Hestia Educ. Grp., LLC v. King
| Decision Date | 29 January 2016 |
| Docket Number | Case No. 15-cv-01463-DMR |
| Court | U.S. District Court — Northern District of California |
| Parties | HESTIA EDUCATION GROUP, LLC, et al., Plaintiffs, v. JOHN KING, Defendant. |
Plaintiffs Hestia Education Group, LLC dba Blush School of Makeup ("Blush") and Manhal Mansour filed a motion for discovery in this appeal under the Administrative Procedure Act ("APA"), 5. U.S.C. § 701 et seq. Docket No. 28. The court held a hearing on this matter on November 12, 2015. Upon the court's request, Defendant submitted additional citations to the administrative record. Docket No. 44. For the reasons set forth below, Plaintiffs' motion for discovery is granted in part and denied in part.
Title IV of the Higher Education Act of 1965 ("HEA"), 20 U.S.C. §§1070 et seq., governs federal student financial aid programs. In order to participate in such a program, a school must execute a contract with the Department of Education (the "Department") known as a program participation agreement. 20 U.S.C. § 1094(a); 34 C.F.R. § 668.14. The Department executes contracts only after reviewing an institution's administrative capability and financial responsibility, determining that an institution satisfies statutory eligibility requirements, anddeciding that the institution is capable of acting as the Department's fiduciary. See 34 C.F.R. §§ 6000.20(a); 668.82(a), (b). An institution seeking certification must demonstrate that it qualifies as an eligible institution, and meets the standards for participation and financial responsibility, as set forth in the regulations. 34 C.F.R. § 668.13(a).
On January 3, 2014, Blush filed an application with the Department seeking initial certification of eligibility to participate in the Title IV federal student loan and grant program. The Department denied Blush's application in a letter dated February 14, 2014, and affirmed the denial in subsequent letters issued on May 9, 2014, August 11, 2014 and February 15, 2015. The Department denied Blush's application due to its failure to disclose that Mansour had been the owner and president of Elite Progressive School of Cosmetology ("Elite"), an institution which the Department had refused to recertify for participation in Title IV programs due to multiple serious administrative and financial deficiencies.
Plaintiffs filed this lawsuit in March 2015 seeking review of the Department's denial under the APA. Plaintiffs allege that the denial of Blush's application was arbitrary and capricious, and also resulted in a de facto debarment.
Plaintiffs now move for discovery.
In cases challenging a final federal agency decision under the APA, judicial review of agency action is usually limited to review of the administrative record. Friends of the Earth v. Hintz, 800 F.2d 822, 828 (9th Cir.1986). The Supreme Court has emphasized that when reviewing administrative decisions, "the focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court." Florida Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985). The task of the reviewing court is to review the agency decision based on the record the agency presents to the reviewing court. Id. at 743-44.
The APA directs the reviewing court to review "the whole record or those parts of it cited by a party." 5 U.S.C. § 706. Under Ninth Circuit precedent, "[t]he 'whole' administrative record . . . consists of all documents and materials directly or indirectly considered by agency decision-makers and includes evidence contrary to the agency's position." Thompson v. U.S. Dep't ofLabor, 885 F.2d 551, 555 (9th Cir. 1989) (citation and internal quotation marks omitted) (emphasis removed). "In the absence of clear evidence to the contrary, courts presume that [public officers] have properly discharged their official duties." Citizens to Preserve Overton Park Inc., 401 U.S. 402, 415 (1971). Accordingly, an agency's designation of the administrative record is entitled to a presumption of regularity, and its certification is deemed sufficient to show that the record is complete. McCrary v. Gutierrez, 495 F. Supp. 2d 1038, 1041 (N.D. Cal. 2007) (citations omitted).
Because a court's review of an agency decision under the APA is limited to the administrative record, discovery generally is not permitted in such cases. McCrary, 495 F. Supp. 2d at 1041. However, certain rare circumstances may justify permitting discovery or expanding judicial review beyond the administrative record. Animal Def. Council v. Hodel, 840 F.2d 1432, 1436 (9th Cir. 1988) amended, 867 F.2d 1244 (9th Cir. 1989). The Ninth Circuit has articulated four such exceptions. Courts may permit discovery or review extra-record material only when "(1) it is necessary to determine whether the agency has considered all relevant factors and explained its decision, (2) the agency has relied on documents not in the record, (3) supplementing the record is necessary to explain technical terms or complex subject matter, or (4) plaintiffs make a showing of bad faith." City of Las Vegas, Nev. v. F.A.A., 570 F.3d 1109, 1116 (9th Cir. 2009). "[T]hese exceptions are narrowly construed and applied." Lands Council v. Powell, 395 F.3d 1019, 1030 (9th Cir. 2005).
Plaintiffs contend that they are entitled to discovery because the designation of the administrative record is incomplete and the decision-making process was materially flawed. As discussed further below, Plaintiff Mansour also argues that discovery should be allowed on his de facto debarment claim.
The Department is entitled to a presumption that the administrative record is regular and complete. The party seeking to supplement the record "bears the burden of overcoming this presumption by 'clear evidence.'" Natural Res. Def. Council v. Pritzker, 62 F. Supp. 3d 969, 1023 (N.D. Cal. 2014). Plaintiffs must therefore set forth clear evidence that they are entitled todiscovery based on at least one of the four recognized exceptions set forth above. Plaintiffs did not frame their arguments to coincide with the legal standards, thus leaving to the court the task of construing Plaintiff's assertions to determine whether they fit within any of the exceptions to the "no discovery" rule.
Plaintiffs make a number of arguments in support of their bid for discovery. They first argue that the Administrative Record ("AR") is incomplete because the Department omitted certain documents.2 The court construes this as an attempt to fall within the first exception, which permits discovery where it is "necessary to determine whether the agency has considered all relevant factors and explained its decision."
Plaintiffs contend that the record should be augmented to include additional documentation of the sale of Elite. The Department found that while under Mansour's ownership, Elite owed the Department over $1.6 million dollars due to its failure to comply with applicable Title IV regulations. AR 2-3, 217. Elite did not pay this liability to the Department under Mansour's ownership. Instead, Mansour sold Elite to B&H, which took over Elite's liabilities to the Department as part of the sale. The existing record demonstrates that the Department considered the sale of Elite to B&H, as well as the fact that B&H assumed responsibility for Elite's $1.6 million liability to the Department. See, e.g., AR 217. Plaintiffs therefore cannot establish that the record is deficient; they merely assert that additional sales documents would place Elite's prior behavior in a more favorable light by showing that Elite ultimately satisfied the debt to the Department.3 Plaintiffs have not clearly established that the record is inadequate to explain the Department's decision.
Plaintiffs next argue that certain pages of Blush's application are missing from the AR,including a recent National Accrediting Commission of Career Arts & Sciences ("NACCAS") accreditation letter, a recent California Bureau of Private Postsecondary Education ("BPPE") licensing letter issued to Blush, and copies of financial aid policies submitted by Blush with its application.4 None of these documents are connected to the Department's decision to deny Blush's application. As such, Plaintiffs have failed to clearly establish that the absence of these documents from the AR somehow justifies discovery.
Plaintiffs also contend that Defendant acted in bad faith, which would satisfy the fourth exception to the rule against discovery in APA cases. In order to invoke the bad faith exception, Plaintiffs must make "a strong showing of bad faith or improper behavior" by the agency. See Animal Def Council v. Hodel, 840 F.2d 1432, 1437 (9th Cir. 1988).
Plaintiffs first assert that the Department did not act in good faith because it only included documents that supported its decision. This is not accurate. The AR contains many documents that were submitted by Plaintiffs or were otherwise supportive of Plaintiffs' application.
Next, Plaintiffs argue that the Department exhibited bad faith because it made a quick decision to deny Blush's application, then came up with additional reasons for the denial. Blush submitted its application on January 3, 2014. Plaintiffs point to emails5 sent on January 28 and 29, 2014 Renee Gullotto to Marla Green which state that "[Ms. Fernandez-Rosario]6 is wanting someone to do a cursory review of the application in order to determine if there are any additional reasons we can deny the application," and ...
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