Meaghan Bauer, Stephano Del Rose, and a coalition of nineteen states and the District of Columbia bring suit against the Department of Education under the Administrative Procedure Act ("APA"),
Within weeks of the issuance of the Section 705 Stay, Bauer and Del Rose (student borrowers who allege that they would benefit from the Borrower Defense Regulations) and the coalition of nineteen states and the District of Columbia filed separate suits seeking to invalidate the stay. Over the course of the last year, both sets of plaintiffs have amended their complaints to challenge the additional delay actions taken in October 2017 and February 2018. On March 1, 2018, the Court consolidated the student borrower and state cases, stayed the CAPPS case pending resolution of this case, and ordered a final round of summary judgment briefing.
The matter is now before the Court on cross-motions for summary judgment filed by the state plaintiffs, Dkt. 55, the student borrower plaintiffs, Dkt. 56, and the Department, Dkt. 58; Dkt. 59. In brief, the Court concludes that Plaintiffs have standing to challenge the delay actions; that the October 24, 2017 Interim Final Rule is based on an unlawful construction of the Higher Education Act of 1965; that the February 14, 2018 Final Delay Rule is procedurally invalid; that the Section 705 Stay is judicially reviewable; and that the Department's Section 705 Stay is arbitrary and capricious. The Court, accordingly, will GRANT the state plaintiffs' and the student borrower plaintiffs' motions for summary judgment, Dkt. 55; Dkt. 56, and will DENY the Department's cross-motion, Dkt. 66. Before entering a remedial decree, the Court will order the parties in this case and the parties and proposed intervenors in CAPPS v. DeVos , Civil Action No. 17-999, to appear for a status conference on September 14, 2018, at 10:30 a.m. in Courtroom 21.
I. BACKGROUND
A. Borrower Defense Regulations
Title IV of the Higher Education Act of 1965 ("HEA"),
Pursuant to these authorities, in January 1994, the Secretary issued "standards, criteria, and procedures governing the Federal Direct Student Loan ... program." Federal Direct Student Loan Program,
In December 1994, the Secretary amended the Direct Loan Program regulations, including those governing borrower defenses. See William D. Ford Federal Direct Loan Program,
The adequacy of the 1994 borrower defense rule was tested by "the collapse of Corinthian Colleges (Corinthian)" in May 2015. William D. Ford Federal Direct Loan Program ("June 16, 2016 Notice of Proposed Rulemaking ('NPRM')"),
To address these perceived deficiencies, the Department commenced a rulemaking. First, pursuant to its obligations under the HEA, it "obtain[ed] the advice of and recommendations
On November 1, 2016, the Department published the final regulations governing the Direct Loan Program. See id. at 75,926. In relevant part, the Borrower Defense Regulations: (1) revised the procedures for student borrowers seeking to discharge their federal loans as a result of school misconduct; (2) revised the processes for students seeking other forms of debt relief; (3) required "financially risky institutions [to be] prepared to take responsibility for the losses to the government for discharges of and repayments for [f]ederal student loans;" (4) expanded the disclosure obligations of institutions "at which the median borrower has not repaid in full, or made loan payments sufficient to reduce by at the least one dollar the outstanding balance of the borrower's loans received at the institution;" (5) altered the standard for students asserting a "borrower defense" to collection actions; (6) expanded the situations in which the Department could proactively forgive loans in groups, rather than upon individual applications; and (7) prohibited schools "participating in the Direct Loan Program from obtaining" or relying upon a borrower's "waive[r] [of] his or her right to initiate or participate in a class action lawsuit," or "from requiring students to engage in internal dispute processes before contacting accrediting or government agencies." Id. at 75,926 -27.
The Borrower Defense Regulations were set to take effect eight months later, on July 1, 2017.
B. California Association of Private Postsecondary Schools Litigation
The California Association of Private Postsecondary Schools is an industry group that represents schools subject to provisions of the Borrower Defense Regulations. CAPPS filed suit in this Court on May 24, 2017, alleging that four aspects of the regulations were unlawful. See Dkt. 1 at 69-75 (Compl. ¶ ¶202-41),
On June 2, 2017, CAPPS filed a motion for preliminary injunction. Dkt. 6, CAPPS , Civ. No. 17-999. The relief sought in that motion, however, was more limited than that sought in the complaint; CAPPS sought preliminarily to enjoin only the provision of the Borrower Defense Regulations prohibiting predispute arbitration clauses and class action waivers. Id. at 1. The Court set a briefing schedule, ordering the Department to file its opposition on or before June 15, 2017. Minute Entry (June 6, 2017), CAPPS , Civ. No. 17-999. On June 13, 2017, the same states that are plaintiffs in the present action moved to intervene as defendants in the CAPPS case and were soon followed by Bauer and Del Rose. Dkt. 16, Dkt. 22, Dkt. 31, CAPPS , Civ. No. 17-999. The day before the Department's opposition to CAPPS's motion was due, the Department notified the Court that it was in the process of staying the implementation of the entirety of the Borrower Defense Regulations under § 705 of the APA.
C. Present Action
On July 6, 2017, shortly after the Department issued its Section 705 Stay, Plaintiffs Meaghan Bauer and Stephano Del Rose filed the present action. Dkt. 1. Bauer and Del Rose attended New England Institute of Art ("NEIA"), a for-profit college. Dkt. 53 at 10 (Compl. ¶ 35).
The state plaintiffs include nineteen states and the District of Columbia. Dkt.
Although the state and student borrower plaintiffs initially challenged only the Section 705 Stay, over the course of the last year, they have amended their complaints to encompass challenges to additional agency actions delaying the effective date of the Borrower Defense Regulations. See Dkt. 25; Dkt. 53; see also Dkt. 46, Dkt. 80, Massachusetts v. DeVos , Civ. No. 17-1331. The Court discusses each of those agency actions in turn.
1. Section 705 Stay and Notice of Negotiated Rulemaking to Revise Borrower Defense Regulations
On June 16, 2017, the Department published a notice in the Federal Register delaying the effective date of the Borrower Defense Regulations "until the judicial challenges to the regulations are resolved."
The Department identified three factors in support of its conclusion that a delay was justified under § 705. First, it found value in "preserv[ing] the regulatory status quo," because the CAPPS "plaintiffs ha[d] raised serious questions concerning the validity of certain provisions of the final regulations and ha[d] identified substantial injuries that could result if the final regulations [went] into effect before those questions [were] resolved."
Second, the Department concluded that postponing the effective date of the Borrower Defense Regulations would cause "no significant harm" to the United States.
Finally, the Department stated, "[s]eparately," that it would be "announcing its plan to review and revise the regulations through the negotiated rulemaking process required under section 492 of the HEA."
That same day, the Department published notice of its intent to establish a negotiated rulemaking committee to revise the Borrower Defense Regulations. Negotiated Rulemaking Committee; Public Hearings ("June 16, 2017 Notice of Intent"),
2. October 24, 2017 Interim Final Rule and Notice of Proposed Rulemaking for Final Delay Rule
The next agency actions relevant to the pending motions occurred four months later, on October 24, 2017, when the Department published two documents. The first was an interim final rule delaying the effective date of the Borrower Defense Regulations until July 1, 2018, even if the Section 705 Stay was lifted before then.
The Department premised the Interim Final Rule on the "Master Calendar Provision" of the HEA,
The Department, however, did not simply rely on this November-July interval to justify the Interim Final Rule. Instead, it interpreted the Master Calendar Provision further to require that all "regulations promulgated under Title IV of the HEA have an effective date of July 1" so that institutions could "avoid incurring the costs of compliance on a rolling basis throughout the year." Id. at 49,116. In other words, under the Department's reading, the Master Calendar Provision allows applicable rules to take effect on only one day every year-July 1. Applied to the present circumstances, the Department posited that as soon as the Section 705 Stay delayed the effective date of the Borrower Defense Regulations beyond July 1, 2017, it lacked discretion to implement the regulations before July 1, 2018, even if the Section 705 Stay was lifted before that date. Id. The Department also relied on this reasoning to justify why it had good cause to forgo notice-and-comment and negotiated rulemaking; the Department concluded that because "it was impracticable" to do so between the initiation of the CAPPS litigation on May 24, 2017 and the July 1, 2017 effective date of the Borrower Defense Regulations, it "did not have any discretion to set an effective date earlier than July 1, 2018." Id.
On October 24, 2017, the Department also issued a notice of proposed rulemaking to further delay the effective date of the Borrower Defense Regulations to July 1, 2019.
Although the Department provided notice and an opportunity for comment on the proposed rule, it waived the negotiated rulemaking requirement of the HEA.
3. February 14, 2018 Final Delay Rule
On February 14, 2018, the Department issued a final rule delaying the effective date of the Borrower Defense Regulations until July 1, 2019. William D. Ford Federal Direct Loan Program ("Final Delay Rule"),
Responding to concerns that further delay would harm borrowers, the Department stated that, in its view, any costs of the delay were insignificant, and, in any event, "outweighed by the administrative and transaction costs for regulated entities and borrowers of having those regulations go into effect only to be changed a short while later."
The Department was also unpersuaded by commenters' procedural objections.
The NPRM explained that the original catalyst for the delay was the CAPPS litigation, filed on May 24, 2017, and that it would not have been possible for the Department to engage in negotiated rulemaking and [to] publish final regulations after that date (much less afterOctober 24, 2017, the date the NPRM was published), and prior to July 1, 2018 (the current effective date of the 2016 final regulations). Negotiated rulemaking on this discrete issue simply was not practicable. It is a time-consuming and resource-intensive process and could not practicably be completed by July 1, 2018.
4. Pending Motions for Summary Judgment
At the time the Final Delay Rule was published in the Federal Register, the parties in the then-separate actions pending before the Court had just completed a second round of summary judgment briefing that encompassed challenges to the Section 705 Stay and the Interim Final Rule. See, e.g. , Dkt. 50 (Department's Reply in Support of its Cross-Motion for Summary Judgment). Following the publication of the Final Delay Rule, Plaintiffs moved to amend their respective complaints, and the Court held a status conference with the parties in all three relevant actions (Civil Action No. 17-999, Civil Action No. 17-1330, Civil Action No. 17-1331). Although Plaintiffs sought to convert their then-pending motions for summary judgment into motions for partial summary judgment on the Section 705 Stay and Interim Final Rule, see, e.g. , Dkt. 52 (Borrower Plaintiffs' Motion to Convert), the Court instead denied the earlier motions as moot and ordered the parties to file renewed motions for summary judgment addressing all three delay actions. Minute Entry (Mar. 1, 2018); Minute Order (May 24, 2018). The Court also consolidated the two actions challenging the delay actions and stayed CAPPS's challenge to the Borrower Defense Regulations. Minute Entry (Mar. 1, 2018).
II. ANALYSIS
Plaintiffs seek to vacate the Section 705 Stay, the Interim Final Rule, and the Final Delay Rule. They assert that these regulatory actions were arbitrary and capricious, not in accordance with law, and taken without observance of the required procedures. Broadly, Plaintiffs argue that the Department impermissibly took these actions for the purpose of securing time to replace the Borrower Defense Regulations (functionally rescinding the earlier rule); that it did not adequately consider benefits to student borrowers lost through the delays; that it relied on internally inconsistent assumptions and omitted key considerations when justifying the delay rules; that it misinterpreted the HEA; and, that it failed to comply with the HEA's requirement that public consultation and negotiated rulemaking be conducted prior to the promulgation of rules affecting federal student
On the threshold question of standing, the Court concludes that it need not decide whether the state plaintiffs have carried their burden because, as the Department concedes and as the record demonstrates, the student borrower plaintiffs have standing to seek the entirety of the relief sought by all parties to the litigation. The Court then considers Plaintiffs' challenge to the Interim Final Rule-which expired on July 1, 2018-and concludes that it is moot, except for one issue, and, as to that issue, the Court concludes that the Department's interpretation of the Master Calendar Provision is contrary to law. Next, the Court examines Plaintiffs' substantive and procedural challenges to the Final Delay Rule and concludes that the Department failed to justify adequately its invocation of the good cause exception to the negotiated rulemaking requirement. Given that procedural flaw, the Court does not reach Plaintiffs' substantive challenges to the rule. Finally, the Court considers Plaintiffs' challenges to the Section 705 Stay and concludes that § 705 stays are subject to judicial review and that the Department failed to offer a reasoned basis to stay the implementation of the Borrower Defense Regulations.
A. Standing
"Article III limits federal judicial jurisdiction to cases and controversies." Chamber of Commerce v. EPA ,
The Department argues that the state plaintiffs lack standing to challenge the three delay actions. Dkt. 59-1 at 28-32. For purposes of resolving the pending motions, however, the Court need not reach that question. It is well-settled that, "[f]or each claim, if constitutional and prudential standing can be shown for at least one plaintiff, [the Court] need not consider the standing of the other plaintiffs to raise that claim." Mountain States Legal Found. v. Glickman ,
According to their complaint, Del Rose and Bauer attended a for-profit college in Massachusetts at different times between 2009 and 2014. Dkt. 53 at 10 (Compl. ¶ 35). They both borrowed more than $30,000 to finance their educations, and now owe more than $40,000 to the Department.
Bauer and Del Rose further allege that they "have also submitted 'borrower defense' applications to [the Department] seeking cancellation of their federal loans based on [their school's] fraud and other misconduct related to their education," and that these applications have now been pending for nearly three years. Id. at 12 (Compl. ¶ 45). If the delay rules challenged here were vacated and the Borrower Defense Regulations were allowed to take effect, Bauer and Del Rose would receive "significant new protections in the adjudication of their borrower defense applications," including "a fact-finding process" that involves additional records held by the Department and-in the event the applications were denied-written decisions including the bases for those decisions. Id. at 13 (Compl. ¶¶ 47-50). And, while those applications remain pending, Bauer and Del Rose would automatically have their loans
Bauer and Del Rose have supported these allegations with declarations detailing the misrepresentations allegedly made by their school, their efforts to sue in Massachusetts state court, and the status of their borrower defense applications. See Dkt. 56-2 at 1-5; Dkt. 56-3 at 1-6. They have also attached to their motion the demand letters sent to the school and the enrollment agreement that would be affected by the Borrower Defense Regulations. See Dkt. 562 at 7-19; Dkt. 56-3 at 9, 11-23. The Department has not contested that the student borrower plaintiffs would benefit from vacatur of the delay actions, nor has it called into question any of the facts that they have alleged.
In light of these undisputed facts, the Court concludes that the student borrower plaintiffs have carried their burden with respect to standing. The Department's delay actions have deprived Bauer and Del Rose of several concrete benefits that they would have otherwise accrued under the Borrower Defense Regulations. The relief they seek in this action-immediate implementation of the Borrower Defense Regulations-would restore those benefits. That suffices to demonstrate (1) an injury in fact (2) caused by the agency actions at issue (3) that would be redressed by a favorable decision. See Lujan ,
Finally, although neither party has raised the issue, the Court notes that Plaintiffs brought separate actions, which the Court then consolidated. Minute Entry (Mar. 1, 2018). In the cases cited above for the proposition that a single plaintiff's standing is sufficient, in contrast, the plaintiffs had joined together in bringing a single case. See Watt ,
Second, and more importantly, this Court must follow controlling precedent until it has been overruled by a court empowered to do so. See United States v. Torres ,
B. October 24, 2017 Interim Final Rule
Plaintiffs' challenge to the Interim Final Rule delaying the effective date of the Borrower Defense Regulations also poses a threshold, jurisdictional issue-this time, mootness. All agree that the Interim Final Rule delayed the effective date of the Borrower Defense Regulations until July 1, 2018, and that July 1, 2018 has now passed. The question, then, is whether this portion of Plaintiffs' challenge still presents an "actual, ongoing controvers[y]" sufficient to sustain Article III jurisdiction.
When confronted with similar circumstances, the D.C. Circuit and this Court have typically dismissed challenges to regulatory actions as moot once those actions have expired or have been overtaken by other regulatory actions. See Fund for Animals, Inc. v. U.S. Bureau of Land Mgmt. ,
This is, in many respects, a similar case. Vacatur of a delay rule that, by its own terms, no longer purports to affect the rights or obligations of the parties would be pointless. It would also be pointless to issue a declaratory judgment that the procedures used to adopt that interim rule were unlawful, both because the Department's justification for the particular procedures employed in promulgating the Interim Final Rule was premised on the specific factual circumstances at the time of the rule's adoption and because the agency actions now preventing the implementation of the Borrower Defense Regulations were adopted pursuant to different procedures. Compare Interim Final Rule,
But Plaintiffs' challenge to the Interim Final Rule does present one question with continuing consequences for Plaintiffs: Plaintiffs seek a declaratory judgment that the Department's interpretation of the Master Calendar Provision-the primary basis for the Interim Final Rule-was unlawful. Significantly, that interpretation was not limited to the Interim Final Rule; rather, the Department relied upon that interpretation of the Master Calendar Provision in the October 24, 2017 NPRM it issued that same day, and in the Final Delay Rule, which the Department issued in February 2018. In short, although announced in a rule that has now expired, the Department's interpretation of the Master Calendar Provision has carried through to a regulation that remains operative
That remaining live issue turns on the meaning of the HEA's Master Calendar Provision, which provides, in relevant part:
Except as provided in paragraph (2), any regulatory changes initiated by the Secretary affecting the programs under [Title IV of the HEA] that have not been published in final form by November 1 prior to the start of the award year [i.e., July 1] shall not become effective until the beginning of the second award year after such November 1 date.
Although one can imagine considerable debate about the meaning of "a regulatory change" for purposes of the first of these conclusions,
The Department's arguments to the contrary are unpersuasive. The Department contends that the title of the Master Calendar Provision-"Delay of effective date of late publications,"
The Department also purports to find textual ambiguity "in the statute's inclusion of both the word 'until,' ... and the phrase 'beginning of the [award year].' " Dkt. 58-1 at 68. According to the Department, "Plaintiffs' interpretation [of the Master Calendar Provision] renders the words 'beginning of the' superfluous," and thus-at a minimum-gives rise to a statutory ambiguity.
The Department's description of its longstanding practice is also unhelpful. The Department, admittedly, has a history of setting effective dates on July 1. But that history does not show that the July 1 date is required by statute ; rather, it merely shows that the Department has -for pragmatic or other reasons-used that date in the past. The one example that the Department offers to counter this understanding is unconvincing. See Dkt. 59-1 at 63. In that case, the Department declined to extend the comment period for final regulations combatting "troubling practices" in the "student financial products marketplace." Program Integrity and Improvement,
Finally, the Department's claim that its interpretation is entitled to Chevron deference fails for two reasons. First, agency interpretations are not entitled to deference where the "intent of Congress is clear." Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc. ,
The Court, accordingly, concludes that the plain meaning of the HEA precludes the Department's reading of the Master Calendar Provision to require that all new regulations take effect on July 1. See Chevron ,
C. February 14, 2018 Final Delay Rule
Plaintiffs raise both procedural and substantive challenges to the February 14, 2018 Final Delay Rule. Because the Court concludes that the Department improperly invoked the good cause exception to the HEA's requirement for negotiated rulemaking, there is no need to reach Plaintiffs' substantive challenges.
All agree that the Department's Final Delay Rule was subject to the HEA's negotiated rulemaking requirement unless the Department established "good cause" for waiving the requirement in its October 24, 2017 NPRM. See
All regulations pertaining to [Title IV of the HEA] ... shall be subject to a negotiated rulemaking (including the selection of the issues to be negotiated), unless the Secretary determines that applying such a requirement with respect to given regulations is impracticable, unnecessary, or contrary to the public interest (within the meaning ofsection 553(b)(3)(B) of Title 5 ) and publishes the basis for such determination in the Federal Register at the same time as the proposed regulations in question are first published.
20 U.S.C. § 1098a(b)(2). Citing to this requirement, the Department concluded that it had good cause to waive negotiated rulemaking for the Final Delay Rule because "it would not be practicable, before [the then-operative] July 1, 2018 effective date" of the Borrower Defense Regulations to "engage in negotiated rulemaking and publish final regulations." October 24, 2017 NPRM,
In determining whether good cause exists to dispense with negotiated rulemaking under the HEA, the Department is required to apply the same legal standard that applies to waiving the notice and comment requirement under the APA. To be sure, as the Department argues, the application of that standard may yield different results under the APA than under the HEA because negotiated rulemaking is more time consuming than notice and comment. See Dkt. 58-1 at 61. But, in both cases, the standard itself-whether "good cause" exists to find that compliance with the usual process is "impracticable, unnecessary, or contrary to the public interest,"
The D.C. Circuit has repeatedly observed that "the good cause exception" to the APA "is to be narrowly construed and only reluctantly countenanced." Mack Trucks, Inc. v. EPA ,
The Department's invocation of the good cause exception to the negotiated rulemaking requirement did not come close to satisfying this demanding standard. As the HEA makes clear, and as the Department acknowledged in the October 24, 2017 NPRM, the waiver provision requires the Department to set forth "the basis for" its determination that good cause exists "at the same time" that that the "proposed regulations in question are first published."
For the reasons stated above, it would not be practicable, before the July 1, 2018 effective date specified in the [Interim Final Rule], to engage in negotiated rulemaking and publish final regulations. There is, therefore, good cause to waive negotiated rulemaking pertaining to this delay.
Given that the first negotiated rulemaking session is scheduled for November 13-15, 2017, we cannot complete the negotiated rulemaking process and the development of revised regulations by November 1, 201[7].12 Under the master calendar, a regulatory change that has been published in final form on or before November 1 prior to the start of an award year-which begins on July 1 of any given year-may take effect only at the beginning of the next award year, or in other words, on July 1 of the next year. In light of this requirement, the regulations resulting from negotiated rulemaking could not be effective before July 1, 2019.
Id. at 49,156. Even liberally construed, this explanation for waiving the negotiated rulemaking requirement fails on multiple levels.
First , the October 24, 2017 NPRM addressed the wrong regulatory action for purposes of waiving the negotiated rulemaking requirement. The HEA, unsurprisingly, requires the Department to state in the relevant notice of proposed rulemaking why it cannot practicably comply with the negotiated rulemaking requirement "with respect to" that rulemaking . 20 U.S.C. § 1098a(b)(2). The Department's October 24, 2017 NPRM, however, said nothing about whether it had sufficient time to comply with the negotiated rulemaking requirement "with respect to" the Final Delay Rule. To the contrary, the only discussion addressed the time the Department needed to finalize its revisions, if any, to the Borrower Defense Regulations. See October 24, 2017 NPRM,
The Department confronts this problem in its briefing before this Court and attempts to find an implicit finding of "good cause" to dispense with the negotiated rulemaking requirement. The Department asserts: "It would make little sense ... to
Second , the October 24, 2017 NPRM did not identify any "emergency" or "serious harm" that would result absent a waiver. Jifry ,
Nor can the Department's subsequent efforts to supplement the October 24, 2017 NPRM save the rule. Each of these efforts fails either because the required findings were not included in the proposed delay rule, as required by the HEA, 20 U.S.C. § 1098a(b)(2), or because they constituted post hoc justifications that appeared nowhere in the administrative record, Chenery ,
The Department also posited in the Final Delay Rule that regulated parties should not have to bear the costs of complying with the Borrower Defense Regulations when those regulations might be rescinded or "changed a short while later." Final Delay Rule,
The Final Delay Rule did identify at least one actual cost, albeit in discussing the merits of the delay rule rather than the good cause exception. Specifically, the Final Delay Rule asserted: "[t]he Department thinks it is likely that the arbitration and class action waiver provision will be overturned" in the CAPPS litigation and that allowing that provision to take effect would sow "significant confusion [among] borrowers and schools who may have engaged in court litigation on the basis of the prohibitions as to the enforceability of those agreements." Final Delay Rule,
Without that example of an actual cost the Department arguably avoided by dispensing with the negotiated rulemaking requirement, the Department did little more than pay lip service to the good cause requirement. It merely asserted that allowing a rule to take effect, only to change the rule a year or so later, would "lead to a great deal of confusion and difficulty for borrowers and schools alike." Final Delay Rule,
The Court, accordingly, concludes that the Final Delay Rule was procedurally defective because it improperly invoked the good cause exception to the HEA's negotiated rulemaking requirement.
D. Section 705 Stay
Plaintiffs also challenge the Department's invocation of
1. Reviewability
The Department first argues that judicial review of its Section 705 Stay "is unavailable because" § 705"commits to agency discretion the decision to postpone an effective date pending judicial review." Dkt. 58-1 at 28-32. The Department is correct that, when a "statute is drawn so that a court would have no meaningful standard against which to judge the agency's exercise of discretion," the agency's action taken pursuant to that statute is unreviewable. Chaney ,
The APA permits aggrieved parties to seek judicial review of final agency actions for which there is no other adequate judicial remedy. Chaney ,
In the Department's view, § 705 constitutes one of these "rare instances" for five reasons-four based on the text of § 705 and the fifth based on structure of the APA. The text of § 705 provides:
When an agency finds that justice so requires, it may postpone the effective date of action taken by it, pending judicial review. On such conditions as may be required and to the extent necessary to prevent irreparable injury, the reviewing court, including the court to which a case may be taken on appeal from or on application for certiorari or other writ to a reviewing court, may issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve status or rights pending conclusion of the review proceedings.
Most of the Department's textual arguments are foreclosed by the D.C. Circuit's decision in Dickson v. Secretary of Defense ,
First, the Court of Appeals rejected the government's contention that Congress's use of the word "may"-as opposed to "shall"-signaled an intent to commit the relevant action to the agency's discretion.
The Dickson decision also undermines the Department's reliance on the "agency finds" and "justice so requires" language in § 705. Again, the language at issue in Dickson -if the Board "finds it to be in the interest of justice"-parallels the language at issue here.
The Department's remaining arguments fare no better. Pressing its final textual argument, the Department observes that § 705 describes the standard applicable to judicial stays in different terms and argues that, by distinguishing "between agency action and court action," Congress "commit[ed] each exclusively to the province of the entity taking action." Dkt. 58-1 at 31. But the Department offers no explanation for why the difference in language-short of the reasons rejected above-shows that Congress intended to commit the decision whether to grant a stay "exclusively to the province of" the agency or the court. Nor does the fact that Congress provided both agencies and courts with the authority to stay regulations pending judicial review support the Department's view. To the contrary, as the D.C. Circuit concluded in rejecting a similar argument regarding the Clean Air Act, "[g]iven that Congress granted [courts] the power to enter a stay, it seems quite anomalous that it did not also confer upon [courts] the lesser power to review the [agency's] decision to issue a stay." Clean Air Council v. Pruitt ,
Any remaining doubt regarding the reviewability of administrative stay decisions is put to rest by the fact that, despite the Department's arguments to the contrary, a "judicially manageable standard[ ] [is] available for judging how and when an agency should exercise its discretion." Chaney ,
The Court, accordingly, concludes that § 705 stays are subject to judicial review.
2. Standard for Invoking Section 705
The next question is what standard an agency must apply in deciding whether to issue a stay pursuant to § 705 ? The parties agree that § 705 authorizes both "court[s]" and "agenc[ies]" to grant stays pending judicial review, see
Plaintiffs contend that the Department's failure to apply the preliminary injunction test constitutes a legal error that renders the Section 705 Stay arbitrary and capricious. Dkt. 55-1 at 37; Dkt. 56 at 36. According to Plaintiffs, the text of § 705, its legislative history, and this Court's precedent all support the conclusion that courts and agencies are bound to apply the same standard. Dkt. 55-1 at 31-37; Dkt. 56 at 36-41. The Department, on the other hand, argues that nothing found in the text of § 705, or in any source, requires that agencies apply the judicially fashioned four-part test. Dkt. 58-1 at 38-39. Rather, in the Department's view, § 705 authorizes agencies to issue a stay when "justice so requires,"
As an initial matter, the Court agrees with the Department that, absent good cause, courts must avoid "engrafting their own notions of proper procedures upon agencies." Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def. Council ,
Likewise, neither the legislative history of § 705 nor other agencies' practices compels the conclusion that the judicially crafted four-factor test necessarily applies to administrative stay determinations. The Senate Report that Plaintiffs cite describes the purpose of § 705 as follows:
This section [ § 705, formerly5 U.S.C. § 1009 (d) ] permits either agencies or courts, if the proper showing be made, to maintain the status quo .... The authority granted is equitable and should be used by both agencies and courts to prevent irreparable injury or afford parties an adequate judicial remedy.
APA, Pub. L. 1944-46, S. Doc. No. 248, at 277 (1946). Although this language confirms that courts and agencies are granted the same "equitable" authority to "maintain the status quo,"
On the other hand, and despite the Department's arguments to the contrary, the text and legislative history of § 705do provide the Court with a framework for reviewing whether an agency's determination that a stay is "require[d]" in the interests of "justice" was arbitrary and capricious. Section 705 does not permit the Department to make its own untethered assessment of what is "just." To begin, although the language differs in minor detail, the judicial and administrative authority to grant a stay is found in a single statutory provision that addresses a single topic-"relief pending review."
Most significantly, the relevant equitable considerations are not free-floating but, rather, must be tied to the underlying litigation. Section 705 expressly provides that an agency may "postpone the effective date of [agency] action ... pending judicial review ."
The answer lies in the purpose of a § 705 stay: unlike a rulemaking, which triggers notice and comment procedures, see
Finally, to justify a stay under § 705, an agency must do more than pay "lip service" to the pending litigation, Sierra Club ,
3. Substantive Defects
Applying this standard, the Court concludes that the Department's invocation of § 705 was arbitrary and capricious. The Department offered three rationales: the CAPPS litigation raised "serious questions" about the validity of the Borrower Defense Regulations; the delay would not cause the government any significant harm; and the Department was, in any event, reconsidering the regulations. Section 705 Stay,
The Department first posited in the Section 705 Stay that the plaintiff in the CAPPS case "raised serious questions concerning the validity of certain provisions of the final regulations and [has] identified substantial injuries that could result if the final regulations go into effect before those questions are resolved." Id. The Department then provided two examples in support of this conclusion. First, it asserted that "if the final regulations are not postponed, institutions ... would be required, as of July 1, 2017, to modify their contracts in accordance with the arbitration and class action waiver regulations, which may be contrary to their interests." Id. "Postponing the final regulations," would, in the Department's view, allow schools to avoid that cost "while the regulation is subject to judicial review." Id. Second, it pointed out that, "if the final regulations are not postponed, institutions would be subject to financial responsibility trigger provisions that could impose substantial costs." Id.
The mere fact that parties would avoid the costs of complying with the existing regulations, however, is plainly insufficient
As an initial matter, the Department failed to justify the scope of the Section 705 Stay. Although it covers twenty-two sections of the Borrower Defense Regulations, the Department never identifies whether a few, many, or all of these sections rest on legally questionable footing. The notion that the Department needed to stay the effective date of all twenty-two of these provisions-while exempting a handful of ministerial provisions-moreover, is difficult to square with the fact that CAPPS itself sought a preliminary injunction only with respect to the arbitration and class action provision. Dkt. 6, CAPPS , Civ. No. 17-999. Although the Department was not required to apply the four-factor test that courts apply, it was required to apply something akin to it-some standard that ties the stay to ensuring that the outcome of the pending litigation affords the parties adequate and just relief and that balances the relevant equities. The Department, however, offers no explanation for why it was necessary to stay twenty-two sections of the final rule.
Moreover, the provisions of the Borrower Defense Regulations that the Department did identify are, at best, mentioned only in a perfunctory manner. The Department observed, in passing, that "if the final regulations are not postponed, institutions would be subject to financial responsibility trigger provisions that could impose substantial costs," Section 705 Stay,
The problem with the Department's serious-legal-questions rationale, however, runs deeper than this. As with the Final Delay Rule, the Department failed to acknowledge, much less to address, the inconsistency between its current view that those provisions stand on legally questionable footing, and its prior conclusion that they were legally sound. While the Borrower Defense Regulations were under consideration, "[s]everal commenters objected that the Department lack[ed] the legal authority to ban either mandatory predispute arbitration agreements or class action waivers." Borrower Defense Regulations,
The Department does not dispute that the position it took in the Section 705 Stay is at odds with the position it took when it promulgated the Borrower Defense Regulations. It argues, however, that a Section 705 Stay is "a purely procedural device" that does not "effectuate[ ] a substantive change in agency policy," and thus "the Department was not required to 'display awareness that it is changing position and provide [a] reasoned explanation.' " Dkt. 58-1 at 43. Because a Section 705 Stay is temporary in nature, is often issued on short notice, and is not a substantive rule requiring notice and comment, the Court is prepared to assume-without deciding-that a less demanding standard of review should apply. But the Department's argument still goes too far, and, in effect, rehashes its contention that § 705 stays lie beyond the reach of judicial review. The unacknowledged and unexplained inconsistency that Plaintiffs raise here could not be more apparent or more central to the Department's decision. Commenters argued that the Department lacked legal authority to issue the arbitration and class action waiver ban; the Department considered those objections in detail and concluded that it had the legal authority; and,
The Department's remaining two rationales fare no better. In the Department's view, the Section 705 Stay was also appropriate because "the United States would suffer no significant harm from postponing the effectiveness of the final regulations while the litigation is pending," and, indeed, postponing the effective date would allow the federal government and taxpayers to avoid "significant costs." Section 705 Stay,
The Court, accordingly, concludes that the Department's rationale for issuing the Section 705 Stay is arbitrary and capricious.
D. Remedies
Plaintiffs contend that the appropriate remedy with respect to both the Final Delay Rule and the Section 705 Stay is immediate vacatur. Dkt. 55-1 at 79; Dkt. 56 at 72. They correctly note that, when a court concludes that a rule is unlawful, "the practice ... is ordinarily to vacate the rule," Ill. Pub. Telecomms. Ass'n v. FCC ,
CONCLUSION
The Court will GRANT the state plaintiffs' and student borrower plaintiffs' motions for summary judgment, Dkt. 55; Dkt. 56, and will DENY the Department's cross-motion for summary judgment, Dkt. 66. It is further ORDERED that the parties shall appear for a status conference on
Notes
Pursuant to the HEA, "[a]ll regulations pertaining to" the federal direct loan programs at issue here are "subject to [this] negotiated rulemaking (including the selection of the issues to be negotiated), unless the Secretary determines that applying such a requirement with respect to given regulations is impracticable, unnecessary, or contrary to the public interest (within the meaning of section 553(b)(3)(B) of [the APA] )." 20 U.S.C. § 1098a(b)(2).
Although this is actually section 10(d) of the APA, the Court adopts the convention of referring to the provisions of the APA by their sections in title 5 of the U.S. Code. See Trudeau v. FTC ,
Although the operative complaint filed by Bauer and Del Rose is in fact their second amended complaint, for ease of reference, the Court simply refers to that pleading as the complaint.
As with the student borrower plaintiffs, the Court refers to the state plaintiffs' second amended complaint as the complaint for ease of reference. Although the student borrower and state cases have now been consolidated, the Court will reference the Civ. No. 17-1331 matter when referring to documents filed by state plaintiffs prior to the consolidation.
The Department, however, did permit several ministerial provisions of the Borrower Defense Regulations to take effect on July 1, 2017:
We do not intend to postpone the effectiveness of the regulatory provisions published in 75[,]926 which: (1) Expand the types of documentation that may be used for the granting of a discharge based on the death of the borrower; (2) amend the regulations governing the consolidation of Nursing Student Loans and Nurse Faculty Loans so that they align with the statutory requirements of section 428C(a)(4)(E) of the HEA; (3) address severability; and (4) make technical corrections.
William D. Ford Federal Direct Loan Program,
As in the case of the Section 705 Stay, the Interim Final Rule exempted certain provisions of the Borrower Defense Regulations from the delay. In particular, the Department exempted each of the provisions that the Section 705 Stay had previously allowed to become effective, in addition to the portions of the Borrower Defense Regulations amending the regulations governing "Direct Consolidation Loans to allow a borrower to obtain a Direct Consolidation Loan regardless of whether the borrower is also seeking to consolidate a Direct Program or FFEL [Federal Family Education] loan, if the borrower has a loan type identified in 34 C.F.R. 685.220(b)." Interim Final Rule,
As with the other delay actions, the Department stated its intent to exempt a handful of ministerial provisions of the Borrower Defense Regulations from the delay. William D. Ford Federal Direct Loan Program,
To the extent the state plaintiffs seek attorney's fees and costs, the Court would, presumably, need to address their standing in that separate context.
To take one example, which is discussed further below, the Department seems to take the view that the change of the effective date of a Title IV rule, although typically subject to notice and comment rulemaking, is not "a regulatory change" for purposes of the Master Calendar Provision.
When used as a conjunction, there are times when the word "until" at least comes closer to specifying a particular point in time-e.g. , "the game continued until it got dark," Webster's Third New International Dictionary 2513 (1993)-but, even then, the word means "up to the time that," id. , not "only on, and not after." In any event, "until" is used as a preposition, not as a conjunction, in the Master Calendar Provision.
That the Department now contends the Master Calendar Provision is ambiguous, Dkt. 59-1 at 51-52, is irrelevant. What matters for present purposes is the explanation the Department gave during the regulatory process. See FCC v. Fox Television Stations, Inc. ,
The agency's notice states "November 1, 2018." October 24, 2017 NPRM,
Although student borrowers can rely on the 1994 borrower defense rule, the Department did not consider the harm they would sustain from being denied the benefits of the new regulations, which were promulgated to address deficiencies that the Department itself found in the old rule. The Department's assertion that "the postponement of the final regulations will not prevent student borrowers from obtaining relief ... under existing regulations," Section 705 Stay,