United States Court of Appeals,

Fifth Circuit.

No. 90–2958.

WILFRED ACADEMY OF HAIR AND BEAUTY CULTURE, HOUSTON, TEXAS, et al.,

Plaintiffs–Appellees,

v.

THE SOUTHERN ASSOCIATION OF COLLEGES AND SCHOOLS, et al.,

Defendants–Appellants.

April 6, 1992.

Appeal from the United States District Court for the Southern District of Texas.

Before THORNBERRY, DAVIS and WIENER, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

The Southern Association of Colleges and S cho o ls (SACS) and the Commission on

Occupational Education Institutions (COEI) appeal the di stri ct court's order, 738 F.Supp. 200,

granting injunctive relief and awarding attorney's fees and costs in favor of Wilfred Academy of Hair

and Beauty Culture (Wilfred). The district court found that COEI arbitrarily and capriciously denied

Wilfred reaccreditation and, therefore, enjoined COEI from dropping Wilfred's accreditation for the

reasons alleged, or for any other reasons, for one year. We conclude that the district court did not

afford the accrediting commission's decision sufficient deference and erred in issuing the injunction.

We therefore reverse the court's judgment and vacate its award of fees and costs.

I.

SACS, a Georgia corporati on, is one of six regional educational ac crediting associations,

recognized by the Department of Education. SACS is governed by its members, each of whom has

a vote in the association's annual business meeting. Accreditation by a recognized accrediting agency,

such as SACS, is a prerequisite for an institution's students to receive federal financial assistance. 34

C.F.R. Part 600.Wit hin SACS, four specialized commissions set educational standards and make accreditation

decisions. COEI, one of these four commissions, accredits post-secondary, non-degree granting

institutions, commonly known as "technical institutes." In 1988–89, COEI included 422 full members

and 48 candidates for accreditation.

A Delegate Assembly, comprised of representatives from each of COEI's member institutions,

governs COEI and has final responsibilit y fo r all aspects of COEI's operation. The Delegate

Assembly sets COEI's Policies and Standards, whi ch serves as the basis for all accreditation

decisions. Every member participates in setting the P olicies and Stand ards, and membership

obligates an institution to follow the association' s rules to maintain accreditation. The Delegate

Assembly also elects a 19–member Commission to apply the Policies and Standards, making

decisions to approve, withhold, or withdraw accreditation.

The appellee schools are six unincorporated cosmetology schools, operated under the name

Wilfred Academy of Hair and Beauty Culture in Florida, Texas, and California. Wilfred forms part

of a much larger corporati on, Wilfred America Education Corporati on, headquartered in New York.

COEI first accredited Wilfred's main campus in Tampa in 1982 and subsequently accredited the five

remaining appellee schools and seven others as branches.

Accreditation represents recognition by member institutions that each member meets COEI's

Policies and Standards. Accreditation involves a dual process of self-evaluation and evaluation by

COEI members, designed to help a candidate for membership meet the association's requirements for

membership. Once a school becomes an accredited member, it must reaffirm its accreditation

approximately every five years by conducting a new self study and by hosting an on-site inspection.

In evaluating an institution for accreditation, COEI relies primarily on the institution's self-reporting.

In March 1988, COEI conducted an on-site inspection of Wilfred's campuses to determinewhether to reaffirm Wilfred's accreditation. On May 19, 1989, after efforts to correct problems first

discovered the previous year had failed, COEI dropped Wilfred's accreditation for violating COEI's

dual accreditation, refund, and disclosure policies and for failing to submit an annual report for 1986.

Wilfred appealed this decision, but COEI's Appeals Board affirmed the Commission's decision on all

but the last alleged violation.

Wilfred subsequently brought suit against SACS and COEI, in Texas state court, to enjoin

SACS from disaccrediting its schools. SACS removed this action to federal district court, where a

bench trial

was held in January 1990. In October 1990, the district court issued its judgment,

enjoining SACS from withdrawing Wilfred's accreditation for any of the alleged violations underlying

the Commission's decision. In addition, the court enjoined SACS "from taking any adverse actions"

against Wilfred's accreditation for one year from the date of the judgment. The court also awarded

Wilfred attorney's fees and costs.

After the court's injunction issued, SACS moved to modify that part of the injunction which

prevented SACS from taking any action against Wilfred for a year. SACS supported its motion in

part by allegations that Wilfred's parent corporati o n and numerous employees, including top

management, had pled or been found guilty of over 100 fe d eral felonies. Some of these felonies

involved fraudulently obtaining or spending federal student loans. SACS presented the plea

agreement of one o f Wilfred's officers, Guido Sanchez, who was active in the management of

Wilfred's Florida operations. In his plea, Sanchez admitted that he had made a number of materially

false statements in the Tampa campus's original accreditation application to SACS. For reasons best

known to the district judge, the court denied SACS's motion, preventing SACS from investigating

potentially serious violations of COEI's Policies and Standards. SACS timely appealed the court's

judgment.

II.1 SACS argues that Georgia law should govern these proceedings and that Georgia law would

not support an award of attorney's fees in this case. Our decision today to reverse the district

court on the merits obviates the need to address this concern because under Texas law Wilfred is

no longer a prevailing party and, therefore, has no claim to fees. While this appeal was pending, however, five of the six appellee schools closed, including the

main campus in Tampa, and Wilfred voluntarily relinquished SACS accreditation of the sixth school.

Consequently, even if we vacated the court's injunction SACS could not take any action to affect the

appellees' accreditation because the only remaining school is no longer accredited by SACS. As a

result, the issue of the schools' accreditation has become m oot. S ee In re Talbott Big Foot, Inc., 924

F.2d 85 (5th Cir.1991) (defendant's agreement to establish a trust fund for the claimants made the

issue of limit

ing the defendant's liabilit

y m oot); I n re Sullivan Cent. Plaza, I, Ltd., 914 F.2d 731 (5th

Cir.1990) (absent a stay pending appeal, appeal from bankruptcy court's orders, granting creditors

relief from stay and withdrawing injunction in debtor's favor, was moot after creditor foreclosed and

purchased property at issue).

Ordinarily, once the substantive issue before us is m oot, our consideration of the appeal ends.

The district court, however, in addition to granting injunctive relief, also awarded Wilfred attorney's

fees, under § 38.001 of the Texas Civil Practice and Remedies Code, and costs. 1 Under Texas law,

an issue of attorney's fees keeps a suit alive even if the underlying merit issues have become m oot.

See Camarena v. Texas Employment Comm'n, 754 S.W.2d 149 (Tex.1988). In Camarena, farm

workers sued the Texas Employment Co mmission (TEC), petitioning the court to declare the

agricultural exemption of the Texas Unemployment Compensation Act (TUCA) unconstitutio nal.

The trial court granted declaratory and injunctive relief in the farm workers' favor but found that the

state was immune from paying attorney's fees. Thereafter, the Texas Legislature amended the act to

provide coverage for farm workers. On appeal, the court of appeals found the trial court's judgment

granting relief to be moot. The Texas Supreme Court reversed, holding that:

Clearly a controversy exists be t ween the farm workers and TEC. The "live" issue in

controversy is whether or no t t he farm workers have a legally cognizable interest inrecovering their attorney's fees and costs. The fact that t he Legislature wisely undertook

action t o bring the farm workers within the scope of TUCA does not moot or void the

workers' interest in obtaining attorneys [sic] fees and costs for the successful disposition of

their claim.... the attorney's fees issue ... breathes life into the appeal. Due to the existence

of the "live" issue of attorney's fees and costs we hold that the suit was not moot.

Id. at 151.

Similarly, here, the closing of five of the schools and Wilfred's relinquishing accreditation of

the sixth does not void Wilfred's interest in recovering fees and costs. We must reach the merits in

this case because a decision in SACS's favor would vitiate the district court's award of fees against

SACS.

III.

Before addressing the merits of the case, we must first consider the proper scope of review

for a court reviewing an accreditation decision made by a voluntary association. SACS argues that

the district court incorrectly looked to federal common law to determine the proper scope f or

reviewing COEI's decision to drop Wilfred 's accreditation. SACS contends that, under the Texas

conflict of laws rules, the court should have applied the standards adopted by Georgia for reviewing

decisions of voluntary associations because Georgia has the most significant contacts to this dispute.

We need not resolve this conflict of laws question, however, because SACS's argument raises a false

conflict.

Federal courts have consistently limit ed their review of decisions of accrediting associations

to whether the decisions were "arbitrar y and unreasonable" and whether they were supported by

"substantial evidence." See, e.g., Medical Institute of Minnesota v. National Ass'n of Trade and

Technical Sch., 817 F.2d 1310, 1314 (8th Cir.1987); R ockland Inst. v. Association o f Indep.

Colleges and Sch., 412 F.Supp. 1015, 1016 (C.D.Cal.1976). Neither Georgia nor Texas law differs

significant ly from the above rule. S ee Golden Star of Honor v. Worrell, 158 Ga. 309, 123 S.E. 106

(1924); H

oey v. San Antonio Rea l Estate Bd., Inc., 297 S.W.2d 214, 217 (Tex.Civ.App.—SanAnt onio 1956, no writ). Therefore, we need not determine whether we should apply Geo rgia o r

Texas law rather than the rule adopted by a number of federal courts.

In reviewing an accrediting association's decision to withdraw a member's accreditation, the

courts have accorded the association's determination great deference. Medical Inst. of Minnesota,

8 17 F.2d at 1314; M

arjorie Webster Junior College, Inc. v. Middle States Ass'n of Colleges and

Secondary Sch., 432 F.2d 650, 657 (D.C.Cir.), cert. denied, 400 U.S. 965, 91 S.Ct. 367, 27 L.Ed.2d

384 (1970). Courts give accrediting associations such deference because of the professional

judgment these associations must necessarily employ in making accreditation decisions. In

considering the substance of accrediting agencies' rules, courts have recognized that "[t]he standards

of accreditation are not guides for the layman but for professionals in the field of education." P arsons

College v. North Cent. Ass'n of College and Secondary Sch., 271 F.Supp. 65, 73 (N.D.Ill.1967).

Consequently, courts are not free to conduct a de novo review or to substitute their judgment for the

professional judgment of the educato rs invo lved in the accreditation process. M edical Inst. of

Minnesota, 817 F.2d at 1315; R ockland Inst., 412 F.Supp. at 1019. Instead, courts focus primarily

on whether the accrediting body's internal rules provide a fair and impartial procedure and whether

it has followed its rules in reaching its decision.

We tur n no w t o Wilfred's alleged violation of COEI's dual accreditation policy, one of the

violations on which COEI predicated its withdrawal of accreditation.

IV.

Schools may receive accreditation from more than one accrediting association. As a result,

COEI's Policies and Standards includes a dual accreditation policy requiring each accredited

instit ut io n to "describe itself in identical terms to each recognized accrediting body with regard to

purpose, governance, programs, degrees, diplomas, certificates, personnel, f i nances, and constituents,

and [ ] keep each accrediting body apprised of any change in its status with one or another accrediting2 SACS's region includes: Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North

Carolina, South Carolina, Tennessee, Texas, and Virginia. Proceedings of the Southern

Association of Colleges and Schools, vol. 41, no. 2, March–April 1989, pp. 7–8. body." 1988 P olicies and Standards at 19, F. Dual Accreditation. This policy did not take effect

until July 1988, but the 1987 Policies and Standards similarly provided that " [a]n institution

accredited as a branch by [COEI] may not be accredited as an independent ins titution by another

accrediting agen cy." 1987 Policies and Standards at 27. In addition, the 1988 P olicies and

Standards includes as a requirement of eligibilit y that "[b]ranche s or ext ensions of institutions

applying for candidate for accreditation must not be accredited as a free-st anding institution by

another accrediting agency." 1988 Policies and Standards, No. 16 at 17.

The district court concluded that the dual accreditation policy serves no rational purpose. We

disagree. Initially, we note that it is not clear that probing into the association's motives behind its

rules represents a proper subject for our inquiry. As we explained in Part III, in reviewing a voluntary

association's decision, we restrict o ur review to whether the association has acted "arbitrarily" or

"unreasonably" in light of its policies. Nevertheless, assuming a rguendo that we may inquire into the

association's motives, that inquiry must remain limit ed. Having reviewed t

he reco rd, we find that

COEI has clearly demonstrated a ge nuine co ncern in requiring identical reporting to various

accreditation bodies.

First, the six regional accrediting associations have agreed to limit their accrediting authority

for main ca mpuses to institutions within their respective regions. 2 COEI, as a part of SACS, may

only accredit a campus outside of its geographic area as a branch of a main campus located within

its area of authority. See 1988 P olicies and Standards, at 25, N. Accreditation Policy Relative to

Branches or Extensions. Wilfred does not contest this limited authority. Thus, COEI must be able

to rely confidently on

a candidat e for branch accreditation's representation that the school is a

legitimate branch of a main campus within SACS's region.Second, COEI has a legitimate interest in knowing a school's true status because its Policies

and Standards makes it easier and faster to receive branch-campus accreditation. Finally, this policy

prom otes COEI's overriding concern for accurate reporting. As we discussed in Part I, accrediting

bodies rely heavily on member institutions' self-reporting in making accreditation decisions. Allowing

instit ut io ns t o report their organizational status differently to take advantage of various eligibility

requirements undermines this effort.

In March 1988, the evaluation team discovered that another accrediting agency had accredited

some of Wilfred's branches as independent institutions. The team notified Wilfred of this violation

in its team repo rt , but Wilfred did not address this concern in its response. As a result, the

Commission delayed reaffirmation of Wilfred and requested that Wilfred provide documentation by

January 31, 1989 from its other accreditor, the National Accrediting Commission of Cosmetology

Arts and Sciences (NACCAS), "ident ifying the locations of Wilfred Academy in identical terms as

is with [COEI] regarding main and branch campus designation (see 1988 Policies and Standards of

COEI, p. 18, F. Dual Accreditation)."

Wilfred did not respond until February 2, 1989 because the original letter was apparently lost

in the mail. When Wilfred did answer, it provided no information on whether Wilfred had designated

the campuses as main or branch campuses for the purpose of NACCAS accreditation. The

Commission then sent Wilfred another request for this information, informing Wilfred that time was

of the essence so Wilfred should respond by facsimile mail. Instead, on March 20, 1989, Wilfred

responded by regular mail, admitting th at NACCAS had accredited nine of its branches as

freestanding. Wilfred failed to inform COEI, ho wever, that Wilfred had applied to NACCAS for

accreditation of two branches, recently accredited by COEI, as branches of a different main campus.

COEI contends that, in fact, all of Wilfred's schools appear to have been branches of the corporate

headquarters in New York.On March 27, 1989, COEI issued Wilfred a Notice t o Show Cause within thirty days why

COEI should not drop Wilfred from accreditation for this violation. Wilfred responded on April 26,

1989, stating that it had had no notice of this policy and that if the Commission believed there to be

a violation it would immediately apply for freestanding status. Despite this promise, Wilfred did not

apply immediately for freestanding status. COEI terminated Wilfred's accreditation on May 19, 1989,

almost two months af

t er t he No tice to Show Cause. Wilfred, in fact, applied for freestanding

accreditation on May 18, 1989, but COEI did not receive Wilfred's application prior to its decision

to drop Wilfred's accreditation. Wilfred appealed this decision, offering to relinquish accreditation

under protest, but the Appeals Board found this "t oo little to l ate." In fact, COEI's P olicies and

Standards provides that the Appeals Board will not consider any evidence of compliance following

the Commission's action. 1988 Policies and Standards, No. 2 at 23.

Despite clear evidence of a violation, the district court found the policy's language vague, not

requiring identical reporting of an institution's status, and serving no rational purpose. These findings

wholly disregard the deference due to the association's accreditation decisi o ns. Having carefully

reviewed the record, it is apparent that Wilfred does not so much deny that it violated COEI's dual

accreditation policy as it attem pts to explain why it violated the policy. Faced with a similar situation,

the Eighth Circuit, in Medical Inst. of Minnesota, commented:

MIM's arguments are self-defeating. While t rying t o explain why it didn't comply with

NATTS' standards, MIM admits each violation. As stated previously, MIM was given every

opportuni ty to justify its problem areas. Apparently , NATTS did not agree t hat MIM's

problems were justified. It is neither our nor the district court's role to reweigh the evidence

in this case.

817 F.2d at 1315.

Wilfred participated in the adopti on of these rules as a member of the Delegate Assembly and,

as a member of COEI, should be charged with knowledge of them. Moreover, even after COEI made

Wilfred fully aware of the violation, the school did not act immediately t o cure the probl em

.Substantial evidence supports COEI's decision to withdraw accreditation because of W ilfred's

violation of the dual accreditation rules. We need not consider the other alleged violations because

COEI may withdraw an institution's accreditation for violating any of COEI's policies. Because the

district court's injunction was erroneously issued, Wilfred is no longer a prevailing party entitled to

recover fees or costs. S ee Kold–Serve Corp. v . Ward, 736 S.W.2d 750, 756 (Tex.App.—Corpus

Christi 1987). We therefore vacate the district court's award of attorney's fees and costs.

REVERSED AND VACATED.