UNITED STUDENT AID FUNDS, INC., Plaintiff, v. John B. KING, Jr., Secretary of the U.S. Department of Education, et al., Defendants.
Civil No. 15-cv-01137 (APM)
United States District Court, District of Columbia.
Signed 08/05/2016
Amit P. Mehta, United States District Judge
500 documents per month that OMB is reviewing in response to Plaintiffs’ FOIA request. In light of the foregoing, the Court finds that OMB has demonstrated due diligence in processing Plaintiff‘s FOIA request and that OMB is making “reasonable progress” in reducing the backlog of FOIA requests. See
Finally, the Court notes that OMB has not specified the length of time for which they seek an Open America stay. The Court notes that as of the date of this Memorandum Opinion, OMB has reviewed approximately 2,000 of the 4,900 emails identified as potentially respоnsive to Plaintiffs’ request. At OMB‘s current rate of reviewing 500 emails per month, it is expected that OMB will complete its review of the emails at issue within the next six months. Accordingly, the Court shall grant OMB a stay of six months, until January 25, 2017.
In the interim, OMB shall continue to review 500 documents per month and shall produce any responsive documents each month until it has produced all responsive documents that it has gathered. As stated in OMB‘s Status Report dated March 9, 2016, OMB shall exclude attachments to emails from the search for responsive documents, without prejudice to Plaintiffs’ right to receive within 60 days the responsive attachments, subjeсt to applicable FOIA exemptions, upon request following Plaintiffs’ review of the email(s) to which they were attached. See Defs.’ Status Report (Mar. 9, 2016), ECF No. [14]. In the event that Plaintiffs request that OMB provide a Vaughn Index for any documents produced prior to OMB completing production of all responsive documents, OMB shall provide Plaintiffs with a Vaughn Index within a reasonable period of time, not more than 60 days, following such request.
Finally, the Court shall require OMB to file a status report with the Court on or before September 23, 2016—60 days after the filing of this Memorandum Opinion—regarding OMB‘s progress in processing Plaintiffs’ FOIA request. The Court shаll also require OMB to file a second status report with the Court on or before December 22, 2016—90 days after the first status report—regarding OMB‘s progress in processing Plaintiffs’ FOIA request.
IV. CONCLUSION
For the foregoing reasons, the Court shall GRANT Defendants’ [23] Motion for an Open America stay and shall DENY the relief requested by Plaintiffs in their [16] Motion for Scheduling Order.
An appropriate Order accompanies this Memorandum Opinion.
Caroline Lewis Wolverton, U.S. Department of Justice, Washington, DC, for Defendants.
MEMORANDUM OPINION AND ORDER
Amit P. Mehta, United States District Judge
On July 10, 2015, the United States Department of Education issued a “Dear Colleague
Plaintiff United Student Aid Funds, Inc., is a guaranty agency. It challenges the Department‘s conclusion in the Dear Colleague Letter in two general respects. First, it argues that the announced prohibition on assessing collection costs conflicts with both the Higher Education Act and its implementing regulations. Second, it contends that the manner in which the Department issued the Dear Colleague Lеtter violated certain procedural requirements imposed by the Administrative Procedure Act.
A common issue rests at the heart of both of these challenges: Did the Dear Colleague Letter announce a “new rule“? Or, more precisely, did the Department switch from allowing guaranty agencies to assess collection costs to barring that very practice? Two important legal consequences flow from the answers to those questions. If the Dear Colleague Letter is a new rule, the Administrate Procedure Act requires the Department to have acknowledged its changed рosition and to have provided a good reason for the change. If the Department failed to abide by those procedural requirements, this court would owe no deference to the agency‘s interpretation of its own regulations. On the other hand, if the Dear Colleague Letter did not announce a new rule, then the agency‘s interpretation of its own regulations would be entitled to deference.
Unlike most Administrative Procedure Act cases, this matter comes to the court on a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). As a result, also unlike most Administrative Procеdure Act cases, the court does not have the benefit of an administrative record that evidences the agency‘s decisionmaking process. It has only the Dear Colleague Letter itself and the parties’ legal arguments.
A second consequence of the case‘s present posture is the lens through which the court must view Plaintiff‘s Complaint. The court must accept Plaintiff‘s factual allegations as true and grant Plaintiff the benefit of all inferences that can be derived from those allegations. Here, Plaintiff has alleged that prior to the Department‘s issuance of the Dear Cоlleague Letter, the Department had not interpreted the Higher Education Act to prohibit charging collection costs to any class of defaulted borrowers; that guaranty agencies had long assessed such costs to defaulted borrowers who entered into repayment agreements; and that the Department had been aware of and acquiesced in this industry practice, as evidenced by the lack of enforcement actions or contrary guidance.
Accepting those allegations as true and granting Plaintiff the benefit of all inferences derived therefrom, the court concludes that Plaintiff has sufficiently pleaded that the Dear Colleague Letter created
In the end, however, the merits of this case cannot be resolved on a motion to dismiss. Instead, the court first must resolve the factual question of whether the Dear Colleague Letter announced a new rule. That factual question can be resolved only on a motion for summary judgment, after the parties have presented the administrative record and any additional facts. Accordingly, as further explained below, the court denies Defendants’ Motion to Dismiss in its entirety.
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The Higher Education Act of 1965,
FFELP and its implementing regulations set forth a complex structure that governs numerous distinct relationships, transactions, and circumstances that arise in the universe of student loans. This case, however, focuses on one narrow piece of that universe—the relationship and transactions between defaulted borrowers and guaranty agencies—and on one particular circumstance—when a defaulted borrower enters into a “rehabilitation agreement” with a guaranty agency promptly after default, and proceeds to comply with that agreement. Narrower still, it raises only one discrete question about that circumstance: Can a guaranty agency impose collection costs on the aforementioned subclass of defaulted borrowers? See Compl., ECF No. 1, at ¶¶ 4, 7 (“[T]he Department stated for the very first time that guaranty agencies ‘may not’ assess collection costs to defaulted borrowers in certain circumstances, namely, when a defaulted borrower enters into a rehabilitation agreement within sixty days of notice of default, and complies with that agreement. ... USA Funds seeks an order from this Court declaring th[аt new rule] invalid, unenforceable, and contrary to law.“); Defs.’ Mot. to Dismiss, ECF No. 6 [hereinafter Defs.’ Mot.], at 1 (“Plaintiff ... challenges the Department‘s] ... interpretation of its own regulations governing when a guaranty agency may charge collection costs to a student loan borrower who enters
The Court of Appeals for the Seventh Circuit recently addressed that precise question in a case brought against Plaintiff United Student Aid Funds (“USA Funds“), Bible v. United Student Aid Funds, Inc., 799 F.3d 633 (7th Cir.2015) reh‘g denied, 807 F.3d 839 (7th Cir. 2015), cert. denied, ___ U.S. ___, 136 S.Ct. 1607, 195 L.Ed.2d 241 (2016). Bible was not brought under the Administrative Procedure Act (“APA“),
The case then proceeded to the Seventh Circuit. On appeаl, the Seventh Circuit asked the Secretary of Education, which had not participated in the trial court proceedings, to file an amicus brief addressing “whether and under what circumstances the ... Act, as amended, and its regulations allow a guaranty agency participating in [FFELP] to assess collection costs against a first-time defaulted borrower who (1) timely enters into a rehabilitation agreement with the guarantor upon receiving notice that the guarantor has paid a default claim and (2) complies with that agreement.” Bible v. USA Funds, Inc., No. 14-cv-1806, ECF No. 34, at 2 (7th Cir. Jan. 28, 2015); see also Bible, 799 F.3d at 643 (“After oral argument, we invited the Secretary of Education to file an amicus briеf addressing his interpretation of the relevant statutory framework and federal regulations.“).
On August 18, 2015, the Seventh Circuit issued a divided opinion reversing the trial court‘s decision. The panel majority opinion was written by Judge Hamilton, who elected to “apply the Secretary[‘s] ... interpretation of the applicable statutes and regulations ... that a guaranty agency may not impose collection costs on a borrower who is in default for the first time but who has timely entered into and complied with an alternative repayment agreement.” Bible, 799 F.3d at 639. In Judge Hamilton‘s view, the Secretary had put forward “the best interpretation of the statutes and regulations.”
It was this alternative argument regarding deference that garnered a majority. Judge Flaum, concurring in part and concurring in the judgment, disagreed with Judge Hamilton “that the text of the regulations unambiguously supports Bible‘s [and the Secretary‘s] interpretation of the statutory and regulatory scheme.”
The parties here have expended much energy arguing whether Bible was decided correctly. Relatedly, they have vigorously defended their respective positions on what the Higher Education Act and its implementing regulations permit and whether the Dear Colleague Letter is arbitrary and capricious under the APA. At this stage, however, the court need not resolve the merits of those issues. Indеed, it cannot. At bottom, the questions of whether Bible was correctly decided and whether the Dear Colleague Letter violated the APA turn on the threshold question of whether the Department‘s interpretation constitutes a new rule. And, as the court explains below, because Plaintiff‘s Complaint contains well-pleaded factual allegations that, assumed to be true, would make the Dear Colleague Letter a new rule, Plaintiff has asserted a plausible claim that the Letter was arbitrary and capricious and violated the APA. The court, therefore, must deny the motion to dismiss.
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The Supreme Court repeatedly has emphasized that “[r]egulatory agencies do not establish rules of conduct to last forever,” Am. Trucking Ass‘ns, Inc. v. Atchison, T. & S.F.R. Co., 387 U.S. 397, 416, 87 S.Ct. 1608, 18 L.Ed.2d 847 (1967), and “administrative authorities must be permitted, consistently with the obligations of due process, to adapt their rules and policies to the demands of changing circumstances,” In re Permian Basin Area Rate Cases, 390 U.S. 747, 784, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). See also Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417, 113 S.Ct. 2151, 124 L.Ed.2d 368 (1993) (“[A]n administrative agency is not disqualified from changing its mind“) (citation and internal quotation marks omitted); Nat‘l Cable & Telecomms. Ass‘n v. Brand X Internet Servs., 545 U.S. 967, 981, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005) (“An initial agency interpretation is not instantly carved in stone. On the contrary, the agency ... must consider varying interpretations and the wisdom of its policy on a continuing basis, for example, in response to changed fаctual circumstances.“) (citation and internal quotation marks omitted).
However, if an agency does undertake an action inconsistent with past practice, it is “obligated to supply a reasoned analysis for the change.” Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 42, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983); see also Encino Motorcars, LLC v. Navarro, ___ U.S. ___, 136 S.Ct. 2117, 2125, 195 L.Ed.2d 382 (2016) (“Agencies are free to change their existing policies as long as they provide a reasoned explanation for the change.“). The “reasoned analysis” requirement does not demand that an agency “demonstrate to a court‘s satisfaction that the reasons for the new pоlicy are better than the reasons for the old one; it
Two recent Supreme Court decisions inform when—as a factual matter—an agency can be deemed to have changed its past position and thus adopted a new rule. In Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 132 S.Ct. 2156, 183 L.Ed.2d 153 (2012), the Supreme Court examined whether a Department of Labor interpretation of its own regulations qualified for Auer deference. Under Auer, “[a]n agency‘s [reasonable] intеrpretation of its own ambiguous regulations” is generally controlling. MarkWest Mich. Pipeline Co. v. FERC, 646 F.3d 30, 36 (D.C.Cir.2011). The Court in Christopher declined to extend Auer deference to the Department of Labor‘s interpretation of its regulations because the agency‘s position was a “surprise” deviation from its long-acquiescence to a standard industry practice:
[D]espite the industry‘s decades-long practice of classifying pharmaceutical detailers as exempt employees, the [Department of Labor] never initiated any enforcement actions with respect to detailers or otherwise suggested that it thought the industry was acting unlawfully. We acknowledge thаt an agency‘s enforcement decisions are informed by a host of factors, some bearing no relation to the agency‘s views regarding whether a violation has occurred. See, e.g., Heckler v. Chaney, 470 U.S. 821, 831, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985) (noting that “an agency decision not to enforce often involves a complicated balancing of a number of factors which are peculiarly within its expertise“). But where, as here, an agency‘s announcement of its interpretation is preceded by a very lengthy period of conspicuous inaction, the potential for unfair surprise is acute.... Accordingly, whatever the general merits of Auer deference, it is unwarranted here.
132 S.Ct. at 2168 (emphasis added) (footnote omitted).
More recently, in Encino Motorcars, the Supreme Court again emphasized that, when an agency takes a position at odds with long-standing industry practice to which the agency has acquiesced, it has announced a new rule. In Encino Motorcars, at issue was a Department of Labor regulation which interpreted the Fair Labor Standards Act to cover certain employees of auto dealerships, known as service advisors, for overtime pay. See 136 S.Ct. at 2121-22. For decades, the Department of Labor had taken the position that service advisors were not eligible for overtime pay. See
In light of the serious reliance interests at stake, the Dеpartment‘s conclusory statements do not suffice to explain its decision. This lack of reasoned explanation for a regulation that is inconsistent with the Department‘s longstanding earlier positions results in a rule that cannot carry the force of law. It follows that
this regulation does not receive Chevron deference in the interpretation of the relevant statute.
As Christopher and Encino Motorcars make clear, two consequences flow from an agency‘s change in position. The first is that “the agency must at least display awareness that it is changing position and show that there are good reasons for the new policy.”
Bearing the foregoing principles in mind, the court now turns to the Complaint in this case. As to industry practice, Plaintiff has alleged that, “[i]n reliance on the [Act] and its regulations, guaranty agencies have long assessed collection costs against defaulted borrowers who enter into Rehabilitation Agreements,” Compl. ¶ 34; “[t]he New Rule changes existing law, and the known and disclosed existing practices of guaranty agencies, without providing adequate notice or the opportunity to comment,”
As to the Department‘s acquiescence to industry practice, Plaintiff has pleaded that the “Department has been aware of this industry practice, has acquiesced to this practice, and has never, until now, formally announced a contrary purported interpretation of the [Act] and its regulations.”
Plaintiff also alleges that the Department audited Plaintiff in 2012 and 2014 and received “account samples for borrowers who entered into Rehabilitation Agreements within the first sixty days after default, and were charged collection costs,” but “made no findings of discrepancies with regard to such accounts or charges.”
On a motion to dismiss, the court must, of course, accept the “factual allegations ... as true,” Harris v. D.C. Water & Sewer Auth., 791 F.3d 65, 67 (D.C.Cir.2015), and “construe the complaint ‘in favor of [the plaintiff] who must be granted the benefit of all inferences that can be derived from the facts alleged,’ ” Hettinga v. United States, 677 F.3d 471, 476 (D.C.Cir.2012) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C.Cir.1979)). Here, based on the allegations in the Complaint, the court finds that Plaintiff has sufficiently pleaded that the Dear Colleague Letter amounts to a new rule. What that means, under Christopher and Encino Motorcars, is that the Departmеnt was required by the APA to acknowledge that it had changed its position and to provide a reasoned explanation for the change, taking into consideration the industry‘s reliance on the agency‘s prior position. Having reviewed the Dear Colleague Letter—which is the only record evidence before the court—the court concludes that Plaintiff has stated a plausible claim that the Department did not adhere to those procedural requirements. The Dear Colleague Letter arguably does not acknowledge a change in agency position; nor does it еxplicitly consider the industry‘s reliance interests that may have developed based on the agency‘s previous position. Accordingly, Plaintiff has stated a plausible procedural violation of the APA sufficient to withstand the motion to dismiss.
There is yet another legal consequence that flows from the Plaintiff‘s plausible APA claim. If the Department did not adhere to the procedural requirements of the APA in announcing its new position, its interpretation of the Higher Education Act and its implementing regulations would not be entitled to deference. And, here, the question of deference is potentially dispositive. Indeed, as Bible showed, it was largely because a second judge concluded that the Department was owed Auer deference that the Department‘s position garnered a two-judge majority and prevailed. As Judge Easterbrook observed in connection with the Seventh Circuit denial of en banc review, “this is one of those situations in which the precise nature of deference (if any) to an agency‘s views may well control the outcome.” Bible v. United Student Aid Funds, Inc., 807 F.3d 839, 841 (7th Cir. 2015). Because the court, at this motion to dismiss stage, cannot say with certainty what level of deference, if any, would be afforded to the agency‘s pоsition, the court declines to decide whether the views stated in the Dear Colleague Letter conflict with the Higher Education Act or its implementing regulations.
None of the foregoing ought to be interpreted as the court having reached a conclusion on the merits of the parties’ positions. All the court has ruled at this juncture is that Plaintiff has stated a claim upon which relief can be granted. Nothing more. A final decision on the merits will have to await briefing on motions for summary judgment, which would include a review of the administrative record and any other relevant evidence. See Vargus v. McHugh, 87 F.Supp.3d 298, 301 (D.D.C.2015) (“However, when courts must determine whether the adjudicatory process was reasonable and ... [w]hen recourse to the record is necessary, a court should have before it neither more nor less information than did the agency when it made its decision.“) (citations and internal quotation marks omitted); Zemeka v. Holder, 963 F.Supp.2d 22, 26 (D.D.C.2013) (denying the agency‘s motion
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Finally, the court will address Defendants’ argument—raised for the first time after the close of briefing on its motion to dismiss—that Plaintiff‘s suit must be dismissed in its entirety because the Seventh Circuit‘s adverse determination against USA Funds in Bible forecloses its re-litigation in this case. See generally Defs.’ Suppl., ECF No. 11-2. Issue preclusion, a species of res judicata, bars “successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment, even if the issue recurs in the context of a different claim.” Taylor v. Sturgell, 553 U.S. 880, 892, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008) (internal quotation marks omitted). A party is barred from re-litigating an issue if three conditions are met:
First, the same issue now being raised must have been contested by the parties and submitted for judicial determination in the prior case. Second, the issue must have been actually and necessarily determined by a court of competent jurisdiction in that prior case. Third, preclusion in the second case must not work a basic unfairness to the party bound by the first determination.
Canonsburg Gen. Hosp. v. Burwell, 807 F.3d 295, 301 (D.C.Cir.2015) (citation omitted).
Here, Defendants’ assertion of issue preclusion founders on the third element—applying the doctrine would work a basic unfairness to Plaintiff. A basic requirement of fairness is that the party agаinst whom preclusion is sought had a full and fair opportunity to make its case in the earlier litigation. See Jack Faucett Assocs., Inc. v. AT & T, 744 F.2d 118, 126 (D.C.Cir.1984) (“As a corollary to the concept that ‘fairness’ to the defendant must be the touchstone in offensive estoppel cases, issue preclusion cannot be invoked against a party who did not have a ‘full and fair’ opportunity to litigate the issue to be precluded.“); Otherson v. Dep‘t of Justice, 711 F.2d 267, 272 (D.C.Cir.1983) (“Issue preclusion is only appropriate when a party had a full and fair opportunity to present his case at a prior hearing[.]“). Plaintiff did not have such an opportunity before the Seventh Circuit for two reasons. First, the question whether the Department, in issuing the Dear Colleague Letter, fully complied with the procedural requirements of the APA was not before the court in Bible. Plaintiff‘s Complaint in this case squarely presents that question. See Compl., Counts 3 and 4, at 27-28.
Second, Plaintiff did not have a full and fair opportunity in Bible to show that the Department‘s views were not entitled to Auer deference. In Bible, the question of Auer deference arose for the first time on appeal only after the Seventh Circuit invited the Department to file an amicus brief. Plaintiff did have some opportunity to, and did, assert that the Department was not entitled to deference because the Dear Colleague Letter announced a change in position without following the requirements of the APA. Compare Bible, 799 F.3d at 651 (concluding that “[t]here is no indication from the record that the Secretary has ever taken a contrary position“) (emphasis added), with
That opportunity, however, was not “full and fair.” Unlike on appeal in Bible, Plaintiff in this case will have the benefit of the administrative record. It also will have the opportunity to show, as a factual matter, that the industry had an established praсtice of assessing costs on borrowers who successfully rehabilitated their defaulted loans and that the Department was aware of and acquiesced to the practice. Plaintiff did not have a full and fair opportunity to make such a factual showing for the first time on appeal in Bible. Accordingly, the court rejects Defendants’ motion to dismiss on the ground of issue preclusion.
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For the foregoing reasons, the court denies Defendants’ Motion to Dismiss. Additionally, the court grants Defendants’ Motion for Leave to File Supplement to Motion to Dismiss, ECF No. 11-2, and denies their Motion for Reconsideration of June 7, 2016 Minute Order, ECF No. 12, which directed the parties to file a joint appendix of the administrative record.
Amit P. Mehta
United States District Judge