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)

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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 Defendant determined withdrawn.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 & 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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