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Sweet v. Devos

United States District Court, N.D. California

October 30, 2019

THERESA SWEET, CHENELLE ARCHIBALD, DANIEL DEEGAN, SAMUEL HOOD, TRESA APODACA, ALICIA DAVIS, and JESSICA JACOBSON, individually and on behalf of all others similarly situated, Plaintiffs,
ELISABETH DEVOS, in her official capacity as Secretary of the United States Department of Education, and THE UNITED STATES DEPARTMENT OF EDUCATION, Defendants.




         In this putative class action arising under the Higher Education Act and the APA, plaintiffs move for class certification. For the reasons stated below, the motion is Granted.


         Many for-profit colleges have left numerous students saddled with debt. Certain of these schools used fraudulent tactics to enroll students, such as inflating job placement numbers. Members of the instant putative class - including plaintiffs Theresa Sweet, Chenelle Archibald, Daniel Deegan, Samuel Hood, Tresa Apodaca, Alicia Davis, and Jessica Jacobson - sought to cancel their federal student loans with defendant United States Department of Education under the “borrower defense” rule, which allows defrauded students to apply for loan forgiveness based on their school's misconduct.

         Plaintiffs allege that since June 2018, the Department has arbitrarily and capriciously stonewalled (and continues to stonewall) the relief process with its “blanket refusal” to process their borrower claims. In June 2019, they brought the instant putative class action, seeking to compel the Department to at least begin deciding applications again. Plaintiffs fired the opening salvo soon thereafter with the instant motion for class certification. Most of the underlying facts were developed on briefing for the instant motion and are briefly summarized herein.

         1. Borrower Defense Regulatory Scheme.

         Title IV of the Higher Education Act of 1965, 20 U.S.C. § 1070 et seq., authorizes the Secretary of Education “to assist in making available the benefits of postsecondary education to eligible students” through financial-assistance programs. See id. §§ 1070(a), 1071(a)(1). These loan programs include the William D. Ford Federal Direct Loan Program (“Direct Loan Program”), which allows students attending “participating institutions of higher education” to secure direct loans from the federal government, and the Federal Family Education Loan (“FFEL”) Program, which allows the Department to reinsure guaranteed loans made to students by financial institutions. Id. §§ 1078, 1087a.

         The Act allows the Department to cancel a student federal loan repayment based on a school's misconduct. In implementing the Direct Loan Program, the Secretary “shall specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan under this part.” 20 U.S.C. § 1087e(h). The FFEL Program, which has been ineffective since 2010, had already provided for borrower defense claims (Dkt. No. 20-13 at 4).

         In January 1994, the Secretary promulgated regulations setting forth the first variation of the “borrower defense” rule for direct loans - later amended in December 1994 and effective 1995 - which allowed a borrower to “assert as a defense against repayment of his or her loan ‘any act or omission of the school attended by the [borrower] that would give rise to a cause of action against the school under applicable State law.' ” 60 Fed. Reg. 37, 768, 37, 770 (July 21, 1995) (quoting 34 C.F.R. § 685.206(c) (1995)). This standard still applies to all loans “first disbursed prior to July 1, 2017.” 34 C.F.R. § 685.206 (2018).

         In May 2015, Corinthian Colleges, Inc. (“Corinthian”) - “a publicly traded company [that] operat[ed] numerous postsecondary schools that enrolled over 70, 000 students at more than 100 campuses nationwide” - collapsed. 81 Fed. Reg. 39, 330, 39, 335 (June 16, 2016). In the wake of Corinthian's bankruptcy filing and the Department's finding “that the college had misrepresented its job placement rates, ” Corinthian students submitted a “flood of borrower defense claims.” Id. at 39, 330, 39, 335.

         In response to the heightened demand, the Department began creating a streamlined process and infrastructure for adjudicating the borrower defense claims. In June 2015, the Department appointed a special master “to create and oversee a process to provide debt relief for these Corinthian borrowers” and created a “Borrower Defense Unit” to handle those claims (Dkt. No. 20-15 at 7). 81 Fed. Reg. at 39, 335. In November 2016, it promulgated new borrower defense regulations - scheduled to take effect on July 1, 2017 - to codify the process for adjudication and to set a new standard for borrower defense claims. See 34 C.F.R. §§ 685.206, 685.222 (2018). The regulations required a borrower to submit an application with evidence supporting his or her claim and allowed the Secretary to designate an official to resolve the claim. Id. § 685.222(e).

         In 2017, the Department created a Borrower Defense Review Panel to examine the Department's borrower defense process and make recommendations on how to address pending claims going forward. That panel “decided to honor approximately 16, 000 borrower defense claim approvals made, but not effectuated, prior to January 20, 2017” (Compl. ¶¶ 164-65; Dkt. No. 20-15 at 33).

         Shortly before the 2016 regulations' effective date (July 1, 2017), the Department stayed the regulations under Section 705 of the APA, which delay another federal court found arbitrary and capricious in September 2018. Bauer v. DeVos, 325 F.Supp.3d 74, 110 (D.D.C. 2018) (Judge Randolph Moss). In May 2018, yet another federal court in this district preliminarily enjoined the Department's use of its new “partial relief methodology, ” which methodology provided for, in some cases, less than full discharges depending on the level of harm suffered by borrowers at particular Corinthian programs (Dkt. No. 38 at 5). Calvillo Manriquez v. Devos, 345 F.Supp.3d 1077 (N.D. Cal. 2018) (Magistrate Judge Sallie Kim). The appeal of this preliminary injunction is currently pending before our court of appeals.[1]

         2. The Instant Action.

         Borrowers continue to seek to cancel their student loans. Yet the Department has not decided a borrower defense claim since June 2018. Plaintiffs are former students of for-profit schools who have asserted borrower defense claims as early as 2015. They allege that the Department's inaction continues to cause putative class members ongoing harm (Compl. ¶¶ 181, 187, 205-35).

         For example, plaintiff Theresa Sweet graduated from the Brooks Institute of Photography (“Brooks”), a for-profit school offering programs in the visual arts, in 2006. Brooks represented to her that “80-90% of graduates got employed immediately after graduating”; “promised that they would help [her] get a job from ‘faculty networking' or from the job placement assistance office”; and “promised that Brooks credits would transfer to other colleges and universities.” Sweet borrowed about $46, 107 in FFEL loans (and over $140, 000 in private loans). Investigations eventually revealed that Brooks had violated state law, such as misrepresenting students' post-graduation income. Brooks shut down in August 2016. Sweet now works in a hospital as a certified nurse's assistant. She has never held a job that used her Brooks education. She could not transfer her credits from Brooks to other colleges or universities. Sweet asserted her borrower defense to the Department in the fall of 2016. The Department has yet to act on her application. Meanwhile, the interest on her loans continues to grow, with her federal loans now at $65, 000. The debt has affected her credit, which in turn has affected her career prospects, and other aspects of her life (id. ¶¶ 237-39, 244-54; Dkt. No. 20-2 ¶¶ 5-6).

         In June 2019, plaintiffs filed the instant putative class action, alleging that the Department “refuses to grant or deny” any of the over 158, 000 pending borrower defense applications as a matter of policy. They assert a single claim under Section 706(1) of the APA under the theory that the Department's inaction constituted unlawfully withheld and unreasonably delayed agency action. They seek injunctive relief compelling the Department to begin deciding borrower defense claims again. That is, they seek to “escape this limbo” and simply want a decision - whether an approval or denial - on their applications (Compl. ¶¶ 187, 377-89; Dkt. No. 20 at 2).[2]

         Plaintiffs now move to represent other borrower defense claimants and certify the following class pursuant to Federal Rules ...

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