200 F. Supp. 3d 163
D.D.C.2016Background
- In July 2015 the Department of Education issued a Dear Colleague Letter (DCL) stating guaranty agencies may not assess collection costs on borrowers who enter into and comply with a rehabilitation/repayment agreement within 60 days of notice of default.
- Plaintiff USA Funds, a guaranty agency, sued under the APA arguing the DCL conflicts with the Higher Education Act and agency regulations and was issued without required APA procedures.
- USA Funds alleges longstanding industry practice and Departmental acquiescence: guaranty agencies historically charged such collection costs and the Department audited agencies without objecting.
- The Seventh Circuit, in Bible v. USA Funds, addressed the same legal question; the Secretary filed an amicus brief supporting a prohibition and a two-judge majority applied or deferred to the Secretary’s interpretation.
- The district court, deciding a Rule 12(b)(6) motion with allegations accepted as true, found USA Funds plausibly pleaded the DCL announced a new rule and that the DCL failed to acknowledge or reasonably explain any change—so APA procedural claims could proceed.
- The court denied Defendants’ motion to dismiss, concluded the new-rule determination is a factual question requiring the administrative record and summary-judgment briefing, and rejected issue-preclusion based on Bible because USA Funds lacked a full and fair opportunity there to litigate APA procedure and deference issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the DCL announce a new rule (a change from prior agency position/acquiescence)? | DCL is a de facto new regulation that departs from decades-long practice and Dept. acquiescence | DCL reflects the Department’s interpretation of existing law, not a change | Court: Allegations plausibly show a changed position; factual issue for summary judgment |
| Did the Department comply with APA procedural requirements when issuing the DCL? | Dept. neither acknowledged a change nor provided a reasoned explanation or considered reliance interests | Dept. followed permissible interpretive guidance practice | Court: Plausible APA procedural violation; cannot resolve on motion to dismiss |
| Is the Department’s interpretation entitled to Auer/Chevron deference? | No—if the DCL is a new rule issued without APA procedural compliance, no deference is owed | Yes—the Secretary’s interpretation of ambiguous regulations merits deference | Court: Deference question depends on APA-procedure facts; cannot decide at pleading stage |
| Does the Seventh Circuit decision in Bible preclude relitigation here (issue preclusion)? | Bible did not adjudicate APA-procedure and USA Funds lacked a full and fair opportunity to develop the administrative record | Bible’s adverse result should bar relitigation of the same legal issue | Court: Preclusion would be unfair; rejected Defendants’ claim of issue preclusion |
Key Cases Cited
- Am. Trucking Ass’ns, Inc. v. Atchison, T. & S.F.R. Co., 387 U.S. 397 (general proposition that agencies may change rules)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (agency must supply reasoned analysis for changes)
- Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156 (agency departure after long acquiescence defeats Auer deference)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (agency must acknowledge change and consider reliance interests)
- Auer v. Robbins, 519 U.S. 452 (deference to agency interpretations of its own ambiguous regulations)
- FCC v. Fox Television Stations, Inc., 556 U.S. 502 (reasoned explanation standard for policy change)
- Bible v. United Student Aid Funds, Inc., 799 F.3d 633 (7th Cir. decision addressing whether collection costs may be charged; agency amicus and deference played central role)