802 F.3d 99
1st Cir.2015Background
- From 2005 to 2008, Title IV provided federal student aid, with proprietary schools required to derive at least 10% of revenues from non-Title IV sources under the 90/10 rule.
- DOE regulations defined 'revenues' as funds from Title IV-eligible program students plus allowable non-Title IV activities, excluding cash from individual non-program courses unless tied to eligible programs.
- International submitted a 2005 audit showing 90.26% Title IV revenue but the DOE disagreed due to rounding, placing the school on heightened monitoring and denying recertification for 2006.
- DOE later finalized an audit determination holding International not Title IV-eligible for the year ending June 30, 2005 and liable for over $1.3 million in funds received after July 1, 2005.
- An administrative hearing upheld the 90/10 violation; the Secretary affirmed, declining to forgive International’s liability on remand, distinguishing Gibson Barber & Beauty College.
- International sued in the district court under the Administrative Procedure Act; the district court granted summary judgment for the DOE, and this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Chevron interpretation of 'revenues' validity | International argues the DOE definition is too narrow and omits Saturday-course cash. | Secretary's regulation reasonably defines 'revenues' consistent with the statute and purposes. | Regulation reasonable; Chevron analysis favors agency construction. |
| Application of 90/10 calculations to International | DOE misapplied the 90/10 rule by excluding certain revenue; inclusion would change outcome. | Secretary properly limited revenues to Title IV-eligible program-related income and compatible sources. | Secretary did not abuse discretion in calculation; Saturday-course revenue excluded. |
| Cure/remedy option for 90/10 violation | Statutory and Gibson precedent allowed cure to eliminate liability; Secretary should forgive. | Distinguishable facts and fiduciary concerns justify denial of cure. | Denial of cure upheld; Gibson distinguished; remedy not required. |
| Discovery in agency review | Limited discovery should be allowed to obtain internal DOE policies and memoranda. | No discovery absent bad faith or strong showing; record is adequate. | Discovery denied; no bad faith shown; administrative record sufficient. |
Key Cases Cited
- Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (U.S. 1984) (establishes a two-step framework for agency statutory interpretation)
- Shaw's Supermarkets, Inc. v. NLRB, 884 F.2d 34 (1st Cir. 1989) (agency change must be explained as reasonable)
- River St. Donuts, LLC v. Napolitano, 558 F.3d 111 (1st Cir. 2009) (departure from precedent requires rational basis and explanation)
- Gutierrez de Martinez v. Lamagno, 515 U.S. 417 (U.S. 1995) (interpretation of statutory 'shall' vs. 'may' and agency deference)
- Bruesewitz v. Wyeth LLC, 562 U.S. 223 (U.S. 2011) (preemption and statutory interpretation guidance for agency action)