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PEORIA SCH. OF BUS., INC. v. ACCREDITING COUNCIL F

October 30, 1992

PEORIA SCHOOL OF BUSINESS, INC., Plaintiff,
v.
ACCREDITING COUNCIL FOR CONTINUING EDUCATION AND TRAINING, a Virginia Corporation, Defendant.



The opinion of the court was delivered by: MARVIN E. ASPEN

 MARVIN E. ASPEN, District Judge:

 Plaintiff Peoria School of Business, Inc. ("Peoria") brings this action to enjoin Accrediting Council for Continuing Education and Training ("ACCET") from enforcing its decision to withdraw the accreditation of Peoria--a decision which Peoria contends violates its Fifth Amendment right to due process as well as common-law principles of fundamental fairness. ACCET now moves to dismiss Peoria's complaint pursuant to Fed. R. Civ. P. 12(b)(6) and, for the reasons set forth below, we grant the motion.

 I. Background

 Peoria alleges the following facts in its complaint which, along with all reasonable inferences therefrom, we take as true for the purposes of the current motion. Meriwether v. Faulkner, 821 F.2d 408, 410 (7th Cir.), cert. denied, 484 U.S. 935, 108 S. Ct. 311, 98 L. Ed. 2d 269 (1987). Peoria, an Illinois corporation, is licensed as a vocational school by the Illinois Department of Education. ACCET, a nonprofit corporation organized under the laws of Virginia, is a voluntary association of educational institutions associated for the improvement of adult continuing education and training. ACCET is recognized by the United States Department of Education as a national accrediting agency. See 34 C.F.R. ┬ž 602 et seq. To aid in the process of accreditation and in compliance with the criteria of the Department of Education, ACCET has promulgated (1) Policies and Practices of the Accrediting Commission, (2) Standards for Accreditation, and (3) Policy and Procedure for Processing Complaints about Members Institutions.

 In April, 1991, ACCET accredited Peoria for a period of five years. After receiving complaints about Peoria, by letter dated January 2, 1992, ACCET directed Peoria to show cause why its accreditation should not by withdrawn. Following an on-site examination of Peoria, conducted pursuant to ACCET's "show cause" procedures, on April 21, 1992, ACCET withdrew the accreditation granted to Peoria in April, 1991. The purported basis of ACCET's action was that Peoria did not comply with standard III-A, which provides:

 Stability: The applicant shows a record of responsible financial management with income sufficient to maintain a continuing program of high quality, and to complete the instruction of all enrollees. Adequate financial planning and budgeting exists.

 Interpretation of Standard: The applicant demonstrates responsible financial management with income sufficient to maintain a continuing program of high quality and to complete the instruction of all enrollees. Financial records were reviewed. Specific clear breakdowns demonstrate a current assets to current liabilities ratio of at least 1:1. Major expenditures and major sources of income are clearly evaluated and reviewed.

 Peoria appealed this determination in accordance with procedure established by ACCET. On July 21, 1992, finding that Peoria had submitted sufficient evidence to warrant reconsideration, the appeals panel remanded the matter to the accrediting commission. Nonetheless, the accrediting commission reaffirmed its decision to withdraw accreditation. The decision became final upon communication to Peoria by letter dated July 30, 1992.

 Peoria filed suit in the Circuit Court of Cook County, alleging that ACCET's determination was made in violation of Peoria's Fifth Amendment right to due process and of common-law principles of fundamental fairness. Specifically, Peoria contended (1) that the decision was based on vague and subjective standards for accreditation, (2) that ACCET's determination was premised on erroneous factual conclusions, and (3) that the withdrawal was tainted by ex parte participation in the appeals process by the United States Department of Education. Peoria's claim brought in part under the Fifth Amendment of the United States Constitution and given the diversity of citizenship between the parties, ACCET removed the action to this court.

 II. Discussion

 There is no doubt that the loss of its accreditation will work substantial financial harm to Peoria. The initial question, however, is whether that harm gives rise to a constitutional deprivation. We conclude that it does not.

 Framed as a violation of due process, Peoria is met with the burden of attributing ACCET's action to that of the federal government. See LaBoy v. Zuley, 747 F. Supp. 1284, 1286 (N.D. Ill. 1990) (due process clause of the Fifth Amendment applies only to action by the federal government and federal officials). We begin by noting that the fact that an entity is subject to extensive and detailed regulation (as is ACCET) does not alone render its actions attributable to the government. Jackson v. Metropolitan Edison Co., 419 U.S. 345, 350, 95 S. Ct. 449, 453, 42 L. Ed. 2d 477 (1974). Rather, "the inquiry must be whether there is a sufficiently close nexus between the [government] and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the [government] itself." Id. at 351, 95 S. Ct. at 453. A nexus between ACCET's actions and the federal government sufficient to bring such conduct under the scope of the Fifth Amendment may be established by (1) showing that government exercised such coercive power or such significant encouragement that it is responsible for the specific private conduct challenged, or (2) that the private entity has exercised powers that are traditionally the exclusive prerogative of the government. See Blum v. Yaretsky, 457 U.S. 991, 1004-05, 102 S. Ct. 2777, 2785-86, 73 L. Ed. 2d 534 (1982).

 Peoria's bid for Fifth Amendment protection rests on its contention that ACCET, although a private association, performed the "exclusively public function of accreditation." Peoria's Brief in Opposition to ACCET's Motion to Dismiss at 6. The issue of whether accreditation is a power traditionally the exclusive prerogative of the government, thus providing a sufficient nexus between the accrediting body and the federal government, was addressed by this ...


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