## Facts

- Tempe Technical Institute, Inc. (TTI) operated a for-profit vocational school in Arizona and offered programs for students seeking job training.
- Former students, led by Grace Keams (plaintiffs), brought a class action alleging that TTI misrepresented the nature and value of the education it would provide and failed to deliver what it promised.
- Many students financed attendance through federal student loans.
- TTI provided students with loan application materials and helped students complete the applications.
- Completed applications were submitted for processing and issuance to Zions National Bank / Zions First National Bank (Zions) (defendant), which made many of the loans used to attend TTI.
- Zions did not authorize TTI to act on Zions’s behalf in assisting students with loan applications.
- TTI later closed after financial problems and filed for bankruptcy.
- Student Loan Marketing Association (Sallie Mae) (defendant) purchased certain student loans from Zions on the secondary market.
- Plaintiffs sued Zions (and sought to extend liability to Sallie Mae), arguing Zions was vicariously liable because it ratified TTI’s unauthorized conduct by later processing and issuing the loans.

## Issues

1. Whether Zions ratified TTI’s unauthorized conduct of assisting students with loan applications by later processing and issuing the student loans.
2. If ratification was not shown as to Zions, whether Sallie Mae could be held liable on the same vicarious-liability theory based solely on its purchase of loans from Zions.

## Decision

- The court granted summary judgment for Zions on plaintiffs’ ratification-based vicarious-liability theory.
- The court granted summary judgment for Sallie Mae, which joined Zions’s motion.
- The court ruled that plaintiffs failed to produce evidence that Zions, with full knowledge of the material facts, affirmed or adopted TTI’s unauthorized conduct.

## Legal Principles

- Ratification is an agency doctrine that requires a principal to affirm an act done on the principal’s behalf by another person who lacked authority at the time of the act.
- Ratification requires knowledge of the material facts; a party cannot be treated as having ratified conduct it did not know about in the way required for ratification.
- Conduct consistent with a party’s ordinary role in a transaction (such as processing and issuing loans) does not, by itself, establish an intent to adopt and be bound by a third party’s earlier unauthorized acts.
- A secondary-market purchaser’s exposure on a ratification theory depends on an adequate agency basis tying the alleged wrongful act to the purchaser (or to an entity for which the purchaser is legally responsible); purchasing loans, without more, does not supply that basis.

## Conclusion

Because the record did not show that Zions knowingly and intentionally adopted TTI’s unauthorized assistance with student loan applications, the court held Zions did not ratify TTI’s conduct and entered summary judgment for Zions; with no viable ratification-based basis to extend vicarious liability through Zions, the court also entered summary judgment for Sallie Mae as the loan purchaser.


Keams v. Tempe Technical Institute, Inc., 993 F. Supp. 714 (1997)