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holding that plaintiff's Breach of Contract, Negligence, Tortious Interference with Contract, and Tortious Interference with Prospective Business or Economic Advantage claims were "state law claims that are not expressly or by necessary implication preempted by the HEA" and denying defendant's motion to dismiss on that ground
Summary of this case from Bland v. Educ. Credit Mgmt. Corp.Opinion
No. 1:08cv1186 (AJT/JFA).
March 18, 2009
MEMORANDUM OPINION
This matter is before the Court on Defendant Accrediting Bureau of Health Education Schools, Inc.'s ("ABHES") Partial Motion to Dismiss Counts II through VII of Plaintiff Career Care Institute, Inc.'s ("CCI") Complaint. For the following reasons, motion is granted in part and denied in part.
I. BACKGROUND
CCI is a California corporation that operates post-secondary vocation schools offering programs in Medical and Dental Assistance, Medical Billing, Massage Therapy, and Vocational Nursing on accredited campuses in Ventura and Lancaster, California, and on an unaccredited campus in Moreno Valley, California. ABHES, a Virginia corporation, is an accrediting agency officially recognized by the United States Secretary of Education pursuant to 20 U.S.C. § 1099b.
The federal government does not directly accredit institutions of higher education. Rather, the Secretary of Education approves accrediting agencies for different types of educational programs. These accrediting agencies set the standards for accreditation. Accreditation is important to a school for a number of reasons, not the least of which is that it allows students at that school to receive federally-backed financial aid.
On November 13, 2008, CCI filed a complaint against ABHES. CCI's Complaint seeks, in part, to prevent ABHES from terminating CCI's accreditation without due process of law. The Complaint was brought after ABHES issued a final decision to withdraw CCI's grant of accreditation on November 5, 2008, due to CCI's alleged noncompliance with ABHES's accreditation standards. The Complaint contains seven separate causes of action: (1) Denial of Common Law Due Process; (2) Breach of Contract (Accreditation Manual); (3) Negligence (in the alternative to Breach of Contract); (4) Tortious Interference with Contract (Program Participation Agreement); (5) Tortious Interference with Contract (Student Enrollment Agreements); (6) Tortious Interference with Prospective Business or Economic Advantage; (7) Breach of Contract (Settlement Agreement).
The parties entered into a Consent Order dated November 14, 2008, that provides that ABHES shall continue CCI's accreditation until December 19, 2008, or such subsequent time as the Court renders a ruling on CCI's Motion for Preliminary Injunctive Relief. On December 5, 2008, the parties entered into a second Consent Order that granted CCI's Motion for Preliminary Injunctive Relief and required CCI to provide security in the form of a bond posted with this Court. ABHES answered the Complaint and filed a partial motion to dismiss as to Counts II through VII on December 19, 2008.
II. STANDARD OF REVIEW
A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of the complaint and does not resolve contests surrounding the facts or merits of a claim. See Randall v. United States, 30 F.3d 518, 522 (4th Cir. 1994); Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1994). A claim should be dismissed "if, after accepting all well-pleaded allegations in the plaintiff's complaint as true . . . it appears certain that the plaintiff cannot prove any set of facts in support of his claim entitling him to relief." Hatfill v. The New York Times Co., No. 04-cv-807, 2004 WL 3023003, at *4 (E.D. Va. Nov. 24, 2004) (quoting Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999)); see also Trulock v. Freeh, 275 F.3d 391, 405 (4th Cir. 2001). In considering a motion to dismiss, "the material allegations of the complaint are taken as admitted." Jenkins v. McKeithen, 395 U.S. 411, 421 (1969) (citations omitted). Moreover, "the complaint is to be liberally construed in favor of plaintiff." Id.; see also Bd. of Trustees v. Sullivant Ave. Properties, LLC, 508 F. Supp. 2d 473, 475 (E.D. Va. 2007). In addition, a motion to dismiss must be assessed in light of Rule 8's liberal pleading standards, which require only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8. Nevertheless, while Rule 8 does not require "detailed factual allegations," a plaintiff must still provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1965 (2007) (the complaint "must be enough to raise a right to relief above the speculative level" to one that is "plausible on its face"); see also Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008).
III. ANALYSIS
A. Choice of Law
CCI asserts that the applicable choice of law rules require the application of California law to CCI's state law claims. Virginia choice of law rules govern tort actions filed in the Eastern District of Virginia. Milton v. IIT Research Inst., 138 F.3d 519, 521 (4th Cir. 1998). Virginia applies the law of the place of the wrong. Id. at 521; Dominican Republic v. AES Corp., 466 F. Supp. 2d 680, 693 (E.D. Va. 2006); Rahmani v. Resorts Int'l Hotel, Inc., 20 F. Supp. 2d 932, 937 (E.D. Va. 1998). Under Virginia law, "[t]he place of the wrong or injury is the place where the injury was suffered, not where the tortious act took place." Rahmani, 20 F. Supp. 2d at 937.
CCI is a California corporation with its principal place of business in Lancaster, California. CCI operates post-secondary vocational schools in Ventura, Lancaster and Moreno Valley, California. CCI therefore contends that the alleged injuries were suffered in California and that California law applies. ABHES does not concede that California rather than Virginia law is controlling, but contends that the issue need not be decided because the result is the same under both California and Virginia law. Because it appears, based on the present record, that under Virginia choice of law principles, the law of California likely applies to Plaintiff's tort claims, the Court will analyze the motion to dismiss under California law.
B. Jurisdiction Under the Higher Education Act of 1965 (Counts II — VII)
ABHES asserts that this Court's jurisdiction is limited to a review of whether CCI received common law due process in connection with the accreditation decision in question. Mem. in Supp. of Mot. to Dismiss at 5. Count I of the Complaint asserts a cause of action for Denial of Common Law Due Process. Accordingly, ABHES contends that the remaining Counts raise contract and tort claims that solely relate to matters within the Secretary of Education's oversight authority and are not properly before this Court. CCI, on the other hand, argues that there is no provision in the HEA that divests this Court of subject matter jurisdiction over CCI's state law claims and that this Court has supplemental jurisdiction over CCI's state law claims pursuant to 28 U.S.C. § 1367(a). Mem. in Opp. to Mot. to Dismiss at 5.
Section 1099b of the Higher Education Act contains a specific jurisdictional provision that provides:
Notwithstanding any other provision of law, any civil action brought by an institution of higher education seeking accreditation from, or accredited by, an accrediting agency or association recognized by the Secretary for the purpose of this subchapter and part C of subchapter I of chapter 34 of Title 42 and involving the denial, withdrawal, or termination of accreditation of the institution of higher education, shall be brought in the appropriate United States district court.20 U.S.C. § 1099b(f). ABHES argues that this provision "makes it clear that the role of federal courts is to review only decisions 'involving the denial, withdrawal, or termination of accreditation.'" Mem. in Supp. of Mot. to Dismiss at 8. ABHES further argues that in light of this provision, Counts II through VII raise claims that may not be adjudicated by federal courts. CCI, however, contends that Counts II through VII do not seek relief under the HEA, but rather seek relief on recognized state law causes of action through this Court's diversity and supplemental jurisdiction. Whether a plaintiff may simultaneously pursue a claim under Section 1099b(f) and state law claims, or whether Section 1099b(f)'s grant of jurisdiction preempts state law claims, has been addressed by only a handful of courts and has led to disagreement between various circuit and district courts.
On the one hand, ABHES cites, and relies heavily on, the Seventh Circuit's decision in Chicago Sch. of Automatic Transmissions, Inc. v. Accreditation Alliance of Career Schools and Colleges, 44 F.3d 447 (7th Cir. 1994). In that case, the plaintiff brought a cause of action for breach of contract under Illinois law. Id. at 448. The defendant argued that the complaint should be viewed as a demand for review of the accreditation decision under the principles of administrative law. The Seventh Circuit concluded that "Congress did not specify a source of law for these suits, but it is hard to see how state law could govern when federal jurisdiction is exclusive." Id. at 449 (emphasis in original).
On the other hand, the District of Massachusetts has held that state law claims are not preempted. In Fine Mortuary College, LLC v. Am. Bd. of Funeral Serv. Ed., Inc., much like this case, the plaintiff, a private college, brought claims against the accrediting board for violation of common law due process, tortious interference with prospective economic advantage, defamation, and unfair and deceptive business practices. 473 F. Supp. 2d 153 (D. Mass. 2006). The defendant argued that all three state law claims should be dismissed because they are preempted by the exclusive grant of jurisdiction for accreditation challenges under the HEA. Id. at 160. Relying primarily on the holding in Mass. Sch. of Law at Andover, Inc. v. Am. Bar. Ass'n, No. 95-cv-12320, 1997 WL 263732 (D. Mass. May 8, 1997), the court concluded that "plaintiff's state law claims are not preempted by the HEA and will not be dismissed on that ground." Fine Mortuary, 473 F. Supp. 2d at 160.
Similarly, in Mass. Sch. of Law at Andover, Inc., the court engaged in a thorough preemption analysis and held that plaintiff's state law claims were not preempted by the HEA. The court first concluded that in the HEA, "Congress has not expressly displaced all state law in the area of accreditation of educational institutions." 1997 WL 263732, at *5. Second, the court relied on the Ninth Circuit's decision in Keams v. Tempe Technical Institute, Inc., 39 F.3d 222, 225 (9th Cir. 1994), and held that Congress has not evidenced an intent to occupy the field of accreditation-related disputes. Id. (In Keams, the Ninth Circuit noted that the HEA provided for express preemption in several areas and reasoned that "[t]hese express provisions for preemption of some state laws imply that Congress intentionally did not preempt state law generally, or in respects other than those it addressed."); see also Jackson v. Culinary Sch. of Wash., Ltd., 27 F.3d 573, 581 (D.C. Cir. 1994) (finding that "[b]ecause Congress carved out particular contexts in which the HEA has preemptive effect, the conclusion is virtually inescapable that Congress did not intend to give the HEA preemptive effect in every context"). Finally, the court concluded that there was no basis to find that compliance with both the HEA and state law was impossible and, thus, there could be no implied preemption. Id. at *6.
In Mass. Sch. of Law at Andover, Inc., the court declined to follow Chicago School and noted that "the Seventh Circuit never addressed the Keams rationale that, in light of the presumption against preemption, express preemption in one area of the act suggests that the other provisions have no preemptive effect." Id. at *7. The court also noted that the Ninth Circuit's preemption analysis in Keams "stands in stark contrast to the Seventh Circuit's broad-brush inquiry in Chicago School, in which the court ignored the application of any preemption analysis and relied instead on the traditional precept that accreditation decisions are afforded limited deferential review." Id. at *8.
Although neither the Fourth Circuit nor this Court has directly addressed the question presented here, the Fourth Circuit's opinion in College Loan Corp. v. SLM Corp., 396 F.3d 588 (4th Cir. 2005), is instructive. That case involved a dispute between two lenders of student loans. The plaintiff contended that the district court erred when it held that its state law claims were preempted by the HEA. The Fourth Circuit undertook a thorough preemption analysis similar to that in Mass. Sch. of Law at Andover, Inc. and Keams. First, the court concluded that "[t]he doctrine of express preemption has no application here . . . because the HEA makes no mention of preempting state tort and contract claims." Id. at 596. Second, the court concluded that the doctrine of field preemption "has no application to this dispute." Id. Like the Ninth Circuit in Keams, the Fourth Circuit noted that "[b]ecause Congress deemed it necessary to specifically preempt certain state laws, it is clear that Congress could not have intended the HEA to so 'occupy the field' that it would automatically preempt all state laws." Id. at 596 n. 5 (emphasis in original). Finally, the court concluded that the doctrine of conflict preemption did not preempt the plaintiff's state law claims. Id. at 596. The court also stated that "the fact that only the Secretary is authorized to enforce the HEA" does not "compel the conclusion that [plaintiff's] pursuit of its state law claims, relying in part on violations of the HEA or its regulations, will obstruct the federal scheme." Id. at 598-99 ("Furthermore, the courts have generally authorized state tort claims to be pursued in areas where the federal government has regulated, even when such claims are in some manner premised on violations of federal regulations.").
This Court finds persuasive the reasoning set forth in College Loan Corp. as it applies to this case. Counts II through VII are state law claims that are not expressly or by necessary implication preempted by the HEA. Accordingly, ABHES's motion to dismiss CCI's state law claims in Counts II through VII on this ground is denied.
B. Private Right of Action Under the Higher Education Act of 1965 (Counts II — VII)
ABHES also contends that Counts II through VII must be dismissed because the HEA does not provide a private right of action to enforce requirements imposed by the HEA. Both CCI and ABHES, however, recognize that Counts II through VII were not brought under the HEA.
Courts have recognized that the HEA does not imply a private right of action for educational institutions in suits that do not challenge the denial, withdrawal or termination of accreditation, see Auburn Univ. v. S. Ass'n of Colleges and Schools, Inc., 489 F. Supp. 2d 1362 (N.D. Ga. 2002), or in suits to enforce the HEA's provisions, see Thomas M. Cooley Law Sch. v. Am. Bar Ass'n, 459 F.3d 705, 710-11 (6th Cir. 2006). The cases relied on by ABHES, however, do not address whether a plaintiff may bring a state law claim that is related to or relies on the provisions of the HEA or a violation thereof. Thus, a private right of action under the HEA need not be found for Plaintiff to bring Counts II through VII.
C. Negligent Withdrawal of Accreditation or Negligence Breach of Contract (Count III)
ABHES seeks dismissal of CCI's Negligence claim in Count III on the additional ground that there is no cause of action for negligent withdrawal of accreditation or negligent breach of contract. Mem. in Supp. of Mot. to Dismiss at 14. CCI, however, contends that the negligence claim is properly asserted as an alternative to CCI's contractual claims and should not be dismissed. Mem. in Opp. to Mot. to Dismiss at 13.
Count III alleges that ABHES had a duty to provide fair and unbiased accreditation services to CCI, Compl. at ¶ 96; that ABHES's withdrawal of CCI's accreditation breached the duties owed to CCI; and that CCI has incurred damages as a result of those breaches. Id. at ¶¶ 98-99. Under California law, the elements of a cause of action for negligence are (1) a legal duty; (2) a breach of that duty; (3) damages; and (4) proximate cause between the breach and the plaintiff's injury. See Mendoza v. City of Los Angeles, 66 Cal. App. 4th 1333, 1339 (Cal.Ct.App. 1998); Artiglio v. Corning Inc., 18 Cal. 4th 604, 614 (Cal. 1998). Liability for negligent conduct may only be imposed where there is a duty of care owed by the defendant to the plaintiff. J'Aire Corp. v. Gregory, 24 Cal. 3d 799, 803 (Cal. 1979). A duty of care may arise by statute, by contract, or may be premised upon the general character of the activity in which the defendant is engaged, or the relationship between the parties. Id. If no duty is owed, then there is no negligence-based cause of action. Bily v. Arthur Young Co., 3 Cal. 4th 370, 397 (Cal. 1992). Whether such a duty exists is a question of law properly resolved by the Court. Id.
A breach of contract gives rise to tort liability only where there is a duty that arises independent of the contract or where the conduct is both intentional and intended to harm. Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 989-90 (Cal. 2004) ("If every negligent breach of a contract gives rise to tort damages the limitation would be meaningless, as would the statutory distinction between tort and contract remedies."). "A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations." Aas v. Superior Court, 24 Cal. 4th 627, 643 (Cal. 2000). Tort damages are not available for mere negligent breaches of contract. Erlich v. Menezes, 21 Cal. 4th 543, 553-54 (1999).
The Aas court did note, however, that "conduct amounting to a breach of contract becomes tortious when it also violates a duty independent of the contract arising from principles of tort law. . . . But that duty is limited by the rule in Seely, . . . which bars recovery of economic damages representing the lost benefit of a bargain." 24 Cal. 4th at 643 (citing Seely v. White Motor Co., 63 Cal. 2d 9, 18 (Cal. 1965)).
Here, ABHES's alleged duty to consider CCI's application and act in a fair and reasonable manner does not arise independently of the Accreditation Manual and Bylaws. In Count II, CCI alleges a cause of action for breach of contract based on the terms of the Accreditation Manual. See Compl. at ¶¶ 88-94. CCI specifically alleges that the Accreditation Manual obligates ABHES to consider CCI's application with "objectivity, impartiality and integrity" and that ABHES breached the contractual duties set forth in the Accreditation Manual. Id. at ¶¶ 92-93. Therefore, the duty to provide fair and unbiased accreditation services is properly viewed as a contractual obligation, rather than an independent duty.
ABHES further asserts that even if CCI could allege both a legal duty independent of the contracts between the parties and a breach of that duty sufficient to state a cause of action for negligence, not just any damage is sufficient for a negligence cause of action to accrue. County of Santa Clara v. Atlantic Richfield Co., 137 Cal. App. 4th 292, 318 (Cal.Ct.App. 2006). "[E]conomic loss alone, without physical injury, does not amount to the type of damage that will cause a negligence or strict liability cause of action to accrue. 'In a strict liability or negligence case, the compensable injury must be physical harm to persons or property, not mere economic loss.'" Id. (quoting Zamora v. Shell Oil Co., 55 Cal. App. 4th 204, 210 (Cal.Ct.App. 1997)); see also Aas, 24 Cal. 4th at 636 ("In actions for negligence, a manufacturer's liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone.").
CCI, however, argues that "an injury to a plaintiff's economic interests should not go uncompensated merely because it was unaccompanied by any injury to his person or property", J'Aire, 24 Cal. 3d at 805, and that an independent duty of care may arise from a "special relationship" between the parties as recognized in J'Aire Corp and Biakanja v. Irving, 49 Cal. 2d 647, 650 (Cal. 1958)
Biakanja and J'Aire addressed whether a defendant may be liable for damage caused to the plaintiff by the defendant's negligence even if they were not in privity of contract. Biakanja, 49 Cal. 2d at 648. To determine whether a defendant owes a plaintiff a duty of care by virtue of a "special relationship" between the parties, the Supreme Court of California set forth various factors that courts should balance. Id. at 650. The factors are "(1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant's conduct and the injury suffered, (5) the moral blame attached to the defendant's conduct and (6) the policy of preventing future harm." J'Aire, 24 Cal. 3d at 804; see also Biakanja, 49 Cal. 2d at 650.
In Biakanja, for example, the defendant had prepared the plaintiff's brother's will, which devised and bequeathed all of his property to the plaintiff. 49 Cal. 2d at 48. The will was denied probate for lack of sufficient attestation. Id. The court held that defendant was under a duty to exercise due care to protect plaintiff from injury and was liable for damage caused to plaintiff even though they were not in privity of contract. In reaching this conclusion, the court noted that "[s]uch conduct [by the defendant] should be discouraged and not protected by immunity from civil liability, as would be the case if plaintiff, the only person who suffered a loss, were denied a right of action." Id. at 651. In J'Aire, the Supreme Court of California held that a lessee could recover damages resulting from a general contractor's delay in competition of a construction project even though the lessor, not the lessee, had contracted for the construction. The court, relying on the six criteria set forth in Biakanja, determined that the defendant contractor owed a duty to the plaintiff lessee and allowed the plaintiff to recover for injury to its business that resulted from the defendant's negligence. J'Aire, 24 Cal. 3d at 804. Specifically, the court noted that "[w]here the risk of harm is foreseeable . . . an injury to the plaintiff's economic interests should not go uncompensated merely because it was unaccompanied by any injury to his person or property." Id. at 805. These cases, however, do not address the precise situation before the Court. In this case, CCI is not a third-party, but rather alleges that it is in contractual privity with Defendant ABHES. See Compl. at ¶¶ 88-94. Moreover, CCI would not be without an alternative remedy — here a breach of contract claim.
It does appear, however, that lower courts in California have expanded upon J'Aire and applied it in cases where privity does exist. See generally Aas, 24 Cal. 4th at 645 ("While the court in J'Aire purported only to address duties owed to persons not in contractual privity with the defendant, courts subsequently have applied J'Aire to cases in which privity did exist."). Moreover, in Ott v. Alfa-Laval Agri, Inc., the California Court of Appeals assessed the applicability of J'Aire and noted that the absence of a contract remedy is not a requirement and the absence of privity is not a controlling factor. 31 Cal. App. 4th 1439, 1454 (Cal.Ct.App. 1995) (analyzing cases applying J'Aire). The court also noted, however, that "most of the cases have involved three-way transactions, this appears to be because, in the usual two party dealings and third party beneficiary cases, the plaintiff 'can of course sue on the contract itself without resort to any theory of negligence.'" Id. Even those cases that expand upon J'Aire, however, recognize that a person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations. See generally Aas, 24 Cal. 4th at 643.
Here, CCI's negligence claim is in essence an effort to recover in tort for the breach of duties that restate the contractual obligations alleged between the parties in the Complaint and, more specifically, in the breach of contract claim in Count 1 of the Complaint. Thus, tort damages are generally not available for the negligent performance of a contractual obligation. See generally Erlich, 21 Cal. 4th at 553-54. Moreover, CCI's negligence claim cannot proceed on the basis that there is a "special relationship" between ABHES and CCI. The relationship between ABHES and CCI is similar to that of any institution of higher education seeking accreditation from ABHES. The relationship, as alleged in the Complaint, is subject to the contractual agreements and obligations between the parties. Inherent in this relationship is the risk that ABHES may not provide accreditation to an institution. An institution in that position, such as CCI, has adequate remedies without resort to the theories advanced in J'Aire. Accordingly, ABHES's motion to dismiss Count III of the Complaint is granted.
D. Tortious Interference (Counts IV — VI)
Counts IV and V of the Complaint allege causes of action for tortious interference with contract. Compl. at ¶¶ 100-115. CCI acknowledges that it must assert the following elements to state a claim for tortious interference with contract: "(1) a valid contract between plaintiff and a third party; (2) defendant['s] knowledge of the contract; (3) defendant['s] intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." Guidiville Band of Pomo Indians v. NGV Gaming, Ltd., 531 F.3d 767, 774 (9th Cir. 2008) (internal citation omitted).
In Count IV, CCI alleges that (1) CCI has a contractual agreement entitled a "Program Participation Agreement" with the Department of Education, Compl. at ¶¶ 101-02; (2) ABHES had actual knowledge of CCI's contract with the Department of Education, id. at ¶ 103; (3) ABHES intentionally and knowingly prevented CCI from performing under its contract with the Department of Education by withdrawing CCI's accreditation, id. at ¶ 106; and (4) as a direct and proximate result of such interference, CCI has incurred damages, id. at ¶ 107. Similarly, in Count V, CCI alleges that (1) CCI has entered into enrollment contracts with each of its students, id. at ¶ 110; (2) ABHES had actual knowledge of CCI's contracts with its students, id. at ¶ 111; (3) ABHES intentionally and knowingly interfered with CCI's contractual relationships by terminating CCI's accreditation, id. at ¶ 113; and (4) as a direct and proximate result of such interference, CCI has incurred damages, id. at 115.
Although CCI contends that these allegations sufficiently plead an actual breach or disruption of the contractual relationship, see Mem. in Opp. to Mot. to Dismiss at 12-13 (citing Compl. at ¶¶ 106, 107, 113, 115), ABHES argues that CCI has not, and cannot, allege that there has been any actual disruption in its accreditation. Mem. in Supp. of Mot. to Dismiss at 12. ABHES further asserts that Counts IV through VI must be dismissed because the Complaint does not adequately plead an actual breach or disruption of the relevant contractual relationships. Reply in Supp. of Mot. to Dismiss at 5.
CCI alleges that ABHES withdrew its accreditation. ABHES is correct that this Court has entered a Consent Order requiring ABHES to continue CCI's accreditation pending further order of the Court or a final decision on the merits. However, this Consent Order does not moot Plaintiff's allegations that "[o]n July 28, 2008, following a July 13, 2008 hearing, ABHES issued a decision withdrawing Career Care's accreditation", Compl. at ¶ 50, and "[o]n November 5, 2008, the ABHES Commission issued a one-page letter decision ("November 5, Decision") acting to affirm its decision to withdraw Career Care's accreditation." Compl. at ¶ 69. Plaintiff's tortious interference with contract claims do not require that ABHES actually enforce its decision to terminate or withdraw CCI's accreditation or that Plaintiff allege an actual disruption in its accreditation. Rather, Plaintiffs have adequately plead claims based on the alleged July 28, 2008 and November 5, 2008 decisions to withdraw CCI's accreditation.
Similarly, Plaintiff need not plead an actual breach of the relevant contractual relationships. A plaintiff need not allege an actual breach, but only interference with or disruption of his or her contractual relations. Pacific Gas Elec. Co. v. Bear Stearns Co., 50 Cal. 3d 1118, 1126 (Cal. 1990). In Counts IV and V Plaintiff plead that ABHES intentionally and knowingly prevented CCI from performing under its contract with the Department of Education by withdrawing CCI's accreditation, Compl. at ¶ 106 (Count IV), and that ABHES intentionally and knowingly interfered with CCI's contractual relationships by terminating CCI's accreditation, id. at ¶ 113 (Count V). These allegations are sufficient at this stage to withstand a motion to dismiss. Accordingly, ABHES's motion to dismiss Counts IV and V is denied.
Finally, Count VI of the Complaint alleges a cause of action for tortious interference with prospective business or economic advantage. Compl. at ¶¶ 116-122. ABHES contends that the "analysis is substantially the same with respect to CCI's allegations in Count VI." Mem. in Supp. of Mot. to Dismiss at 13. Accordingly, ABHES's motion to dismiss Count VI is denied for the same reasons explained above.
Under California law, the elements of such a claim are: "(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant." Corrections USA v. Dawe, 504 F. Supp. 2d 924, 937 (E.D. Cal. 2007) (quoting Korea Supply Co. v. Lockheed Martin Corp., 63 P.3d 937 (Cal. 2003)).
In Count VI, CCI alleges that (1) CCI has entered into enrollment contracts with each of its students that include the responsibility of students to pay tuition, Compl. at ¶ 117; (2) ABHES knew of such contracts, id. at ¶ 118; (3) ABHES's intentional termination of CCI's accreditation; (4) such termination of CCI's accreditation has caused or will cause students to withdraw or not to enroll, id. at ¶¶ 119, 121; and (5) as a direct and proximate result of such interference, CCI has incurred damages, id. at 122. Count VI does not, however, clearly allege an actual disruption of the relationship. Instead, CCI alleges only that the termination of CCI's accreditation "has caused or will cause" students to withdraw or decline to enroll. Id. at ¶¶ 119, 121 (emphasis added). Such an allegation is not sufficient and Count VI should therefore be dismissed with leave to amend.
IV. CONCLUSION
For these reasons, ABHES's Partial Motion to Dismiss is denied in part and granted in part and Count III of the Complaint is dismissed.
An appropriate Order will issue.