Mission Group Kansas, Inc. v. Riley

• Decision Date: 01 June 1998
• Docket Number: No. 96-3025,96-3025
• Citation: 146 F.3d 775
• Parties: 127 Ed. Law Rep. 70, 98 CJ C.A.R. 2774 MISSION GROUP KANSAS, INC., Plaintiff-Appellee, v. Richard RILEY, Secretary of the United States Department of Education, in his official capacity, Defendant--Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 775

146 F.3d 775

127 Ed. Law Rep. 70, 98 CJ C.A.R. 2774

MISSION GROUP KANSAS, INC., Plaintiff-Appellee, v. Richard RILEY, Secretary of the United States Department of Education, in his official capacity, Defendant--Appellant.

No. 96-3025.

United States Court of Appeals Tenth Circuit.

June 1, 1998.

Frank A. Rosenfeld (William Kanter on the brief), United States Department of Justice, Washington, DC, for Defendant--Appellant.

Ronald L. Holt (Daniel R. Young on the brief), Bryan Cave, LLP, Kansas City, MO, for Plaintiff--Appellee.

Before LUCERO, McWILLIAMS and MURPHY, Circuit Judges.

LUCERO, Circuit Judge.

In 1992, Congress amended the Higher Education Act of 1965 ("HEA"), see 20 U.S.C. §§ 1001-1146a, to improve the financial accountability and integrity of postsecondary educational institutions in receipt of federally-funded student financial aid provided under Title IV of that Act. See H.R.Rep. No. 102-447, at 10 (1992), reprinted in 1992 U.S.C.C.A.N. 334, 343. As a result of those amendments, for-profit postsecondary institutions are statutorily barred from participating in Title IV programs unless they derive at least 15% of their gross revenues from sources other than Title IV. See 20 U.S.C. § 1088(b)(6). Non-profit schools, however, are not statutorily required to comply with this so-called "85/15 rule."

Mission Group Kansas, Inc. ("Mission"), the appellee before us today, was established in 1994 as a non-profit educational institution. When it took over a number of for-profit business schools to convert them to non-profit status, the Secretary of Education refused to exempt Mission's schools from the 85/15 rule. Instead, he has conditioned their receipt of Title IV funds on their complying with the 85/15 rule for a provisional period--despite Mission's non-profit status. See Appellant's App. at 84. The questions before us are what level of deference is due an agency's interpretation of its own regulations and is the Secretary's decision to impose the 85/15 rule entitled to such deference.

I

A

Prior to Mission's formation, its founders owned a for-profit corporation, Professional Training Institute, Inc. ("PTI"), which in turn owned three business schools, each named Wright Business School. The schools were located in Oklahoma City; Lenexa, Kansas; and Kansas City, Missouri. After Congress passed the 1992 amendments, PTI's directors realized that the Wright Schools would shortly become subject to the 85/15 rule. For the sole purpose of avoiding the application of that rule, see Appellant's App. at 122, they formed a nonprofit, Mission Group Kansas, Inc., and transferred ownership of the schools from PTI to Mission.

After Mission acquired ownership of the Lenexa school in March 1995, it applied to the Department of Education, seeking to participate in Title IV student financial aid programs. The Department prepared a new program participation agreement for the Lenexa school, see 20 U.S.C. § 1094(a) (describing nature and requirements of program participation agreements), mandating compliance with the 85/15 rule, and which Mission was required to accept in order to obtain the Secretary's provisional certification for Title IV participation. See 34 C.F.R. § 668.13(c)(4)(ii). Mission signed under protest, reserving the right to challenge the incorporation of the 85/15 rule into the program participation agreement and provisional certification process. Shortly thereafter, the Lenexa school took over the Kansas City and Oklahoma City schools, and Mission filed the present action claiming that the Secretary's imposition of the 85/15 rule violates the Administrative Procedure Act, the HEA, and Mission's constitutional right to due process.

B

When a school changes ownership, "the Secretary may provisionally certify [the] institution's eligibility to participate in programs under [Title IV] ... for not more than 3 complete award years...." 20 U.S.C. § 1099c(h)(1)(B)(ii). Mission concedes the shift from profit to non-profit status is a change in ownership, triggering the need for provisional certification. See 34 C.F.R. § 600.31(d)(7). According to the applicable regulations:

"Provisional certification" means that the Secretary certifies that an institution has demonstrated to the Secretary's satisfaction that the institution ... [i]s able to meet the institution's responsibilities under its program participation agreement, including compliance with any additional conditions specified in the institution's program participation agreement that the Secretary requires the institution to meet in order for the institution to participate under provisional certification.

34 C.F.R. § 668.13(c)(4)(ii) (emphasis added).

All institutions receiving Title IV funds are required to enter into "program participation agreement[s]" that state the terms of their "initial and continued eligibility ... to participate in a [Title IV] program." 20 U.S.C. § 1094(a). Again, Mission concedes that it was required to enter into a new program participation agreement as a result of the shift to non-profit status. See 34 C.F.R. § 668.14(h)(1). Paralleling the requirements for provisional certification, see 34 C.F.R § 668.13(c)(4)(ii), a program participation agreement

conditions the initial and continued participation of an eligible institution in any Title IV, HEA program upon compliance with the provisions of this part, the individual program regulations, and any additional conditions specified in the program participation agreement that the Secretary requires the institution to meet.

34 C.F.R. § 668.14(a)(1) (emphasis added). It is on the basis of the "any additional condition" language contained in 34 C.F.R. § 668.13(c)(4)(ii) and 34 C.F.R. § 668.14(a)(1) that the Secretary would require Mission's compliance with the 85/15 rule. And it is this reliance that Mission insists is beyond the Secretary's statutory authority.

C

After a bench trial, the district court agreed with Mission that the Secretary's action contravened the plain language of the HEA, and granted the requested declaratory and injunctive relief against imposition of the 85/15 rule. The government appeals, arguing that the Secretary has several sources of statutory authority sufficient to justify imposition of the 85/15 rule against a non-profit like Mission. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and reverse.

II

The district court reviewed the Secretary's action under the framework enunciated in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Under that framework, "[f]irst, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, 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." Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778. On the basis of this first Chevron 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 analysis.

A. Plain Meaning

The district court ruled that imposition of the 85/15 rule on Mission's non-profit schools was contrary to the "express language of the statute, [under which] the 85/15 Rule only applies to proprietary institutions." Id. at 842 (citing 20 U.S.C. §§ 1088(b) & 1141(a)(4)). We disagree. Even were we to accept the district court's contention that 20 U.S.C. § 1088 "defines the substantive eligibility requirements for both full and provisional certification" of non-profit educational institutions such as Mission, id. at 843, we still could not agree that Mission's compliance with those minimum eligibility requirements mandates the Secretary's certification. Eligibility is not entitlement.

The plain language of 20 U.S.C. §§ 1088(b) and 1088(c) distinguishes between "proprietary institution[s] of higher education" and "postsecondary vocational institution[s]." The two terms are mutually exclusive: a "proprietary institution of higher education" cannot be "a public or other non-profit institution," see 20 U.S.C. § 1088(b)(3) (incorporating by reference § 1141(a)(4)), whereas a "postsecondary vocational institution" must be, see 20 U.S.C. § 1088(c)(2) (incorporating by reference § 1141(a)(4)). Beyond that, in order to be a proprietary institution of higher education, a school must satisfy a number of conditions, the last of which is compliance with the 85/15 rule. See 20 U.S.C. § 1088(b)(6). In contrast, there is no requirement that a postsecondary vocational institution comply with that rule. The listed conditions simply do not mention it. See § 1088(c); see also 20 U.S.C. §§ 1141(a)(1)-(2), 1141(a)(4)-(5) (stating requirements incorporated by reference at § 1088(c)(2)).

Consequently, we are unable to discern the plain meaning identified by the district court. Section 1088 makes only two express statements about the 85/15 rule: first, a school not in compliance with that rule cannot be a proprietary institution of higher education; second, the determination of whether a school is eligible to apply as a postsecondary vocational institution to participate in Title IV programs shall not be based on its compliance with the 85/15 rule. ¹ The statute is silent on whether a postsecondary vocational institution may be subjected to the rule as an added condition of its participation. Consequently, imposing such a rule against a non-profit does not contravene the general presumption "that Congress acts intentionally and purposely when it includes particular language in one section of a statute but omits it in another." BFP v. Resolution Trust Corp., 511 U.S. 531, 537, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994) (quoting Chicago v. Environmental Defense Fund, 511 U.S. 328, 338, 114 S.Ct. 1588, 128 L.Ed.2d 302 (1994)) (cited in Appellee's Br. at...