Cal. Ass'n of Private Postsecondary Sch. v. DeVos

• Decision Date: 16 October 2018
• Docket Number: Civil Action No. 17-999 (RDM)
• Parties: CALIFORNIA ASSOCIATION OF PRIVATE POSTSECONDARY SCHOOLS, Plaintiff, v. Elisabeth DEVOS, in her official capacity as Secretary of the U.S. Department of Education, et al., Defendants
• Court: U.S. District Court — District of Columbia

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CALIFORNIA ASSOCIATION OF PRIVATE POSTSECONDARY SCHOOLS, Plaintiff,
v.
Elisabeth DEVOS, in her official capacity as Secretary of the U.S. Department of Education, et al., Defendants,

Civil Action No. 17-999 (RDM)

United States District Court, District of Columbia.

Signed October 16, 2018

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Robert Lawrence Shapiro, Duane Morris LLP, Caroline S. Van Zile, Clifford M. Sloan, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC, Boris Bershteyn, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Plaintiff.

Karen Bloom, U.S. Department of Justice, Washington, DC, Thomas David Zimpleman, R. Charlie Merritt, U.S. Department of Justice, Richmond, VA, for Defendants.

MEMORANDUM OPINION AND ORDER

RANDOLPH D. MOSS, United States District Judge

This is not the first (and presumably not the last) chapter in a dispute about the fate of regulations that the Department of Education promulgated in November 2016 to address perceived deficiencies in the William D. Ford Federal Direct Loan Program ("Direct Loan Program"), which allows students who attend participating schools to obtain federal loans. The regulations were intended to "protect student loan borrowers from misleading, deceitful, and predatory practices." William D. Ford Federal Direct Loan Program ("2016 Rule"), 81 Fed. Reg. 75,926 (Nov. 1, 2016). Shortly before the 2016 Rule was scheduled to take effect, Plaintiff California Association of Private Postsecondary Schools ("CAPPS") brought this action seeking to set the rule aside in its entirety. Dkt. 1 at 75–76. About a week later, CAPPS moved preliminarily to enjoin the implementation or enforcement of a single provision, which prohibits participants in the Direct Loan Program from employing predispute arbitration clauses and class action waivers in certain disputes with student-borrowers ("Arbitration and Class Action Waiver Provision"). Dkt. 6. That motion was never fully briefed or decided, however, because the Department of Education, on its own accord, stayed the effective date of most of the 2016 Rule pursuant to 5 U.S.C. § 705 pending resolution of this case. William D. Ford Federal Direct Loan Program ("Section 705 Stay"), 82 Fed. Reg. 27,621 (June 16, 2017).

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The Department's Section 705 Stay led to the next chapter of the dispute. Within weeks of issuance of the stay, two student-borrowers and a coalition of nineteen states and the District of Columbia filed separate lawsuits seeking to invalidate the stay. See Bauer v. DeVos , No. 17-cv-1330, 2017 WL 10239119 (D.D.C. filed July 6, 2017) ; Massachusetts v. Dep't of Education , No. 17-cv-1331 (D.D.C. filed July 6, 2017). The Department subsequently issued an interim final rule on October 24, 2017, staying the effective date of the 2016 Rule to July 1, 2018, and then issued a final rule staying the effective date for another year. See William D. Ford Federal Direct Loan Program ("Interim Final Rule"), 82 Fed. Reg. 49,114 (Oct. 24, 2017) ; William D. Ford Federal Direct Loan Program ("Final Delay Rule"), 83 Fed. Reg. 6,458 (Feb. 14, 2018). With each new rulemaking, the student-borrower and state plaintiffs amended their complaints to challenge the new action. The Court consolidated the Bauer and Massachusetts cases and, on September 12, 2018, issued an opinion resolving the consolidated action. Bauer v. DeVos, 325 F.Supp.3d 74 (D.D.C. 2018) (" Bauer I "). In that decision, the Court held that the Section 705 Stay was arbitrary and capricious and thus unlawful under the Administrative Procedure Act ("APA"); that the Interim Final Rule was, for the most part, moot; and that the Final Delay Rule was issued in violation of the Higher Education Act's negotiated rulemaking requirement. Id. Five days later, the Court entered a remedial order vacating the Final Rule and Section 705 Stay but staying vacatur of the Section 705 Stay until October 12, 2018. Bauer v. DeVos , No. 17-cv-1330, 332 F.Supp.3d 181, 2018 WL 4483783 (D.D.C. Sept. 17, 2018) (" Bauer II "). On October 12, 2018, the Court extended that stay until noon on October 16, 2018. Minute Order (Oct. 12, 2018), Bauer, No. 17-cv-1330.¹

The Bauer I decision, in turn, opened the current chapter of the dispute. Two days after issuing that decision, the Court held a status conference in this action and set a schedule for CAPPS to renew its motion for a preliminary injunction to enjoin the 2016 Rule, which would go into effect upon expiration of the Court's stay. See Minute Order (Sept. 17, 2018). The Court also granted the Bauer plaintiffs leave to intervene (" Bauer Intervenors") and granted the interested states and the District of Columbia leave to participate as amici ("State Amici").² See Minute Entry (Sept 14, 2018); Minute Order (Sept. 18, 2018). On September 22, 2018, CAPPS filed the pending motion for a preliminary injunction. Dkt. 65. This time, however, CAPPS has sought preliminarily to enjoin four provisions of the 2016 Rule: (1) the Arbitration and Class Action Waiver that it targeted in its original motion; (2) the "Financial Responsibility Provision;" (3) the "Repayment Rate Provision;" and (4) the "Borrower Defense Provision." Id. at 17. The United States and Bauer intervenors filed briefs in opposition, and the states and the District of Columbia filed an amicus brief in opposition. See Dkt. 67 (State Amici); Dkt. 68 ( Bauer Intervenors); Dkt. 69 (United States). CAPPS

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filed a reply brief on October 8, 2018, Dkt. 72, and the Court held oral argument the following day, Minute Order (Oct. 9, 2018).

Each of the four provisions that CAPPS seeks to enjoin raises a distinct set of issues; overall, CAPPS raises twenty-four challenges to the four provisions. As to most of the challenged provisions, CAPPS has failed to demonstrate that it has standing or that the dispute is ripe for decision. Moreover, with respect to each of the four provisions, CAPPS has failed to carry its burden of demonstrating that any one of its members is likely to suffer an irreparable injury in the absence of an injunction. Because irreparable injury is the sine qua non for obtaining a preliminary injunction, that flaw is dispositive. In light of these threshold obstacles, the Court need not reach the merits of the plethora of substantive arguments that CAPPS raises—and, indeed, concludes that it would not be prudent to do so on such an abbreviated schedule. Those issues, in short, are for the next chapter.

The Court will, accordingly, deny the motion for a preliminary injunction and will set a schedule for cross-motions for summary judgment.

I. BACKGROUND

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). To participate in the Direct Loan Program, institutions of higher education must enter into contracts, called Program Participation Agreements ("PPAs"), with the Secretary of Education and agree to comply with the HEA, all applicable regulations, and certain other conditions. See 20 U.S.C. §§ 1087c(a), 1094(a)(4) ; 34 C.F.R. §§ 668.14, 685.300(b). These contracts 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. 20 U.S.C. § 1087d(a)(6) ; see also id. § 1087c.

By statute, students who are harmed by a Title IV school's violation of certain laws, including prohibitions on fraud, may be entitled to relief from their federal Direct Loan obligations through a process known as "borrower defense" to repayment. Id. § 1087e(h); see also 34 C.F.R. § 685.206(c). 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. 20 U.S.C. § 1087e(h). 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.

Pursuant to these authorities, in January 1994, the Secretary issued "standards, criteria, and procedures governing the Federal Direct Student Loan ... program," including the first iteration of the Borrower Defense Rule. Federal Direct Student Loan Program, 59 Fed. Reg. 472, 472 (Jan. 4, 1994). 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), and under those regulations, borrowers were

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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...