mitigating circumstances, loss of eligibility based on the calculated CDR would be inequitable. 20 U.S.C. § 1085(a)(2)(A)(i)-(ii).
The Department of Education published a letter commonly referred to as the May, 1993 "Dear Colleague Letter" ("May, 1993 DCL") which set forth procedures to be followed in challenging the calculation of a school's CDR on appeal. (Def.'s Ex. 1 attached to declaration of M. Geneva Coombs). If a school wishes to appeal on the first ground, by the terms of the May, 1993 DCL, it must submit specific relevant data to the guaranty agencies within ten days of receiving notification from DOE of the calculated CDR. May, 1993 DCL at 3. The guaranty agencies are to respond by either agreeing with the school's conclusions regarding disputed loans or by providing complete copies of servicing records for disputed loans. May, 1993 DCL at 4. After the guaranty agencies respond, the school then has five days in which to provide DOE with all the necessary information upon which the appeal is based. May, 1993 DCL at 4.
The cohort default rates calculated by defendant for plaintiff's school are (1) 39% for 1989 (2) 54.8% for 1990, and (3) 49.7% for 1991. Each of these calculated rates exceeds the "threshold percentage" as that term is defined by 20 U.S.C. § 1085(a)(2)(B).
Plaintiff received notification from DOE of its calculated CDR for fiscal year 1991 on or about August 13, 1993, whereupon plaintiff immediately applied in the federal district court in Nevada for a temporary restraining order and a preliminary injunction against defendant. By order dated August 13, 1993, the Nevada court dismissed plaintiff's action without prejudice for lack of venue. Plaintiff then filed a Verified Complaint with this Court seeking a temporary restraining order and a preliminary injunction against defendant, specifically seeking to prevent defendant from publishing or continuing to publish the CDRs calculated by defendant for plaintiff's school for the fiscal years 1989, 1990 and 1991 and to mandate defendant to suspend these CDRs and to publish appropriate notice of such suspension. On August 26, 1993, Judge Jerome B. Simandle held an emergency hearing on plaintiff's request for a temporary restraining order, and by order dated that same day the request was denied.
At that time, the Court scheduled September 23, 1993 as the date for the hearing on plaintiff's request for a preliminary injunction and on defendant's anticipated motion to dismiss. The evidentiary hearing on these motions commenced on September 23, 1993 and was continued on September 29 and September 30, 1993.
Jurisdiction over this action is found under 20 U.S.C. § 1082(a)(2), which provides federal district courts with original jurisdiction over civil actions against the Secretary of the Department of Education.
Defendant alleges that the "anti-injunction" provision contained in this section precludes a district court from issuing an injunction against the Secretary. In most situations, this type of "anti-injunction" provision would preclude such an injunction. However, where it is determined that a federal officer has exceeded the bounds of his or her authority, there exists a recognized limitation upon the applicability of such an "anti-injunction" provision. Ulstein v. Maritime, Ltd. v. United States, 833 F.2d 1052, 1056-57 (1st Cir. 1987) ("the no-injunction language . . . should not be interpreted as a bar to judicial review of agency actions that exceed agency authority where the remedies would not interfere with internal agency operations"); Jones v. Freeman, 400 F.2d 383, 387 (8th Cir. 1968) ("immunity from injunction process may not be claimed by a federal officer acting in excess of his authority"); Valley Forge Flag Co., Inc. v. Kleppe, 165 U.S. App. D.C. 182, 506 F.2d 243, 245 (D.C. Cir. 1974).
Courts have interpreted the "anti-injunction" provision contained in 20 U.S.C. § 1082(a)(2) in similar actions against the Secretary of the Department of Education and have held that where the Secretary has exceeded the scope of his authority, this provision does not preclude the district court from granting equitable relief. International Dealers School, Inc. v. Riley, CV-S-93-451-LDG (D. Nev. June 2, 1993); Climate Control Institute of Oklahoma, Inc. v. Alexander, No. 93-C-55-E (N.D. Okla. February 4, 1993); Concorde Career Colleges, Inc. v. Alexander, No. 92-1064-CV-W-6 (W.D.Mo. December 23, 1992); CBM Education Center of San Antonio, Inc. v. Alexander, Adv. No. 92-2012-M (Bankr. S.D. Tex. February 14, 1992). Thus, if defendant, the Secretary of the Department of Education, has exceeded the scope of his authority, then this Court has jurisdiction to grant appropriate injunctive relief notwithstanding the "anti-injunction" provision.
Plaintiff argues that defendant has acted outside the scope of the authority vested in him under 20 U.S.C. § 1085(m) by failing to exclude improperly serviced or collected loans from the calculation of plaintiff's CDR and by uncritically relying upon the default conclusions of the guaranty agencies without any sort of independent review of these conclusions.
Section 1085(m)(1)(B) provides that "the Secretary shall. . ., in calculating the cohort default rate, exclude any loans which, due to improper servicing or collection, would result in an inaccurate or incomplete calculation of the cohort default rate."
By the clear language of this statute, the Secretary has no discretion under § 1085(m)(1)(B) regarding the inclusion of loans which are improperly serviced or collected and which would result in an inaccurate calculation of the cohort default rate: such loans are not to be included in the calculation of a CDR. To this effect, the statute mandates that the Secretary must determine whether loans have been improperly serviced or collected before a CDR is calculated.
Plaintiff has presented evidence which indicates that the Secretary, in calculating plaintiff's CDR, failed to exclude loans which were improperly serviced. Plaintiff's expert, Gary Musselman, testified at length regarding his analysis of the information available to plaintiff as it compared with the information provided by DOE. His analysis identifies numerous loans with potential servicing errors which were included in the Secretary's calculation of plaintiff's CDRs. Mr. Musselman categorized each disputed loan as having one of five types of potential servicing errors: (1) loans with improper "due diligence" cycles (2) loans improperly converted to repayment (3) loans with no notice provided to the school of a request for preclaims assistance (4) loans with refunds improperly credited, and (5) loans made to students attending subsequent schools. Mr. Musselman compiled a list based on the results of his analysis which identifies each disputed loan by the full name of the student borrower, the social security number of the student borrower, the last date of attendance on record at plaintiff's school, the repayment date and the type of potential servicing error suspected. Other information available to plaintiff is contained in this list where it is relevant to the type of servicing error suspected. Plaintiff provided this list to each guaranty agency in its submission of information.
Plaintiff has further presented evidence to the effect that there exists a serious problem, recognized by DOE, in that the guaranty agencies in various areas of the country, including areas serviced by plaintiff, are failing to ensure that federally insured loans have been properly serviced by the lenders and that the guaranty agencies are also failing to properly perform their own "due diligence" obligations with respect to such loans. The problem stems from the fact that many of the guaranty agencies are affiliated with the lenders. In many instances guaranty agencies are the parent corporations for subsidiary lenders. In other instances, guaranty agencies and lenders are controlled by common management. In any event, these conflicts of interest create situations where the guaranty agencies have no economic incentive to report lenders who are failing to properly service loans because such a report could affect the guaranty agency's own financial position. Regarding Fraud, Waste and Abuse in Education Department Programs and Opportunities for Streamlining Departmental Programs: Hearing Before the Subcomm. on Labor, Health and Human Services, and Education of the Senate Comm. on Appropriations 103th Cong., 1st Sess. (June 18, 1993) (statement of James B. Thomas, Jr., Inspector General of the U.S. Department of Education).
Defendant has presented no evidence which refutes plaintiff's allegations of improper servicing nor has defendant presented any evidence of measures employed by defendant to identify improperly serviced loans. Rather, defendant argues that the information contained in the "tape dump" provided by the guaranty agencies suffices as a means of identifying improperly serviced loans to be excluded from the calculation of CDRs. Defendant's arguments are unconvincing, at least insofar as these arguments are unsupported by the record before this Court at this stage in the proceeding.
This Court is persuaded that if, as plaintiff contends, the Secretary has failed to determine whether or not loans have been improperly serviced or collected before calculating the CDR for plaintiff's school, then the Secretary has exceeded the scope of his authority. This conclusion is supported by opinions of numerous other courts which have recently dealt with the same issue. Atlanta College of Medical and Dental Careers, Inc. v. Riley, 300 App. D.C. 157, 987 F.2d 821 (D.C. Cir. 1993); International Dealers School, Inc. v. Riley, CV-S-93-451-LDG (D. Nev. June 2, 1993); Concorde Career Colleges, Inc. v. Alexander, No. 92-1064-CV-W-6 (W.D.Mo. December 23, 1992); CBM Education Center of San Antonio, Inc. v. Alexander, Adv. No. 92-2012-M (Bankr. S.D. Tex. February 14, 1992).
Further, reliance by the Secretary on the default information provided by the guaranty agencies may be arbitrary and capricious given the economic disincentive for the guaranty agencies to accurately report this information. The defendant's reliance on the guaranty agencies, which is effectively a delegation of duty to a non-governmental entity, raises serious doubts as to whether the Secretary is administering his duties, as set forth in 20 U.S.C. § 1085(m), in a permissible manner.
This Court finds that plaintiff has adequately demonstrated on the present record that it is likely that the Secretary has exceeded the scope of his authority. Further, an injunction preventing defendant from publishing the calculated CDRs and mandating that these CDRs be temporarily suspended does not interfere with the internal operations of the Department of Education. Therefore, this Court has jurisdiction to award such injunctive relief if it is further held to be appropriate in these circumstances.
II. PRELIMINARY INJUNCTION
Plaintiff seeks an injunction preventing defendant from publishing or continuing to publish the cohort default rates calculated by defendant for plaintiff's school for the fiscal years of 1989, 1990 and 1991 and further mandating the suspension of those rates.
In determining whether to grant or deny preliminary injunctive relief, the court considers the following:
(1) whether the movant will likely succeed on the merits of the litigation;
(2) whether the movant will be irreparably injured if relief is not granted;