345 F. Supp. 3d 1077
N.D. Cal.2018Background
- Corinthian Colleges (Everest, Heald, WyoTech) collapsed in 2015 after the Department of Education found widespread misrepresentation of job-placement rates; tens of thousands of former students submitted borrower-defense claims for federal Direct Loans.
- The Department under the prior administration solicited simplified attestation forms and, in practice, granted many full discharges to claimants who attested they relied on Corinthian placement rates.
- After January 20, 2017, the Secretary stopped that practice and adopted a new methodology (the "Average Earnings Rule") memorialized in a December 15, 2017 memorandum and December 20, 2017 press release that bases relief on a program-level earnings comparison with peer programs (including using SSA aggregate earnings data).
- Plaintiffs (a proposed class of Corinthian borrowers) moved for a preliminary injunction to (a) enjoin collection and credit reporting, (b) require restoration of loan eligibility, (c) stop use of the Average Earnings Rule, and (d) require processing under the prior ("Corinthian") approach that they contend produced full relief.
- The court found the Average Earnings Rule is a final agency action subject to APA review, concluded the Department violated the Privacy Act by sharing identifiable borrower data with SSA and then using returned aggregate data to determine individual relief, and found plaintiffs likely to succeed on that Privacy Act claim.
- The court granted a limited preliminary injunction: enjoined the Department from using the Average Earnings Rule as implemented (and temporarily ordered cessation of collection from class members), but denied (without prejudice) plaintiffs’ request to compel a return to the prior Corinthian practice or to force credit-report removal/loan-eligibility restoration absent clearer evidence of a binding prior policy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Average Earnings Rule is final agency action subject to APA review | It is a definitive change that determines rights/obligations of claimants | Not final—discretionary/policy guidance | Held final under Bennett: consummation + legal consequences, so reviewable |
| Whether sharing borrower identifiers with SSA and using SSA aggregate earnings violates the Privacy Act | Sharing SSNs and DOBs then using aggregate returns to adjudicate individual relief violates §552a; matching-program procedures not followed | The exchange produced only aggregate data; agencies can share aggregate statistics and Gainful Employment Agreement disclaims a matching program | Held likely violative: disclosure of identifiable records and use of resulting data to determine individual benefits violates Privacy Act; matching-program safeguards were not satisfied |
| Whether the Average Earnings Rule is arbitrary and capricious under the APA | The Rule is arbitrary, ignores prior findings, relies on improper/irrelevant third-party data, and yields inconsistent/ad hoc outcomes | The Secretary reasonably revised policy to assess actual educational value; methodology is a permissible exercise of discretion | Held not likely arbitrary-and-capricious in principle — Secretary gave a rational justification for changing policy (but implementation violated Privacy Act) |
| Whether plaintiffs had a protected property interest or suffered retroactive deprivation entitling them to due process or forbidding retroactive rulemaking | Plaintiffs had a vested right to full discharge under the prior Corinthian practice; Average Earnings Rule retroactively impairs that right | No mandatory entitlement to full discharge; statute/regulation leave amount of relief discretionary; no vested right shown | Held plaintiffs lack a protected property interest in a specific relief amount; due process and retroactivity claims fail on the record |
Key Cases Cited
- Bennett v. Spear, 520 U.S. 154 (final agency action test) (court uses consummation + legal consequences test to determine finality)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (arbitrary and capricious standard) (grounds for setting aside agency action)
- Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (preliminary injunction standard) (plaintiff must show likely irreparable harm)
- Doe v. Kelly, 878 F.3d 710 (9th Cir.) (preliminary injunction factors articulation)
- Salazar v. King, 822 F.3d 61 (agency action finality and legal consequences) (agency decision producing legal effects reviewable)
- Arrington v. Daniels, 516 F.3d 1106 (scope of review under arbitrary and capricious standard) (deferential review; agency path must be reasonably discernible)