527 F.Supp.3d 593
S.D.N.Y.2021Background
- ED administers Title IV loans; 1994 regulations allowed borrowers to assert school acts/omissions as defenses to repayment without a specified process.
- Corinthian Colleges’ collapse (2015) produced many borrower-defense claims and prompted negotiated rulemaking leading to the 2016 Rule (effective July 2018 delayed then implemented in Oct. 2018/Oct. 2019 context).
- ED initiated a 2018 negotiated rulemaking and published an NPRM based on the 1994 Regulations; in 2019 ED issued a final rule that, as a technical matter, amended the 2016 Rule (the 2019 Rule).
- The 2019 Rule narrowed misrepresentation, added documentation and financial-harm requirements, removed group-claims and certain disclosures, allowed pre-dispute arbitration/class waivers if disclosed, eliminated automatic closed-school discharges, and added a three-year statute of limitations for defensive borrower claims.
- NYLAG sued under the HEA and APA, alleging (1) negotiated-rulemaking violations/bad faith, (2) failure to reopen notice-and-comment after the 2016 Rule took effect, (3) the three-year limitations period for defensive claims was not a logical outgrowth of the NPRM, and (4) various arbitrary-and-capricious substantive changes.
- The Court granted summary judgment to NYLAG only on the logical-outgrowth claim regarding the three-year limitations for defensive claims, granted ED summary judgment on the other claims, and remanded the three-year limitation issue to ED (remand, not vacatur).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| HEA negotiated rulemaking/public consultation — bad faith | ED’s negotiator foreclosed discussion of key topics (arbitration, class waivers, repeal), so rulemaking was in bad faith | ED held extensive sessions, solicited input, and did not stonewall; statements about litigation or prior consideration were not bad faith | Court rejected bad-faith claim; summary judgment for ED (no evidence of stonewalling) |
| APA notice-and-comment — reopen after 2016 Rule took effect | The 2016 Rule’s implementation was a changed circumstance that required re-opening or reinitiating notice-and-comment | Agencies need not reopen unless a change produces prejudicial newly acquired evidence; ED reasonably addressed issues and plaintiff shows no specific prejudice | Court found no APA violation; summary judgment for ED (no showing of prejudicial new evidence) |
| Logical outgrowth — three-year statute of limitations for defensive claims | The 2018 NPRM expressly said defensive claims would not have a limitations period and rejected a three-year limit; adding a 3-year limit in the 2019 Rule deprived public notice and comment | ED argues the NPRM’s discussion of a 3-year limit for affirmative claims and related comments gave sufficient notice for defensive claims | Court held the three-year limitation was not a logical outgrowth; summary judgment for NYLAG on this issue and remand to ED |
| Arbitrary and capricious challenges to substantive changes (misrepresentation standard, group claims, relief calculation, arbitration/class waivers, disclosures, closed-school discharges) | Changes impair borrower protections and rest on flawed record or policy choices | ED provided reasoned explanations and record support for each change; policy disagreements do not render rule arbitrary | Court upheld ED’s substantive changes as not arbitrary and capricious; summary judgment for ED on these issues |
Key Cases Cited
- Cooling Water Intake Structure Coal. v. U.S. Envtl. Prot. Agency, 905 F.3d 49 (2d Cir. 2018) (logical-outgrowth test for notice-and-comment)
- USA Group Loan Servs., Inc. v. Riley, 82 F.3d 708 (7th Cir. 1996) (negotiated rulemaking creates consultative process; bad-faith refusal to negotiate might invalidate a rule)
- Portland Cement Ass’n v. EPA, 665 F.3d 177 (D.C. Cir. 2011) (agency must address changed factual predicates reasonably)
- Catawba Cty., N.C. v. EPA, 571 F.3d 20 (D.C. Cir. 2009) (agency obligation to deal reasonably with newly acquired evidence)
- New York Pub. Interest Research Grp. v. Whitman, 321 F.3d 316 (2d Cir. 2003) (challenger must show prejudice from agency’s failure to consider evidence)
- Nat. Res. Def. Council, Inc. v. U.S. Envtl. Prot. Agency, 961 F.3d 160 (2d Cir. 2020) (arbitrary-and-capricious review standards; reasoned decisionmaking)
- Guertin v. United States, 743 F.3d 382 (2d Cir. 2014) (vacatur/remand principles when agency violates APA)
- Allina Health Servs. v. Sebelius, 746 F.3d 1102 (D.C. Cir. 2014) (factors for vacatur versus remand)