a
is impermissibly high," requiring his
recusal from the accreditation review process.
F.3d at
the
Mr.
Plaintiff's
Prof'l
disqualifying
in
the
in
in
"entitled
making the assertion,"
781
to
competition between
role
outlined
establishing
Plaintiff
three
the
Bouman's
decisionmakers
(1982).
of
the scope of Mr. Bouman's financial interest in EEG;
decision.
of
in
the
Mr.
integrity,"
facts
Prof'1 Massage,
After conducting an evidentiary hearing
to
examine disputed evidence and inferences in these three areas in
a
case
that
Mr.
that presents
Plaintiff has
Bouman's
a
relatively close
failed
limited
call,
the
Court
finds
to carry its burden of showing that
pecuniary
36
interest
overcomes
the
presumption
of
demonstrates
denied
its
honesty
such a
and
substantial
common
law
right
integrity
risk of
and/or
that
Plaintiff was
"fair procedure"
to
bias
otherwise
based on Mr.
Bouman's participation in the accreditation review process."
1. Competition
The
trial
evidence
timeframe,
there
Plaintiff's
Norfolk
Prior
to
distance
the
was
some
School
(approximately
these
twelve
that,
degree
and
evidentiary
between
substantial
demonstrates
EEC's
the
relevant
competition
of
during
between
Virginia
hearing/bench
Norfolk
miles)
competition;
and
Beach
trial,
raised
however,
the
limited
Beach
Virginia
itself
schools
the
the
School.
trial
specter
of
evidence
demonstrated that while competition unquestionably existed,
the
nature of the industry and the resources of the typical student
educated
by
limitations
both
on
In reaching
Plaintiff's
the
Plaintiff
and
degree
of
direct
the
Court
such conclusion,
contention
that
a
conflict
of
EEC
created
competition.
has
considered,
interest
existed
substantial
Notably,
and rejects.
because
Mr.
Bouman owed a fiduciary duty to EEG.
While Mr. Bouman plainly had an
obligation to act in EEG's best interests when acting on its behalf,
Plaintiff's suggestion that Mr. Bouman had a duty to EEG to drive all
"competitors" out of business through the power he wielded as Chairman of
NACCAS is not compelling.
Such a rule would in essence preclude any
practitioner from being a Commissioner, and ignores:
EEG's
interests
were
likely
furthered
by
having
(1)
its
the reality that
President
on
the
Commission; and (2) as an operator of nearly 100 schools, it was in EEG's
interest that the Commission fairly evaluate all accreditation matters as
the makeup of the Commission would change over time.
The competition was obviously greater during the period that Plaintiff
operated its Virginia Beach school; however, the closure of such school
occurred
long
before
Mr.
Bouman
participated
in
the
challenged
accreditation review.
37
Defendant presented credible evidence that the majority of EEC's
students do not have access to a
rely
on
public
transportation
private vehicle and therefore
to
commute
to
school.
Such
reality limited EEC's ability to draw students from outside the
immediate
Bouman's
area
surrounding
its
testimony on relevant
approach of targeting a
schools
was
not
only
additional evidence,
Virginia
Beach
socioeconomic
school.
factors
Mr,
and EEC's
student body in close proximity to its
credible,
but
including Mr.
it
was
supported
by
Bouman's unrefuted testimony
that EEC operates two schools approximately 20 to 25 miles apart
near Richmond, Virginia (demonstrating the limited reach of each
school).
Moreover,
Plaintiff's
own
evidence
confirmed
Bouman's statements about the nature of the industry,
(1)
the pretrial sworn statement by Plaintiff
complaint
region,
indicating
which
that
the
included EEC's
"competitor"
school,
were
commuting distance away" and that "few of
all
Mr.
including:
in its verified
schools
in
the
"a considerable
[Plaintiff's]
students
own or have access to private transportation," Am. Compl. f 45,
EOF
No.
28;
(2)
confirming that,
to
afford
the
live
testimony
transportation,"
and
"reason alone"
when
lost
Plaintiff's
Plaintiff's
in the "market that we deal with,"
transportation was
Wards
of
Corner
its
acknowledgement
the
38
i t is "hard
difficultly
securing
for many students to drop out
accreditation,
that
President
only
Tr.
three
37-38,
of
44;
(3)
fifty-eight
students
asked
for
documentation
necessary
to
transfer
credits to EEG when Wards Corner lost its accreditation,
44;
and
(4)
the
fact
that
Plaintiff
had
operated
a
their
id.
at
Virginia
Beach location for several years within approximately ten miles
of
its
Norfolk
school
in
additional
school),
In
location and
Suffolk
operated
evidence
of
President
by
the
his
limited
presently co-owns
ex-wife
(both
geographic
a
providing
reach
of
each
id. at 19.
considering
the
degree of competition,
Wards
its
Corner's
academy,
school
EEG's
teaching cosmetology,
between Plaintiff
facts
relevant
this Court also considers the
Norfolk
whereas
case-specific
was
Virginia
a
cosmetology
Beach
school
fact
and
was
to
the
that
barbering
limited
to
further reducing the degree of competition
and EEG."
Moreover,
while
the undisputed
Plaintiff's President testified that the annual report submitted by
Wards Corner to NACCAS in 2015 reflects that twenty percent of Plaintiff's
students lived in Virginia Beach.
Tr. 26.
However, such report covered
the prior academic year when Wards Corner still had its Virginia Beach
location open.
Additionally, a review of the documentation from such year
reveals that some of the students who lived in Virginia Beach were
enrolled in Plaintiff's barbering program.
Joint Ex. 46.
Wards Corner's
COO testified at the evidentiary hearing and provided a "student by
student" review of numerous enrollees during 2014, but she identified only
two students who lived in Virginia Beach and attended Wards Corner's
Norfolk cosmetology program.
Tr.
58-60.
cosmetology
in
Portsmouth,
students
lived
The fact that multiple Norfolk
Virginia
is
of
limited
evidentiary value in light of the fact that Portsmouth did not have an
accredited cosmetology academy and it is located immediately across the
river from Norfolk and there are two tunnels connecting the cities.
Shifting focus to the number of Virginia Beach students attending
Plaintiff's Norfolk school after the Virginia Beach location closed.
Plaintiff's post-hearing briefing asserts that 12% (7/58) of the students
who
left
Wards
Corner
Virginia Beach.
two
infirmities.
after
ECF No.
First,
its
150,
it
accreditation was
at 6.
is
Such figure,
calculated
39
based
lost
in
2016
lived
in
however,
suffers from
on
individuals'
such
evidence
broader
demonstrates
media
that
market,
both
there
is
schools
no
operate
evidence
in
the
before
the
same
Court
establishing that EEG took active steps to recruit students from
the
city
of
Norfolk
and/or
students
that
were
otherwise
considering enrolling at Plaintiff's school.
In addition to the real,
but
limited,
competition between
the schools for a small percentage of cosmetology students,
fact
that
there
are
Hampton Roads area,
several
to
other
include a
by the President of Wards Corner,
calculus.
Also
relevant
companywide operations.
the
Virginia
Beach
is
competitors
"competitor"
in
the
the
broader
academy co-owned
is relevant to the competition
the
size
and
scope
of
EEG's
Mr. Bouman's testimony established that
location
was
one
schools owned and operated by EEG,
of
and
approximately
that
it
ninety
accounted
for
slightly more than IH percent of EEG's revenue, with anticipated
annual profits of around $50,000 to
$60,000.
While such facts
do not undercut the reality that EEG and Wards Corner competed
on
a
local
basis
for
some
fraction
of
potential
cosmetology
addresses as listed on Plaintiff's proposed witness list in the final
pretrial order entered in this case, and therefore appears to reflect
current addresses as of November 2017 rather than addresses at the time of
enrollment.
how
many
of
Second,
these
and more importantly,
seven
students
were
such figure does not indicate
enrolled
program, as contrasted with the barbering program.
unremarkable
students
to
the
competition
attended P l a i n t i f f ' s
calculus
Norfolk school
if
in
Virginia
because
the
cosmetology
As noted above,
Beach
EEG does
it is
barbering
not
offer a
barbering course in Virginia Beach.
In summary, as repeatedly stated
herein, while the record plainly demonstrates that "some" competition for
cosmetology students existed in early 2016 when Mr. Bouman participated in
the accreditation review process, the evidence suggests that the schools
directly competed for a small fraction of their cosmetology student body.
40
students
that would be willing,
location,
EEG did not
compete
and able,
to commute to either
with Wards
Corner
for
the vast
majority of its overall student body, who were educated in areas
outside
size
of
of
Hampton
EEC's
overall
because EEG has a
every market
Roads,
Virginia.
company
Stated
is
differently,
certainly
not
the
dispositive
legitimate business motivation to succeed in
in which
it participates;
however,
EEG's
overall
size lends useful context because the respective motivations of
both
schools,
that
EEG had with Wards
example,
and
EEG
operation
the
was
degree
familiarity
Corner would be
truly
a
of
two
consisted
of
"local"
or
far
(or
lack
different
competitor
three
thereof)
if,
whose
schools
for
entire
in
Southeast
any
potential
Virginia.
Considering
immediate
the
benefit
that
Plaintiff's school,
one
of
four
likelihood,
EEG
first,
local
and
would
scope,
realize
of
from
the
closure
of
EEG's Virginia Beach school was only
"competitors"
to
Wards
Corner,
and
would
likely have to "compete" to a degree for any resulting benefit.
Second,
been
the scope of any immediate pecuniary benefit would have
expected
to
be
(and
was
explained by both Plaintiff's
in
fact)
limited
owner and Mr.
difficulties transferring credit hours from a
one
company
differences
to
in
a
school
teaching
operated
methods
41
by
and
because,
Bouman,
there
as
are
school operated by
another
company
curriculums,
Tr.
due
to
38-39,
221-23.
Third,
student body,
based on
"few"
the
economic
status
of
Wards
Corner's
students would have been expected to have
the resources to travel to another regional city for education,
rendering
it
"unlikely"
that
many of
Wards
Corner's
would transfer/travel to EEC's Virginia Beach school.^'
Plaintiff's
own
word
characterizing
the
regional
students
To use
market,
in
light of the fact that EEC did not offer a barbering course, and
transportation
students
from
concerns
severely
commuting
to
another
evidence demonstrates that i t is
expected
to
closure of
detail
secure
Wards
below,
any
school
perceived
local
many
benefit
the
hearing
that EEC would have
financial
(and as
cosmetology
city,
"unlikely"
material
Corner's
the
hindered
benefit
from
discussed
that
would
the
in greater
potentially
redound to EEC's president, an owner of less than one percent of
EEC's stock,
would be even further attenuated).
Accordingly,
demonstrates
the
Court
in
early
that,
competition for clients"
F.3d
at
743,
and
cosmetology students
finds
2016,
that
there
the
was
trial
in
fact
between Plaintiff and EEC,
although
from
each
the
school
city where
may
the
"'some'
Stivers,
have
other
evidence
71
enrolled
school
was
while Plaintiff's owner clarified such earlier-in-time sworn statement
during his live testimony,
transportation or "Uber"
suggesting that some students could use pxiblic
to commute,
for the reasons discussed herein,
it
is unlikely that most students/prospective students could afford to travel
by Uber on a daily basis, and while bus transportation is available in the
region, a student's willingness to rely on the bus naturally decreases as
the distance and/or number of required bus transfers increase.
42
located,
the
degree
to which socioeconomic
and other factors
impacted enrollment/recruitment suggests a far lesser degree of
"competition"
were
than would exist
directly
"bidding"
in a
against
case where
each
other,
two companies
or
otherwise
actively "competing" for the same clients or contracts.^®
2.
Financial Interest in EEG
The hearing evidence established that,
Bouman had a
years
the
small stock ownership interest in EEG,
earlier he
than 1% of
Wards
in early 2016,
executed
a
promissory
EEC's privately held stock
Corner
accreditation
note
to
(.67%).
decision,
Mr.
as several
purchase
At
Mr.
the
Bouman
less
time of
was
aware
that the EEG stock he owned was worth less than he agreed to pay
for
it,
which created some motivation
correctly stated,
to
act
to
for
Mr.
a reasonable person in Mr.
improve
EEC's
financial
Bouman,
Bouman's position,
condition.
considering all of the relevant facts,
or more
That
to include Mr.
said,
Bouman's
salary level, a reasonable company administrator in Mr. Bouman's
shoes would appear to be just as likely,
if not more likely,
to
be motivated by a general desire to "succeed" and to have his or
her company perform well as the desire to improve the company's
As a matter of local geography, it cannot be said that a student with a
Norfolk address necessarily lived closer to Plaintiff's school than EEG's
school as EEG's school is only a few miles from the Norfolk border.
The
Court
notes
that
the
record does not
establish whether EEG had the
capacity at its Virginia Beach school to accept a large number of transfer
students in early 2016 and/or whether EEG was having any difficulty
attracting students at its Virginia Beach location at such time.
43
financial condition in order to achieve a consequential benefit
to his or her personal bottom line as owner of
.67% of EEC's
company stock.
In addition to his ownership interest,
it is undisputed
that during past periods of company prosperity,
received
raises
to
his
salary
and
a
Mr.
Bouman had
substantial
bonus and/or Christmas bonus from EEG.
performance
That said, the hearing
testimony and evidence demonstrated that Mr. Bouman did not have
any
realistic
opportunity
to
obtain
a
bonus
at
the
participated in Wards Corner's accreditation decision
foreseeable
future).
As
testified that both EEG,
substantial decline for
noted
above,
and the entire
Mr.
Bouman
industry,
time
he
(or in the
credibly
had been in
several years due primarily to changes
in federal policy regarding student loan debt.^^
Additionally,
the
approximately
record
establishes
that
Mr.
Bouman,
who
was
From a subjective standpoint, the Court finds that Mr. Bouman, whose
testimony demonstrated that he is both credible and principled, would have
taken lawful and ethical steps to improve EEG's financial status
regardless of whether he had any ownership interest in EEG because he was
clearly dedicated to his
company.
Although the Court's objective
analysis does not consider such fact, it appears that Mr. Bouman's
ownership interest had no impact on the way he conducted himself as
President of EEG, nor did i t have any actual impact on his conduct as a
Commissioner,
to
include
his
decision
to
recommend
that
Plaintiff's
accreditation be withdrawn.
Mr. Bouman had not received a performance bonus since 2013, and his
last Christmas bonus was:
(1)
more than a
year removed from his
participation in the Wards Corner accreditation decision; and (2) was
approximately $5,000, a figure that must be considered in the context of
both Mr. Bouman's salary and the fact that EEG's Virginia Beach school was
just one of approximately ninety EEG locations (rendering it unlikely that
any increased enrollment at this school would have a material impact on
the profitability of the company as a whole).
44
70,
was
which
considering
undercuts
personal
retirement
any
from
suggestion
financial
interest
financial position."
EEG,
that
in
he
or
semi-retirement,
was
motivated
improving
EEC's
by
a
long-term
See, e.g., Tr, 245-46.
3. Participation in the Withdrawal Decision
The undisputed facts demonstrate that while Mr.
not formally
the
meeting
"vote"
of
the
to withdraw Wards Corner's accreditation at
full
Commission,
accreditation review process.
Mr.
Bouman
was
one
Bouman did
of
three
he
First,
members
had
two
and most
of
the
roles
in
the
significantly,
"file
review
team"
that reviewed Wards Corner's file in the days leading up to the
meeting of
the
above,
Mr.
Bouman's participation in such file review team was
merely
by
"action
NACCAS
happenstance
Commissioner;
reviewing
full
however,
Wards
form"
he
Mr.
Corner's
in
his
was
Bouman
file
recommending
withdraw accreditation.
Second,
as
Board of
as
did
in
he
the
Joint Ex.
role
filling
and
that
Commissioners.
in
fact
for
an
noted
absent
participate
personally
full
As
signed
Commission
vote
in
the
to
17.
Chairman
of
the
Commission,
Mr.
Bouman presided over the meeting of the full Commission at which
Ward's
Corner's
accreditation
withdrawn by unanimous
Mr.
vote
was
of
the
considered
and
ultimately
other eleven Commissioners
Bouman's partial ownership of EEG would have been surrendered
(and
valued) at the time of his retirement, so he did have some personal
financial interest in the short-term value of EEG's company as a whole.
45
(including
the
two
Commissioners
team with Mr. Bouman).
such
discussion
or
"moderating"
the
reflect
"moderating"
otherwise
the
recuse
(although
discussion
of
the
himself
the
discussion
actually occurred).
role as Chairman,
on
file
review
Mr. Bouman did not leave the room during
length
the
who were
from
his
record
does
not
whether
and/or
Although Mr.
role
any
Bouman,
in his
did not personally participate in any debate
engaged in by the full Commission and did not formally cast a
vote
to
arguably
form."^^
Bouman's
withdraw
Ward's
Corner's
accreditation,
his
vote
was
symbolically cast through his signature on the "action
Accordingly,
two
roles,
if
in
he
light
were
substantial pecxmiary interest
of
the
found
combination
to have
in the
had a
outcome,
his
of
direct
Mr.
and
involvement
would likely be enough to result in the denial of Plaintiff's
right to an impartial decisionmaker.
4. Analysis
Considering the totality of the above case-specific facts,
the
Court
finds
that
Plaintiff
fails
to demonstrate
that
it
was
denied an impartial decisionmaker based on Mr. Bouman's indirect
financial
"
interest
in
the
outcome
of
the
Wards
Corner
It does not appear that the members of the Commission actually had the
action form before them when they met and voted unanimously to withdraw
Wards Corner's accreditation.
Tr.
93,
294.
That said, Mr. Bouman freely
acknowledged during his testimony that the members of the Commission know
which individuals are on which file review teams, that they all knew that
one Commission member was absent from the February 2016 meeting, and that
they likely knew that Mr.
team with the absent member.
Bouman had filled in to help the file review
Id.
at 294-97.
46
accreditation
review process.
demonstrates
that
competed
over
competitive
locations
student
"some"
EEG
fraction
evidence
and
of
the
body
of
schools
both
and
Plaintiff's
the
Court
Corner
students,
the
before
Wards
interest is best described as
of
Moreover,
although
The
may
have
of
such
the
limited based on the
socioeconomic
school
assuming that a person in Mr.
scope
of
EEC's
and
status
the
school.
Bouman's position would
know that the closure of Ward's Corner's school would provide a
limited competitive benefit to EEG,^^ the degree to which such
limited benefit
if
at
characterized
as
speculative.
While Plaintiff successfully demonstrates that Mr.
Bouman was a
further
would
removed,
partial
"owner"
and
inure
to
Mr.
accurately
Bouman,
all,
is
even
of EEG who had previously received performance
bonuses, and thus a reasonable person in his position would have
some financial motivation to advance the profitability of EEG's
Virginia
specific
Beach
in
during
the
spring
of
2016,
the
case-
evidence reveals that such interest was both "slight"
and indirect.
result
school
a
Notably,
direct
closing Wards Corner's school would not
monetary
payment
to
Mr.
Bouman,
and
any
The hearing testimony established that a cosmetology school does not
need to be accredited in order to operate in Virginia,
although
accreditation is required to enroll students receiving federal financial
aid (a critical funding source).
Accordingly, while Mr. Bouman, or any
other Commissioner, may have presumed that withdrawal of Wards Corner's
accreditation would lead to
its
closure,
such result was not
a
definite
consequence.
Moreover, there are other schools in the same geographic
area competing for students, thus further mitigating any benefit to EEG if
Wards Corner's school lost its accreditation and/or closed.
47
"trickle down" financial benefits he would receive in the future
were,
at
least on these
in
interest
facts,
of
the
outcome
is best described as
Wards
"limited"
between the various schools;
the
Hampton
Plaintiff's
Roads
remote.
region;
students
Corner's
(2)
school;
include
the
ownership
and
(3)
size
of
interest
other
Mr.
{1)
the
review
the distances
acknowledged
lacked
reality
access
to
that
private
to commute to EEC's Virginia
relevant
case-specific
Bouman's
in EEC,
financial
the number of "competitors" in
generally
{4)
Bouman's
accreditation
in light of:
transportation and were "unlikely"
Beach
Mr.
base
the
that EEC s
fact
salary,
facts,
his
to
limited
Virginia Beach
school represents only approximately IH percent of EEC's
total
revenue, Mr, Bouman's plan to retire in the near future, and the
fact
that
Mr.
Bouman had not
received a
performance bonus
in
several years.
In
addition
to
the
above,
Mr.
Bouman
credibly
testified
that he was unaware of the proximity of the two schools when he
participated in the
February 2016
Commissioner's meeting,
while it would have been prudent for a
The
Court
makes
the
observation
that
"reasonable person"
Mr.
Bouman's
and
in
substantial
performance bonus for the 2012-2013 year, if divided evenly across all
EEG's schools, amounts to approximately $1,500 per school.
Similarly, if
calculated on a revenue basis, the bonus attributed to EEG's Virginia
Beach school would be around $2,200.
While
the Court does not rely on
either figure in reaching its decision in this case (because such figures
are speculative without factual detail as to actual performance of each
school) it provides further context to the Court's findings.
48
his
position
to
perform
additional
research
and
consider
recusal, even if only out of an abundance of caution to preserve
the
appearance
of
impartiality,
the
evidence
fails
to
demonstrate that the competitive interest at issue in this case
rises
to
right
the
to
level
"fair
that required recusal under the
procedure"
and/or
Defendant's
common law
own
established
ethical rules.
The
fact
Court
considers
as
part
of
the
overall
that NACCAS's board is required to include a
industry
practitioners,
as
well
as
Mr.
calculus
the
majority of
Bouman's
testimony
regarding the value such practitioners' experience brings to the
Commission.
The
desire
to
benefit
from
such
specialized
knowledge cannot be used as a shield to avoid the obligation to
provide member institutions an impartial decisionmaker; however,
a
company
is
accreditation
not
procedure
commissioners might,
"some"
denied
its
merely
on occasion,
common
law
because
right
one
to
of
a
fair
several
compete with such company for
customers.
The Court notes that while the analysis herein is phrased primarily in
a
manner that addresses whether Plaintiff was afforded i t s common law fair
procedure right to an impartial decisionmaker, such analysis applies
equally with respect to whether NACCAS followed its own internal
procedures.
NACCAS' conflict of interest policy necessarily requires a
Commissioner to evaluate the scope of a potential conflict in determining
whether to recuse himself or herself from a specific agenda item, and the
application
of
such
fact-specific
analysis
is
consistent
with,
existent with, the common law right to an impartial decisionmaker.
49
and
co
The Court also considers as part of its calculus the fact
that Mr. Bouman did not formally vote to withdraw accreditation,
although he did "recommend"
most,
if not all, of the other Commissioners likely knew that he
had
made
however,
the
that accreditation be withdrawn and
such
recommendation.
in light of Mr.
outcome,
and
review team was
suggest
that,
impropriety,
presumption
order
to
the
Even
fact
the
such
that
absence
his participation in
it
honesty
follow
a
and
of
any
integrity,
"recommendation"
the
file
would strain credulity to
actual
eleven independent Commissioners,
of
knowledge,
Bouman's limited personal interest in
by happenstance,
in
with
evidence
operating with a
abdicated
of
Mr.
of
such
Bouman
role
rather
in
than
exercising their own independent judgment.
This Court is well aware of controlling precedent regarding
the
impact
of
a
judicial panel,
follow
such
Williams
v.
biased
individual
and independent of
precedent,
agrees
Pennsylvania,
136
on
the
this
Ct.
of
a
Court's obligation to
entirely
S.
independence
with
1899,
its
1909
reasoning.
(2016)
("The
Court has little trouble concluding that a due process violation
arising
defect
from
'not
the
participation
amenable'
to
of
an
harmless-error
interested
review,
whether the judge's vote was dispositive.").
facts,
rise
in this context,
to the
level
Mr.
judge
is
regardless
However,
a
of
on these
Bouman's indirect interest does not
that would disqualify him,
50
let alone
impute
presumed bias to the entire Commission.
Additionally,
secrecy
and
is
not
an
issue
in
this
case,
the
judicial
parties
have
explored Mr. Bouman's participation in the Commission's decision
making process.
final
Moreover, Mr. Bouman did not participate in the
debate before
the dispositive vote was
cast,
nor did he
actually cast a vote in the dispositive decision.This matter
also did not
judicial
involve constitutional due process rights,
proceeding,
intentionally
While
the
composed
procedural
cannot allow this
evidence
of
actual
either standard,
that
possible
to
of
industry
the
look the
or a
risk
a
accreditation
bias
panel
representatives.
other way
of
private
decision
in the
face
of
so great
that
it
the facts before this Court do not satisfy
as the indirect financial interest at issue,
was
not
even
to .
nice,
and
known
to
Mr.
Bouman
at
the
time
an
of
does not rise to the level that "would offer
temptation
Adjudicator]
clear
involves
multiple
posture
bias,
his participation,
a
instead
of
Court
should be presumed,
interest
but
nor a
.
.
to
the
average
lead him
[or her]
true."
Caperton,
556
.
.
.
[Administrative
not to hold the balance
U.S.
at
878
(citations
" To the extent that Mr. Bouman's role is subject to being characterized
as more akin to an administrative investigator/prosecutor making a
recommendation to the panel of individuals that would cast the dispositive
vote, the Supreme Court has recognized the while prosecutorial bias can
rise to a level that raises serious constitutional questions, "the strict
requirements
of
neutrality
cannot
be
the
same
for
administrative
prosecutors as for judges, whose duty i t is to make the final decision and
whose impartiality serves as the ultimate guarantee of a fair and
meaningful proceeding in our constitutional regime."
Marshall v. Jerrico,
Inc.,
446 U.S.
238,
249-50
(1980).
51
omitted);
(noting
cf.
that
In re Virginia Elec.
when
considering
should disqualify a
case,
such
judge
federal
& Power Co.,
whether
"any
"must necessarily consider
presumption
of
honesty
other
interest"
judge from presiding over a
the interest and its extent or degree").
the
539 F.2d at 368
and
integrity
the
civil
remoteness
of
Stated differently,
is
not
overcome
by
Plaintiff in this case based on allegations of bias and/or the
potential for bias.^®
This
Court's
finding
in favor
of
Defendant
should not
be
interpreted as a tacit endorsement of Defendant's 2016 procedure
for
implementing
Bouman's
its
testimony
code
of
ethics.
indicating
recusal
that
system
Notwithstanding
he
that
personally
views
a
competitors
(at least for any Commissioner who works for a large
to
the
right
Commission
to
instant
a
fair
case
cannot
a
trump
presented
a
local
desire to avoid inconvenience
an
proceeding by a
direct
as
unworkable
multi-state company like EEG),
considers
Mr.
individual
fair
relatively
member
tribunal.
close
school's
Frankly,
call,
the
ultimately
For the reasons argued by Defendant, ECF No. 151, at 13-16, the Court
rejects Plaintiff's late-raised contention that it was denied the right to
fair procedure based on Defendant's method of combining investigative
and/or prosecutorial functions with adjudicative functions.
Such claim is
untimely as i t was not identified by Plaintiff as a triable issue in the
final pre-trial order.
ECF No. 131.
Moreover, such claim is without
merit
as
the
fact
that
the
NACCAS
Board
of
Commissioners
divided
into
small groups to evaluate individual agenda items in greater detail prior
to a debate by the full Commission suggests a reasoned and fair process,
not a process that creates a "risk of unfairness [that] is intolerably
high."
Withrow, 421 U.S. at 58; see 7 West's Fed. Admin. Prac. § 8305
(2017 Update).
52
requiring
best
this
Court,
the
through
resolved
and
parties,
to
wade
into a
the
administrative process.
matter
While
evidence presented in open court demonstrates
that
fair procedure rights were not violated,
Court notes
surprise
NACCAS
that,
in
applying
Commissioners
they own or operate
do
is
not
the
code
always
of
this
Plaintiff's
conduct,
consider
its
individual
whether
in close proximity to the
the
a
school
school being
evaluated and/or the degree to which an unfavorable ruling as to
a
"competitor" school might redound to the financial benefit of
the
interested
363
F.2d 757,
Commissioner.
767
{6th Cir.
See
1966)
Am.
Cyanamid
("It
Co.
v.
is fundamental
F.T.C.,
that both
unfairness and the appearance of unfairness should be avoided.
Wherever there may be reasonable suspicion of unfairness,
best to disqualify."). The time,
litigation
itself may go
a
evaluate its internal rules,
a
"state-wide"
or
arbitrary
long
scope,
way
it is
effort and cost of this
in causing NACCAS to
re-
and while the Court recognizes that
"25
mile
radius"
disqualification
rule regarding competitor institutions may be akin to using a
cannon to shoot a fly,
to suggest that no consideration of local
competition is a wise policy suffers its own logical fallacies.
Balancing such factors, however, is a matter for NACCAS.^'
"
To the extent Plaintiff contends that NACCAS's ethical policies,
written,
fail
to
comply
with
federal
regulations,
such
assertion
as
is
rejected.
The issue requiring the resolution of disputed facts and
inferences in this case has always been centered on whether Mr. Bouman's
interest in EEG required him to recuse himself under the portions of
53
III. Svunmary and Holding
For the reasons set forth in detail above, having carefully
examined
the
remoteness
extent/degree of
such
of
Mr.
interest,
Bouman's
judgment
is
interest
to
be
and
the
entered
in
favor of Defendant.^"
The Clerk is REQUESTED to send a
Order to a l l
IT IS
counsel of
copy of this Opinion and
record.
SO ORDERED.
/s
Mark S.
Davis
UNITED STATES DISTRICT JUDGE
Norfolk, Virginia
February Joi , 2018
NACCAS's ethical rules that are not subject to being defined with
precision, such as the requirement that a Commissioner consider whether
his or her "duty of loyalty to NACCAS . . . can be prejudiced by actual or
potential personal benefit from another source."
Joint Ex. 3.
The Court notes that there are two outstanding motions for attorney's
fees in this case.
EOF Nos. 107, 109.
They will be addressed by separate
Order.
54
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