Continental Training Services, Inc. v. Cavazos

• Decision Date: 10 January 1990
• Docket Number: 89-1799,Nos. 89-1694,s. 89-1694
• Citation: 893 F.2d 877
• Parties: 58 Ed. Law Rep. 74 CONTINENTAL TRAINING SERVICES, INC. d/b/a Superior Training Services, Plaintiff-Appellee, v. Lauro CAVAZOS, Secretary of Education, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 877

893 F.2d 877

58 Ed. Law Rep. 74

CONTINENTAL TRAINING SERVICES, INC. d/b/a Superior Training Services, Plaintiff-Appellee, v. Lauro CAVAZOS, Secretary of Education, et al., Defendants-Appellants.

Nos. 89-1694, 89-1799.

United States Court of Appeals Seventh Circuit.

Argued June 8, 1989.

Decided Jan. 10, 1990. ^*

Don A. Tabbert, Tabbert & Ford, Indianapolis, Ind., Randall J. Turk, Herbert J. Miller, Jr., Martin D. Minsker (argued), Miller, Cassidy, Larroca & Lewin, Washington, D.C., for plaintiff-appellee.

Deborah J. Daniels, U.S. Atty., Charles Goodloe, Jr., Asst. U.S. Atty., Timothy M. Morrison, Indianapolis, Ind., Douglas Letter (argued), William Kanter, Dept. of Justice, Civ. Div., Appellate Staff, Michael F. Hertz, Stephen D. Altman, Marie Therese Connolly, Linda M. Anderson, U.S. Dept. of Justice, Civ. Div. Washington, D.C., for defendants-appellants.

Before BAUER, Chief Judge, and CUDAHY and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

This case turns upon the proper interpretation of the word "otherwise"--and upon the degree of deference owed to the interpretation of the United States Department of Education (the "DE," the "Department") the agency charged with administering the statute in which the word appears. If we accept the Department's reading of the word "otherwise," we must reverse the district court's grant of summary judgment to the plaintiff. Although the issue is a difficult one, we affirm because--even considering the Department's claim to deference on issues of statutory interpretation--its reading of the statute conflicts with the plain meaning of the statutory language. Further, the district court found that the defendants had violated the plaintiff's constitutionally-guaranteed due process rights, 709 F.Supp. 1443. While accepting much of the district court's reasoning, we reach a different conclusion on due process because the plaintiff received all the process that was constitutionally due.

I.

The plaintiff, Continental Training Services, Inc. d/b/a Superior Training Services ("Superior"), offers correspondence and residential training courses in truck driving and heavy equipment operation. ¹ In 1980, seven years after Superior opened its doors, the Department of Education determined that Superior qualified as an institution whose students could receive federal student financial aid under the Higher Education Act ("HEA," the "Act"). ² See 20 U.S.C. Sec. 1070 et seq. Superior was deemed eligible and participated in government aid programs from 1980 through 1987. In 1987, however, the DE began an audit of Superior because of concerns that Superior's courses did not comply with statutory and regulatory requirements. A particular focus of the DE's audit was the length of courses offered by Superior; under the applicable eligibility rules, institutions had to provide courses meeting certain "clock hour" requirements. ³

In May of 1987 the DE's auditors gave Superior informal notice that there might be a problem with course length. On December 9, 1987, the auditors held a formal exit interview in which they officially notified Superior that there was indeed a problem with course length. Nine months later, on September 1, 1988, the DE issued a "draft" audit report formalizing this conclusion. Within a week the Department of Justice (the "DOJ") filed a False Claims Act action against Superior, relying in large part upon the DE's draft audit. On September 15, representatives of Superior met with DE and DOJ officials. At this meeting the DE notified Superior that it would be suspending Superior's eligibility for GSL and Pell Grant loans forthwith--and gave Superior one day to file any written response it wished to lodge.

The "process" that Superior subsequently requested and received from the DE can be summarized as follows:

(1) On September 16, Superior was permitted to submit a 32-page document substantiating its eligibility;

(2) On September 20, Superior argued its case orally before Kenneth Whitehead, the Assistant Secretary for Postsecondary Education; (3) On October 4, Superior submitted a second written document (135 pages long);

(4) On October 7, Superior made a second oral presentation to Whitehead;

(5) On October 20, Superior supplemented its second written submission with yet more written material;

(6) On November 15, 1988, Superior submitted more written material in response to materials presented to Whitehead by the government.

Although draft audit reports are generally reviewed and put in final form pursuant to statutory requirements, the DE did not put its audit of Superior in final form. Superior requested a formal "on-the-record" hearing before the DE prior to any suspension or termination of its eligibility status. The DE declined to provide such a hearing, taking the position that no formal procedures were mandated by statute prior to revocation of an institution's formal eligibility status.

On February 1, 1989, Whitehead revoked Superior's eligibility under the Pell Grant and student loan programs ⁴ in a 75-page opinion detailing Superior's failure to meet course length requirements. Superior immediately filed this action in the district court, seeking to prevent implementation of Whitehead's decision through a temporary restraining order, a preliminary injunction and a permanent injunction. Superior's complaint was in six counts, alleging initially that the DE's refusal to grant a formal hearing (1) violated Superior's constitutional due process rights; (2) violated the notice and hearing requirements of the Higher Education Act; (3) violated the DE's published regulations regarding suspension, limitation and termination of eligibility status; and (4) violated the procedural requirements of the Administrative Procedure Act ("APA"). The complaint further alleged that the DE's consequent revocation of Superior's eligibility constituted (5) arbitrary and capricious action in violation of the APA and (6) a denial of equal protection and due process guaranteed by the Constitution.

The district court granted a temporary restraining order on February 7, 1989. On February 14, the court bifurcated the case, proceeding first to deal with the procedural issues raised by the first four counts of the complaint (and reserving for future proceedings consideration of the merits of the eligibility determination itself). On March 13, the court granted Superior's request for a preliminary injunction. On April 10, the court granted summary judgment to Superior on its statutory and due process claims and permanently enjoined the DE from revoking Superior's eligibility status until it had accorded Superior an "on-the-record" hearing in accordance with the provisions of the HEA. The district court also concluded that this disposition rendered unnecessary any further consideration of the issues raised by the remaining counts of the plaintiff's complaint. The government appeals both the preliminary injunction and the permanent injunction.

II.

We pause to review the jurisdictional situation of the case. We have before us two appeals--one from the grant of a preliminary injunction and one from the grant of a permanent injunction. Under 28 U.S.C. section 1292(a)(1), this court has jurisdiction of interlocutory district court orders "granting, continuing, modifying, refusing or dissolving injunctions...." See Buckhanon v. Percy, 708 F.2d 1209, 1212 (7th Cir.1983). However, where a permanent injunction has been granted that supersedes the original preliminary injunction, "the interlocutory injunction [ ] become[s] merged in the final decree," Smith v. Illinois Bell Tel. Co., 270 U.S. 587, 588, 46 S.Ct. 408, 409, 70 L.Ed. 747 (1926), and the appeal from the interlocutory preliminary order is properly dismissed. Id. at 589, 46 S.Ct. at 409; Milonas v. Williams, 648 F.2d 688, 689 n. 1 (10th Cir.1981); Securities & Exch. Comm'n v. First Fin. Group of Texas, 645 F.2d 429, 433 (5th Cir.1981). The appeal in No. 89-1694 is therefore dismissed as moot.

We have jurisdiction of the appeal in No. 89-1799, in which the district court granted the plaintiff summary judgment and a permanent injunction, under 28 U.S.C. section 1291. The district court's order granted the plaintiff all the relief requested in the complaint, thereby concluding all proceedings in the district court; the order is clearly appealable as a final order. ⁵ Cf. Foremost Sales Promotions, Inc. v. Director, Bureau of Alcohol, Tobacco and Firearms, 812 F.2d 1044, 1045-46 (7th Cir.1987); Reytblatt v. Denton, 812 F.2d 1042, 1044 (7th Cir.1987); Maneikis v. Jordan, 678 F.2d 720, 721 (7th Cir.1982).

III.

A.

The district court first concluded that Superior prevailed "as a matter of law" on its claim that the Department had denied the plaintiff procedural rights guaranteed under 20 U.S.C. section 1094(c)(1)(D). Section 1094(c), entitled "Audits; financial responsibility; enforcement of standards," provides that

(1) ... the Secretary is authorized to prescribe such regulations as may be necessary to provide for--

(A)(i) ... a financial and compliance audit of an eligible institution ... at least once every 2 years

* * *

(D) the limitation, suspension, or termination of the eligibility for any program under this subchapter ... of any otherwise eligible institution, or the imposition of a civil penalty under paragraph (2)(B) whenever the Secretary has determined, after reasonable notice and opportunity for hearing on the record, that such institution has violated or failed to carry out any provision of this subchapter ... or any regulation prescribed under this subchapter ... except that no period of suspension under this section shall exceed 60 days unless ... limitation or termination proceedings are initiated by the Secretary within that period of time.

20 U.S.C. Sec. 1094(c)(1) (emphasis added). The "subchapter" to which the statute refers is Subchapter IV, which contains most of the statutory provisions for the...