Chauffeur's Training School, Inc. v. Riley

• Decision Date: 10 June 1997
• Docket Number: No. 95-CV-1082.,95-CV-1082.
• Parties: CHAUFFEUR'S TRAINING SCHOOL, INC., Plaintiff, v. Richard W. RILEY, Secretary of The United States Department of Education, and the United States Department of Education, Defendants.
• Court: U.S. District Court — Northern District of New York

967 F.Supp. 719

CHAUFFEUR'S TRAINING SCHOOL, INC., Plaintiff, v. Richard W. RILEY, Secretary of The United States Department of Education, and the United States Department of Education, Defendants.

No. 95-CV-1082.

United States District Court, N.D. New York.

June 10, 1997.

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Roland, Fogel, Koblenz & Carr, Albany, NY (Keith J. Roland, of counsel), for Plaintiff.

Thomas J. Maroney, United States Attorney, Syracuse, NY (Robert P. Brouillard, of counsel), for Defendants.

MEMORANDUM-DECISION & ORDER

McAVOY, Chief Judge.

I. BACKGROUND

Plaintiff Chauffeur's Training School ("CTS") is a vocational trade school offering tractor trailer driving instruction. Until September 1991, CTS participated in the Guaranteed Student Loan ("GSL") programs¹ under Title IV of the Higher Education Act of 1965, as amended, 20 U.S.C. § 1070 et seq. ("Title IV"). GSL programs are administered by the Office of Student Financial Assistance Programs ("SFAP"), in the United States Department of Education ("Education").

In December 1990 and January 1991, SFAP conducted program reviews at three CTS locations: Albany, Chicago, and Houston. A final program review determination letter ("FPRD"), issued by SFAP's Institutional Participation and Review Branch on August 27, 1992, concluded that CTS was ineligible to participate in Title IV programs due to its failure to meet the "ability-to-benefit requirements" found at 34 C.F.R. §§ 668.7 and 668.14.² CTS was also cited for incomplete file verification practices, incorrect file review procedures, lack of financial aid transcripts, and failure to satisfy minimum required program hours. The FPRD sought repayment of $28,223,842 which SFAP claimed represented Education's actual losses for GSL funds CTS received during the years 1986-1990.

CTS appealed the FPRD, and on December 3, 1993, Administrative Law Judge Ernest Canellos dismissed the FPRD without prejudice on the ground that it had not been issued by the proper authority. On February 16, 1994, the Secretary reversed Judge Canellos's ruling and reinstated the FPRD. Upon remand, Judge Canellos denied CTS's request for an evidentiary hearing.

On September 9, 1994, Judge Canellos ruled that Education demonstrated that $205,660 in a sample of Guaranteed Student Loans were improperly issued. Judge Canellos then extrapolated that figure to the entire universe of CTS' GSL loans and held that CTS was liable for $2,056,600. Judge Canellos also found that CTS offered an ineligible program that did not meet certain minimum required hours. Thus, CTS' total liability was found to be $2,085,008.

CTS appealed Judge Canellos' decision to the Secretary. On July 11, 1995, the Secretary issued, without opinion, a Certificate of Decision that adopted and certified the Decision issued by Administrative Law Judge Canellos.

On August 4, 1995, CTS filed the instant Complaint against Richard W. Riley, Secretary of the United States Department of Education, and the United States Department of Education challenging the Secretary's assessment of $2,085,008, seeking an injunction prohibiting Education from enforcing or seeking payment of the assessed liabilities, and a declaratory judgment setting aside the Secretary's decision. CTS also seeks relief under the Equal Access to Justice Act. See 28 U.S.C. § 2412.

Presently before the Court are Defendants' Motion and Plaintiff's Cross-Motion for Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.

II. DISCUSSION

A. Summary Judgment Standard & Standard of Review

Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, a court may grant summary judgment if it appears "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). It is the substantive law that will determine what facts are material to the outcome of a case. See Anderson, 477 U.S. at 250, 106 S.Ct. at 2511.

Initially, the moving party has the burden of informing the court of the basis of its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). If the moving party satisfies its burden, the burden then shifts to the non-moving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The Court must then resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986). However, the non-moving party must do more than simply show "that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355. Only when the Court concludes that no rational finder of fact can find in favor of the non-moving party should summary judgment be granted. Gallo v. Prudential Residential. Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir.1994).

Moreover, pursuant to the Administrative Procedures Act, a reviewing court generally will limit its review to whether an agency's decision was arbitrary, capricious, or not in accordance with law. See 5 U.S.C. § 706.³ In determining whether an agency has acted arbitrarily and capriciously in violation of 5 U.S.C. § 706(2)(A), "a court may not `substitute its judgment for that of an agency,'" Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824, 28 L.Ed.2d 136 (1971), but must determine "whether the agency's decision `was based on a consideration of the relevant factors and whether there has been a clear error of judgment.'" State of N.Y. Dep't of Social Services v. Shalala, 21 F.3d 485, 492 (2d Cir.1994) (quoting Motor Vehicle Mfrs. Ass'n of the United States v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2867, 77 L.Ed.2d 443 (1983)).

With this standard in mind, the Court will review the parties' arguments.

B. The Secretary's Decision

The Secretary's decision essentially encompassed five findings: (i) the Final Program Review Determination was properly authorized and issued; (ii) CTS violated Title IV program regulations by engaging in incomplete file verification practices, incorrect file review procedures, lacking financial aid transcripts, and violating ability-to benefit requirements; (iii) CTS failed to provide the 300 minimum hours of instruction in the Tractor Trailer Driver II Program at the Albany campus; (iv) SFAP may recover $2,085,008, including the face value of the guaranteed loans in the 187 student sample extrapolated to the entire universe of CTS' GSL loans; and (v) the violations of Title IV program regulations were not sufficiently serious to reach the level of loss of institutional eligibility.

In light of the fact that neither party takes issue with the Secretary's fifth finding, the Court will only address the remaining four agency findings.

i. Was the Final Program Review Determination Properly Authorized and Issued?

In its Cross-Motion for Summary Judgment, CTS claims that the FPRD was not properly issued because the agency official who signed the FPRD was not empowered to issue the final determination letter. Essentially, CTS argues that the FPRD was "issued under an attempted redelegation of authority which was specifically precluded by the reservation against further delegation in the original delegation." (Plf.'s Mem. in Support of Cross-Motion at 5). In addition, CTS argues that the FPRD is invalid because SFAP did not file a timely response to Judge Canellos' Order to Show Cause and SFAP did not appeal the dismissal to the Secretary in the time authorized.

In his decision reinstating the FPRD, the Secretary states: "[A] subordinate employee signed the FPRD for his immediate supervisor, the Chief of the Institutional Review Branch, the position delegated with the authority to issue FPRDs.... [T]here is no basis in the record to conclude that anyone other than the Chief of the Institutional Review Branch made the actual decision to issue the written notice of determination." (Complaint, Exh. B (emphasis in original)).

After reviewing the record on this issue, the Court cannot conclude that the Secretary's decision to uphold the FPRD was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. As to CTS' remaining arguments, it is plainly within the discretion of the Department of Education as to how it will enforce its own internal procedures. See, e.g., 34 C.F.R. § 668.117(c). Thus, CTS' challenge on this ground must be dismissed.

ii. Did CTS violate Title IV program regulations?

Judge Canellos found, and the Secretary certified, that CTS violated Title IV program regulations by engaging in incomplete file verification practices, incorrect file review procedures, lacking financial aid transcripts, and violating ability-to-benefit requirements, resulting in $205,660 in liability. The Secretary's decision raises two distinct issues. First, did CTS violate Title IV program regulations? If so, what is the correct measure of liability for the violations?

CTS initially argues that it was under no obligation to provide an accounting to Education. It is clear, however, that CTS conducted itself as a fiduciary in administering and accounting for the Title IV program funds. As required by statute, see 20 U.S.C. § 1094(a), CTS entered into a Program Participation Agreement ("PPA") with Education. In its PPA, CTS agreed to comply with all statutory provisions applicable to such programs and all applicable regulatory provisions prescribed under that statutory authority. (Hanley Aff. ¶ 5; PPA Art. II, ¶ 2). Moreover, CTS' PPA states at Article 2, paragraph 2 that "[t]he institution further agrees that it is responsible for all accounting, with appropriate documentation, for all the Title IV, HEA Program Funds it...