Vara v. Devos

• Decision Date: 25 June 2020
• Docket Number: Civil No. 19-12175-LTS
• Parties: DIANA VARA, AMANDA WILSON, NOEMY SANTIAGO, KENNYA CABRERA, and INDRANI MANOO, on behalf of themselves and all others similarly situated, Plaintiffs, v. ELISABETH P. DEVOS, in her official capacity as Secretary of the United States Department of Education, and THE UNITED STATES DEPARTMENT OF EDUCATION, Defendants.
• Court: U.S. District Court — District of Massachusetts

DIANA VARA, AMANDA WILSON, NOEMY SANTIAGO, KENNYA CABRERA,and INDRANI MANOO, on behalf of themselvesand all others similarly situated, Plaintiffs, v. ELISABETH P. DEVOS, in her official capacity as Secretary

of the United States Department of Education,

and THE UNITED STATES DEPARTMENT OF EDUCATION, Defendants.

Civil No. 19-12175-LTS

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

June 25, 2020

MEMORANDUM AND ORDER ON PLAINTIFFS' MOTION FOR CLASS CERTIFICATION(DOC. NO. 11) AND PLAINTIFFS' MOTION FOR JUDGMENT

(DOC. NO. 38)

SOROKIN, J.

In this putative class action arising under the Higher Education Act ("HEA"), 20 U.S.C. § 1070 et seq., the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq., and the Declaratory Judgment Act ("DJA"), 28 U.S.C. § 2201, plaintiffs challenge action taken by the Department of Education ("Education") and its secretary, Elisabeth P. DeVos, concerning thousands of federal student loans taken out to pay for the cost of attendance at Everest Institute ("Everest"), a for-profit postsecondary school that was operated by Corinthian Colleges, Inc. ("Corinthian"). Plaintiffs are former Everest students who seek to set aside what they characterize as Education's constructive denial of an application for student loan discharge that the Massachusetts Attorney General's Office ("AGO") submitted on their behalf in 2015. Plaintiffs contend that Education's failure to render a reasoned decision on the merits of the AGO's application was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" and "without observance of procedure required by law" in violation of the APA, 5 U.S.C. § 706(2). Further, plaintiffs argue that the AGO's application, which included extensive factual and legal findings and invoked Education's borrower defense regulation, 34 C.F.R. § 685.206(c) (eff. until Oct. 16, 2018), entitled plaintiffs to full relief from their federal student loan obligations.

On November 13, 2019, Named Plaintiffs Diana Vara and Amanda Wilson moved to certify this lawsuit as a class action, Doc. No. 11, a motion that was later supplemented after Named Plaintiffs Noemy Santiago, Kennya Cabrera, and Indrani Manoo entered the case, Doc. No. 29. On January 22, 2020, the parties stipulated to a factual record to govern this dispute. Doc. No. 33. Subsequently, plaintiffs moved for judgment on the record, Doc. No. 38, and defendants opposed both plaintiffs' motion for class certification, Doc. No. 39, as well as their motion for judgment, Doc. No. 49. The two pending motions are now ripe for resolution.

I. BACKGROUND

Before turning to the resolution of the pending motions, the Court reviews the text, application, and recent revision of the governing regulatory regime, the procedural history of this case and its prior related case, as well as the factual record as it concerns both Corinthian and the AGO's application seeking borrower defense relief on behalf of borrowers who took out loans to pay for the cost of attendance at Everest Massachusetts locations. The Court first reviews the governing law.

A. Federal Student Loans and the Borrower Defense Regulatory Scheme

Under Title IV of the HEA, the Secretary of Education is authorized "to assist in making available the benefits of postsecondary education to eligible students" through financial-assistance programs. 20 U.S.C. §§ 1070(a), 1071(a)(1). To that end, the HEA directs the Secretary of Education to "carry out programs to achieve [this] purpose[]," id. § 1070(b), including the William D. Ford Federal Direct Loan Program ("Direct Loan Program"), through which borrowers secure direct loans from the federal government, id. § 1087a, as well as the Federal Family Education Loan Program ("FFEL Program"), which allows Education to reinsure guaranteed loans made to students by financial institutions, id. § 1078.

1. The 1995 Borrower Defense Regulatory Scheme

Education's regulations, promulgated pursuant to its statutory authority under the HEA, establish that "a borrower is obligated to repay the full amount of a Direct Loan . . . unless the borrower is relieved of the obligation to repay as provided [by the HEA or Education's regulations]." 34 C.F.R. § 685.207. In the HEA, Congress mandated:

Notwithstanding any other provision of State or Federal law, the Secretary shall 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 this part, except that in no event may a borrower recover from the Secretary, in any action arising from or relating to a loan made under this part, an amount in excess of the amount such borrower has repaid on such loan.

20 U.S.C. § 1087e(h). Pursuant to this statutory command, Education promulgated its borrower defense regulation, codifying the mechanism by which "[a] Direct Loan borrower may request that the Secretary exercise [her] long-standing authority to relieve the borrower of his or her obligation to repay a loan on the basis of an act or omission of the borrower's school." Federal Direct Student Loan Program, Notice of Proposed Rulemaking, 59 Fed. Reg. 42,646, 42,649 (Aug. 18, 1994). In its original iteration—which was effective from June 28, 1995 until October16, 2018 and governs the federal student loans at issue in this case—the regulation read in pertinent part:

(c) Borrower defenses.

(1) In any proceeding to collect on a Direct Loan, the borrower may 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. These proceedings include, but are not limited to, the following:

(i) Tax refund offset proceedings under 34 CFR 30.33.

(ii) Wage garnishment proceedings under section 488A of the Act.

(iii) Salary offset proceedings for Federal employees under 34 CFR part 31.

(iv) Credit bureau reporting proceedings under 31 U.S.C. 3711(f).

(2) If the borrower's defense against repayment is successful, the Secretary notifies the borrower that the borrower is relieved of the obligation to repay all or part of the loan and associated costs and fees that the borrower would otherwise be obligated to pay. The Secretary affords the borrower such further relief as the Secretary determines is appropriate under the circumstances.

34 C.F.R. § 685.206(c) (eff. until Oct. 16, 2018).

a. The Secretary is Required to Adjudicate Borrower Defenses to Repayment

As a threshold matter, the HEA and the 1995 borrower defense regulation require the Secretary to adjudicate borrower defense claims. This duty to adjudicate emanates from the text of the HEA, which establishes that borrowers have the right to raise "defense[s] to repayment" of their federal student loans and unequivocally directs the Secretary to define the contours of such defenses—that is, to clarify which "acts or omissions of an institution of higher education" will give rise to a defense that Education must recognize. 20 U.S.C. § 1070e(h). In passing this provision, Congress ensured that a defense to repayment would be available to borrowers, irrespective of how Education ultimately defined the scope and nature of such a defense. And by selecting the word "defense," Congress chose a word associated with adjudication, a significanttextual consideration. See Black's Law Dictionary 511 (10th ed. 2014) (defining "defense" as "a basis for avoiding liability on a negotiable instrument").

At the same time, Congress delegated to the Secretary—along with other duties necessary to administer the federal student loan programs that Congress created in the HEA—the task of identifying the specific "acts or omissions" which would constitute a defense. Courts have recognized that where, as here, Congress has delegated to an agency the task of administrating federal programs, that agency undertakes a non-discretionary duty to adjudicate claims or applications that are essential to the administration of those programs. Cf. Nigmadzhanov v. Mueller, 550 F. Supp. 2d 540, 546 (S.D.N.Y. 2008) ("The secretary cannot be charged with immigration administration and simultaneously have no duty to administrate. Such a result is irrational."); Rodriguez v. Nielsen, No. 16-CV-7092 (MKB), 2018 WL 4783977, at *10 (E.D.N.Y. Sept. 30, 2018) (collecting cases in which courts have held that "immigration authorities have a non-discretionary duty to adjudicate applications"). So too here.

Moreover, Education and courts have confirmed that the agency is bound to adjudicate borrower defenses to repayment. Indeed, when Education issued its first interpretation of the 1995 borrower defense regulation, the agency explained circumstances in which "[t]he Secretary will acknowledge a Direct Loan borrower's cause of action under State law as a defense to repayment of a loan" during the course of an adjudication. 60 Fed. Reg. 37,768, 37,769 (July 21, 1995) (emphasis added). Since then, courts have confirmed that an adjudication necessarily follows a borrower's assertion of the defense. See Commonwealth v. United States Dep't of Educ., 340 F. Supp. 3d 7, 10 (D.D.C. 2018) (observing that, under the regulatory scheme, the agency will continue collection on a student's debt "until this defense is asserted and the Department adjudicates the borrower's application"). Moreover, the agency has confirmed inthis litigation that borrower defense applications are "adjudicat[ed] in the regular course." Doc. No. 33 ¶ 16. Thus, under the HEA, the 1995 borrower defense regulation, and the agency's interpretations, the Secretary has a duty to adjudicate applications or claims for borrower defense relief.

b. The Secretary Must Adjudicate Affirmative Borrower Defense Applications

The borrower defense regulatory scheme also provides that the Secretary must adjudicate affirmative borrower defense applications—that is, requests for borrower defense relief that are asserted before a borrower has defaulted...