Jackson v. Culinary School of Washington, Ltd., 93-5083
| Decision Date | 24 June 1994 |
| Docket Number | No. 93-5083,93-5083 |
| Parties | , 92 Ed. Law Rep. 797 Michael JACKSON, et al., Appellants, v. CULINARY SCHOOL OF WASHINGTON, LTD., et al., Appellees. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Appeal from the United States District Court for the District of Columbia (91cv00782).
Michael E. Tankersley, argued the cause, for appellants. With him on the briefs were Brian Wolfman, Alan B. Morrison and Clare L. McCulla. Paul A. Fiscella entered an appearance.
Fred E. Haynes, Asst. U.S. Atty., argued the cause, for appellee Riley, Secretary of Educ. With him on the brief were Eric H. Holder, Jr., U.S. Atty., and John D. Bates and R. Craig Lawrence, Asst. U.S. Attys.
W. Scott Davis, argued the cause, for appellees Nebraska Student Loan Program, Inc., et al. With him on the brief was Douglas K. Spaulding.
On the brief, for appellee Great Lakes Higher Educ. Corp. was Ann U. Smith. Michael R. Hatcher entered an appearance.
On the brief, for appellee Crestar Bank were Mark B. Bierbower and Virginia W. Powell.
On the brief, for appellee Virginia State Educ. Asst. Authority was Richard C. Kast, Asst. Atty. Gen. for the State of Virginia.
Leslie H. Wiesenfelder entered an appearance, for appellee Ohio Student Loan Com'n.
Before: WALD, SILBERMAN and RANDOLPH, Circuit Judges.
Opinion for the Court filed by Circuit Judge WALD.
This complicated case asks us to chart the available defenses to the enforcement of student loans made under the Higher Education Act of 1965, 20 U.S.C. Secs. 1070 et seq. ("HEA" or "Act"). Appellants, fifty-nine former students of the now-defunct Culinary School of Washington ("Culinary School"), seek declaratory and injunctive relief against the enforcement of their student loans by various lenders, public and private guaranty agencies, and the Secretary of Education ("Secretary"). All of the parties to this case agree that appellants have valid claims sounding in fraud and breach of contract against the Culinary School, which is now apparently judgment-proof. This case asks us to determine to what extent these claims may be asserted as defenses against collection by third-party lenders and their assignees.
Generally speaking, appellants' contentions may be divided into state 1 and federal claims. In the former category lie appellants' claims that several District of Columbia Code provisions and one common law contractual rule permit the assertion, in certain circumstances, of defenses they have against the school in enforcement actions by holders of the loans. In the latter category rests appellants' argument that the close lender-school relationship at issue here brings this case within the ambit of the Secretary's origination policy, under which the Secretary allegedly promises to forbear from enforcing loans when the lender cedes certain traditional lender functions to schools. 2
We conclude that the state-based claims, several of which present preemption questions of substantial import, are unsuitable for resolution by declaratory judgment. The borrowers in this suit hail from all over the country. The primary lenders and guaranty agencies are based in Virginia, Ohio, Nebraska, Wisconsin, and Texas. The only consistent nexus to the District of Columbia in this case is the location of the Culinary School. Under these circumstances, we find it inadvisable to make pronouncements on the scope or application of D.C. law in this declaratory judgment posture. 3 Without prejudice to the possible assertion of such defenses in a future coercive action, we exercise our discretion to deny the declaratory judgment remedy, and hence the injunction that might flow from such remedy, at this time.
The origination claim, which is based on federal law, does not give rise to such speculation and is therefore fit for immediate resolution. We affirm the district court's ultimate disposition of this claim, but do so on different grounds. The Secretary of Education did not argue below that appellants had no enforceable rights in the origination policy. But neither did he concede the point. The district court, in assessing the merits of the claim, actually decided the issue, finding that the Secretary signified an intention to be bound by his origination policy. In light of the district court's disposition of the issue, we may decide it without intractable waiver problems. After careful review, we conclude that the Secretary of Education's "policy," which was evident in several letters from Department of Education ("Department") personnel but was not committed to rule, is not binding against the Department, and is therefore unenforceable by appellants. We find it unnecessary to evaluate the district court's other conclusions with respect to summary judgment.
The Guaranteed Student Loan Program ("GSLP") was established by the Higher Education Act of 1965, 20 U.S.C. Secs. 1070 et seq., in order to "assist in making available the benefits of postsecondary education to eligible students ... in institutions of higher education." 4 See 20 U.S.C. Sec. 1070(a). Under the relevant portion of the program, the federal government provides interest subsidies and special allowances to eligible lenders, see 20 U.S.C. Secs. 1078(a)(3), 1087-1, and insures against borrower default, see 20 U.S.C. Sec. 1078(c), thus minimizing the traditional elements of risk inherent in making student loans. The mechanics of the GSLP are relatively simple: private lenders advance their own funds to eligible students; state and private guaranty agencies guarantee these loans against default; and the Department of Education acts as ultimate reinsurer of 80% to 100% of the guaranty agency's losses should its diligent efforts to procure repayment from the borrower prove unsuccessful, see 20 U.S.C. Sec. 1078(c)(1). The Secretary may demand an assignment of any defaulted loan on which it has made payment to a guaranty agency, see 20 U.S.C. Sec. 1078(c)(8). However, collection responsibilities have in practice fallen largely on the guaranty agencies.
In order to participate in the GSLP, schools must meet the statutory definition of "eligible institutions," see 20 U.S.C. Sec. 1085(a), enter into a program participation agreement with the Secretary of Education, see 20 U.S.C. Sec. 1094(a), and be accepted for participation in the program of one or more guaranty agencies. During the time period at issue here, loan application forms were prepared by guaranty agencies and approved by the Secretary. 5 The forms contained separate sections to be completed by the borrower, the school, and the lender. Under the Act, schools are required to provide the lenders with a "statement" setting forth a student's estimated costs of attendance, forecasting a student's financial assistance needs, and setting up a schedule for disbursement of loan proceeds. See 20 U.S.C. Sec. 1078(a)(2).
The Culinary School recruited students from around the country by representing that it would provide vocational training and certification in the culinary arts that would qualify students as gourmet chefs. Among other things, the school promised instruction by master chefs in professionally equipped kitchens at various embassies, full transportation to and from classes, housing that would involve a single roommate, and job placement services. Relying on these representations, the fifty-nine appellants in this case signed up for the program and were students at the school at various times between May 1, 1985 and early 1990.
Accredited by the National Association of Trade and Technical Schools ("NATTS") in 1982 and the Accrediting Council for Continuing Education and Training ("ACCET") in 1985, 6 the Culinary School participated in federal student assistance programs between 1982 and June 1990. During that time, students at the school received $18.8 million in GSLP loans, made by approximately twenty-eight banks and guaranteed by six different guaranty agencies. See Memorandum in Support of the Secretary of Education's Motion to Dismiss, Aug. 2, 1991, at 3-4. The Culinary School handled several aspects of the federal financial aid program for its students, providing them with pre-printed loan applications, completing statements on the loan applications requiring estimates of the loan amounts, verifying their identities, and counseling them on loan terms. 7 Most of the appellants signed their financial aid forms at the Culinary School. The school forwarded these forms to the lenders, which were authorized to extend GSLP loans under 20 U.S.C. Sec. 1071. The banks approved and processed the loans at their branches, after receipt of guarantees by the guaranty agencies. Appellants did not have direct contact with the lenders.
Upon matriculating at the school, appellants' aspirations of fast-track careers in the culinary arts quickly soured. The record is rife with allegations that the Culinary School failed to perform in accordance with its representations. Students who expected free transportation either found their transportation costs deducted from their loan monies or were provided no transportation at all. Housing arrangements required four people to live in a one-bedroom apartment. Several students were actually or constructively evicted from their school-provided housing after the school failed to pay rent and utilities. Classes were conducted under unsanitary conditions. Job placement services often consisted of little more than a school employee scanning classified advertisements in the newspaper. In January 1990, after repeated complaints concerning its misconduct and an inquiry by the D.C. Education Licensure Commission, the Culinary School filed for bankruptcy. The school withdrew its application for a renewed operating license in the District of Columbia in June 1990, promptly ceasing all operations.
In 1991, appel...
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