Fla. Coastal Sch. of Law v. Cardona, 3:21-cv-721-MMH-JBT
| Decision Date | 09 August 2021 |
| Docket Number | 3:21-cv-721-MMH-JBT |
| Parties | FLORIDA COASTAL SCHOOL OF LAW, INC., Plaintiff, v. MIGUEL CARDONA, in his official capacity as Secretary of the U.S. Department of Education, and the UNITED STATES DEPARTMENT OF EDUCATION, Defendants. |
| Court | U.S. District Court — Middle District of Florida |
THIS CAUSE is before the Court on Plaintiff's Emergency Motion for Temporary Restraining Order and/or Preliminary Injunction and Memorandum of Law (Doc. 5; Motion) filed on July 20 2021.[1] On July 28, 2021, Defendants Miguel Cardona in his official capacity as Secretary of the U.S Department of Education and the United States Department of Education (collectively, the Department) filed Defendants' Memorandum in Opposition to Plaintiff's Motion for a Preliminary Injunction (Doc. 20; Response). Plaintiff Florida Coastal School of Law, Inc. (FCSL) filed its reply to the Response on July 30, 2021. See Reply to Defendant's Opposition to Plaintiff's Motion for a Preliminary Injunction (Doc. 25; Reply). On August 4 2021, the Court held a hearing on the Motion at which the parties argued their respective positions. See Minute Entry (Doc. 27). Accordingly, the Motion is ripe for review.
Through Title IV of the Higher Education Act of 1965 (HEA), 20 U.S.C. § 1070 et seq., Congress created various student financial assistance programs (Title IV, HEA programs) “to assist in making available the benefits of postsecondary education to eligible students . . . .” See 20 U.S.C. § 1070. The Department administers these programs, id., and is charged with determining whether institutions of higher education such as FCSL qualify to participate in a Title IV, HEA program in accordance with various statutory requirements. 20 U.S.C. § 1099c(a). As relevant here, to qualify to participate in a Title IV, HEA program an institution must demonstrate to the Department that it is financially responsible under the standards set forth in 34 C.F.R. part 668, subpart L, and that it is “capable of adequately administering” the Title IV, HEA program under the standards set forth in 34 C.F.R. § 668.16. See 34 C.F.R. § 668.13(a)(1)(i); see also 20 U.S.C. § 1099c(a). Significantly, institutions that participate in a Title IV, HEA program act “in the nature of a fiduciary” in the administration of the program and “must at all times act with the competency and integrity necessary to qualify as a fiduciary.” See 34 C.F.R. § 668.82(a). To participate in a Title IV, HEA program an institution must enter into a program participation agreement (PPA) with the Department. The PPA conditions “the initial and continued participation” of the institution on its compliance with all applicable statutory and regulatory standards, as well as “any additional conditions specified in the program participation agreement that the Secretary requires the institution to meet.” See 34 C.F.R. § 668.14(a)(1); 20 U.S.C. § 1094(a).
FCSL is a law school located in Jacksonville, Florida. See Verified Complaint for Declaratory and Injunctive Relief (Doc. 1; Complaint) ¶ 21. It is owned by InfiLaw Corporation, whose sole shareholder is InfiLaw Holding, LLC (collectively, InfiLaw). Id. ¶ 31. Significantly, until 2017, FCSL had two sister schools, Arizona Summit Law School (ASLS) and Charlotte School of Law (CSL). See Declaration of Michael J. Frola (Doc. 19; Frola Decl.) ¶ 5. CSL closed on August 10, 2017, following the loss of its eligibility to receive Title IV funds on December 31, 2016. See id. ¶ 8. In 2018, ASLS also closed its doors after the American Bar Association (ABA) informed the institution that it intended to withdraw its accreditation. Id. ¶ 10. These three law schools were owned by respective for-profit corporations, all of which were owned by InfiLaw. Id. ¶ 5; Complaint ¶ 34. Prior to the events of this lawsuit, InfiLaw was almost entirely owned by a private equity firm called Sterling Capital Partners, L.P. (Sterling). See Frola Decl. ¶ 5; see also Complaint ¶ 32.
In 2016, FCSL applied to renew its PPA with the Department which was set to expire on June 20, 2016. See Frola Decl. ¶ 14; Complaint ¶ 86. Because FCSL submitted a timely request for recertification, the previous PPA continued on a month-to-month basis until the Department issued a decision on FCSL's recertification application. See 34 C.F.R. § 668.13(b)(2); see also Frola Decl. ¶ 14. However, “the financial responsibility of the InfiLaw consortium of law schools was assessed each year.” See Frola Decl. ¶ 14. Indeed, institutions participating in Title IV are required to “annually submit audited financial statements to the Department to demonstrate they are maintaining the standards of financial responsibility necessary to participate in Title IV programs.”[2]
On June 18, 2019, the Multi-Regional and Foreign School Participation Division (MRFSPD) of the Department of Education wrote a letter to FCSL informing it that the MRFSPD had completed “its review of the fiscal year ended 7/31/2018 audited financial statements of InfiLaw Holdings, LLC and Subsidiary (InfiLaw).” See Complaint, Ex. 1 (Doc. 1-1; June 18, 2019 Letter). The MRFSPD found that InfiLaw failed to meet the financial responsibility standards. See id. As a result of this failure, the Department informed InfiLaw that it could continue participation in Title IV, HEA programs only if it agreed to one of the following alternatives:
Id. InfiLaw selected the second alternative titled, “Provisional Certification Alternative, ” and provided the Department with three letters of credit totaling $5, 681, 255. See Complaint ¶ 49; see also Frola Decl. ¶ 17, Exs. D-G.
Notably, each letter of credit identifies all three InfiLaw law schools and provides security against the obligations of all three schools. See Frola Decl. ¶ 17, Exs. D-G. This is significant because InfiLaw currently owes substantial liabilities to the Department stemming from the closure of CSL and ASLS. Specifically, InfiLaw owes the Department $5, 061, 063 for student loans that the Department discharged following the closure of CSL, $3, 475, 261 of which InfiLaw does not contest. See Frola Decl. ¶ 9; see also 34 C.F.R. § 685.214(c)(1). The remaining discharges in the amount of $1, 585, 802 are the subject of an ongoing administrative appeal. See Frola Decl. ¶ 9. For CSL, the Department also assessed an additional $330, 743 in automatic closed school discharges, see 34 C.F.R. § 685.214(c)(3)(ii), which are also currently subject to appeal. Id. With regard to ASLS, InfiLaw owes the Department $130, 427 in closed school discharges. Id. ¶ 12. Thus, in total, “InfiLaw is responsible for $3, 605, 688 in unchallenged discharges, another $1, 585, 802 in discharges under appeal, and another $330, 743 in automatic discharges subject to appeal.” Id. ¶ 13. InfiLaw is also facing an additional $167 million in potential liability stemming from the pending discharge applications submitted by former students who contend they were defrauded by the schools. Id. ¶ 13.
On November 27, 2020, the Department contacted Peter Goplerud, President and Dean of FCSL by letter, to inform him that the Department had reached a determination on FCSL's application for recertification. See Complaint, Ex. 16 (Doc 1-16; Recertification Decision). The Department decided to grant Provisional Certification to FCSL and attached an agreement titled Program Participation Agreement [Provisional Approval] (Doc. 1-6; PPPA). See Recertification Decision. It further advised FCSL that “[t]he reasons for and conditions of [FCSL's] Provisional Certification” were described in the PPPA and that to complete the recertification process, FCSL must sign and return the PPPA. See Recertification Decision. The Department set a deadline of December 30, 2020, for FCSL to do so. See Motion, Ex. 10 (Doc. 1-10; March 26, 2021 Department Letter). Upon full execution of the PPPA, FCSL would be certified to participate in Title IV, HEA programs for a term ending on September 30, 2023.[3] See PPPA.
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