1:23-cv-12461
D. Mass.Dec 7, 2023Background:
- Elizabeth Grady School (part of Elizabeth Grady Face First, Inc. and EGFF Holding Corp.) provides esthetics and massage therapy programs; ~85% of students rely on Title IV aid.
- CFO Kathleen DeNicola acquired the school on November 1, 2021; plaintiffs did not formally notify the Department of Education, believing the transfer was an exempt transaction under 34 C.F.R. § 600.31(e).
- An auditor (reporting in Sept/Oct 2022) concluded a reportable change in ownership occurred and the school failed to notify the DOE; DOE placed the school on HCM2 (pay-first, seek reimbursement) and requested documentation.
- DOE concluded a change in ownership resulting in a change in control occurred as of Nov. 1, 2021, and advised the school it lost Title IV eligibility effective that date; DOE also treated subsequent Title IV funds as institutional liabilities.
- The school continued disbursing funds (seeking roughly $1.3M in reimbursement), requested a hearing and reinstatement, and filed for a preliminary injunction seeking (a) to enjoin termination/limitation of Title IV participation, (b) reinstatement of Title IV eligibility, and (c) payment of reimbursements.
- The court denied the preliminary injunction, finding plaintiffs unlikely to succeed on their APA claim because the school’s Title IV participation automatically lapsed under the regulations and the court cannot order the DOE to pay reimbursements.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction to review DOE action / issue injunction under HEA vs APA | APA permits judicial review and injunctive/declaratory relief; HEA anti‑injunction language does not bar APA review of actions exceeding authority | HEA forbids injunctions against the Secretary or agency funds; anti‑injunction bars relief that would interfere with agency operations | Court: Has jurisdiction under the APA to review non‑monetary claims (e.g., to enjoin certain agency actions), but HEA’s anti‑injunction language limits relief that would attach or compel agency funds |
| Authority to compel DOE to process/pay reimbursements (money relief) | Requests court order compelling DOE to reimburse disbursed Title IV funds | HEA and precedent prohibit injunctions/attachments that compel agency funds; APA suit cannot obtain money relief here | Held: Court lacks jurisdiction to order reimbursements or otherwise compel payment of agency funds; monetary relief denied |
| Entitlement to hearing / APA due‑process claim under Subpart G (34 C.F.R. § 668.86) | DOE imposed limitations and denied a required hearing; denial violated APA (agency acted not in accordance with law) | Plaintiffs’ participation automatically lapsed under 34 C.F.R. §§ 600.31 and 668.14, so Subpart G procedures (notice/hearing) for participating institutions do not apply | Held: Court finds plaintiffs unlikely to succeed because their participation automatically expired Nov. 1, 2021; no entitlement to Subpart G hearing; preliminary injunction denied |
| Whether the change in ownership was an exempt transaction under 34 C.F.R. § 600.31(e) | DeNicola argues the sale was an excluded/‑exempt transfer (she had prior management role/beneficial interest) | DOE and the record show plaintiffs failed to prove the exemption or submit required documentation/timely notice | Held: Plaintiffs failed to carry burden to show the transaction met the exemption; automatic lapse stands |
Key Cases Cited
- Ulstein Mar., Ltd. v. United States, 833 F.2d 1052 (1st Cir. 1987) (anti‑injunction language does not categorically bar judicial review of agency actions exceeding authority)
- Esso Standard Oil Co. v. Monroig‑Zayas, 445 F.3d 13 (1st Cir. 2006) (four‑factor preliminary injunction test; likelihood of success is the sine qua non)
- Boston Redevelopment Authority v. National Park Service, 838 F.3d 42 (1st Cir. 2016) (discussion of APA review principles)
- San Juan City College, Inc. v. United States, 74 Fed. Cl. 448 (2006) (agency could not terminate a participation agreement that had already automatically expired)
- Adams v. Duncan, 179 F. Supp. 3d 632 (S.D.W. Va. 2016) (courts conclude APA provides jurisdiction for declaratory/injunctive relief challenging Secretary’s HEA decisions)