United States District Court, D. Massachusetts
MASSACHUSETTS ASSOCIATION OF PRIVATE CAREER SCHOOLS, Plaintiff,
MAURA HEALEY, in her official capacity as the Massachusetts Attorney General, Defendant.
MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
F. DENNIS SAYLOR, IV, District Judge.
This is an action challenging regulations promulgated by the Massachusetts Attorney General concerning for-profit schools. Plaintiff Massachusetts Association of Private Career Schools ("MAPCS") has brought suit against defendant Maura Healey, in her official capacity as the Massachusetts Attorney General, challenging nine recently adopted regulations that are generally intended to prevent unfair practices in the recruiting and enrollment of students at forprofit schools. The amended complaint alleges claims for violation of the First Amendment, violation of the Due Process Clause of the Fourteenth Amendment, and federal preemption.
The allegations of the amended complaint fall into three separate groups. First, the complaint alleges that seven of the regulations facially violate the First Amendment because they impose content-based restrictions that target disfavored speech from disfavored speakers. Second, it alleges that two other regulations are unconstitutionally vague and therefore fail to provide fair notice in violation of the Due Process Clause and chill free speech in violation of the First Amendment. Finally, it alleges that one of the regulations (which it also challenges on First Amendment grounds) is preempted by federal laws regulating telemarketing. MAPCS seeks an order from the Court vacating the regulations and enjoining the Attorney General from implementing or taking enforcement action pursuant to them.
The parties have filed cross-motions for summary judgment. For the following reasons, both motions will be granted in part and denied in part.
A. Factual Background
MAPCS is a non-profit membership organization of more than forty for-profit and occupational schools. (Pl. SMF ¶¶ 1-2). Its stated goal is to help member schools provide professional training for Massachusetts students who are eager to advance their careers. ( Id. ). MAPCS member institutions provide training in a variety of areas, including allied medical, automotive servicing, broadcasting, construction, cosmetology, culinary management, photography, and web design. ( Id. at Ex. 15).
2. Regulatory Framework
Chapter 93A prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." Mass. Gen. Laws ch. 93A, § 2(a). Conduct is unfair or deceptive under Chapter 93A if it falls "within any recognized or established common law or statutory concept of unfairness." VMark Software v. EMC Corp., 37 Mass.App.Ct. 610, 620 (1994); see also Cummings v. HPG Int'l Inc., 244 F.3d 16, 25 (1st Cir. 2001) ("Conduct is unfair or deceptive if it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness' or immoral, unethical, oppressive, or unscrupulous.'" (quoting PMP Assocs. Inc. v. Globe Newspaper Co., 366 Mass. 593, 596 (1975))). Under Chapter 93A, the Attorney General has the authority to "make rules and regulations interpreting the provisions of subsection 2(a)." Mass. Gen. Laws ch. 93A, § 2(c).
Pursuant to that authority, former Attorney General Martha Coakley published draft regulations on November 20, 2013, that modified existing regulations concerning for-profit schools. See 940 Mass. Code Regs. § 3.10 (1978) (since superseded). The stated purpose of the existing regulations was to:
[P]rotect Massachusetts consumers seeking to enroll in any course of instruction or educational service offered by certain private business, vocational, and career schools, and to ensure that the private career school industry was operating fairly and honestly by means of legitimate and responsible business acts and practices that [were] neither unfair nor deceptive.
Id. The Attorney General sought to "update[ ] and amend[ ] the 1978 regulations" in order to "address problems experienced by consumers when they seek or are enrolled in for-profit schools or occupational programs." 940 Mass. Code Regs. § 31.01 (2014). Among those problems, according to the regulations, are "widespread acts and practices in the for-profit and occupational school industry [that] continue to unfairly harm consumers." Id.
The Attorney General received extensive written comments and evidence in response to the draft regulations. (Def. SMF ¶ 7). In addition, she heard testimony from for-profit schools, current and former students of for-profit schools, trade groups, and consumer organizations during two public hearings in January 2014. ( Id. at ¶¶ 6, 8).
After amending the draft regulations in response to public comment, the Attorney General published the regulations, effective June 20, 2014.
3. The Challenged Regulations
MAPCS challenges nine of the regulations for a variety of reasons. The nine regulations are the following:
Deceptive Language in General: 940 Mass. Code Regs. § 31.04(2):
It is an unfair or deceptive act or practice for a school to use language or make a claim or representation in any form, including but not limited to spoken, electronic, or printed form, which has the tendency or capacity to mislead or deceive students, prospective students, or any other person.
Time to Complete Program: 940 Mass. Code Regs. § 31.04(9):
It is an unfair or deceptive act or practice for a school to misrepresent the amount of time it takes to finish a program, including a representation that a program can be completed "in weeks" or similar language suggesting that the length of time to complete the program is shorter than the actual median completion time to obtain a certificate, diploma, or degree.
Failure to Disclose Facts: 940 Mass. Code Regs. § 31.05(1):
It is an unfair or deceptive act or practice for a school to conceal or fail to disclose to a prospective student any fact relating to the school or program, disclosure of which is likely to influence the prospective student not to enter into the transaction with the school.
Graduation-Rate Disclosure: 940 Mass. Code Regs. § 31.05(2)(b):
It is an unfair or deceptive act or practice to fail to make the following disclosure to consumers and prospective students, clearly and conspicuously, at least 72 hours prior to entering into an enrollment agreement with a consumer or prospective student:
(b) Graduation. [Graduation rate of students graduated from the program during [the last two calendar years for which data are available].
Consequences of Loan Default: 940 Mass. Code Regs. § 31.05(3):
For any school that accepts federal Title IV funds, or that provides institutional loans, it is an unfair or deceptive act or practice for a school to fail to make the following disclosure to consumers and prospective students, clearly and conspicuously, at least 72 hours prior to entering into an enrollment agreement with such consumer or prospective student:
(a) Your Loan Debt. You must repay money that you borrow as student loans to pay for this program, including interest. You must repay any portion of the money you borrow to pay for this program, even if you fail to complete or drop out of the program. Failure to repay student loans is likely to have a serious negative effect on your credit, future earnings, and your ability to obtain future student loans.
(b) Loan Nonpayment Statistics. [loan nonpayment percentage] of [school name] students defaulted on, or failed to repay, their loans during the period [years covered in corresponding federal cohort default rate used to calculate loan nonpayment rate].
Total Placement-Rate Calculus: 940 Mass. Code Regs. § 31.05(4)(b)(1):
For any occupational program that:... (b) refers in advertising, recruiting or promotional materials to statements to employment prospects or job placement, it is an unfair or deceptive act or practice for a school to fail to make the following disclosure to consumers and prospective students, clearly and conspicuously, at least 72 hours prior to entering into an enrollment agreement with such consumer or prospective student:
(1) Placement Rates. [Graduation placement rate of graduates during [latest two calendar years] obtained full-time, nontemporary jobs in the field of study. [Total placement rate of students that enrolled in the program during [latest two calendar years] obtained full-time, non-temporary jobs in their field of study.
Credit Transfer: 940 Mass. Code Regs. § 31.05(7):
It is an unfair or deceptive act or practice for a school to represent to a student or prospective student or to any other person that its credits are or may be transferable to another educational institution without:
(a) identifying the school(s) with which it has written agreements or other documentation verifying that credits can be transferred to said school(s); and
(b) indicating it is aware of no other schools that accept the transfer of its credits.
Enrolling Unqualified Students: 940 Mass. Code Regs. § 31.06(6):
It is an unfair or deceptive act or practice for a school to enroll or induce retention of a student in any program when the school knows, or should know, that due to the student's educational level, training, experience, physical condition, lack of language proficiency, or other material qualification, the student will not or is unlikely to:
(a) graduate from the program; or
(b) meet the requirements for employment in the occupation to which the program is represented to lead. If a student has a disability, the determination shall be made based on the student's ability to graduate from the program or meet the requirements for employment with the provision of a reasonable accommodation for that disability. In addition, in no event shall [the regulations] contravene the requirements of, or obligations of a school to accommodate students in accordance with the Americans with Disabilities Act, the Rehabilitation Act, or any other applicable law concerning students with disabilities.
Engaging in High-Pressure Sales Tactics: 940 Mass. Code Regs. § 31.06(9):
It is an unfair or deceptive act or practice for a school to initiate communication with a prospective student, prior to enrollment, via telephone (either voice or data technology), in person, via text messaging, or by recorded audio message, in excess of two such communications in each seven-day period to either the prospective student's residence, business or work telephone, cellular telephone, or other telephone number provided by the student.
4. Public-Comment Evidence
As justification for the seven regulations that MAPCS challenges under the First Amendment, the Attorney General points to public-comment evidence that allegedly demonstrates unfair and deceptive practices by for-profit schools. ( See Def. Mem. Ex. A; Stipulated public-hearing record (cited as "R:[page number]"); Public-hearing transcripts (cited as "Tr:[page number]"). Below is a selection of some of that public-hearing evidence and testimony.
Deceptive Language in General: 940 Mass. Code Regs. § 31.04(2). In written comments, the Massachusetts Department of Higher Education ("DHE") stated that the Massachusetts for-profit school industry is responsible for a "disproportionate share of the consumer complaints received by the Board." (R:258). For-profit schools comprise only 8 percent of the schools under the Board's purview, but they are responsible for 22 percent of consumer complaints that the DHE has received since 2009. ( Id. ). Those consumer complaints concerned false and misleading statements by for-profit schools to prospective students during recruitment. ( Id. ). Toby Merrill, an attorney working on the Legal Services Center of Harvard Law School's project on predatory student lending, commented that many for-profit schools use deceptive advertisements to attract students, and then employ "draconian contracts" to keep students enrolled. (R:452). Former students of for-profit schools submitted comments about how recruiters misled them about program quality and accreditation (R:64), instructors' credentials (R:645), and resources available for student instruction (R:647). For example, one school told a single mother that its program would guarantee that she would receive a Medical Coding Certificate. (R:643). When that guarantee turned out to be false, the woman was left with $13, 000 in student loans that she had to repay. ( Id. ).
Time to Complete Program: 940 Mass. Code Regs. § 31.04(9). A coalition of veterans groups named Veterans Education Success submitted written comments. It directed the Attorney General to the findings and conclusions of a two-year investigation into the for-profit school industry conducted by the United States Senate Committee for Health, Education, Labor, and Pensions (HELP). (R:361-370). That investigation concluded that many for-profit schools misled recruits about the time needed to complete programs. One school's advertisement for its medical assistant training programs read "Start NOW and Get CERTIFIED in JUST WEEKS!" (R:582). Its two medical programs, however, required at least nine and seven months to complete, and the median times to graduation were 409 days and 315 days, respectively. ( Id. ). Other comments and testimony supported required disclosures of average or median completion times. (R:461).
Graduation-Rate Disclosure: 940 Mass. Code Regs. § 31.05(2). The Attorney General received testimony that existing federally-mandated graduation-rate disclosures do not capture the performance of the many non-traditional and part-time students that attend for-profit schools. ( See R:141-42; 20 U.S.C. §§ 1092(a)(1)(L), (a)(3)). Federal graduation-rate metrics measure a cohort comprised of only firsttime, full-time students. 20 U.S.C. § 1092(a)(1)(L). In one survey of 3, 000 students that attended for-profit schools, including part-time students, 42 percent of students reported withdrawing from school before graduating or completing their program. (R:405). Other commenters testified that graduation rates advertised by for-profit schools are misleading because they do not capture part-time students, and others pointed to "a need for [s]tate [r]egulation" to supplement federal disclosures. (R:442-43, 461, 471).
Consequences of Loan Default: 940 Mass. Code Regs. § 31.05(3). The Massachusetts Department of Higher Education commented that for-profit schools enroll 12 percent of all post-secondary students nationally and represent 24 percent of all federal student-loan dollars, but represent 43 percent of all federal student-loan defaults. (R:257). In 2009, students attending Massachusetts for-profit four-year schools had a 15 percent three-year default rate, compared with rates of 5 percent and 6 percent at non-profit institutions and public institutions, respectively. ( Id. ). The Attorney General also received public-hearing evidence that students who default on loan obligations may face garnishment of future earnings (R:402, 453, 474), may find it difficult to find employment (R:474), and may be ineligible for benefits such as the Earned Income Credit. (R:402). One former for-profit school student, a United States Army veteran, testified that a for-profit school deceived him into believing that his student loans were federal loans, when they were actually private loans with higher interest rates. (R:645). As a result, the man had $96, 000 in student-loan debt, and was unable to find employment requiring more than a high-school degree. ( Id. ).
Total Placement-Rate Calculus: 940 Mass. Code Regs. § 31.05(4)(b)(1). The Attorney General received public-hearing evidence that the job-placement rates of for-profit schools are often misleading. (R:442-43, 447-48). Commenters also stated that federal regulations on placement-rate disclosures are "not sufficient to protect consumers" because they allow for the use of different placement-rate metrics, many of which calculate job placement based on the number of graduates instead of the number of enrolled students. (R:471). According to some commenters, the federal statistics fail to capture the outcomes of the many students at for-profit schools who drop out after learning that their employment prospects are worse than originally promised by school recruiters. (R:364-65).
Credit Transfer: 940 Mass. Code Regs. § 31.05(7). The Attorney General received public-hearing evidence that some for-profit schools mislead prospective students by implying that credits they earn are, or may be, transferrable to other schools when they often are not. (R: 335-39, 410, 525, 610).
Engaging in High-Pressure Sales Tactics: 940 Mass. Code Regs. § 31.06(9). Many commenters testified that some for-profit schools often employ high-pressure sales tactics and "pain-based" recruiting strategies to induce students to enroll in programs under a false sense of urgency. (R:268-73, 278-80, 442-43, 515-19). Commenters pointed the Attorney General to the Senate HELP Committee report, which found that in 2010, for-profit schools across the nation employed 35, 202 recruiters, compared with 3, 512 career-services staff and 12, 452 support-services staff. (R:361). The report states that it uncovered internal documents that demonstrated that enrollment quotas were recruiters' highest priority, and that the recruitment process "created a boiler-room atmosphere." (R:363). The group Veterans Education Success directed the Attorney General to the findings of an undercover report of for-profit schools conducted by the United States Government Accounting Office. (Def. SMF ¶ 42). That report, using undercover testers to submit inquiries to lead-generation websites, found that testers received an average of five telephone calls per day for a month from non-profit schools. (R:295, 363-64; Def. SMF ¶¶ 42-43).
B. Procedural Background
On September 25, 2014, MAPCS filed the complaint in this case. On December 26, 2014, MAPCS filed an amended complaint and a demand for declaratory and injunctive relief. The complaint alleges claims for violation of the First Amendment, violation of the Due Process Clause of the Fourteenth Amendment, and federal preemption. Specifically, MAPCS contends that the regulations variously (1) violate the First Amendment because they unlawfully compel and restrict speech based on its content, (2) violate the Due Process Clause and the First Amendment because they are unconstitutionally vague, and (3) are preempted by federal telemarketing law.
The parties have cross-moved for summary judgment on all counts.
II. Legal Standard
The role of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Mesnick v. General Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991) (internal quotation marks omitted). Summary judgment is appropriate when the moving party shows that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "Essentially, Rule 56[ ] mandates the entry of summary judgment against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Coll v. PB Diagnostic Sys., 50 F.3d 1115, 1121 (1st Cir. 1995) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). In making that determination, the court must view "the record in the light most favorable to the nonmovant, drawing reasonable inferences in his favor." Noonan v. Staples, Inc., 556 F.3d 20, 25 (1st Cir. 2009). When "a properly supported motion for summary judgment is made, the adverse party must set forth specific facts showing that there is a genuine issue for trial.'" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (quoting Fed.R.Civ.P. 56(e)). The non-moving party may not simply "rest upon mere allegation or denials of his pleading, " but instead must "present affirmative evidence." Id. at 256-57.
A. First Amendment Challenges
The cross-motions on Counts One and Two involve First Amendment challenges to seven of the regulations. They essentially require the Court to answer two questions: (1) what level of First Amendment scrutiny applies to each regulation, and (2) whether each regulation satisfies the applicable level of scrutiny. MAPCS contends that the regulations facially violate the First Amendment because they impose content and viewpoint-based speech restrictions that are unconstitutional under strict scrutiny or any other standard of review. The Attorney General contends that strict scrutiny is not the appropriate standard of review because the regulations are either mandatory disclosures that trigger reasonable-basis review, or, at most, restrictions on commercial speech that warrant only intermediate scrutiny. Moreover, the Attorney General contends that the regulations survive even under an intermediate scrutiny test because they directly advance the government's substantial interest in preventing unfair and misleading practices in the for-profit school industry.
The Court will address each of the issues in turn, beginning with the appropriate level of scrutiny for each of the seven challenged regulations.
1. Level of Scrutiny
a. Intermediate Scrutiny under Central Hudson
It is well-established that commercial speech, including advertising, has an "informational function" and is not "valueless in the market place of ideas." See Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 557, 563 (1980); Bigelow v. Virginia, 421 U.S. 809, 826 (1975). Moreover, as the Supreme Court has noted, "[t]here is no longer any room to doubt that what has come to be known as commercial speech' is entitled to the protection of the First Amendment, albeit to protection somewhat less extensive than that afforded noncommercial speech.'" Zauderer v. Office of Disciplinary Counsel of Supreme Court of Oh., 471 U.S. 626, 637 (1985); see also El Dia, Inc. v. P.R. Dep't of Consumer Affairs, 413 F.3d 110, 115 (1st Cir. 2005) (noting that commercial speech, or "expression related solely to the economic interests of the speaker and its audience, " is ordinarily accorded less First Amendment protection than other forms of constitutionally guaranteed expression).
The contours of that "somewhat-less-extensive" protection depend on both the specific character of the commercial speech and the purpose of the regulation. As the Supreme Court has explained:
When a State regulates commercial messages to protect consumers from misleading, deceptive, or aggressive sales practices, or requires the disclosure of beneficial consumer information, the purpose of its regulation is consistent with the reasons for according constitutional protection to commercial speech and therefore justifies less than strict review. However, when a State entirely prohibits the dissemination of truthful, nonmisleading commercial messages for reasons unrelated to the preservation of a fair bargaining process, there is far less reason to depart from the rigorous review that the First Amendment generally demands.
44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 501 (1996) (plurality opinion). Accordingly, "[t]he mere fact that messages propose commercial transactions does not in and of itself dictate the constitutional analysis that should apply to decisions to suppress them." Id.
Although commercial-speech restrictions may warrant higher or lower scrutiny depending on the "nature both of the expression and of the government interests served by its regulation, " the default test is the four-part intermediate-scrutiny approach first promulgated in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557, 563 (1980). Pursuant to that approach, a court must first determine whether the commercial speech is actually false, deceptive, or misleading, or whether it proposes an unlawful activity. See Central Hudson, 447 U.S. at 566. "Misleading advertising may be prohibited entirely, " including where commercial speech is "inherently likely to deceive or where the record indicates that a particular form or method of advertising has in fact been deceptive." In re R.M.J., 455 U.S. 191, 202-03 (1982). Thus, if a court finds in the affirmative on the first prong, the analysis ends and the speech is not entitled to any First Amendment protection.
But if the commercial speech is only "potentially misleading, " the court must apply the remainder of the Central Hudson factors to assess the constitutionality of the regulation. See id. at 203. A court must make three additional inquiries: (1) whether the asserted governmental interest is substantial; (2) whether the regulation directly advances the government interest asserted; and (3) whether the regulation is not more extensive than is necessary to serve that interest. Central ...