United Student Aid Funds, Incorporated v. Duncan
237 F. Supp. 3d 1
| D.D.C. | 2017Background
- United Student Aid Funds, Inc. (USAF) sued the Department of Education (DOE) challenging a 2015 Dear Colleague Letter that barred guaranty agencies from assessing costs on borrowers who rehabilitate loans within 60 days of notice.
- The suit alleges the Letter (1) changed DOE’s prior practice and (2) conflicted with the Higher Education Act and DOE regulations; claims are brought under the Administrative Procedure Act (APA).
- At the motion-to-dismiss stage the court held USAF plausibly alleged procedural APA violations and declined to rule on the substantive merits pending resolution of factual questions about whether the Letter constitutes a new rule.
- USAF moved to admit 15 extra-record declarations showing (a) an industry practice of charging costs for rehabilitations within 60 days, (b) DOE’s acquiescence to that practice, and (c) industry reliance on DOE inaction.
- DOE opposed extra-record evidence; the court reviewed D.C. Circuit precedent limiting such supplementation but concluded the administrative record lacked industry- and reliance-focused facts necessary to determine whether the Letter changed agency policy and whether DOE considered reliance interests.
- The court granted USAF’s motion to add the extra-record declarations, finding a gross procedural deficiency in the administrative record that precludes effective APA review and directing the parties to propose a summary-judgment schedule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether court may consider extra-record evidence in APA review | Extra-record declarations are needed because DOE failed to examine relevant factors and adequately explain the Letter; procedural validity remains in serious question | Administrative record suffices because the Letter merely restates/clarifies existing rules; extra-record evidence unnecessary and self-interested | Court allowed extra-record evidence: record lacks industry practice and reliance facts and shows a gross procedural deficiency preventing effective review |
| Whether the Dear Colleague Letter is a "new rule" requiring reasoned explanation and consideration of reliance | The Letter departs from longstanding industry practice and DOE’s prior acquiescence; change would require explanation and consideration of reliance | DOE asserts Letter is clarification, not a change, and courts should defer if not arbitrary or capricious | Court held determination whether Letter is a new rule cannot be made from the record; extra-record evidence necessary to decide whether DOE changed position and must explain it |
| Whether agency receives deference if it failed to acknowledge or explain change | If DOE changed position without acknowledging/explaining it, its interpretation receives no Chevron/Auer deference | DOE contends court should accept agency characterization of Letter and afford deference unless arbitrary or capricious | Court: failure to acknowledge/explain change precludes deference; cannot assess deference level until factual question of change is resolved |
| Whether consideration of extra-record evidence would create burdensome precedent | USAF: admission is limited to narrow exception where procedural validity remains in serious question | DOE: permitting such evidence forces agencies to survey industry practice whenever they clarify rules | Court: consideration here aligns with Supreme Court’s requirement to account for reliance; ruling does not create undue new burden |
Key Cases Cited
- Hill Dermaceuticals, Inc. v. Food & Drug Admin., 709 F.3d 44 (D.C. Cir. 2013) (district courts may consult extra-record evidence where procedural validity remains in serious question)
- CTS Corp. v. Envtl. Prot. Agency, 759 F.3d 52 (D.C. Cir. 2014) (limits on exceptions to the administrative-record rule; extra-record evidence appropriate for serious procedural questions)
- Esch v. Yeutter, 876 F.2d 976 (D.C. Cir. 1989) (identified multiple circumstances where extra-record evidence may be considered)
- IMS, P.C. v. Alvarez, 129 F.3d 618 (D.C. Cir. 1997) (narrowed appropriate circumstances for extra-record evidence)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (agency must supply reasoned analysis for a changed policy)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016) (agency must display awareness of and provide good reasons for changed positions and consider reliance interests)
- Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156 (2012) (agency change can produce unfair surprise to regulated parties)