N.Y. Legal Assistance Grp. v. DeVos

• Citation: 527 F.Supp.3d 593
• Decision Date: 17 March 2021
• Docket Number: 20 Civ. 1414 (LGS)
• Parties: NEW YORK LEGAL ASSISTANCE GROUP, Plaintiff, v. Elisabeth DEVOS, in her official capacity as Secretary of Education, and United States Department of Education, Defendants.
• Court: U.S. District Court — Southern District of New York

527 F.Supp.3d 593

NEW YORK LEGAL ASSISTANCE GROUP, Plaintiff,

v.Elisabeth DEVOS, in her official capacity as Secretary of Education, and United States Department of Education, Defendants.

20 Civ. 1414 (LGS)

United States District Court, S.D. New York.

Signed March 17, 2021

Adina Rosenbaum, Adam R. Pulver, Public Citizen Litigation Group, Washington, DC, Eileen Mathews Connor, Michael Noah Turi, Toby Rachel Merrill, Legal Services Center of Harvard Law School, Jamaica Plain, MA, for Plaintiff.

Jennifer C. Simon, US Attorneys Office, New York, NY, for Defendants.

OPINION & ORDER

LORNA G. SCHOFIELD, District Judge:

Plaintiff New York Legal Assistance Group ("NYLAG") moves for summary judgment on its challenges to regulations promulgated by the United States Department of Education concerning defenses student borrowers may raise against the repayment of federal student loans. Defendants Elisabeth DeVos, in her official capacity as Secretary of Education (the "Secretary"), and the Department of Education (collectively, "ED") cross-move for summary judgment. For the reasons stated below, summary judgment is granted to Plaintiff on its claim that the statute of limitations on defensive borrower claims in the challenged rule is not a logical outgrowth of the proposed rulemaking. Summary judgment is granted to ED on the other claims.

I. BACKGROUND

The following facts are undisputed. ED distributes federal student loans via Title IV of the Higher Education Act of 1965 ("HEA"), 20 U.S.C. § 1070 et seq. Most of that funding is through the William D. Ford Federal Direct Loan Program (the "Direct Loan Program"), whereby ED provides federal loans directly to eligible students who attend participating institutions of higher education. 20 U.S.C. § 1087a. The HEA requires ED to "specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under [the HEA]." 20 U.S.C. § 1087e(h).

In 1994, ED first implemented regulations governing student-borrower defenses to repayment. Those regulations permitted borrowers to "assert as a defense against repayment, any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law." The 1994 Regulations did not specify a process by which a student could assert a borrower defense claim.

In May 2015, an investigation revealed that Corinthian Colleges, Inc. -- a large nationwide for-profit school operator -- had misrepresented job placement rates to students, eventually leading to bankruptcy for Corinthian's constituent schools. The collapse led to thousands of borrower defense claims filed with ED. Noting that these claims highlighted difficulties with the State law standard of the 1994 Regulations, ED began a negotiated rulemaking process on the topic of borrower defenses. ED published final regulations on November 1, 2016 (the "2016 Rule"). The 2016 Rule was scheduled to go into effect on July 1, 2017. In May 2017, the California Association of Private Postsecondary Schools ("CAPPS") challenged the 2016 Rule in the United States District Court for the District of Columbia. See California Ass'n of Private Postsecondary Schs. v. DeVos , No. 17 Civ. 00999 (D.D.C. May 24, 2017). In June 2017, ED published a notification of delay of the July 1, 2017, effective date pursuant to Administrative Procedure Act ("APA") Section 705, pending resolution of the judicial challenge to the 2016 Rule (the "705 Notice"). The 705 Notice stated that ED would review and revise the 2016 Rule through the negotiated rulemaking process mandated by HEA Section 492.

In October 2017, ED issued an interim final rule delaying the 2016 Rule's effective date until July 1, 2018, (the "Interim Final Rule") and issued a notice of proposed rulemaking ("NPRM") to further delay the effective date to July 1, 2019. In February 2018, ED published a final rule delaying the effective date to July 1, 2019 (the "Final Delay Rule").

Two plaintiffs and the attorneys general of eighteen States and the District of Columbia filed complaints challenging the validity of the 705 Notice, the Interim Final Rule and the Final Delay Rule. Those claims were consolidated before the United States District Court for the District of Columbia. See Bauer v. DeVos , 325 F. Supp. 3d 74, 79 (D.D.C. 2018).

In November 2017, ED began a second negotiated rulemaking process (the "2018 Negotiated Rulemaking") related to student borrowing. Following negotiation sessions with industry and student representatives, on July 31, 2018, ED published an NPRM addressing borrower defenses (the "2018 NPRM") and requested public comments on or before August 30, 2018. The 2018 Negotiated Rulemaking and 2018 NPRM (together, the "2018 Rulemaking") used the 1994 Regulations, which were in effect at the time the 2018 NPRM was first published, as the basis for proposed regulatory amendments.

In September 2018, the court in Bauer granted the plaintiffs’ motion for summary judgment, vacated the Final Delay Rule and 705 Notice, but temporarily stayed vacatur of the 705 Notice. See Bauer , 325 F. Supp. 3d at 110 and Bauer v. DeVos , 332 F. Supp. 3d 181, 186 (D.D.C. 2018). The stay expired on October 16, 2018, and the 2016 Rule went into effect.

On September 23, 2019, ED published final regulations amending the borrower defense regulations pursuant to the 2018 NPRM. Although the 2018 NPRM was premised on changes to the 1994 Regulations, ED stated that "these final regulations, as a technical matter, amend the 2016 final regulations which have since taken effect" (the "2019 Rule").

Plaintiff filed suit alleging procedural defects in the 2018 Rulemaking and 2019 Rule under the HEA and APA: that (1) the 2018 Negotiated Rulemaking failed to comply with the HEA's requirement of public consultation and negotiated rulemaking; (2) the APA's notice and comment requirement was violated because the 2018 Rulemaking was not reinitiated or reopened when the 2016 Rule went into effect and (3) the 2019 Rule violated the APA by including a three-year statute of limitations on certain borrower defense claims that was not a logical outgrowth of the 2018 NPRM. Plaintiff also alleges that various changes to provisions of the 2019 Rule involving borrower defenses were arbitrary and capricious, in violation of the APA. The parties cross-moved for summary judgment on these claims.

II. STANDARD

Where a party seeks review of agency action under the APA, "the entire case on review is a question of law." Seife v. U.S. Dep't of Health & Human Servs. , 440 F. Supp. 3d 254, 271 (S.D.N.Y. 2020) (internal citation omitted) (quoting Am. Bioscience, Inc. v. Thompson , 269 F.3d 1077, 1083 (D.C. Cir. 2001) ).¹ "While the usual summary judgment standard under Federal Rule of Civil Procedure 56 does not apply in such cases, summary judgment [as a remedy] nonetheless is ‘generally appropriate’ because courts ‘address legal questions in deciding whether the agency acted arbitrarily, capriciously or in some other way that violates’ " the APA. Id. (internal citations omitted) (quoting Thompson , 269 F.3d at 1083 ); see also Aleutian Capital Partners, LLC v. Scalia , 975 F.3d 220, 229 (2d Cir. 2020) (citing Thompson , 269 F.3d at 1083-84 ). Courts addressing the propriety of agency action during negotiated rulemaking under the HEA have likewise applied the analogous standards of the APA to the HEA's negotiated rulemaking requirements. See, e.g. , Bauer , 325 F. Supp. 3d at 97 (D.D.C. 2018).

III. DISCUSSION

A. Procedural Arguments

1. Public Consultation and Negotiated Rulemaking Under the HEA

ED enjoys broad authority "to make, promulgate, issue, rescind, and amend rules and regulations governing the manner of operation of, and governing the applicable programs administered by, the Department." 20 U.S.C. § 1221e–3 ; see also id. § 3474 ("The Secretary is authorized to prescribe such rules and regulations as the Secretary determines necessary or appropriate to administer and manage the functions of the Secretary or the Department."). Before proposing regulations to implement Title IV programs, ED must "obtain public involvement in the development" of the regulations, "prepare draft regulations ... and ... submit such regulations to a negotiated rulemaking process." 20 U.S.C. § 1098a(a)(1), (b)(1). ED must obtain "the advice of and recommendations from" representatives of "groups involved in student financial assistance programs," including "students, legal assistance organizations that represent students, institutions of higher education, State student grant agencies, guaranty agencies, lenders, secondary markets, loan servicers, guaranty agency servicers, and collection agencies." 20 U.S.C. § 1098a(a)(1). "The hope is that these negotiations will produce a better draft as the basis for the notice and comment proceeding." USA Grp. Loan Servs., Inc. v. Riley , 82 F.3d 708, 714 (7th Cir. 1996).

Plaintiff claims that throughout the 2018 Negotiated Rulemaking sessions, ED's negotiator acted in bad faith by refusing to allow discussion of (1) ED's position on provisions in the 2016 Rule prohibiting schools from imposing mandatory arbitration and class action waivers on students and (2) whether to repeal the 2016 Rule. In support of these claims, Plaintiff cites only two specific portions of the record. In the first, in response to a request for ED's position on two 2016 Rule provisions prohibiting schools from requiring student borrowers to accept pre-dispute arbitration provisions or class action waivers, ED's negotiator stated that "because the prior regulations are under litigation on this specific topic, we're not really able to comment on extensive information regarding where we are with arbitration right now" and that ED was "looking to hear ... other ideas that [negotiated rulemaking participants] might have as alternatives." In the second part of the record Plaintiff cites, ED's...