San Juan City College v. U.S., 03-5180.

• Decision Date: 09 December 2004
• Docket Number: No. 03-5180.,03-5180.
• Parties: SAN JUAN CITY COLLEGE and Americo Reyes Morales, (on his own behalf and as President of San Juan City College Inc.), Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1357

391 F.3d 1357

SAN JUAN CITY COLLEGE and Americo Reyes Morales, (on his own behalf and as President of San Juan City College Inc.), Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee.

No. 03-5180.

United States Court of Appeals, Federal Circuit.

DECIDED: December 9, 2004.

Yolanda R. Gallegos, Gallegos Legal Group, of Albuquerque, New Mexico, argued for plaintiffs-appellants.

Hillary A. Stern, Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With her on the brief were Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, and Mark A. Melnick, Assistant Director.

Before NEWMAN, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and SCHALL, Circuit Judge.

FRIEDMAN, Senior Circuit Judge.

The petitioners San Juan City College, Inc. and Americo Reyes Morales, President of the College (collectively, "the College"), contend in this suit for damages that the United States Department of Education ("the Department") breached a contract with the College to provide student aid funds. The United States Court of Federal Claims granted summary judgment dismissing the complaint on the ground that, under the particular contract and as a matter of law, the College cannot recover damages for a breach. San Juan City Coll., Inc. v. United States, 58 Fed.Cl. 26, 30 (2004). We reject that conclusion, vacate the dismissal of the suit, and remand with instructions to decide, first, whether the Department breached the contract with the College and, second, if a breach did occur, what damages, if any, the College may recover.

I

A. The underlying facts, as the Court of Federal Claims stated them, are undisputed. From 1977 until it closed permanently in 1996, the College was a private, for profit, post-secondary educational institution, operating several campuses in Puerto Rico and primarily serving low-income students. 58 Fed.Cl. at 27. In 1984, the College entered into a Program Participation Agreement ("the Agreement") with the Department to participate in student financial aid programs under the Higher Education Act, Pub.L. No. 89-329, 79 Stat. 1219 (1965) (codified as amended at 20 U.S.C. §§ 1070 et. seq.) ("Title IV"), including the Pell Grant Program under 20 U.S.C. § 1070a (2000). 58 Fed.Cl. at 27. At oral argument, the College described these federal funds as the "lifeblood" of the institution, critical to its continued operation.

In February 1995, representatives of the Puerto Rico tax office made an unannounced visit to the College campuses to conduct an inventory related to an alleged tax debt. The tax officials padlocked the school's doors, forcing students to leave and the College to suspend all classes for approximately two weeks between February 8 and February 25. At the end of this temporary recess, the padlocks were removed and students returned. The College resumed classes on February 27, and later made up all missed classes by extending the term. Id.

On or around February 14, 1995, Department officials sent by certified mail, return receipt requested, a "closed school letter" to the College stating that the Department had been "advised" that the College had "ceased operations at all its branches effective on February 6, 1995," and indicating that the Department regarded the College as permanently closed. Id. at 28. Subsequently, the Department placed the College on its "closed school list," issued a "freeze memo" instructing that Title IV funds be withheld from the College because "INSTITUTION CLOSED EFFECTIVE FEBRUARY 6, 1995," and stopped processing reimbursement requests from the College. Id. (The Department contends that under 34 C.F.R. § 668.26(a)(1), the College ceased to qualify for Title IV funding when it temporarily shut down for the inventory and thus "close[d] or stop[ped] providing educational programs for a reason other than a normal vacation period or a natural disaster ..." 58 Fed.Cl. at 28.)

It is "undisputed" that the College never received the February 14 letter; the government did not produce the return receipt for the certified mailing. Id. Instead, at some point between February 27 and March 23, the College ceased receiving expected Title IV funds and learned that it had been placed on the closed school list. The College immediately began challenging that action. Between March 23 and June 12, the College and its counsel called and wrote to various Department officials numerous times to inform them that the College was not closed. Id. at 28-29. Despite these efforts, there is no evidence that any Department employee independently verified that the College was open until late June of 1995, after Puerto Rican Congressman Carlos Romero-Barceio had written to the Secretary of Education about the matter. Id. at 29.

In July 1995, the Department advised the College that it had confirmed that the College was open and operating. Shortly thereafter, the Department removed the College from the closed school list and resumed providing Title IV funds. Id. In July 1995, the Department also paid all funding requests received from the College since February 10, 1995. Appellee's Br. at 10; J.A. at 111, 171. In 1996, the College closed permanently. 58 Fed.Cl. at 27.

B. In February 2001, the College filed the present suit in the Court of Federal Claims. The complaint contained three counts. Count One alleged that the Department breached the Agreement by withholding Title IV funding for six months without "follow[ing] the notice and hearing requirements of 20 U.S.C. § 1094 and 34 C.F.R. § 668, Subpart G." The complaint then stated:

40. Defendants' breach of contract resulted in Plaintiffs suffering severe and substantial damages including, but not limited to, lost profits Plaintiffs would have earned had it not been forced by ED to close.

41. Such damages were foreseeable to Defendants at the time they entered into the program participation agreement with SJCC.

J.A. at 30.

Count Two alleged that the defendants had violated Title IV of the Higher Education Act of 1965, 20 U.S.C. §§ 1070 et seq.,"[b]y failing to provide SJCC with the notice and hearing required by 20 U.S.C. § 1094 and 34 C.F.R. § 668, Subpart G, when it ceased providing funding to SJCC beginning in February 1995[.]" Count Two then repeated the allegations of Count One quoted above regarding the damages the plaintiffs had suffered from "[s]uch violation" and the foreseeability of those damages. J.A. at 31. Count Three alleged that these actions by the Department constituted a taking of the plaintiffs' property, for which they sought just compensation. J.A. at 31-32. The prayer for relief sought declaratory relief and "damages including consequential damages for lost profits resulting from Defendants' actions[.]"

C. On cross motions for summary judgment, the court granted the government's motion and dismissed the suit. The court stated that the College made a "compelling case that [the Department] breached the agreement," as well as a "powerful argument" that the temporary withholding of funds "foreseeably caused dramatic economic consequences to plaintiffs — to wit, closing of the school." 58 Fed.Cl. at 27. The court found it unnecessary to determine whether the Department had breached the Agreement, however, because it concluded that "as a matter of law, violation of the agreement, insofar as it involves a failure to offer a hearing under 34 C.F.R. § 668.86, creates a right only to equitable relief." Id. at 32. "[T]he agreement, even if viewed in traditional contract terms, does not, as a matter of law, permit the recovery of the type of damages they seek." Id. at 30.

The court stated that "the contract `right' plaintiffs seek to enforce, although incorporated into a contract, comes from the applicable regulations", id. at 30, and that the Agreement "did no more than make the regulations applicable to the school." Id. at 31. According to the court, when the Department "executed the agreement ... it agreed to do no more than abide by the law." Id. The court ruled that "in signing the agreement" the Department had not "opened itself up to traditional contract remedies [.]" Id. The court further stated:

There is no reason to think that the agency contemplated any commitment other than that set out in the regulations. The agency's commitment, in short, was to do what the regulations required. The regulations, however, embody their own limited remedy for "breach" — namely, either an administrative appeal, as provided for in 34 C.F.R. § 668.111-121, or a suit in the district court seeking declaratory or injunctive relief.... It follows that the parties never agreed to bind the agency to exposure to consequential damages.... We rule that, as a matter of law, violation of the agreement, insofar as it involves a failure to offer a hearing under 34 C.F.R. § 668.86, creates a right only to equitable relief.

Id. at 31-32.

The court also rejected the College's claim that the Department denied it due process by terminating its participation in the Title IV Program without a hearing because the court has no jurisdiction over damage claims based on due process violations. Id. at 29. The court did not discuss or explicitly rule on the College's taking claim or its allegation of statutory violations, but it necessarily rejected those claims when it dismissed the complaint. Since the College in its appeal challenges only the denial of its breach of contract claim, we need not consider or discuss the dismissal of those other claims.

II

Without deciding whether the Department had breached the Agreement, the Court of Federal Claims dismissed the suit seeking damages for such breach on the ground that damages were not available as a remedy for such breach, and that the only remedy was equitable relief. Although there might be cases in which a court appropriately may dismiss a suit for breach of contract without adjudicating...