Mission Group Kansas, Inc. v. Riley, Civ. A. No. 95-2382-JWL.
| Citation | 909 F. Supp. 835 |
| Decision Date | 16 November 1995 |
| Docket Number | Civ. A. No. 95-2382-JWL. |
| Parties | MISSION GROUP KANSAS, INC., Plaintiff, v. Richard RILEY, Secretary of the United States Department of Education, in his official capacity, Defendant. |
| Court | U.S. District Court — District of Kansas |
Ronald L. Holt, Lisa J. Henoch, Bryan Cave, Kansas City, MO, Peter S. Leyton, Ritzert & Leyton, P.C., Fairfax, VA, for plaintiff.
Christina L. Morris, Office of United States Attorney, Kansas City, KS, for defendant.
Peter S. Leyton, Seth C. Berenzweig, Ritzert & Leyton, P.C., Fairfax, VA, for amicus curiae.
The plaintiff, Mission Group of Kansas ("Mission"), is a not-for-profit corporation which owns and operates the Wright Business School of Lenexa ("WBS-LX"). WBS-LX was formerly operated as a for-profit institution. The defendant is the Secretary of the Department of Education. The Secretary is empowered by law and regulation to supervise and administer the federal assistance educational funds under the Higher Education Act ("HEA") (20 U.S.C. §§ 1070 et seq.).
The issue in this case is whether the Secretary has the authority to require WBS-LX, a not-for-profit which was formerly a for-profit institution, to derive at least fifteen percent of its gross tuition revenues from sources other than Title IV funds. The Secretary claims that it may lawfully impose this so-called 85/15 Rule on WBS-LX under the HEA's provisional certification statute. § 1099c(h). The Secretary has interpreted this statute as allowing the Secretary to add "any additional condition" to the program participation agreement of the institution which is being provisionally certified. 34 C.F.R. § 668.13(c)(4)(ii). Mission brought this claim for declaratory and injunctive relief against the Secretary of the Department of Education to enjoin imposition of the 85/15 Rule. Mission claims that the Secretary's imposition of the 85/15 Rule on WBS-LX, as a not-for-profit institution, violates the HEA, the Administrative Procedure Act ("APA") (5 U.S.C. §§ 701 et seq.), and the Due Process Clause of the Constitution.
The court has subject matter jurisdiction over the plaintiff's claims because this case involves a federal question. 28 U.S.C. § 1331. Venue is appropriate under 28 U.S.C. § 1391(e). A trial to the court was held on October 25, 1995. For the reasons set forth below, the court finds that the Secretary exceeded the authority conferred by the HEA. Accordingly, the Secretary is enjoined from imposing the 85/15 Rule on Mission and WBS-LX.
In determining whether the Secretary can impose the 85/15 Rule on a not-for-profit institution which acquired the assets of a formally for-profit institution by placing the 85/15 Rule in the not-for-profit institution's program participation agreement which is required for provisional certification, the court must follow the framework outlined in Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). If the HEA's text is clear and unambiguous, "that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Id. at 842-43, 104 S.Ct. at 2781-82. If the statute is silent or ambiguous as to the issue, however, the court must consider whether the agency's construction is reasonable. Id. at 843, 104 S.Ct. at 2782. "Even if an agency's interpretation is not the only one permitted by the language of the rule, courts must respect it if it is at least a reasonable interpretation." City of Aurora v. Hunt, 749 F.2d 1457, 1462 (10th Cir.1984).
Under the HEA, the Secretary of the Department of Education administers a number of federally guaranteed student loan and grant programs to qualified students enrolled in certain postsecondary institutions. The programs include the Federal Family Education Loan program, the Federal Pell Grant Program, and the Federal Supplemental Educational Opportunity Grant Program. To participate in these financial aid programs, the postsecondary institutions must satisfy certain eligibility and certification requirements. One of these is the 85/15 Rule.
The HEA distinguishes between "proprietary institutions of higher education" and "postsecondary vocational institutions." § 1088(b)-(c). Under the HEA, these terms are mutually exclusive. A proprietary institution of higher education cannot be a not-for-profit institution. Similarly, a postsecondary vocational institution must be a not-for-profit institution. See § 1088(b)(3) (); § 1088(c)(2) (); § 1141(a)(4) ().
In the 1992 amendments to the HEA, Congress enacted the 85/15 Rule. Under this rule, proprietary institutions can maintain their eligibility to participate in Title IV programs only if at least fifteen percent of their gross tuition revenues are derived from sources other than Title IV funds. The 85/15 Rule states:
For the purpose of this section, the term "proprietary institution of higher education" means a school ... (6) which has at least 15 percent of its revenues from sources that are not derived from funds provided under this subchapter and part C of subchapter I of chapter 34 of Title 42, as determined in accordance with regulations prescribed by the Secretary.
20 U.S.C. § 1088(b)(6).
In proposing the 85/15 Rule, Representative Maxine Waters explained the purpose of the 85/15 Rule as follows:
Many proprietary vocational schools have been set up to garner large amounts of Federal student aid dollars. Practically, all of the students receive student loans and grants, and the school offers little or no attraction to people to pay their own funds to attend. In fact, we have instances of proprietary schools refusing to allow people to pay with their own money. After World War II, the Department of Veterans Affairs responded to the rise of schools which were set up to milk the veterans' educational benefits program by establishing a rule which provided that VA would not extend any GI benefits to courses in which more than 85 percent of the students have their fees paid by VA. A similar rule should apply to the proprietary schools.
Cong.Rec. H1911 (March 26, 1992). The Secretary similarly discussed the goal of the 85/15 Rule:
The purpose of the 85/15 Rule is to require proprietary institutions to attract students based upon the quality of their programs, not solely because the institutions offered Federal student financial assistance. Thus, under the statute, these institutions must attract students who will pay for their programs with funds other than Title IV, HEA program funds.
59 Fed.Reg. 6448 (Feb. 10, 1994). Thus, the 85/15 Rule was intended to ensure that for-profit vocational schools would have to compete for federal student aid dollars by offering quality education that students with private funds would be willing to buy with their own money.
The application of the 85/15 Rule to proprietary institutions has been upheld in Ponce Paramedical College v. United States Department of Education, 858 F.Supp. 303 (D.P.R.1994) and Career College Association v. Riley, 70 F.3d 637 (D.C.Cir.1995). The plaintiff does not dispute that the 85/15 Rule would apply to WBS-LX if it were a for-profit institution. Instead, Mission contends the Secretary cannot impose the 85/15 Rule on WBS-LX because it is no longer a for-profit institution and is now being operated as a not-for-profit institution. By definition, Mission argues, the 85/15 Rule only applies to for-profit institutions. In response, the Secretary claims the authority to impose the 85/15 Rule on WBS-LX via WBS-LX's provisional certification and program participation agreement.
The 1992 HEA Amendments stressed the Secretary's responsibility of being a "gate-keeper." The Senate summarized this goal by stating:
Restoring public confidence in student financial aid programs is one of the most serious challenges we face in this reauthorization. The integrity of Title IV programs has been harmed immeasurably by persistent reports of fraud and abusive actions by schools and other program participants, especially in the Stafford loan program where profit incentives are great.
Senate Report 102-204, at 3 (Nov. 12, 1991). In addition, the Senate stressed that the Department should "undertake strong enforcement of the law and make full use of the authorities provided under it." Id. at 46. The Secretary argues that this gatekeeping responsibility includes imposing restrictions to prevent schools from circumventing the 85/15 Rule by simply converting from a for-profit to a not-for-profit institution. Specifically, the Secretary seeks to impose the 85/15 Rule on not-for-profit institutions which were formerly for-profit institutions via its provisional certification and program participation agreement.
The 1992 HEA Amendments specifically addressed institutions which undergo a "change of ownership resulting in a change of control" by providing a nonexclusive list of what constitutes change in ownership. See § 1099c(i)(2). Under the HEA regulations, the Secretary considers such a change to include a "conversion of the institution from a for-profit to a nonprofit institution." 34 C.F.R. § 600.31(d)(7). The Secretary also considers a "transfer of assets that comprise a substantial portion of the educational business of the institution" to be a change in ownership. § 600.31(d)(6).1
Under the HEA, any institution that undergoes a "change of ownership...
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Mission Group Kansas, Inc. v. Riley
...step, the district court invalidated the Secretary's action as beyond his authorization under the HEA. See Mission Group Kansas, Inc. v. Riley, 909 F.Supp. 835, 842 (D.Kan.1995). There are two errors in this A. Plain Meaning The district court ruled that imposition of the 85/15 rule on Miss......
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