Bauer v. Devos, Civil Action No. 17-1330 (RDM)

• Decision Date: 12 September 2018
• Docket Number: Civil Action No. 17-1330 (RDM)
• Citation: 325 F.Supp.3d 74
• Parties: Meaghan BAUER, et al., Plaintiffs, v. Elisabeth DEVOS, Secretary, U.S. Department of Education, et al., Defendants.
• Court: U.S. District Court — District of Columbia

325 F.Supp.3d 74

Meaghan BAUER, et al., Plaintiffs,

v.Elisabeth DEVOS, Secretary, U.S. Department of Education, et al., Defendants.

Civil Action No. 17-1330 (RDM)

United States District Court, District of Columbia.

Signed September 12, 2018

Adam R. Pulver, Scott Lawrence Nelson, Julie A. Murray, Public Citizen Litigation Group, Benjamin Michael Wiseman, Office of the Attorney General Office of Consumer Protection, Washington, DC, Toby R. Merrill, Legal Services Center of Harvard Law School, Jamaica Plain, MA, Yael Shavit, Office of the Attorney General of Massachusetts, Boston, MA, Bernard Ardavan Eskandari, California Department of Justice, Los Angeles, CA, John A.B. Langmaid, Joseph J Chambers, Office of Attorney General, Hartford, CT, Christian Douglas Wright, Delaware Department of Justice, Wilmington, DE, Mark Stanley Kubiak, Office of the Attorney General of Virginia Consumer Protection Section, Samuel Thurston Towell, Office of the Attorney General of Virginia, Richmond, VA, Bryan Chien Yee, James Collington Paige, Thomas Francis Mana Moriarty, State of Hawaii Department of the Attorney General, Honolulu, HI, Joseph Michael Sanders, Illinois Attorney General's Office, Chicago, IL, Jessica Whitney, Iowa Attorney General's Office, Des Moines, IA, Christopher John Madaio, Office of the Attorney General of Maryland, Baltimore, MD, Jason Timothy Pleggenkuhle, Minnesota Attorney General's Office, St. Paul, MN, Carolyn Fast, Jane Melissa Azia, Office of the New York Attorney General, New York, NY, Matthew Liles, North Carolina Department of Justice, Raleigh, NC, Andrew U. Shull, Oregon Department of Justice, Salem, OR, Jesse Harvey, Pennsylvania Office of the Attorney General Bureau of Consumer Protection, Pittsburg, PA, John M. Abel, Office of Attorney General, Harrisburg, PA, Michael John Fischer, Pennsylvania Office of Attorney General, Philadelphia, PA, Edmund Francis Murray, Jr., Neil F. X. Kelly, Rhode Island Department of Attorney General, Providence, RI, Christopher James Curtis, Office of the Attorney General, State of Vermont, Montpelier, VT, Benjamin Jerauld Roesch, Washington State Attorney General's Office, Seattle, WA, for Plaintiffs.

Karen Bloom, Robert Charles Merritt, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION AND ORDER

RANDOLPH D. MOSS, United States District Judge

Meaghan Bauer, Stephano Del Rose, and a coalition of nineteen states and the District of Columbia bring suit against the Department of Education under the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq . Plaintiffs challenge three agency actions delaying the implementation of the "Borrower Defense Regulations," a package of regulatory changes to federal student loan programs designed to "protect student loan borrowers from misleading, deceitful, and predatory practices." William D. Ford Federal Direct Loan Program ("Borrower Defense Regulations"), 81 Fed. Reg. 75,926, 75,926 (Nov. 1, 2016). The Borrower Defense Regulations were published on November 1, 2016, and were to become effective on July 1, 2017. Shortly before the effective date, however, the California Association of Private Postsecondary Schools ("CAPPS"), brought suit challenging the regulations, and, a week later, CAPPS sought a preliminary injunction blocking the implementation of two changes. That motion was never fully briefed or decided because the Department, on its own accord, issued a stay under § 705 of the APA ("Section 705 Stay"), postponing not only the effective date of the two changes that CAPPS had asked the Court preliminarily to enjoin, but most of the other portions of the regulations as well. While the CAPPS litigation continued, the Department issued an interim final rule on October 24, 2017 that delayed the effective date of the Borrower Defense Regulations to July 1, 2018, and a notice of proposed rulemaking to further delay the effective date to July 1, 2019. Then, on February 14, 2018, the Department issued a final rule delaying the effective date of the Borrower Defense Regulations until July 1, 2019.

Within weeks of the issuance of the Section 705 Stay, Bauer and Del Rose (student borrowers who allege that they would benefit from the Borrower Defense Regulations) and the coalition of nineteen states and the District of Columbia filed separate suits seeking to invalidate the stay. Over the course of the last year, both sets of plaintiffs have amended their complaints to challenge the additional delay actions taken in October 2017 and February 2018. On March 1, 2018, the Court consolidated the student borrower and state cases, stayed the CAPPS case pending resolution of this case, and ordered a final round of summary judgment briefing.

The matter is now before the Court on cross-motions for summary judgment filed by the state plaintiffs, Dkt. 55, the student borrower plaintiffs, Dkt. 56, and the Department, Dkt. 58; Dkt. 59. In brief, the Court concludes that Plaintiffs have standing to challenge the delay actions; that the October 24, 2017 Interim Final Rule is based on an unlawful construction of the Higher Education Act of 1965; that the February 14, 2018 Final Delay Rule is procedurally invalid; that the Section 705 Stay is judicially reviewable; and that the Department's Section 705 Stay is arbitrary and capricious. The Court, accordingly, will GRANT the state plaintiffs' and the student borrower plaintiffs' motions for summary judgment, Dkt. 55; Dkt. 56, and will DENY the Department's cross-motion, Dkt. 66. Before entering a remedial decree, the Court will order the parties in this case and the parties and proposed intervenors in CAPPS v. DeVos , Civil Action No. 17-999, to appear for a status conference on September 14, 2018, at 10:30 a.m. in Courtroom 21.

I. BACKGROUND

A. Borrower Defense Regulations

Title IV of the Higher Education Act of 1965 ("HEA"), 20 U.S.C. § 1070 et seq. , empowers the Secretary of Education "to assist in making available the benefits of postsecondary education to eligible students ... in institutions of higher education" through various types of financial aid. Id. § 1070(a). The William D. Ford Federal Direct Loan Program ("Direct Loan Program") allows students who attend "participating institutions of higher education" to obtain direct loans from the federal government to pay for their educational expenses. Id. § 1087a(a). Those institutions of higher education that are selected to participate in the Direct Loan Program must enter into an agreement with the Secretary of Education, which may include any provisions "the Secretary determines are necessary to protect the interests of the United States and to promote the purposes of" the Direct Loan Program. Id. § 1087d(a)(6); see also id. § 1087c. Moreover, and more generally, the Secretary has authority "to make, promulgate, issue, rescind, and amend rules and regulations governing the" Direct Loan Program. Id. § 1221e-3. In administering the Direct Loan Program, the Secretary must also "specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan" made under the Direct Loan Program. Id. § 1087e(h).

Pursuant to these authorities, in January 1994, the Secretary issued "standards, criteria, and procedures governing the Federal Direct Student Loan ... program." Federal Direct Student Loan Program, 59 Fed. Reg. 472, 472 (Jan. 4, 1994). Those standards included the first iteration of the borrower defense rule, which permitted a Direct Loan Program borrower to "assert as a defense against the repayment of the loan a claim based on the act or omission of the school" if (1) that act or omission gave rise to a cause of action against the school under state law, (2) the borrower presented the "claim to the school and received no satisfaction," and (3) the borrower filed a timely claim with the Department of Education. Id. at 481.

In December 1994, the Secretary amended the Direct Loan Program regulations, including those governing borrower defenses. See William D. Ford Federal Direct Loan Program, 59 Fed. Reg. 61,664, 61,696 (Dec. 1, 1994). Under the new regulations—which remain in effect today—borrowers are permitted to assert "as a defense against repayment, any act or omission of the school attended by the [borrower] that would give rise to a cause of action against the school under applicable State law." 34 C.F.R. § 685.206(c)(1) (2016). If that defense to "repayment is successful, the Secretary notifies the borrower that the borrower is relieved of the obligation to repay all or part of the loan," and the Secretary may provide the borrower with further relief as appropriate. Id. § 685.206(c)(2). The Secretary may then bring a "proceeding to require the school whose act or omission resulted in the borrower's successful defense against repayment of [the] Direct Loan to pay to the Secretary the amount of the loan to which the defense applies." Id. § 685.206(c)(3). In short, the 1994 borrower defense rule permits a student borrower to assert his or her school's misconduct as a reason for nonrepayment, and, if successful, the regulation shifts the obligation to repay the loan from the borrower to the school.

The adequacy of the 1994 borrower defense rule was tested by "the collapse of Corinthian Colleges (Corinthian)" in May 2015. William D. Ford Federal Direct Loan Program ("June 16, 2016 Notice of Proposed Rulemaking (‘NPRM’)"), 81 Fed. Reg. 39,330, 39,330 (June 16, 2016). Corinthian was "a publicly traded company [that] operat[ed] numerous postsecondary schools that enrolled over 70,000 students at more than 100 campuses nationwide." Id. at 39,335. After Corinthian "filed for bankruptcy" and the Department found "that the college had misrepresented its job placement rates," the Department "received thousands of claims for student loan relief from Corinthian students." Id. In dealing with the aftermath, the Department concluded that the 1994 borrower...