495 F.Supp.3d 835
N.D. Cal.2020Background
- Title IV authorizes borrower-defense to repayment; historically underused until large-scale abuses by for-profit schools (e.g., Corinthian) produced mass claims.
- Under the Obama Administration the Department’s Borrower Defense Unit (BDU) approved tens of thousands of claims; after DeVos took office she paused broad approvals, convened reviews, and developed a new partial-relief methodology.
- From June 2018–Dec 2019 the Department largely stopped issuing decisions; when it resumed it issued large numbers of form denial notices that state only “Insufficient Evidence” with minimal explanation.
- Plaintiffs (≈160,000 class members) sued in June 2019 to compel decision-making; parties negotiated a proposed class settlement that would impose decision deadlines and other protections and received preliminary approval.
- Class counsel discovered the Department’s perfunctory form denials; the parties disagreed about whether those form letters satisfy the settlement’s requirement to issue “final decisions.” The court found no meeting of the minds and denied final approval.
- The court concluded the form denials raise substantial APA/due-process questions and possible agency pretext, ordered expedited, limited discovery (two months: written discovery + up to five fact depositions), and required the parties to show cause why the Department should not be preliminarily enjoined from continuing the form denials.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the proposed class settlement should be finally approved/enforced | Settlement promised meaningful final decisions and deadlines; form denials defeat settlement purpose | Department says settlement only required issuance of “final decisions,” which its form letters satisfy; it would not have accepted a different meaning | Settlement approval DENIED; no mutual assent on meaning of “final decision,” enforcement moot |
| Whether the Department’s form denials satisfy the APA, due process, and Department regulations (i.e., whether they are adequate reasoned decisions) | Form letters lack explanation of reasoning, evidence, or legal analysis; violate 5 U.S.C. § 555(e), due process, and 34 C.F.R. § 685.222 | Form notices are “final decisions” resolving claims and meet applicable procedural requirements | Court found substantial questions about legality of form denials and preliminarily treated them as potentially inadequate; merits to be litigated after discovery |
| Whether discovery outside the administrative record is warranted to probe agency pretext/bad faith | Plaintiffs argue the record and Department explanations are inconsistent with the Department’s conduct and denial rate, warranting supplementation and discovery | Department relies on the certified record and presumption of completeness; discovery is disfavored | EXPEDITED discovery ORDERED (limited scope, two months, written discovery + up to five depositions of relevant decisionmakers); supplementation allowed to test pretext |
| Whether the Department should be preliminarily enjoined from issuing further perfunctory denials while merits are litigated | Plaintiffs seek injunction to prevent irreparable harm from meaningless denials and to preserve meaningful review | Department opposes injunction; contends current process meets legal requirements and settlement timelines | COURT ordered both parties to SHOW CAUSE why the Department should NOT be enjoined; injunction decision deferred pending show-cause submissions and discovery |
Key Cases Cited
- Lane v. Facebook, Inc., 696 F.3d 811 (9th Cir. 2012) (class settlement fairness standard)
- Portland Audubon Soc. v. Endangered Species Comm., 984 F.2d 1534 (9th Cir. 1993) (incomplete administrative record may require supplementation or discovery)
- Department of Commerce v. New York, 139 S. Ct. 2551 (2019) (courts must refuse contrived agency explanations; record must reflect decisionmaking)
- Lands Council v. Powell, 395 F.3d 1019 (9th Cir. 2005) (bad-faith or pretextual agency action can justify consideration beyond the certified record)
- Public Power Council v. Johnson, 674 F.2d 791 (9th Cir. 1982) (circumstances permitting discovery against agencies)
- Klamath Water Users Prot. Ass’n v. Patterson, 204 F.3d 1206 (9th Cir. 1999) (federal common-law principles govern contracts with the United States)
- Calvillo Manriquez v. DeVos, 345 F. Supp. 3d 1077 (N.D. Cal. 2018) (prior preliminary injunction addressing Department’s partial-relief methodology)