Nat'l Educ. Ass'n v. Devos

379 F.Supp.3d 1001

NATIONAL EDUCATION ASSOCIATION, et al., Plaintiffs,

v.Betsy DEVOS, et al., Defendants.

Case No. 18-cv-05173-LB

United States District Court, N.D. California, San Francisco Division.

Signed April 26, 2019

Daniel Aaron Zibel, Martha Fulford, National Student Legal Defense Network, Eric Allen Harrington, National Education Association, Washington, DC, for Plaintiff National Education Association.

Brian Joseph Schmidt, Laura Pauline Juran, California Teachers Association, Burlingame, CA, Daniel Aaron Zibel, Martha Fulford, National Student Legal Defense Network, Washington, DC, for Plaintiff California Teachers Association.

Daniel Aaron Zibel, Pro Hac Vice, Martha Fulford, Pro Hac Vice, National Student Legal Defense Network, Washington, DC, for Plaintiffs Shane Heiman, Kwynn Uyehara, Stephanie Portilla.

Stuart Justin Robinson, U.S. Department of Justice, San Francisco, CA, for Defendants.

ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT

Re: ECF No. 20, 41

LAUREL BEELER, United States Magistrate Judge

INTRODUCTION

This case concerns regulations promulgated under Title IV of the Higher Education Act of 1965 ("HEA"), as amended, which authorizes the Secretary of Education and the Department of Education (collectively, "Department") to establish loan and grant programs to help students pay for post-secondary education.

In December 2016, the Department promulgated regulations ("Distance-Education Rules") intended to combat fraudulent practices relating to distance education and correspondence courses and to provide students and the public with disclosures about educational institutions that offered such programs (e.g., "online universities"). The rules originally were to go into effect in July 2018. But in July 2018, following a change in presidential administrations, the Department promulgated a regulation delaying the effective date of the Distance-Education Rules until July 2020 ("Delay Rule") and raised the prospect that it would revise and reconsider the Distance-Education Rules entirely.

In the HEA, Congress imposed a statutory requirement on the promulgation of all Title IV regulations. They must be subject to "negotiated rulemaking" — a process where the Department selects a committee of experienced individuals nominated by groups involved in student-financial-assistance programs to negotiate proposed rules — unless the Department "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 Title 5 [of the Administrative Procedure Act] )[.]" 20 U.S.C. § 1098a(b)(2). It is undisputed that the Department did not subject the Delay Rule to negotiated rulemaking.

The National Education Association ("NEA"), the California Teachers Association ("CTA"), and individual plaintiffs Shane Heiman, Kwynn Uyehara, and Stephanie Portilla — NEA and CTA members who are enrolled or considering enrolling in online-education programs — filed this case to challenge the Delay Rule. The plaintiffs argue that the Department's failure to submit the Delay Rule to negotiated rulemaking violated the HEA and the Administrative Procedure Act ("APA"). They argue that the Delay Rule thus should be vacated and the Distance-Education Rules be allowed to go into effect as originally planned. The Department responds that it had "good cause" under Section 553(b)(3)(B) of the APA to forgo negotiated rulemaking because it would have been impracticable to submit a proposed delay rule to negotiated rulemaking, to complete that process, and to promulgate a final delay rule, before the effective date of the Distance-Education Rules. The Department also argues that any failure to engage in negotiated rulemaking was harmless error that does not warrant vacating the Delay Rule. The parties filed cross-motions for summary judgment.¹

The supposed insufficient time to promulgate a rule delaying the effective date of the Distance-Education Rules is not good cause to forgo the HEA's statutorily mandated negotiated-rulemaking process. Additionally, the supposed lack of time resulted from the Department's own delay, and an agency's own delay is not good cause. Furthermore, the Department's failure to engage in negotiated rulemaking here was not harmless error. The court grants the plaintiffs' motion for summary judgment, denies the defendants' motion for cross-summary judgment, and orders the Delay Rule vacated (but stays the vacatur for 30 days from the date of this order).

STATEMENT

1. Title IV of the Higher Education Act

Title IV of the HEA "assist[s] in making available the benefits of postsecondary education to eligible students ... in institutions of higher education" through federal grants and financial-assistance programs. 20 U.S.C. § 1070.

"Congress created the Title IV programs to foster access to higher education." Ass'n of Private Sector Colls. and Univs. v. Duncan , 681 F.3d 427, 435 (D.C. Cir. 2012). "Every year, Congress provides billions of dollars through loan and grant programs to help students pay tuition for their postsecondary education." Id. at 433. "The Department of Education (‘the Department’ or ‘the agency’) administers these programs, which were established under Title IV[.]" Id. "Students must repay their federal loans; the costs of unpaid loans are borne by taxpayers." Id.

1.1 Authorization of Educational Institutions

"To participate in Title IV programs — i.e., to be able to accept federal funds — a postsecondary institution (‘a school’ or ‘an institution’) must satisfy several statutory requirements." Ass'n of Private Sector Colls. , 681 F.3d at 433–34. "These requirements are intended to ensure that participating schools actually prepare their students for employment, such that those students can repay their loans." Id. at 434. Among other things, "a school must qualify as an ‘institution of higher education,’ 20 U.S.C. § 1094(a) (2006) — meaning, inter alia, that the school is ‘legally authorized’ to provide education in the state in which it is located, id. § 1001(a)(2)." Id. "The HEA does not define ‘legally authorized.’ " Id. at 435. "This lack of a statutory definition has meant that, for virtually all of the HEA's history, each state has determined for itself the method of authorizing schools within its borders." Id.

"Congress has delegated to the Secretary [of Education] the authority to promulgate regulations governing the Department's administration of Title IV and other federal programs." Id. at 436. "The grant of authority provides that ‘[t]he Secretary, in order to carry out functions otherwise vested in the Secretary by law or by delegation of authority pursuant to law, ... is authorized to make, promulgate, issue, rescind, and amend rules and regulations governing the manner of operation of, and governing the applicable programs administered by, the Department.’ " Id. (citing 20 U.S.C. §§ 1098a(a)(1), 1221e-3 ). This authority to promulgate regulations extends to regulations defining what is "legally authorized" for purposes of the HEA. Id. at 458–59 ("This is a federal program, federal dollars are at stake, and the most sensible reading of the statute is that the Secretary has discretion to determine what is ‘legal authorization’ in order to protect federal interests.") (quoting Sistema Universitario Ana G. Mendez v. Riley , 234 F.3d 772, 778 (1st Cir. 2000) ).

1.2 Negotiated Rulemaking

In general, under the HEA, all regulations pertaining to Title IV are subject to "negotiated rulemaking." 20 U.S.C. § 1098a(b)(2).

In negotiated rulemaking, the Department selects individuals nominated by "groups involved in student financial assistance programs under [Title IV], such as students, legal assistance organizations that represent students, institutions of higher education, State student grant agencies, guaranty agencies, lenders, secondary markets, loan servicers, guaranty agency servicers, and collection agencies" to participate in the negotiations process. 20 U.S.C. § 1098a(a)(1), (b)(1), (b)(2). The HEA requires the Department to "select individuals with demonstrated expertise or experience in the relevant subjects under negotiation, reflecting the diversity in the industry, representing both large and small participants, as well as individuals serving local areas and national markets." 20 U.S.C. § 1098a(b)(1), (b)(2).

If the negotiated-rulemaking participants reach a consensus about proposed regulations, the Department must propose the consensus for promulgation, unless it reopens the negotiated-rulemaking process or provides a written explanation why it is not proposing the consensus. 20 U.S.C. § 1098a(b)(2) ("All published proposed regulations shall conform to agreements resulting from such negotiated rulemaking unless the Secretary reopens the negotiated rulemaking process or provides a written explanation to the participants in that process why the Secretary has decided to depart from such agreements.").

The Department may bypass the negotiated-rulemaking process only if it "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 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." Id.

2. 2012–2016 and the Distance-Education Rules

The Distance-Education Rules were the product of a multi-year rulemaking process.

2.1 Negotiated Rulemaking

On May 1, 2012, the Department published a notice in the Federal Register of its intent to convene a negotiated-rulemaking committee "to develop proposed regulations designed to prevent fraud and otherwise ensure proper use of Title IV, HEA program funds, especially within the context of current technologies." Negotiated Rulemaking Committee; Public...