LEGAL UPDATE: CURRENT ISSUES AFFECTING ACCREDITING BODIES

Introduction

When asked to consider the most important legal issues affecting accrediting boards today, what came to mind instead were the many changes in economic restructuring. Anticipating the outcome of regulatory reform efforts, particularly in healthcare, remains the greatest challenge for those in the accreditation world.

However, a few recent legal developments may directly or indirectly influence the operation of private, standard-setting organizations. One which should be examined by all accrediting boards is the consent decree entered into by the Department of Justice (DOJ) with the American Bar Association (ABA). In addition, Congress has proposed and even passed legislation aimed at encouraging nonprofit organizations (including accrediting bodies) to pursue their activities with a reduced concern for legal liability. This resource brief reviews the key outcomes of these developments.

The ABA Consent Decree with the DOJ

Antitrust liability has long been a concern of accrediting bodies. It is the claim most likely to be raised by applicants denied accreditation.² Not surprisingly, the most heated, recent antitrust development involving an accrediting body arose from a law school rejected for accreditation by the ABA. The Massachusetts School of Law at Andover claimed the ABA standards in and of themselves were anticompetitive and at times irrelevant, the ABA monopolized and conspired to monopolize law school accreditation, and the requirement in forty-two states of graduation from an ABA-accredited law school in order to sit for a bar exam is in effect anticompetitive.³ The resulting federal antitrust lawsuit filed against the ABA by the Massachusetts School of Law at Andover sparked the DOJ’s interest in accreditation.

Following initiation of the law school’s complaint, the DOJ began an investigation, which resulted in its own antitrust complaint against the ABA.⁴ DOJ’s suit charged the ABA’s system of accreditation gave too much control to faculty of accredited law schools, and both the substance and application of ABA’s standards were anticompetitive.⁵ The substance was contested in part because the committees that make and review standards are staffed almost entirely by law school deans and faculty. The ABA’s application of its standards was challenged, also due in part to the composition of various committees and site evaluation teams that judged whether or not a particular school met the standards. The cases ended in a consent decree that was issued as a final judgment in June 1996.⁶

The consent decree focused on ensuring regulators of law school accreditation are to include and be open to, if not embrace, the ideas and involvement of persons affected by the outcome of law school accreditation, including practicing lawyers, judges, and other members of the public. The DOJ’s position held those insiders
who most immediately benefit from granting and denying accreditation should not control the criteria used in future accreditation, and the public should be given a voice in setting the standards and applying them.

Specifically, the consent decree required the ABA to subject all proposed interpretations, rules and policies to the same review process proposed standards must undergo. Typically, this process consists of publishing proposed standards in the ABA journal and on the ABA website, allowing a period of public comment, and holding a public hearing before the standards are voted on by the Council of the Section of Legal Education and Admissions to the Bar (Council). In addition, no more than half of the members of the ABA’s Council, Accreditation Committee, and Standards Review Committee are permitted to be drawn from law school deans or faculty. Finally, the ABA is enjoined from soliciting and collecting law school personnel salary information.

These changes are intended to provide an opportunity for public participation in the application of the standards. Significantly, not only do the requirements of public review apply to the process of adoption of standards, but also to the site evaluation team that assesses whether a school meets the standards for accreditation. Under the consent decree, the membership of each site evaluation team was revised to include at least one university administrator who is not a law school dean or faculty member and one practicing lawyer, judge or public member. All of these requirements are subject to annual review by a special commission established for the purpose of revising any standards, rules, or interpretations that it finds do not comply with the decree.

The consent decree further required the ABA to establish and maintain an antitrust compliance program for ten years, under the supervision of an Antitrust Compliance Officer, to ensure compliance with the consent decree. (The ABA has appointed its general counsel, Darryl L. DePriest, as its Antitrust Compliance Officer.) The compliance officer is responsible on a day-to-day basis for identifying and recommending the revision or elimination of any provisions or activities he finds do not comply with the decree; for submitting copies of all proposed changes in standards, rules, and interpretations to the DOJ before they are adopted; and for submitting copies in their final form after adoption. He must also distribute copies of the decree to the board and all committees/persons to which it applies, as well as all deans and presidents of accredited universities.

Overall, the compliance officer must ensure all affected persons are aware of the new requirements and all requirements are met as to any actions taken by the ABA.

The Effect of the ABA Consent Decree for Other Accrediting Bodies

How does this case impact the accreditation activities of other voluntary accreditation programs?⁷ One of the key issues in the case, and the focus of the DOJ, is the membership, structure and composition of the governing body and committees of the accrediting board. Accrediting bodies must allow an opportunity for those not affected by the actions of the board to have a voice in the setting and application of standards. The DOJ was drawn to the ABA because the ABA Council (which set law school accreditation standards) was made up in large part by deans and faculty of accredited law schools, i.e., those persons who had an interest in creating and applying standards strictly. At the time the suit was instituted, 90% of the members of the accreditation section of the ABA were law school faculty.⁸

There are several proactive measures accrediting bodies should take based on review of the ABA consent decree:

• First, the term of service for members of the governing boards should be limited. This restriction prevents the same group of people from setting and evaluating accreditation standards over time.
• Second, a nominating procedure should be established that encourages participation by new representatives in the field. Involvement with new entrants helps keep accreditation standards in line with current developments and demonstrates the accrediting body supports competition in the field.
• Third, boards of accrediting bodies should have several public members. Although the ABA was required to have 50% public members, this is not necessarily a threshold number. Fewer public members are acceptable in many instances.
• Finally, financial data of an organization applying for accreditation should seldom, if ever, be sought, especially compensation comparisons between staff of currently accredited bodies and those seeking accreditation. The consent decree disallows standards based on faculty salary, and similar standards should be avoided in accreditation.

Adherence to the goals of providing sufficient opportunity for outside voices to be heard and not basing accreditation on irrelevant or financial data is the proper position to take to avoid antitrust allegations in accrediting.

Other New Developments of Interest to the DOJ

Since the ABA case, accreditation is not the only issue attracting the DOJ also details the procedures for this motion, as attention. Recently, the Department of Justice has begun to focus on issues of antitrust violations of nonprofit corporations. The DOJ has undertaken investigations of corporations ranging from accreditation bodies to credit card companies.

For example, Assistant Attorney General for Antitrust Joel Klein, who helped institute the suit against the ABA, has since begun investigations of Visa and MasterCard.⁹ Visa and MasterCard, both nonprofit corporations, are under investigation for a more standard type of antitrust violation - monopolization - specifically for maintaining hold of 75% of the market in banks issuing credit cards.¹⁰

While many nonprofits are not in a position to exercise control over such a large, economically viable market, Klein’s attention has been directed to nonprofit, standard-setting organizations, and he is not likely to forget them.

Legislative Developments

Congress, on the other hand, has been dealing with issues that have long plagued the nonprofit world. The most important development in Congress is the passing of the Volunteer Protection Act, originally drafted as HR 911, which was signed into law on June 18, 1997, and which will take effect on September 18, 1997. This legislation protects the volunteer from liability for his negligent acts in the scope of his duties as a volunteer for 501(c)(3) organizations and other nonprofit groups.¹¹

Only negligent acts of the volunteer are covered, and the volunteer is still liable for any actions beyond simple negligence, such as any grossly negligent, willful or reckless act. In addition, the volunteer will not be liable for punitive damages for any grossly negligent or reckless act. (Volunteers remain liable for participation in any hate crime, sexual offense, or civil rights violation.) Many states have already enacted such protection, but the federal statute brings a greater certainty to volunteers that immunity will extend no matter in which jurisdiction or under what law a claim is brought.¹²

While this bill, having been initiated eleven years ago, represents long-awaited relief for volunteers, it affects the nonprofit community in two essential ways. With volunteer protection, more persons will be willing to volunteer for nonprofit organizations, thus increasing an organization's available manpower. The downside, however, is while the volunteer cannot be held liable for these acts, the organization still can. This Act does not reduce, and in fact may increase, the need for nonprofit organizations (and especially accrediting bodies) to carry comprehensive officers and directors insurance (also known as "D&0" or "APLI" insurance.) This insurance is intended to cover defense costs and judgments against the nonprofit from any suits arising from the actions of the organization or its volunteers.

In evaluating whether an organization’s insurance is sufficient to cover its activities, it is important to remember that many insurance policies stipulate an antitrust, peer review, or standard-setting exclusion or sublimit. Accrediting organizations should check their policies to determine whether their primary activities are covered, and if so, whether the coverage is sufficient to meet the organization’s needs for an adequate legal defense.

Another important piece of legislation introduced is the Trade and Professional Association Free Flow of Information Act, HR 1542, which protects trade and professional associations from liability deriving from acts performed for the purpose of relating information between such associations and their members regarding product defects, quality, or performance. The Act would protect the transmission of this information unless it involved fraudulent statements or statements that were known to be false, which must be proven by clear and convincing evidence. If a claim is brought against a trade or professional association based on a covered act, the Act provides a special motion to strike the claim on the basis that the act is immune from civil liability. The Act also details the procedures for this motion, as well as providing for qualified immunity from third party discovery of covered information. Though the ultimate result of the proposal is uncertain, it represents another instance of government's heightened interest in the concerns of standard-setting organizations.

Conclusion

As mentioned at the outset of this resource brief, ultimately there are trends of greater, long-term consequence to accrediting bodies than the legal developments briefly considered here. These include the dramatic shifts in public reliance on nongovernmental organizations to reimburse consumers for and to regulate the provision of goods and services traditionally overseen by state and federal governments in such diverse areas as healthcare and education. The volunteer liability protection afforded by Congress should provide a small measure of relief to those involved in standard-setting. However, accrediting organizations should also embrace the safeguards suggested by the DOJ-ABA consent decree so they can focus on the many, greater challenges ahead.

NOTES

1. Susan Dorn is an attorney with the firm of Dorn & Klamp. Her practice represents many standard-setting organizations. Kristin Becker is a law clerk with the firm.
2. See Clark Havinghurst and Peter M. Brody, Accrediting and the Sherman Act, 57 Law and Contemporary Problems 199, 201 (1994), among many others who have discussed this issue.
3. Massachusetts School of Law at Andover, Inc. v. American Bar Association, et al., 937 F. Supp. 435, 438-39 (E.D. Pa. 1996). All counts regarding the state graduation requirements were dismissed since these requirements were in no way under the control of the ABA. Id. at 439. Further, since the bar examination requirements were determined by the states, and no antitrust case can be brought against a state, there is no antitrust remedy for these requirements. Id. at 440-41. As to the remaining counts, the ABA presented evidence the school was denied accreditation on the basis of standards that were not disputed by the school, and the school was refused discovery of standards that were not relied upon. Massachusetts School of Law at Andover, Inc. v. American Bar Association, et al., 857 F. Supp. 455, 460 (E.D. Pa. 1994). In the end, the only argument the school had left was that the stigma of non-accreditation had an anticompetitive effect. 937 F. Supp. at 442. This argument failed, and the counts were dismissed because any stigma caused by non-accreditation 1) was incidental to the state graduation requirements, and 2) was caused by an opinion expressed by the ABA that qualified as speech protected by the First Amendment. Id. at 441-42.
   
   In addition to the federal case, the school filed a state law case in which it charged 1) unfair and deceptive commercial acts, 2) fraud and deceit, 3) tortious misrepresentation, and 4) breach of contract. Massachusetts School of Law at Andover, Inc. v. American Bar Association, et al., 1997 WL 263732, *1 (D. Mass. May 8, 1997). As with the federal case, all counts were dismissed. Id. at *19. The unfair and deceptive acts claim was based on, among other allegations, the ABA’s alleged refusal to accredit the school to prevent lower tuition competition and retaliatory denial of accreditation. Id. at *2. The fraud and deceit and tortious misrepresentation claims were based on the ABA’s alleged representations that it would grant a variance for those accreditation criteria which the school did not meet since its accreditation standards allowed the ABA discretion in its decision of whether or not to grant a variance. Id. at *3. The breach of contract claim, which was the basis of the court’s holding, alleged the ABA, by accepting and evaluating the school’s application for accreditation, had entered into a contract with the school which it breached by failing to act in good faith. Id. at *3. The court held no reasonable jury could find the ABA had not acted in good faith in evaluating the application and the request for variances, and that given such a holding, the breach of contract claim and all other claims (which were necessarily based on a willful lack of good faith) must be dismissed. Id. at *17.
   
   
4. United State of America v. American Bar Association, No. 95-1211 (D.D.C. filed June 27, 1995).
5. In the process of coming to agreement about the consent decree, the DOJ solicited public comment about he proposed decree. As a preface to comments from the public published in the Federal Register, DOJ remarked:
   
   The focus of this case was the capture of the ABA’s law school accreditation process by those who used it to advance their self-interest by limiting competition among themselves and from others. The case was not based on any determination by the Department of Justice as to what, specifically, most individual accreditation rules should provide. The Department is not particularly qualified to make such an assessment and has not attempted to do so. The Department concluded that the process that had produced the present rules was tainted. The appropriate solution and the relief imposed by the proposed decree - was to reform the process, removing the opportunity for taint, and then to have the cleansed process establish new rules.
   
   60 Fed. Reg. 63, 765-863 (1995) (from the Federal Register Online via GPO Access at wais.access.gpo.gov).
6. United States of America v. American Bar Association, 934 F. Supp. 435 (D.D.C. 1996).
7. DOJ insists the decree applies only to the ABA. In the preface to the published public comments made about the decree, the DOJ provided:
   
   The requirements of the proposed Final Judgment apply only to the defendant and only for the duration of the decree. The terms of the decree are designed to remedy the defendant’s anticompetitive practices. They are not meant to be a generalized prescription for other accrediting agencies. The limitations in the decree on the collection and use of certain data are directed only to remedy the defendant’s conduct. The ABA was required by law schools to respond to detailed annual and site inspection questionnaires that included providing extensive salary data. The defendant used the data to raise the salaries of law school deans, full-time faculty, and professional librarians during the accreditation process. Because of this abuse, the proposed consent decree prohibits the defendant from conditioning accreditation on the compensation paid professional personnel or collecting salary data that could be used to determine individual salaries. Nor does the Government seek to discourage the participation of individuals with professional expertise in the accreditation process and the consent decree will not have that effect. The Defendant permitted its accreditation activities, however, to be captured by legal educators who used it to advance their own personal interests. The proposed consent decree remedies the defendant’s abuses. The Government is not suggesting it apply to other accrediting agencies whose accreditation processes promote quality rather than the self-interest of a group that controls the process.
   
   60 Fed. Reg. 63, 765-863 (1995) (from the Federal Register Online via GPO access at wais.access.gpo.gov).
   
   
8. Anne K. Bingaman, Recent Enforcement Actions by the Antitrust Division Against Trade Associations, Address Before the 32d Annual Symposium of the Trade Association and Antitrust Law Committee of the Bar Association of the District of Columbia (Feb. 28, 1996) (transcript available at the Department of Justice website, www.usdoj.gov/atr/speeches).
9. Catherine Yang, This Antitrust Chief Won't Burst the Envelope, Bus. Wk., May 26, 1997, at 65.
10. Id. at 65.
11. The House Judiciary Committee report states the definition applies to volunteers working on behalf of trade and professional societies. The Committee Report 105-101 Part 1 - VOLUNTEER PROTECTION ACT OF 1997 Section 6, Definition, states:
    
    The term 'nonprofit organization' includes organizations which have obtained tax exempt status under section 501 ' (c)'(3) of the Internal Revenue Code. It also includes organizations which may or may not have not obtained certification as tax-exempt organizations under the Internal Revenue Code, but which are nevertheless conducted for public benefit and operated primarily for charitable, civic, educational, religious, welfare or health purposes. For example, the definition is intended to include trade and professional associations and other business leagues which are exempt from taxation under section 501 (c) (6) of the Internal Revenue Code. It would also include organizations which are not tax-exempt but which met the 'public benefit' and 'operated primarily' tests.
    
    H.R. Rep. No. 101, 105th Cong., pt. 1, Sec. 6 (1997).
    
    
12. The law preempts any inconsistent state law, except that states may provide greater protection than afforded by the law. However, states may affirmatively "opt out" or otherwise limit the applicability of the federal law.
    
    

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