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Ayal Rosenthal v. New York University

May 16, 2012

AYAL ROSENTHAL, PLAINTIFF-APPELLANT,
v.
NEW YORK UNIVERSITY, NEW YORK UNIVERSITY LEONARD N. STERN SCHOOL OF BUSINESS, AND THOMAS F. COOLEY,*FN1 DEFENDANTS-APPELLEES, AND RICHARD R. WEST, DEAN OF THE LEONARD N. STERN SCHOOL OF BUSINESS, DOES 1-10, DEFENDANTS.



Appeal from a judgment of the United States District Court for the Southern District of New York (Lewis A. Kaplan, J.).

10-4168-cv

Rosenthal v. NYU

SUMMARY ORDER

Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court's Local Rule 32.1.1. When citing a summary order in a document filed with this court, a party must cite either the Federal Appendix or an electronic database (with the notation "summary order"). A party citing a summary order must serve a copy of it on any party not represented by counsel.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on the 16th day of May, two thousand twelve.

PRESENT: PETER W. HALL, GERARD E. LYNCH, DENNY CHIN, Circuit Judges.

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.

Plaintiff-appellant Ayal Rosenthal was convicted of violating federal securities laws when he provided material, nonpublic information - gained in his capacity as a certified public accountant - to his brother, an active securities trader. At the time he committed the crime, Rosenthal was a candidate for the Master of Business Administration ("MBA") degree at defendant-appellant Stern School of Business ("Stern"), a subdivision of defendant-appellant New York University ("NYU"). Before Rosenthal had graduated, a Stern faculty member learned about Rosenthal's crime, which Rosenthal had not disclosed to any member of the faculty. Stern pursued thereafter a disciplinary proceeding that resulted in its decision to refuse to certify Rosenthal as qualified for the MBA. Rosenthal sued, asserting various contractual and Article 78 claims, seeking to require NYU and Stern to award him the degree. On September 20, 2010, the district court entered judgment, following a bench trial, declaring that NYU was under no legal obligation to award Rosenthal an MBA and dismissing Rosenthal's various claims for relief. Rosenthal v. NYU, No. 08-Civ. 5338, 2010 WL 3564975 (S.D.N.Y. Sept. 13, 2010). We assume the parties' familiarity with the underlying facts and procedural history in this case.

On appeal, Rosenthal argues that NYU breached its implied contract with its students by failing to observe its own rules and procedures. We review the district court's findings of fact for clear error, and its conclusions of law de novo. United States v. Brennan, 650 F.3d 65, 92 (2d Cir. 2011). As federal jurisdiction over the matter is based on the diversity of the parties' citizenship, New York law applies. For the following reasons, we conclude that Rosenthal's arguments are without merit, and we affirm the judgment of the district court.

While "there is an implied contract between the student and the university that, if he complies with the terms prescribed by the university, he will obtain the degree which he sought," Matter of Carr v. St. John's Univ., 17 A.D.2d 632, 633, 231 N.Y.S.2d 410 (2d Dep't 1962), aff'd, 12 N.Y.2d 802 (1962), courts reviewing such contracts must tread carefully: In order for society to have "complete confidence in the credentials dispensed by academic institutions . . . it is essential that the decisions surrounding the issuance of these credentials be left to the sound judgment of the professional educators who monitor the progress of their students on a regular basis," Matter of Olsson v. Bd. of Higher Educ of City of N.Y., 49 N.Y.2d 408, 413 (1980). Courts do not intervene to require institutions "to confer diplomas on those who have been deemed to be unqualified." Olsson, 49 N.Y.2d at 413. Our review, in applying New York law, is thus limited to determining whether NYU and Stern have "act[ed] in good faith in its dealings with its students." Id. at 414.

Similarly, with regard to Article 78 claims, "the judgment of professional educators is subject to judicial scrutiny to . . . determine whether they abided by their own rules, and whether they have acted in good faith or their action was arbitrary or irrational." Gertler v. Goodgold, 107 A.D.2d 481, 486 (1st Dep't 1985), aff'd, 66 N.Y.2d 946, 948 (1985). New York law thus makes clear that, in reviewing universities' decisions regarding academic credentialing, courts must defer to the university's effort to substantially observe the rules, regulations, and procedures it has announced in advance, and will disturb their decisions only if their actions are arbitrary, irrational, or in bad faith.

The University's Bylaws declare, in part, that "it is the duty of each faculty to determine . . . the standards of academic achievement to be attained for each degree offered . . . ." Bylaws 61(b). The first inquiry, then, is whether Stern's refusal to certify Rosenthal as a Master of Business Administration after learning about his criminal insider trading could constitute a determination Stern's "standards of academic achievement" under the university's bylaws. The district court held that it could, and concluded that Rosenthal's "elaborate jurisdictional and procedural arguments" that Stern was without jurisdiction to withhold Rosenthal's MBA after learning of his criminal activity were "entirely without merit." Rosenthal, 2010 WL 3564975, at *3.

We agree with the district court. Rosenthal pled guilty to violating federal securities laws. More particularly, he admitted that he divulged material, non-public information about a confidential acquisition - material he had obtained in his position as a professional accountant - to his brother, and "turned a blind eye" to the likelihood that the brother, an active securities trader, would trade on the information. Id. at *2 n. 25. Without question, a business school faculty could reasonably believe that such conduct is not befitting of a member of the academic business community, and that a student who engages in this criminal activity - while working in the very profession in which he now demands that Stern certify him to the world as professionally competent - is not fit to receive the degree. Consequently, Rosenthal cannot show that NYU or Stern, in reaching this conclusion, acted arbitrarily, irrationally, or in bad faith. See Harris v. Trustees of Columbia Univ., 98 A.D.2d 58, 71 (1983) (Kassal, J., dissenting) (finding, in a dissenting opinion subsequently adopted by the New York Court of Appeals, 62 N.Y.2d 956 (1984), that "dishonesty and lack of character" are "a matter of vital interest to an academic institution").

Rosenthal does not contest the logic of the foregoing analysis. Indeed, he concedes that a university could in principle withhold a degree under these circumstances. Instead, he argues that his contract with NYU and Stern specifically forbids Stern from punishing him for off- campus conduct, however egregious the conduct or connected it may be to his academic pursuits. This argument fails for two reasons. First, Stern's own published rules - particularly its Code of Conduct, which specifically admonishes students to "reflect a personal honesty, integrity, and respect for others" in their conduct - provide ample indication, to us and to its students, that Stern did not intend to enter into any such contract with Rosenthal. Because Stern advises its students that the faculty's disciplinary power includes ...


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