Adams v. Duncan

• Decision Date: 31 March 2016
• Docket Number: CIVIL ACTION NO. 3:15-3592
• Citation: 179 F.Supp.3d 632
• Court: U.S. District Court — Southern District of West Virginia
• Parties: Karen Adams, individually and on behalf of all others similarly situated, Plaintiff, v. Arne Duncan, in his capacity as Secretary of the United States Department of Education, Defendant.

179 F.Supp.3d 632

Karen Adams, individually and on behalf of all others similarly situated, Plaintiff,

v.Arne Duncan, in his capacity as Secretary of the United States Department of Education, Defendant.

CIVIL ACTION NO. 3:15-3592

United States District Court, S.D. West Virginia, Huntington Division .

Signed March 31, 2016

Benjamin D. Adams, John H. Skaggs, W. Stuart Calwell, The Calwell Practice, Charleston, WV, for Plaintiff.

Brian P. Siegel, Office of the General Counsel, Washington, DC, Gary L. Call, U.S. Attorney's Office, Charleston, WV, for Defendant.

MEMORANDUM OPINION AND ORDER

ROBERT C. CHAMBERS

, CHIEF JUDGE

Pending is a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1)

for lack of subject matter jurisdiction brought by Defendant Arne Duncan, Secretary of the United States Department of Education. (“Secretary”). ECF No. 8. The Secretary claims the Court lacks subject matter jurisdiction over this action because the United States has not waived sovereign immunity as to the injunctive relief Plaintiff Karen Adams seeks, and because Ms. Adams's claim is mooted. Ms. Adams's action arises from the United States Department of Education's (“Department”) decision to rehabilitate and sell loans Ms. Adams and thousands of others obtained to attend a for-profit school under the Guaranteed Student Loan Program, now known as the Federal Family Education Loan (“FFEL”) Program. Prior to rehabilitating and selling Ms. Adams's FFEL loan, the Secretary had found it and other FFEL loans suitable for discharge due to the school having falsely certified its students' eligibility for FFEL loans. Ms. Adams's asks the Court to overturn the Secretary's decision to rehabilitate and sell group discharged FFEL loans, and the decision, in Ms. Adams's case specifically, to refund no interest on money she paid under her discharged FFEL loan. Finding subject matter jurisdiction over Ms. Adams's claims under the Administrative Procedure Act (“APA”), 5 U.S.C. § 701, et seq .,

and no mootness, the Court DENIES the Secretary's motion.

I. Background

The facts relevant to deciding this motion to dismiss are detailed below in a light most favorable to Ms. Adams. First, some background on the FFEL Program is in order.

A. Federal Family Education Loan Program .

The federal student loan program formerly known as the Guaranteed Student Loan Program, now known as the FFEL Program,¹ was authorized by Congress under Part B of the Higher Education Act of 1965, as amended, 20 U.S.C. §§ 1070, et seq .

(“HEA”). The HEA was enacted in an effort to address the growing need for financial assistance for students in higher education. Tipton v. Sec'y of Educ. of U.S. , 768 F.Supp. 540, 545 (S.D.W.Va.1991). Under the FFEL Program, qualifying students who attended eligible postsecondary education institutions could obtain loans from participating lenders to finance their education. 20 U.S.C. §§ 1078(b) -(c). Repayment of the loans is insured by state or non-profit guaranty agencies, which in turn are reinsured by the Department of Education. The Department has promulgated regulations for the FFEL program under its HEA rulemaking authority.

Under the Department's regulations, if a borrower fails to repay the loan as scheduled, the lender must attempt to collect the loan using certain procedures. 34 C.F.R. § 682.411

. If the lender's collection efforts are unsuccessful, the loan is considered in default and the lender presents to the guaranty agency a claim for repayment of the loan. The guaranty agency then pays the lender for the loan and receives reimbursement from the Department. 34 C.F.R. § 682.406. However, the guaranty agency is also required to undertake collection efforts. 34 C.F.R. § 682.410(b)(6). If the guaranty agency's collection efforts are unsuccessful, the guaranty agency eventually assigns the loan to the Department, and the Department undertakes its own collection efforts. 34 C.F.R. § 682.409. The required collection activities by the lender and the guaranty agency are called “due diligence,” and the lender and guaranty agency must meet the due diligence requirements in order to receive reimbursement from the Department. 34 C.F.R. § 682.406.

A borrower who has defaulted on a FFEL loan may “rehabilitate” the defaulted loan by making a certain number of qualifying on-time payments within a specific period. 20 U.S.C. § 1078-6(a)

; 34 C.F.R. § 682.405. If a FFEL loan is rehabilitated, the borrower recommits to paying the loan under the promissory note and receives significant benefits for no longer being in default, including having the default removed from the borrower's credit history.

The HEA and Higher Education Act Amendments of 1992 (“1992 HEA Amendments”) also permit discharge of FFEL loans under certain conditions. The 1992 HEA Amendments provide that if a student borrower's “eligibility to borrow ... was falsely certified by the eligible institution ... then the Secretary shall discharge the borrower's liability on the loan (including interest and collection fees) by repaying the amount owed on the loan.” 20 U.S.C. § 1087(c)(1)

; Gill v. Paige , 226 F.Supp.2d 366, 369 (E.D.N.Y.2002). Under Department regulations, an institution falsely certifies a student's eligibility if the institution: (1) certified the student's ability to benefit (“ATB”) from the institution's training when the student did not meet the applicable statutory and regulatory requirements; (2) signed the borrower's name without authorization on the loan application or promissory note; or (3) certified the student's eligibility for the loan as a result of the crime of identity theft. 34 C.F.R. § 682.402(e)(1)(i)

.

To qualify for a discharge, Department regulations generally require a borrower to file an application and provide certain information and records to demonstrate that he or she meets the requirements for a discharge. 34 C.F.R. § 682.402(e)(3)

; see also

Salazar v. Duncan , No. 14–1230, 2015 WL 252078, at *4 (S.D.N.Y. Jan. 16, 2015).² However, a borrower's loan may be discharged without an application if the Secretary determines that the borrower qualifies for a discharge based on information in the Secretary's possession. 34 C.F.R. § 682.402(e)(15). This latter option is known as a “group” or “blanket” discharge. Reviewing the Department regulations, the effect of a group discharge under (e)(15) is the same as when an individual borrower obtains discharge by filing an application under other sections of 682.402(e).³

After discharging a FFEL loan held by the Department, the Secretary is obligated by Department regulations to take several actions. First, the Secretary must reimburse the borrower amounts he or she paid voluntarily or through enforced collection on the discharged loan. See 34 C.F.R. §§ 682.402(e)(1), (2)(ii)

. The Secretary must also report the discharge to all credit reporting agencies. Id. at § 682.402(e)(iv). Additionally, a parallel regulation in the context of Direct Loans requires the Secretary, upon determining a borrower is eligible for discharge, to notify the borrower by mail about his or her eligibility for discharge and suspend collection efforts.⁴

B. Ms. Adams's FFEL Loan

According to the Complaint, in 1986 Ms. Adams obtained a FFEL loan for $2,500.00 from the now-shuttered Florida Federal Savings and Loan (“FFSL”). Compl. ¶¶ 4, 20. Ms. Adams used the loan to attend the for-profit PTC Institute in Florida. Compl. ¶ 4. At the time she applied for the FFEL loan, Ms. Adams did not have a high school diploma or a General Educational Development credential (“GED”), Compl. ¶ 2, which made her ineligible for a FFEL loan unless the institution demonstrated, in one of several manners prescribed by regulation, her ability to benefit (“ATB”) from the education or training offered by the institution. 20 U.S.C. § 1091(d)

; 34 C.F.R. §§ 668.32(e), 668.141 –156.

In 1992, Ms. Adams moved to West Virginia and was later awarded Social Security Supplemental Income (“SSI”) benefits for mild mental retardation

, minimal literacy, and dependent personality syndrome. Compl. ¶ 2. Her SSI benefits were around $700 a month at that time.

Eventually, Ms. Adams defaulted on her FFEL loan. Pursuant to the provisions of the FFEL Program, the loan was assigned to the Department, which became the holder of Ms. Adams's loan.

In 1995, the Secretary conducted an investigation and found sufficient evidence to provide a group discharge to borrowers who used their FFEL loans to attend PTC Institute from January 1, 1986 through June 30, 1990. Compl. Ex. C; Compl. Ex. E. The Secretary's determination was based on a finding by the Department's Inspector General that PTC Institute had falsely certified the eligibility of its students for FFEL loans during this time period. Compl. Ex. C.⁵ According to the Secretary's 1995 letter, an individual borrower who fell into this category could have his or her loan discharged by certifying that the school improperly determined his or her ability to benefit. Compl. Ex. C.⁶

In March 2006, Ms. Adams, not knowing about the 1995 group discharge, applied to have her FFEL loan discharged. Compl. Ex. E. In her application, however, Ms. Adams identified incorrectly the school she attended as the Chi Institute, rather than PTC Institute. Id. Ms. Adams's application was denied on the ground that attendees of the Chi Institute were not eligible for a group discharge. Id. The Secretary's records indicate the letter rejecting Ms. Adams's application was dated April 14, 2006.

After the Department denied Ms. Adams's discharge request, it recognized her loan as rehabilitated and sold it along with FFEL loans originated by PTC Institute. More specifically, in 2007 a collection contractor working for the Department contacted Ms. Adams and suggested she rehabilitate her loan. Compl. ¶ 14–15. Not realizing her loan was subject to the 1995 group discharge, Ms. Adams rehabilitated her loan on October 8, 2007. Id. In 2008, the Department sold Ms. Adams's...