Ass'n of Private Sector Colls. v. Duncan, Civil Action No. 14–277 RMC
| Decision Date | 02 October 2014 |
| Docket Number | Civil Action No. 14–277 RMC |
| Court | U.S. District Court — District of Columbia |
| Parties | Association of Private Sector Colleges and Universities, Plaintiff, v. Arne Duncan, Secretary, U.S. Department of Education, et al., Defendants. |
Nikesh Jindal, Douglas R. Cox, Gibson, Dunn & Crutcher, LLP, Washington, DC, Timothy John Hatch, Gibson, Dunn & Crutcher, Los Angeles, CA, for Plaintiff.
Marcia Berman, Gregory Peter Dworkowitz, Michelle Renee Bennett, U.S. Department
of Justice, Washington, DC, for Defendants.
The D.C. Circuit remanded this matter to allow the Department of Education to provide a reasoned explanation for two aspects of new rules that affect for-profit colleges and universities. On remand, the Department supplemented the preamble to its regulations to comply with the D.C. Circuit's directives. The Association of Private Sector Colleges and Universities now complains that the Department has once again failed to support its regulations with record evidence and substantiated assertions. The Department of Education responds that its supplemented preamble satisfies the Circuit's limited remand. Both parties move for summary judgment. For the reasons set forth below, the Court will grant Plaintiff's motion.
Every year, Congress provides more than $150 billion in federal grants and loans to institutions that enroll students in qualified educational programs. The Department of Education (Department) administers these programs, which were established under Title IV of the Higher Education Act (HEA), Pub.L. No. 89–329, 79 Stat. 1219, 1232–54 (1965). The HEA seeks to ensure that postsecondary institutions prepare students for graduation and employment, and thereby increase the likelihood of student loan repayment. Thus, to participate in Title IV programs, a postsecondary institution must satisfy several requirements to ensure that it meets minimum quality standards before receiving federal funds. See 20 U.S.C. § 1094(a) ().
However, the Department believes that some institutions have evaded these statutory requirements to secure funding irrespective of program quality. In particular, private-sector colleges and universities have come under fire for questionable recruiting tactics that have led to the enrollment of underqualified students who fail to secure adequate employment and are therefore at heightened risk for student loan default. The Department seeks to curb these practices by, among other things, eliminating certain forms of incentive-based compensation for recruiting personnel.1
In 2009, the Department concluded that its existing compensation regulations were susceptible to manipulation. Of relevance here, the Department amended its regulations covering incentive-based compensation (Compensation Regulations) to eliminate safe harbors which had allowed postsecondary institutions to circumvent the statutory ban on certain incentive payments. See Ass'n of Private Sector Colls. & Univs. v. Duncan (APSCU), 681 F.3d 427, 434 (D.C.Cir.2012) (citing 34 C.F.R. § 668.14(b)(22) ).
Specifically, the Department amended its Compensation Regulations to prohibit institutions receiving federal monies from offering “any sum of money or something of value, other than a fixed salary or wages,” 34 C.F.R. § 668.14(b)(22)(iii)(A) (2011), “based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid,” id. § 668.14(b)(22)(i). Under the new rule, a postsecondary institution could award merit-based salary adjustments to its recruiting personnel, but only if the adjustments were not based “in any part, directly or indirectly,” on a recruiter's success in securing enrollments. See id. In addition, the Compensation Regulations eliminated a safe harbor that had allowed schools to provide incentive compensation “based upon students successfully completing their educational programs or one academic year of their educational programs, whichever is shorter.” Id. § 668.14(b)(22)(ii)(E). The new rule therefore proscribed all forms of graduation-based compensation for recruiting personnel. Finally, the Department eliminated a safe harbor that had allowed schools to provide incentive-based compensation to “managerial or supervisory employees who do not directly manage or supervise employees who are directly involved in recruiting or admission activities, or the awarding of [T]itle IV, HEA program funds.” Id. § 668.14(b)(22)(ii)(G).
The Association of Private Sector Colleges and Universities (APSCU) is an association that represents over 1,500 private-sector schools. On January 21, 2011, APSCU filed suit to challenge the Compensation Regulations, among others,2 under the Administrative Procedure Act (APA), 5 U.S.C. § 706, and the U.S. Constitution. This Court granted summary judgment to the Department on APSCU's claims concerning the Compensation Regulations. See Career Coll. Ass'n v. Duncan, 796 F.Supp.2d 108 (D.D.C.2011).
On appeal, the D.C. Circuit affirmed in part and reversed in part. With respect to the Compensation Regulations, the D.C. Circuit held that the Department's regulations provided a permissible interpretation of the HEA's prohibition on certain forms of incentive-based compensation. However, the Circuit found two aspects of the Compensation Regulations arbitrary and capricious for want of reasoned decision-making. First, the Circuit held that the prohibition on graduation-based compensation was arbitrary and capricious “without some better explanation from the Department.” APSCU, 681 F.3d at 448. The Circuit explained:
Further, the D.C. Circuit held that the Department had failed to respond to commenters' concerns that the Compensation Regulations could have an adverse effect on minority enrollment. In particular, two commenters asked the Department to address whether the Compensation Regulations would apply to employees who were involved in recruiting minority students and, specifically, whether the Department intended to foreclose an institution's ability to compensate staff for recruiting students from disadvantaged backgrounds. The D.C. Circuit noted:
[T]he Department stated that the Compensation Regulations apply to all employees at an institution who are engaged in any student recruitment or admission activity or in making decisions regarding the award of [T]itle IV, HEA program funds. However, the Department never really answered the questions posed by [the commenters] because it failed to address the commenters' concerns .... [T]he agency's failure to address these comments, or at best its attempt to address them in a conclusory manner, is fatal to its defense.
Id. at 449 (internal citations and quotation marks omitted).
The Circuit remanded these two portions of the Compensation Regulations to the District Court, with instructions to remand to the Department to (1) explain its elimination of the safe harbor for graduation-based compensation and (2) respond to commenters' concerns about the effects of the Compensation Regulations on diversity initiatives. Id. at 448–49. The Compensation Regulations were remanded to the Department of Education on August 14, 2012.
On September 6, 2012, APSCU wrote a letter to Arne Duncan, Secretary of the Department of Education, to encourage the Department to engage in further notice and comment rulemaking to remedy the deficiencies identified by the Court of Appeals. The Department did not respond to APSCU's request. Instead, on March 22, 2013, the Department of Education issued an amended preamble to further explain the reasons for its Compensation Regulations and to address commenters' concerns about the enrollment of minority students. See Program Integrity Issues, 78 Fed.Reg. 17,598, 17,599, 17,600 (2013) (codified at 34 C.F.R. § 668.14(b)(22) ).
It is undisputed that the Department significantly expanded the number of reasons supporting its prohibition on graduation-based compensation. However, the parties contest whether the quality and logical force of those reasons are sufficient to comply with the D.C. Circuit's directives. With respect to the ban on graduation-based compensation, the Department explained:
[I]t is the Department's experience that institutions use this safe harbor to provide recruiters with compensation that is indirectly based upon securing enrollments in violation of the HEA .... In other words, because a student cannot successfully complete an educational program without first enrolling in the program, the compensation for securing program completion requires the student's enrollment as a necessary preliminary step.
78 Fed.Reg. 17,599 (citation and internal quotation marks omitted). In other words, because enrollment is a “first” and “necessary” precursor to graduation, see id., the Department contends that the HEA's prohibition on enrollment-based compensation necessarily requires a total ban on graduation-based compensation.
The Department also referenced comments which had expressed concern that “[t]he shorter the program, the more likely the student will complete the...
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