Takeaway
In short, this case holds that private accrediting agencies do not, absent a recognized legal duty or actionable false statements, become liable in negligence to students merely because they accredited and monitored the students' school.
Native American students attended Tempe Technical Institute (TTI) and financed their education with federally guaranteed student loans. Two national accrediting agencies, the Accrediting Bureau of Health Education Schools/Programs (ABHES) and the Accrediting Commission of Career Schools and Colleges of Technology (ACCSCT), had accredited TTI. The students alleged that the agencies negligently accredited and monitored TTI, causing them economic loss.
The accrediting agencies moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), attaching materials describing their accreditation procedures and standards. The district court dismissed the negligence claim for failure to state a claim and denied the students leave to amend to add negligent misrepresentation. It concluded that the agencies owed no legally recognized duty to TTI students. The students appealed.
Issue #1
Whether the district court was required to convert the accrediting agencies' Rule 12(b)(6) motions into motions for summary judgment because the agencies attached extrinsic exhibits.
Holding
No. The court properly treated the motions as motions to dismiss because it did not rely on the attached materials.
Reasoning
Rule 12(b) ordinarily requires conversion to summary judgment when matters outside the pleadings are presented and considered. But Ninth Circuit precedent permits a court to retain the Rule 12(b)(6) posture if the record does not suggest that the court relied on the extraneous materials.
Here, although ABHES and ACCSCT submitted exhibits about their accreditation procedures and standards, the district court expressly stated that it did not rely on those exhibits. Its conclusion rested on the legal insufficiency of the complaint, so conversion and the accompanying summary-judgment procedures were unnecessary.
Issue #2
Whether the district court abused its discretion by denying the students leave to amend their complaint to assert negligent misrepresentation.
Holding
No. The proposed amendment lacked a factual basis for the required allegation that the accrediting agencies made false statements.
Reasoning
Arizona recognizes negligent misrepresentation and follows Restatement (Second) of Torts § 552 in defining the tort. A claim under that provision requires, among other things, false information supplied by the defendant in the course of business or another covered transaction.
At the hearing on the requested amendment, the district judge repeatedly asked the students to identify evidence that either accrediting agency had made false statements. The students could not provide factual or evidentiary support for that essential allegation. Given that failure, denying leave to amend was not an abuse of discretion.
Issue #3
Whether Arizona law imposed a negligence duty on private accrediting agencies toward students attending the schools they accredited.
Holding
No. ABHES and ACCSCT owed no tort-law duty to TTI's students under Arizona law.
Reasoning
A negligence claim under Arizona law begins with a legally recognized duty requiring the defendant to conform to a particular standard of conduct. Whether such a duty exists is a question of state law, and Arizona's foreseeability-based duty analysis asks whether both the plaintiff and the risk were foreseeable to a reasonable person.
The students argued that it was foreseeable that careless accreditation or monitoring would financially harm students who enrolled in an accredited school and borrowed money to attend it. The court held that foreseeability alone did not establish a duty in this context.
The students did not sufficiently show that the agencies supplied false information, and Arizona authority had not recognized a comparable duty running from an accrediting agency to students at an accredited institution. Nor were ABHES and ACCSCT subject to the sort of public-duty framework contemplated by Restatement § 552(2) and (3).
Most importantly, the students identified no decision anywhere in the United States holding that accrediting agencies owe students a tort duty based on the agencies' accreditation of a school. The Ninth Circuit therefore concluded that Arizona would not recognize the asserted duty, making dismissal proper.