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Williams v. Devos

United States District Court, D. Massachusetts

October 24, 2018

DARNELL E. WILLIAMS and YESSENIA M. TAVERAS, Plaintiffs,
v.
ELISABETH DEVOS, [1] in her official capacity as Secretary of the U.S. Department of Education, Defendant.

          ORDER ON MOTIONS FOR JUDGMENT

          LEO T. SOROKIN, UNITED STATES DISTRICT JUDGE

         This case alleges that the Secretary of Education (“the Secretary”) improperly certified the student loan debts of plaintiffs Darnell Williams and Yessenia Taveras as legally enforceable for purposes of referral to the U.S. Department of the Treasury's Treasury Offset Program (“TOP”). Doc. No. 5. In January 2017, the Secretary moved to dismiss the case for lack of jurisdiction, arguing, inter alia, that the plaintiffs' claims are barred for failure to exhaust, and that Taveras's claims should be dismissed as unripe. Doc. Nos. 18, 19. Williams and Taveras opposed, Doc. No. 22, and the Attorney General of Massachusetts, Maura Healey, filed an amicus brief in support of the opposition, Doc. No. 29. The Court allowed the Secretary's motion insofar as the Amended Complaint, Doc. No. 5, sought injunctive relief or relief on behalf of persons other than Williams and Taveras and denied the motion in all other respects pending filing of the administrative record. Doc. No. 35. The Secretary filed the administrative record on November 17, 2017. Doc. No. 43.[2] The plaintiffs subsequently filed a document from Attorney General Healey that was in the Secretary's possession when she certified the plaintiffs' debts for Treasury offset and moved to include it in the administrative record. Docs. No. 47-1, 46. Now before the Court are the parties' cross-motions for judgment on the record. Doc. Nos. 67, 80.

         I. BACKGROUND

         A. Facts[3]

         The now-defunct Corinthian College was a large, for-profit company that formally operated post-secondary schools around the country, including Everest Institute in Massachusetts (“Everest”). Doc. No. 81 at 4; 81 Fed. Reg. 39, 330, 39, 335 (June 16, 2016). According to Attorney General Healey, between 2007 and 2015, Corinthian College ran Everest, offering courses in medical administration, medical insurance billing and coding, dentistry, and massage therapy. Doc. No. 47-1 at 3. Also according to Attorney General Healey, Corinthian marketed Everest to individuals who were unable to afford its programs, and as a result, the vast majority of students who attended Everest borrowed money from the federal government under Title IV of the Higher Education Act of 1965 (“Title IV”). Id. As of June 30, 2010, 89.9 percent of Corinthian's revenue came from Title IV loans. Id. at 4. In 2011, the Massachusetts Attorney General's Office initiated an investigation of Corinthian's Everest campuses. Id.

         Plaintiffs Williams and Taveras are two former Corinthian students. Williams attended the Massage Therapy Program at Everest from March 29, 2011 to December 28, 2011. Doc. No. 22-3 ¶ 3; Doc. No. 29-1 at 12; A.R. at 513.[4] Taveras enrolled in the Medical Assistant Program at Everest on October 28, 2010 and graduated on July 14, 2011. Doc. No. 29-1 at 12; Doc. No. 22-2 ¶ 3. To pay for their respective programs, Williams and Taveras each obtained nearly $10, 000 in federal student loans through the Department of Education (“Education”). A.R. at 1-9, 509-11, 533-41; Doc. No. 19-2 ¶¶ 14-15.

         Both plaintiffs defaulted on their student loans in the fall of 2014. A.R. at 488-89, 814- 15. Both sets of loans were then transferred to the Education's debt collection unit that winter. A.R. at 509-11, 813-15. Then, in August 2015, Education sent each plaintiff an identical notice (“the notice”) of its intent to refer their debts to the TOP. A.R. 490-95, 793-98; Doc. No. 19-2 ¶¶ 12, 17.[5] The notice stated:

The U.S. Department of Education (ED) holds one or more past due, legally enforceable, defaulted student loans or grant claims for which you are responsible. . . . ED will refer your debt to the U.S. Department of the Treasury (Treasury), unless you pay this debt in full, make satisfactory arrangement to repay it, or make a timely, valid objection to enforcement of the debt. ED will request that Treasury deduct the amount of this debt . . . from any payment streams authorized by law . . . . These payment streams . . . include . . . Federal and/or State income tax refunds[.]

         A.R. at 797.

         The notice advised in bold, underlined text that “Neither [Education] nor Treasury [would] provide an additional notice and opportunity to review records or to object to collection of [the] debt before a Treasury offset.” Id. (emphasis in original). The notices informed Williams and Taveras of their rights with respect to the proposed offset, including the rights to review documents, object to the amount or existence of the debt, seek review by Education of such objections, and have a lawyer represent them in exercising their rights. Id.

         With respect to the right to object, the notices advised Williams and Taveras of various objections they could make, including:

1) “The debt is not past due at this time;”
2) “The debt is not legally enforceable against you at this time because, for example, you have filed bankruptcy and your case is still pending; the debt was discharged in a past bankruptcy; the loan was canceled for the death or disability;”
3) “The School owed you a refund for the period for which the loan was made, but did not pay the refund, or paid only part of the refund;” and
4) “The school you attended closed during the period for which the loan was made, or you did not have a high school diploma or GED and the school improperly determined that you could benefit from its training.”

Id. This list identifies grounds that fall outside the scope of the Secretary's interpretation of “not legally enforceable, ” but does not specifically reference the “borrower defense” defined in 34 C.F.R. § 685.206(c), which is discussed further below. The objections listed are not defined as exclusive.

         The notices admonished that “[t]o have [Education] review your objections to the collection of the debt(s), you must make a written request for review within 65 days of the date of the Debt Statement, ” id., but they also provided that a review of certification for offset could be obtained even if a person “miss[ed] the deadlines in [the] Notice, ” id. at 798. The notices did not elaborate on the circumstances under which Education would consider a late notice. However, the notices further stated that, once Education certifies a debt to Treasury for offset, Education will not withdraw that request, even if a defense to repayment is submitted, “until [the person objecting] prove[s] that the debt is not legally enforceable or not past-due.” Id. The notices additionally provided that, if a borrower presents written objections to repayment, Education will send “a written decision explaining whether [Education] will collect the debt in whole or in part, the reasons why, and the amount to be collected, ” and if the borrower disagrees with Education's decision, the borrower may have the “decision reviewed by bringing a lawsuit in Federal district court.” Id.

         Additionally, attached to each notice was a “Request for Review” form. Those forms stated: “If you object to offset against your . . . tax refunds . . . you can use this form[.]” Id. at 795. The forms included a list of objections to offset, advising the debtor to check “the objections that apply.” Id. The list included the same objections described within the notices, as well as the following additional objections:

1) “I do not owe the full amount shown because I repaid some or all of this loan[;]”
2) “I am making payments on this loan as required under the repayment agreement I reached with the holder of the loan[;]”
3) “I am totally and permanently disabled[;]”
4) “This is not my Social Security Number, and I do not owe this loan[;]”
5) “I believe that [the school] without my permission signed my name on the loan application[;]” and
6) a catch-all, “I believe that this loan is not an enforceable debt[6] in the amount stated for the reason explained in the attached letter . . . (for example, the loan was obtained by another person through the crime of theft of your identity, or any other reason not listed above).”

Id. at 795-96. The objections listed on the review form, like the objections recited in the notice of proposed offset, do not specifically reference the “borrower defense” defined in 34 C.F.R. § 685.206(c), although the form does include a catch-all category which suggests submitting “any other reason.”

         The 65-day window to file a request for review, as described in the notices received by Williams and Taveras, expired in mid-October 2015. Neither filed an objection prior to the deadline. On November 30, 2015, after the 65-day window but before Education's certification of the plaintiffs' debts, Attorney General Healey wrote to the Secretary. Doc. No. 29 at 1. She had been investigating Corinthian for three years. Doc. No. 47-1 at 4. Based on the evidence gathered during the investigation, she found “Corinthian engaged in a pattern of unfair and deceptive conduct in violation of Massachusetts consumer protections laws, ” and, on April 3, 2014, she filed a lawsuit against Corinthian in Suffolk Superior Court on behalf of all Everest students. Id. The action was stayed while Corinthian was in bankruptcy proceedings and so, at the time of Attorney General Healey's writing to the Secretary, was still ongoing. Id.

         In this writing to the Secretary, which Attorney General Healey calls a “defense to repayment” application (“the DTR”), [7] she requested “the immediate discharge” of federal student loans taken in connection with Everest, “full refunds to borrowers of amounts paid on the loans and the reversal of negative credit reporting.” Doc. No. 47-1 at 3. In support of her request, Attorney General Healey attached exhibits with information from former Everest students. Id. at 6. Among those are Exhibits 3 and 4, which are before the Court either under seal or in redacted form.

         Exhibit 3 to the DTR is a collection of over 30 separate documents, each concerning one specific former Everest student. See Doc. No. 93.[8] These DTR forms submitted by Attorney General Healey were not completed versions of Education's request for review form attached to its notice of possible offset. However, the submitted forms did include, as to each student, dates of enrollment, contact and identifying information (including Social Security numbers), a list of deceptive practices of Everest with checkmarks next to those practices that influenced the specific student's decision to attend, and the student's signature. Id. They also included, as to each student, signed authorization for Attorney General Healey to access information regarding the status of the student's loan(s) and to act on the student's behalf. Id. Regarding the Exhibit 3 students, the DTR requested that Education “review [the] individual proffers [in Exhibit 3], as supplemented by [Attorney General Healey's] submission, and promptly discharge the applicants' federal student loans.” Doc. No. 47-1 at 6. Exhibit 3 does not contain forms from Taveras or Williams.

         Williams and Taveras appear in Exhibit 4, which contains information about an additional 7, 200 Everest students in the form of a spreadsheet with a one-line entry for each student. Doc. No. 47-1 at 6, Doc. No. 29-1 at 12. Each entry includes the student's name, dates of enrollment, contact information, and programs attended. Doc. No. 29-1 at 12. The entries do not include the students' Social Security numbers, nor do they include statements from the students as to how they were personally influenced by Corinthian's illegal conduct. Id. Attorney General Healey did not submit signed forms from the students that appear on Exhibit 4. Attorney General Healey requested in the DTR that Education “provide a swift, wholesale, and automatic discharge” of the federal student loans of all Everest students in Massachusetts (presumably a potentially larger group than the students listed on Exhibit 4), including the 7, 200 students shown in Exhibit 4. Doc. No. 47-1 at 6. In a footnote, Attorney General Healey also stated:

Given the enclosed evidence of widespread abuse, it is important that the Department of Education automatically discharge the loans of Corinthian's Massachusetts borrowers, and not require borrowers to submit individual applications. It is well beyond the resources of borrowers to investigate cohort placement rates or aggregate witness statements. Navigating defense to repayment applications and gathering associated required documentation can also present significant hurdles, particularly in the case of a closed school like Corinthian. If the Department cannot create an automatic discharge process, we urge the Department to put measures in place to assist borrowers in asserting their individual defense to repayment, as part of the debt collection process.

Id. at 6 n.5.

         At the time Attorney General Healey submitted the DTR (and at the time the Secretary sent the notices to Williams and Taveras), the Secretary had a regulation providing that “in any proceeding to collect on a Direct Loan, the borrower may assert as a defense against repayment, any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law, ” which “proceedings include . . . [t]ax refund offset proceedings.”34 C.F.R. § 685.206(c)(1). When a borrower defense claim is successful, the Secretary must “notif[y] the borrower that the borrower is relieved of the obligation to repay all or part of [her] loan[.]” Id. at § 685.206(c)(2).[9] The notices sent to Williams and Taveras did not refer to this regulation.

         In the DTR, Attorney General Healey cited specifically this regulation and asserted that relief was due under it for each of the three described categories of Everest students (students listed on Exhibit 3, students listed on Exhibit 4, and all students in Massachusetts) because Corinthian had violated Massachusetts consumer protection laws, thereby “providing Everest MA students with defenses to repayment of their student loans.” Doc. No. 47-1 at 5. She then detailed-in a nearly 60-page discussion-the ways Corinthian had violated Massachusetts laws and deceived Everest students. See generally Doc. No. 47-1. For instance, according to the DTR, Corinthian misrepresented its in-field placement rates at Everest, which Corinthian advertised as “often in excess of 70%, ” id. at 3, when actual in-field placement rates were as low as 20 to 40 percent depending on the program, id. at 24. The document also described Corinthian's misrepresentation of the quality of career services and quality and type of classroom instruction at Everest. For example, in promotional material, Corinthian promised “programs specifically designed to provide hands-on training” but, in reality, most training at Everest was “self-taught instruction from workbooks.” Id. at 35. And, although Corinthian promised “experienced instructors” with “industry-specific expertise, ” instructors were “unqualified, uninformed, and unconcerned with teaching.” Id. at 38-39. “Many instructors were from temp agencies and some never taught in a classroom before.” Id. In addition, Corinthian advertised its ‚Äúprofessional-level standards for conduct and ...


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