Chauffeur's Training School, Inc. v. Spellings

• Decision Date: 21 February 2007
• Docket Number: Docket No. 04-6385-cv(Lead).,Docket No. 04-6489-cv(Con).
• Citation: 478 F.3d 117
• Parties: CHAUFFEUR'S TRAINING SCHOOL, INC., Plaintiff-Counter-Defendant-Appellant, v. Margaret SPELLINGS, as Secretary of the United States Department of Education,<SMALL><SUP>*</SUP></SMALL> United States Department of Education, Defendant-Counter-Claimant-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

478 F.3d 117

CHAUFFEUR'S TRAINING SCHOOL, INC., Plaintiff-Counter-Defendant-Appellant, v. Margaret SPELLINGS, as Secretary of the United States Department of Education,^* United States Department of Education, Defendant-Counter-Claimant-Appellees.

Docket No. 04-6385-cv(Lead).

Docket No. 04-6489-cv(Con).

United States Court of Appeals, Second Circuit.

Argued: March 22, 2006.

Decided: February 21, 2007.

Keith J. Roland, Roland, Fogel, Koblenz & Petroccione, LLP, Albany, NY, for Plaintiff.

Sarah Wanner, Office of General Counsel, United States Department of Education (Brenda K. Sannes, Assistant United States Attorney (Glenn T. Suddaby, United States Attorney for the Northern District of New York, on the brief), United States Attorney's Office for the Northern District of New York, of counsel), for Defendant.

Before LEVAL, PARKER, Circuit Judges, and SESSIONS, District Judge.^**

LEVAL, Circuit Judge.

Plaintiff Chauffeur's Training School, Inc. (the "School") appeals from rulings of the United States District Court for the Northern District of New York (McAvoy, J., and Sharpe, J.) holding the plaintiff liable to the United States Department of Education¹ for $1,279,333 in damages. In so ruling, the district court enforced the order of the Department entered in an administrative proceeding imposing liability on the School. The court denied the School's challenge under the Administrative Procedures Act, 5 U.S.C. §§ 701-706 ("APA"), to the Department's order, ruling that the Department was authorized to conduct an administrative proceeding to assess liability against the School. The court further gave collateral estoppel effect to the administrative determination of liability in adjudicating the Department's claim for damages.

The case arises out of the School's participation in federal loan programs, pursuant to which its students received financial aid, including bank loans which are guaranteed by a guaranty agency and in turn insured² by the government, to pay the costs of attending the School. To participate in these programs, schools are responsible for processing student loan applications and certifying that the applications are complete and accurate. Eligible students with complete, accurate applications receive loans from private lenders and use the funds to pay tuition and other school expenses. The Department pays subsidies and special allowances to lenders for the student loans, including, for example, the interest accruing on the loan while the student is enrolled. The Department also insures the loans, so that if a student defaults, and neither the lender nor guaranty agency succeed in collecting, the Department reimburses the guaranty agency for its payment of the guarantee.

The School violated loan program requirements by certifying loan applications that were incomplete or inaccurate. Upon discovering these violations by reviewing a sample of the School's student files, the Department conducted an administrative proceeding to recover funds it paid as insurer of the loans. In the proceeding, an Administrative Law Judge ("ALJ") found the School liable to the Department by reason of its program violations. Because the School failed to submit documentation to be reviewed for many of the student loan applications it processed and certified, the ALJ arrived at the amount owed to the Department by estimation. The Department argued for a liability of $28,223,842. The ALJ rejected the Department's estimate, imposing instead a $2,085,008 assessment. On remand, after the district court found this assessment violative of the APA, the ALJ imposed a liability of $1,279,333, which reflected an estimate of the total amount of funds the Department dispensed on improperly certified student loans. The district court entered judgment in that amount.

The School challenges under the APA several aspects of the administrative proceeding. It asserts that the Department lacked statutory authority to undertake an administrative proceeding to assess liability for loan program violations. The School also challenges the decision of the district court to give collateral estoppel effect to the administrative findings. For the reasons set forth below, we reject both challenges and affirm the rulings of the district court. With respect to the Department's statutory authority to institute administrative proceedings to assess a liability for loan program violations, we find that the applicable statutory scheme, Title IV of the Higher Education Act, is silent. The statute neither explicitly authorizes nor prohibits such proceedings. In the absence of clear congressional guidance on the question, we defer to the Department's interpretation that Title IV authorizes it to assess such a liability, as the Department is charged with administering the statutory scheme, and its interpretation is reasonable. With respect to collateral estoppel, we reject the School's contention that the administrative proceeding denied the School sufficient opportunity for full and fair litigation of the issues.

Background

I. Factual History

The School (now defunct) was a vocational trade school offering tractor-trailer driving instruction at seven campuses located in Michigan, Florida, Illinois, New York, and Texas. Until September 1991, the School participated in federal student loan programs under Title IV of the Higher Education Act of 1965 ("HEA"), 20 U.S.C. § 1070 to 1099c-2 ("Title IV").³ Title IV provides the statutory scheme for Federal Family Education Loan programs ("FFEL programs"),⁴ by which eligible students may receive financial assistance for higher education. See id. § 1071 to 1087-4. FFEL programs include, among other things, the Federal Stafford Loan program and the Federal Supplemental Loans for Students program. See id. §§ 1071(c), 1077, 1078. The purpose of these programs is to make available and subsidize student loans from private lenders with repayment insured by the government. See id. § 1071(a). Loans made pursuant to these programs are to be used to pay costs of attending school, such as tuition and living expenses. 34 C.F.R. § 682.100.

To qualify for financial assistance under the FFEL programs, a student must, among other things, attend an eligible institution. See 20 U.S.C. § 1091(a)(1). To be eligible, an institution must enter into a program participation agreement ("PPA") with the Department. See id. § 1094(a). A PPA incorporates regulations promulgated by the Department, which require an institution, inter alia, to administer student loan applications, determine whether students are eligible for particular financial assistance, certify that student loan applications are complete and accurate, and keep records necessary to administer the funds. See id. § 1094(a)(1)-(6).

The School signed a PPA in 1988, pursuant to which it participated in programs for its students to receive Stafford Loans and Supplemental Loans for Students, which were backed by guarantees of the Department. Under these programs, the School certified students as eligible to receive student loans. On that basis the students obtained loans from private banks, which loans were guaranteed by state or private non-profit guaranty agencies, see id. § 1078(b), which guarantees were, in turn, insured by the Department, see id. § 1078(c); 34 C.F.R. § 682.404. If a student failed to repay the loan, the lender and guaranty agency were required to take steps to try to collect repayment, see e.g., 20 U.S.C. §§ 1078(c)(2)(A), 1080(a), and, upon completion of these steps without success, the guarantor was entitled to be indemnified by the Department for paying the defaulted loan, see id. § 1078(c). The Department also made payments to lenders covering the interest accrued while the student borrower attended school. See id. §§ 1078(a)-(b), 1087-1.

In December 1990 and January 1991, the Department conducted a program review of three of the School's seven campuses (those at Albany, Chicago, and Houston) pursuant to 20 U.S.C. § 1099c-1. The Department randomly sampled 187 student files and reviewed them for compliance with student loan eligibility requirements. The Department found widespread documentation in the files that did not comply with the requirements for certification of a student for a loan.⁵ On May 21, 1991, the Department sent to the School a Program Review Report, documenting the instances of non-compliance found in the random sample and specifying actions the School was required to take. The Department required the School to review the financial aid files of every student who received Title IV aid and to submit a report within 60 days detailing whether each student's file complied with the several regulations found to be violated in the random sample. The School failed to submit a complete response.

II. Procedural History

A. The Final Program Review Determination

On August 27, 1992, the Department sent a Final Program Review Determination ("FPRD") to the School. In the FPRD, the Department imposed an assessment on the School of $28,223,842. This figure was based on the theory that, because of the pervasiveness of the School's violations, the School was not an eligible institution, with the consequence that every loan to its students constituted a violation. The figure consisted of the Department's estimate of the total of defaulted loans to the School's students, plus the amount of the Department's payment of subsidies and special allowances associated with those defaulted loans.⁶

B. The First Administrative Hearing

The School sought a hearing for review of the FPRD. Pursuant to Department regulations, such a hearing to review a FPRD is a proceeding on papers, in which the institution and the Department submit written briefs and documentary evidence, such as loan records. See 34 C.F.R. § 668.116. The Department's rules make no provision for subpoenas or for oral testimony. A hearing official regulates the proceedings and issues the decision....