Sistema Universitario v. Riley

• Decision Date: 14 November 2000
• Docket Number: No. 00-1481,00-1481
• Citation: 234 F.3d 772
• Parties: (1st Cir. 2000) SISTEMA UNIVERSITARIO ANA G. MENDEZ, Plaintiff, Appellant, v. RICHARD W. RILEY, SECRETARY OF EDUCATION, Defendant, Appellee. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 772

234 F.3d 772 (1st Cir. 2000)

SISTEMA UNIVERSITARIO ANA G. MENDEZ, Plaintiff, Appellant, v. RICHARD W. RILEY, SECRETARY OF EDUCATION, Defendant, Appellee.

No. 00-1481

United States Court of Appeals For the First Circuit

Heard November 14, 2000

Decided December 19, 2000

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

[Hon. Juan M. Perez-Gimenez, U.S. District Judge] Leslie H. Wiesenfelder, with whom Jose E. De La Cruz Skerrett, Michael B. Goldstein, and Sherry A. Mastrostefano, and Dow, Lohnes & Albertson were on brief, for plaintiff-appellant.

Sarah L. Wanner, Office of the General Counsel, Department of Education, with whom Guillermo Gil, U.S. Attorney, and Lisa E. Bhatia Gautier, Assistant U.S. Attorney were on brief, for defendant-appellee.

Before Lynch, Circuit Judge, Lipez, Circuit Judge, and Garca-Gregory, District Judge.

LYNCH, Circuit Judge.

The United States Secretary of Education determined that certain programs run by a private university system in Puerto Rico did not meet the eligibility requirements for student financial assistance programs under Title IV of the Higher Education Act of 1965, as amended, 20 U.S.C. §§ 1070 et seq. (1998). Title IV includes the popular Pell grant programs. As a result, the university system, the Sistema Universitario Ana G. Mendez, was held liable for $1,712,540 in student grant funds¹ it had disbursed during the two fiscal years from July 1, 1989 to June 30, 1991. The university system sought review of the Secretary's determination in the U.S. District Court. That court entered summary judgment for the Secretary of Education, and Sistema appeals. The case turns on an issue of first impression concerning the interplay between state and federal law on the question of which institutions are "legally authorized" to be eligible for Title IV funds. We hold that the Secretary has discretion to determine what state actions qualify as "legal authorization" for purposes of Title IV eligibility.

I.

Sistema is a private university system that includes three degree-granting universities, Colegio Universitario del Este (formerly Puerto Rico Junior College, or "PRJC"), Universidad del Turabo, and Universidad Metropolitana. Sistema and its constituent institutions have participated in Title IV programs for many years, and each university has received between $7 and $20 million annually in Title IV funding. As a Title IV participant, Sistema has a fiduciary duty to follow program requirements and to account for funds obtained. See, e.g., 34 C.F.R. § 668.82 (1999).

In 1982, PRJC began offering a community-based extension education program known as PROSEE (Programa de Servicios Educativos Especiales, or Special Educational Extension Services Program), and by 1984, Universidad Metropolitana and Universidad del Turabo had each established their own PROSEE sites. It is these PROSEE programs that are at issue. During the early 1980s, Sistema opened approximately 60 new satellite campuses throughout the Commonwealth under PROSEE. Sistema neither notified the Secretary of the existence of these PROSEE sites nor obtained the Secretary's approval of the Title IV eligibility of the sites, as required by Title IV's implementing regulations. See 34 C.F.R. § 600.30; id. § 600.10(b)(3); id. § 600.20. Indeed, when Sistema filled out its usual Title IV eligibility application forms in this period, it marked "N/A" in response to questions about additional locations.

Sistema also failed to obtain prior approval from the Commonwealth's licensing agency, the Puerto Rico Commission on Higher Education ("PRCHE"), for most of the locations. In 1985 PRCHE did grant licenses to certain PROSEE sites that had already been opened by PRJC, but PRCHE knew of only 25 PROSEE sites, while in fact PRJC ultimately operated 38 sites. Sistema obtained no prior approval from PRCHE whatsoever with regard to any of the PROSEE sites operated by the other two universities within Sistema. When PRCHE learned of the additional PROSEE sites, it informed Sistema that Puerto Rico law required Sistema to get prior campus-by-campus approval for each new site.

Sistema took the position that it was not required to do so, and a lawsuit ensued in the Commonwealth courts. In 1988, the parties settled that case, agreeing that PRCHE would undertake a site-by-site review of the PROSEE program and that Sistema would not open any new PROSEE sites in the interim, though the settlement allowed the already opened PROSEE sites to remain open pending review. At the time of the settlement, many PROSEE campuses had never been reviewed, and the settlement did not determine that the PROSEE sites met PRCHE's standards for approval. In fact, when PRCHE did review the PROSEE sites over the following two years, it issued certifications in which it refused to grant approval and listed a series of deficiencies at the sites. The certifications issued did allow certain of the PROSEE locations operated by Universidad Metropolitana and Universidad del Turabo to continue operation for six months, but only for the purpose of permitting students then enrolled to complete their programs, and only on the condition that those sites improve specified deficiencies. There was no evidence presented that they ever did so.

In 1992, PRCHE issued a second set of certifications, which licensed 12 PROSEE sites for prospective operation. But some 46 sites remained, and as to them the PRCHE said:

Having determined that the institution has complied with the closing plan that was approved by this organization, this document certifies for all the legal effects, the validity of the programs offered and degrees conferred in the referenced locations, with the understanding that none of them will continue operating or enrolling a single student.

Of the 46 sites in question, 43 had already closed and the remainder were to be closed shortly.

In 1991 and 1992 the U.S. Department of Education audited Sistema and concluded that the PROSEE sites had not been eligible to participate in Title IV. After negotiations with Sistema, the Department agreed to limit liability to the period from July 1, 1989 to June 30, 1991, and to permit Title IV status for the 25 PROSEE sites licensed in 1985. The Department also eliminated from its calculation of liability those funds for attendance at the PROSEE sites of Universidad Metropolitana and Universidad del Turabo for those PROSEE students who were graduates and potential graduates. Through these adjustments, in the final audit, Sistema's potential liability was reduced from over $27 million to the $1.7 million now at issue.

II.

Sistema brought an administrative challenge under 34 C.F.R. § 668, Subpart H to the Department's determination that the PROSEE programs lacked Title IV eligibility. As a result of their fiduciary status, institutions bear the burden of proving that their expenditures of Title IV funds were warranted and that they complied with program requirements. See 34 C.F.R. § 668.116(d) (1987). After reviewing the record, a DOE administrative law judge affirmed the $1.7 million liability asserted against Sistema on the ground that Sistema had not demonstrated that the PROSEE sites were "legally authorized" by the PRCHE within the meaning of 20 U.S.C. § 1141(a) (1998).² See In re Fundacion Educativa Ana G. Mendez, No. 94-30-SA, Decision of Administrative Judge, at 6 (ED. O.H.A. Dec. 15, 1995). After the Secretary certified this administrative determination, Sistema appealed the finding to the district court.

The district court reversed and remanded that determination to the Secretary. The district court found that the Secretary's determination of liability rested on the premise that PRCHE had not licensed the PROSEE sites at all. By contrast, the court determined that the language in the 1992 PRCHE certifications, quoted above (retroactively certifying the validity of the already closed sites on the condition that they not reopen), constituted an affirmative licensing of the sites for the purposes of Puerto Rico law. Since the Secretary failed to address the effect of these 1992 certifications on the determination of liability, the district court remanded the decision to the Department. However, the district court did not find that the certifications necessarily constituted the "legal authorization" required by the Higher Education Act; rather, it remanded the question of whether the Secretary was bound to take these PRCHE certifications as the equivalent of the required "legal authorization."

On remand, the DOE administrative law judge again found Sistema liable, determining that the program was ineligible for two reasons: (1) the PROSEE sites were not legally authorized, and (2) Sistema failed to apply for prior approval as required:

As part of the federal government's obligation to safeguard federal student financial assistance funds, a tri-partite gatekeeping system has been established. The participants in this gatekeeping function include: accrediting agencies which have been approved by the Secretary to be the judge of the quality and content of education programs; state licencing bodies which oversee the legal existence of educational programs within their respective states; and ED which has the overall responsibility to scrutinize the compliance with federal law of all Title IV participants. Although accrediting agencies and state licensing bodies are, indeed, independent entities, they do not operate in a vacuum in so far as Title IV issues are concerned -- Congress has delegated to the Secretary the final and ultimate authority to determine whether or not compliance with Title IV is achieved.

* * * * *

Separately, I find that Fundacion failed to apply to ED for approval to offer degree or certificate programs at its remote PROSEE sites, as required.

In re Fundacion Educativa Ana G. Mendez, No. 94-30-SA, Decision of Administrative Judge, at 4-5 (ED. O.H.A. July...