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ROSS UNIV. SCH. OF MED. v. CAVAZOS

May 9, 1989

ROSS UNIVERSITY SCHOOL OF MEDICINE, SCHOOL OF VETERINARY MEDICINE (ST. KITTS) LIMITED, Plaintiff,
v.
LAURO CAVAZOS, Defendant



The opinion of the court was delivered by: GASCH

 OLIVER GASCH, UNITED STATES DISTRICT JUDGE

 This is an action for injunctive relief brought by Ross University against the Department of Education ("DOE"). In a letter dated March 24, 1989, the Department of Education informed Ross University that it intended to terminate the University's eligibility to participate in the student loan programs authorized by Title IV of the Higher Education Act of 1965 ("HEA"). The letter also informed plaintiff that DOE intended to impose a fine of $ 500,000 based on the violations set forth in the letter. If Ross wished to contest either of these sanctions, it was instructed to request a hearing or provide information by March 24 as to why the disciplinary action was not proper. In accordance with the regulations, any such hearing would take place before an Administrative Law Judge ("ALJ"). See 34 C.F.R. § 668.88 (1989). If Ross requested a hearing, the termination and fine would be stayed; in the absence of an objection the sanctions would take effect immediately.

 The Department of Education also informed Ross that, effective immediately, funds were being withheld from Ross and its students and Ross' ability to obligate funds was removed. Although Ross could "request an opportunity to show cause why the Emergency Action is unwarranted," the emergency suspension would not be stayed. Moreover, there would be no hearing before an ALJ. 34 C.F.R. § 668.83.

 Ross University contests the legality of the Secretary's emergency action. The Court issued a temporary restraining order on April 17, 1989, effectively vacating the imposition of the emergency suspension. The parties requested an extension of the Order until May 5. Before the Court are plaintiff's motion for preliminary injunction and defendant's motion for summary judgment. *fn1"

 I. FACTS

 Plaintiff Ross University School of Medicine, School of Veterinary Medicine (St. Kitts) Limited ("Ross University" or "Ross") owns and operates the Ross University School of Veterinary Medicine, The Ross University School of Medicine, and the Ross University Information Systems Institute, all located in the West Indies. The veterinary school is located in St. Kitts and since October 1984, has been eligible to participate in various student loan programs authorized by Title IV of the HEA. These include the Guaranteed Student Loan Program ("GSL"), Supplemental Loans for Students ("SLS"), and PLUS loans. The medical school is located in the Commonwealth of Dominica and was declared eligible to participate in Title IV loan programs in December, 1983. The present action primarily involves activity at Ross' Information Systems Institute, which is located in Antigua.

 A. The Antigua location

 In 1986, Ross added business and information systems programs ("computer courses") to the curriculum of the veterinary school. One of the principal disagreements between the parties is whether the Information Institute in Antigua was, or should have been, declared eligible to participate in Title IV loan programs by the Secretary. Therefore, the process surrounding Ross' application for the Information Institute to participate in the GSL program deserves close examination.

 On September 26, 1986, Dr. James Cassidy, President of Ross University, wrote the Department of Education seeking approval for the Ross University School of Medicine Information Systems Educational Program to participate in the GSL program. Exhibit A, Cooley Declaration. The application, signed by Dr. Robert Ross, Chairman of the Board, stated that "this application is for new programs to be established in the medical school for which GSL eligibility has already been established." Id. at 5. By including the new program in the University's current GSL eligibility, Ross avoided having to wait two years after the program had been in existence before applying for eligibility. See 20 U.S.C. § 1085(c) (3).

 The application explained that Ross University had campuses located on both St. Kitts and Dominica. The application made no mention of any campus on Antigua. On January 9, 1987, the Department of Education informed Ross that three of Ross' proposed courses of study in information systems qualified for inclusion under Ross University's existing eligibility. Exhibit B, Cooley Declaration. The letter noted that the eligibility applied only to Ross' Dominica location. On April 6, 1987, the Department wrote "the January notification incorrectly indicated a . . . Dominica location. We have changed our records to reflect the [St. Kitts] address." Id. The letter thanked Dr. Ross for calling the error to the Department's attention.

 Ross University contends that Dr. Ross informed Mr. Cooley of the Department of Education by phone that the information systems institute was to be located on Antigua. Dr. Ross avers that he phoned Cooley after receiving the January letter, after receiving the April letter, and again in September, attempting to correct the misunderstanding. Attachment to Plaintiff's Exhibit B. Dr. Ross wrote the Department on October 9, 1987, explaining that "the branch for which we requested approval is in Antigua." Exhibit Two, Plaintiff's Statement of Genuine Issues. Plaintiff has also submitted a declaration from its General Counsel stating that he met with Department officials in July, 1988 concerning complaints made by Ross students about the Antigua campus, yet Ross' eligibility to disburse funds in Antigua was not questioned. Exhibit three, Plaintiff's Statement of Genuine Issues.

 B. Improprieties at Antigua

 From February 26 to March 6, 1988, Department of Education officials conducted a program review of Ross University. Ross was informed by letter on February 6 that a program review would take place, but the letter did not explain which campuses would be visited or the particular dates of the visits. McKiernan Declaration at para. 5. The review was prompted by complaints from Ross students and a report from the United States Embassy in Antigua. Department officials visited plaintiff's St. Kitts and Antigua locations as well as its administrative offices in New York.

 At the Antigua location, Ross officials were not expecting the visit and the administrative files were in a state of disarray. Department officials found numerous problems with the administration of the Information Institute. In addition to incomplete and unorganized academic and financial aid files, the reviewers found that all 90 Institute students were GSL and SLS recipients. McKiernan Declaration at para. 5. The reviewers concluded that there were substantial violations of the regulations concerning financial accountability and recordkeeping. In particular, the reviewers concluded that Ross: (1) used commissioned salespersons to promote loan programs, (2) was not eligible to disburse Title IV funds at the Antigua location, (3) misrepresented itself as an employer in its advertising, (4) falsely informed students that Title IV loans must be retained by Ross and disbursed on an incremental basis to the students and (5) lacked administrative ability to execute its fiduciary responsibilities.

 Ross University vigorously denies the accuracy of the Department's account of affairs on Antigua. Numerous affidavits have been submitted by Ross students declaring their satisfaction with the educational program and with living conditions. Exhibit 5, Plaintiff's Statement of Genuine Issues.

 Following the review, Department officials met with representatives of Ross University in New York on March 8 to explain their findings and allow Ross officials to comment. At that meeting Department officials indicated that they would recommend that the eligibility of Ross University School of Veterinary Medicine be terminated. McKiernan Declaration at para. 12. A Ross attorney submitted a declaration averring that Department officials were inconsistent and not forthright at this exit interview in explaining the basis for their findings. Exhibit 6, Plaintiff's Statement of Genuine Issues.

 The reviewers subsequently recommended that emergency action be taken in addition to termination proceedings. The Department contends that emergency action was needed (1) "to prevent a large amount of GSLs being improperly committed for students at an ineligible location," (2) because "misrepresentations found to have been made to students dramatically increased the likelihood of loan defaults," (3) because commissioned salespersons were inducing students to receive loans, and (4) "the administrative defects were so substantial and systematic ...


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