Maine State Bd. of Educ. v. Cavazos

• Decision Date: 08 October 1991
• Docket Number: No. 91-1538,91-1538
• Citation: 956 F.2d 376
• Parties: 73 Ed. Law Rep. 26 MAINE STATE BOARD OF EDUCATION, et al., Plaintiffs, Appellants, v. Lauro F. CAVAZOS, in his Official Capacity as Secretary of Education, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 376

956 F.2d 376

73 Ed. Law Rep. 26

MAINE STATE BOARD OF EDUCATION, et al., Plaintiffs, Appellants, v. Lauro F. CAVAZOS, in his Official Capacity as Secretary of

Education, Defendant, Appellee.

No. 91-1538.

United States Court of Appeals, First Circuit.

Heard Oct. 8, 1991.

Decided Feb. 13, 1992.

Jeffrey Frankel, Asst. Atty. Gen., with whom Michael E. Carpenter, Atty. Gen., and H. Cabanne Howard, Deputy Atty. Gen., were on brief for plaintiffs, appellants.

Richard A. Olderman, Atty., Appellate Staff, Civil Div., Dept. of Justice, with whom Stuart M. Gerson, Asst. Atty. Gen., Richard S. Cohen, U.S. Atty., and William Kanter, Atty., Appellate Staff, Civil Div., Dept. of Justice, were on brief for defendant, appellee.

Before BREYER, Chief Judge, TORRUELLA, Circuit Judge, and WOODLOCK, ^* District Judge.

BREYER, Chief Judge.

The basic question in this appeal is whether or not the United States Department of Education ("DOE") acted arbitrarily, 5 U.S.C. § 706(2)(A), in 1983 when it refused to reimburse the Maine State Board of Education (the "Board") for certain administrative expenses related to a federal student loan program. Like the district court, we conclude that the facts, viewed in the light most favorable to the Board, show that DOE's actions were reasonable, hence lawful, and we affirm the district court's grant of summary judgment for DOE.

I Background

From 1977 through 1982, DOE reimbursed the Board for administrative expenses incurred in operating a "guaranteed student loan program." In December 1982, a DOE auditor found that the Board had contracted with a private organization (United Student Aid Funds or "USAF") to administer the program. The auditor noted that the relevant federal statutes authorized reimbursement of administrative expenses "incurred" by a "guaranty agency," such as the Board. 20 U.S.C. § 1078(f)(1)-(2) (1976 and 1980 versions). But, the auditor concluded that USAF, not the Board, had "incurred" the expenses in question. Consequently, in 1983, DOE ordered the Board to return the reimbursements, and the Board did so.

In 1987, Maine state auditors decided that the DOE auditor had been wrong, and, in 1989, the Board filed this lawsuit to recover the $1.7 million it had previously returned to DOE. The district court found the Board's legal arguments unconvincing, and it granted summary judgment for DOE. We conclude that the district court was correct. To understand why, the reader must take account of the following background.

A The Federal Guaranteed Student Loan Program

The federal guaranteed student loan program encourages lending by private banks to students by subsidizing interest rates and guaranteeing repayment. Three legal features of the program are significant here.

First, the federal program works through 1) the payment of federal interest subsidies to participating banks that lend money to students, 20 U.S.C. § 1071, and 2) the repayment, by the federal government, of defaulted student loans. 20 U.S.C. §§ 1078(a), (c)(1), 1078-1 (1976 and 1980 versions) (providing for federal reinsurance of loans that state "guaranty agencies" insure).

Second, state "guaranty agencies" (sometimes public, sometimes private) administer the student loan programs. For example, they advertise the program to banks; they reimburse banks for student defaults; and they try to collect defaulted loans from students. The federal statutes also authorize reimbursements to state "guaranty agencies" for many of their administrative expenses. 20 U.S.C. § 1078(f) (1976 and 1980 versions).

Third, the relevant, and complicated, federal statutes and regulations embody two similar sounding (but, in fact, quite different) concepts which produced confusion in this case. The first concept is called a "guarantee fee." Federal law permits the guaranty agency to charge banks a "guarantee fee" that the agency can use to help pay for loan insurance and also to "cover costs incurred" in administering the program. 45 C.F.R. §§ 177.401(b)(12) (1979), 177.6(b) (1975); see also 20 U.S.C. § 1078(b)(1)(H). The banks normally pass this charge along to student borrowers.

The second concept is called an "administrative cost allowance" (or "ACA"). The statutes authorize DOE to reimburse a guaranty agency for qualified administrative costs that the agency has "incurred." 20 U.S.C. § 1078(f)(1)-(2) (1976 and 1980 versions).

The confusion arises because the laws impose, upon each of these two different sources of administrative cost recovery, a similar ceiling, namely 1% of the face value of the guaranteed loans. They create a "1% guarantee fee," and they also create a "1% ACA reimbursement." Thus, in principle, a guaranty agency that guaranteed, say, $10 million of student loans, could receive repayment for qualified administrative costs up to $200,000. It could receive up to $100,000 in "ACA reimbursement" directly from DOE, and it could receive another $100,000 from the "guarantee fee" that it can charge banks (and, ultimately, students).

B The Relevant Events

The important events in this case, for purposes of this appeal, are the following:

1. Between 1968 and 1978, the Board entered into agreements with DOE that qualified the Board for ACA reimbursement.

2. In 1968, the Board agreed with USAF that USAF would administer most of the loan program (e.g., advertising the loan program, processing loan applications, trying to collect defaulted loans, etc.). The Board agreed to pay USAF for these administrative services by allowing USAF to collect, and permitting USAF to keep, the 1% guarantee fee that federal law permitted the Board to charge participating banks (and which they passed on to students). The contract said that this "fee charged students will be retained" by USAF.

3. Each year, USAF sent the Board a list of its administrative expenses. USAF did not expect the Board to send it reimbursement, for USAF already was receiving money to cover these expenses in the form of the 1% guarantee fee. The Board added a few expenses of its own to the list, and it sent the combined list to DOE as ACA-reimbursable administrative expenses. DOE automatically paid the requested amount (up to the 1% ACA ceiling). Between 1977 and 1983 (the relevant period for this lawsuit), DOE paid the Board, as ACA, a total of $1.9 million, of which $1.4 million represented the administrative expenses that USAF reported to the Board.

4. In December 1982, a DOE auditor examined the Board's books. He found that the Board had credited all the ACA money received from DOE to a separate ACA account. The account showed offsetting debits for expenses related to the administrative activities the Board itself undertook. But the account showed no offsetting debit for USAF's expenses. That is not surprising, for, as we have said, the Board did not send DOE money to USAF; it paid USAF by permitting USAF to keep the 1% guarantee fee. The auditor concluded that USAF's administrative expenses did not qualify for ACA reimbursement. DOE told the Board it must return this money.

5. In an effort to rebut the auditor's conclusions, USAF sent DOE's regional administrator a copy of a letter it sent to the Board. In that letter, USAF explained that the Board, in effect, had paid for USAF's administrative expenses by permitting USAF to keep the 1% guarantee fee that otherwise the Board could have collected and kept itself. USAF said that the "economic reality is that these costs have actually been incurred and should form the basis for a valid claim under ACA...."

6. DOE's regional administrator did not accept USAF's argument. He wrote that the

Administrative Cost Allowance is intended to reimburse a portion of the expenses incurred by the [Guaranty] Agency in administering its student loan program. It, therefore, is not possible to have a net ACA cash balance, after proper reconciliation of the account, and still be in compliance with the intended purpose of ACA. The Federal Government must be reimbursed....

7. In July 1983, the Board told DOE, "we agree with the findings of [the DOE auditor] and we do not wish to pursue further attempts to seek any reconsideration." The Board then paid back the money, $1.4 million in ACA plus $300,000 in interest.

As we have said, in 1987, Maine state auditors decided that the DOE auditor was wrong, and, in 1989, the Board brought this lawsuit. The Board lost on a motion for summary judgment, and it now appeals.

C Jurisdiction

The parties have argued at length about whether or not the Board's initial agreement with the audit and repayment order, along with the passage of time, bars the Board from bringing this lawsuit. The Board says that its claim meets statutory requirements and, thus, there should be no bar. Federal statutes explicitly give the federal courts power to hear this kind of claim. 20 U.S.C. § 1082(a) ("with respect to the functions, powers, and duties, vested in him by this part [setting forth the guaranteed student loan program], the Secretary [of Education] may ... sue and be sued ... in any district court"). The Board sued within the six year time period set forth in the general federal statute of limitations governing civil actions, 28 U.S.C. § 2401(a); thus, this suit is timely and proper.

DOE replies that, if the Board treats this suit as an ordinary civil action arising under the Guaranteed Student Loan Program statutes, doctrines of estoppel or laches bar the suit. See, e.g., K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 911-12 (1st Cir.1989). DOE adds that, if, to escape these doctrines, the Board characterizes the suit differently (say, as a breach of contract suit), then it is suing in the wrong court, and must, or should be required to, sue in the United States Claims Court instead. 28 U.S.C. § 1491(a) (Tucker Act). But see Ohio Student Loan Commission v. Cavazos, 900 F.2d 894, 898 n. 1 (6th Cir.) (Tucker Act inapplicable where guaranty agency sought declaratory and injunctive relief...