ASA College, Inc. v. Mid-Atlantic Region Commission on Higher Education

Background

ASA College, Inc. was a private educational institution whose accreditation was overseen by the Mid-Atlantic Region Commission on Higher Education, doing business as the Middle States Commission on Higher Education (MSCHE). MSCHE’s accreditation standards required an institution to meet various requirements, including being operational with students actively enrolled in its degree programs.

MSCHE had raised concerns about ASA’s compliance with its accreditation standards beginning in 2021. MSCHE later notified ASA that it intended to withdraw ASA’s accreditation and required ASA to provide information, including a plan for assisting students if the institution ceased operating. ASA appealed the proposed adverse action, and MSCHE initially scheduled an appeal hearing for March 2023.

During January 2023, ASA told MSCHE that it could not pay certain payroll obligations, was experiencing financial difficulties, and expected the fall semester ending February 24, 2023, to be the last semester for all of its campuses. ASA also told students that it would cease operations around March 2023. MSCHE treated ASA’s statements as notice that the institution was closing, concluded that ASA would no longer be eligible for accreditation, and terminated ASA’s appeal. ASA’s accreditation ceased to be effective on March 1, 2023.

First arbitration and the motion to vacate

ASA began arbitration against MSCHE and claimed that MSCHE violated its due-process rights by withdrawing its accreditation and ending the appeal without an appeal hearing. The arbitrator rejected ASA’s claims in a January 2024 award. The arbitrator concluded that MSCHE had given ASA notice of its concerns and opportunities to respond, and that MSCHE had a sufficient basis to conclude that ASA was closing before the scheduled appeal hearing. Because an accreditation agency could accredit only an operational school with actively enrolled students, the arbitrator concluded that ending the appeal did not violate ASA’s due-process rights.

ASA asked the court to vacate, or cancel, the arbitration award. ASA argued that the arbitrator had manifestly disregarded the law—a narrow standard requiring proof that the arbitrator knowingly and deliberately refused to apply a clearly established legal rule. ASA argued that the arbitrator disregarded federal accreditation regulations requiring an opportunity to appeal an adverse action before it became final, improperly relied on evidence concerning ASA’s expected closure, treated the accreditation withdrawal as final too early, failed to address mootness principles, and failed to recognize an alleged violation of MSCHE policy.

The court rejected these arguments. It held that the arbitrator considered the applicable due-process principles and had a colorable, or legally supportable, basis for concluding that MSCHE had provided ASA an appeal opportunity and could end the appeal after determining that ASA would close. The court also held that it could not reweigh the evidence presented to the arbitrator and that ASA had not shown the kind of egregious legal misconduct required to vacate the award. The court therefore denied ASA’s motion to vacate the award.

Motion to confirm

MSCHE asked the court to confirm the arbitration award. Under the Federal Arbitration Act, a court must confirm an award unless it is properly vacated, modified, or corrected. Because the court found no valid basis to vacate the award, it granted MSCHE’s motion to confirm the award.

Motion for preliminary injunction

MSCHE separately sought a preliminary injunction to stop ASA from pursuing a second arbitration. MSCHE argued that ASA’s claims in the second arbitration would be barred by claim preclusion, also known as res judicata, because of the first arbitration award and the judgment confirming it.

The court denied the injunction. It explained that the arbitration agreement broadly covered disputes arising from or related to the relationship between ASA and MSCHE. Under Second Circuit precedent, whether a prior arbitration award or court judgment precludes claims in a later arbitration is a merits-based defense for the arbitrator in the later arbitration to decide, rather than an issue for the court to decide by stopping the arbitration. The court therefore left MSCHE’s preclusion argument to the arbitrator in the second arbitration.

Disposition

The court denied ASA’s motion to vacate the arbitration award, granted MSCHE’s motion to confirm the award, and denied MSCHE’s motion for a preliminary injunction. The court directed the Clerk to enter judgment for MSCHE, terminate the pending motions, and close the case.