MEMORANDUM OPINION
TREVOR
N. MCFADDEN, U.S.D.J.
Corinthian
Colleges, Inc., once operated over a hundred for-profit
college campuses across the country. Multiple state and
federal investigations revealed that Corinthian defrauded
students by falsifying its post-graduation job placement
data. Facing millions of dollars in fines and allegations of
deceptive marketing, Corinthian filed for bankruptcy and
announced the closure of its schools in 2015.
The
Department of Education oversees federal loan programs that
provided financial aid to thousands of Corinthian enrollees.
Student borrowers may assert as a defense against repaying
their loans any conduct by a school that would give rise to a
cause of action against the school under applicable state
law. See 34 C.F.R. § 685.206(c). In the wake of
Corinthian's collapse, more than 100, 000 borrowers have
raised this defense. Defs.' Mem. in Supp. of Mot. to
Dismiss 9, ECF No. 26-1 (“Defs.' Mem.”). To
apply for relief, the students must attest that they were
enrolled in a Corinthian-operated program that misrepresented
job placement rates and that they relied on this
misrepresentation when deciding to enroll. Id. at
10. Borrowers who have not submitted an attestation remain
subject to the Department's debt collection efforts,
including wage garnishment orders and tax refund seizures.
Am. Compl. 26.
Massachusetts,
Illinois, and New York (collectively, the
“States”) challenge the Department's
collection activity. They contend that the debts incurred by
former Corinthian students are not legally enforceable and
that subjecting these borrowers to wage garnishment and
refund seizures is arbitrary and capricious in violation of
the Administrative Procedure Act (“APA”). Am.
Compl. 30. They seek declaratory and related relief on behalf
of the students who attended Corinthian schools in the three
states.
The
Defendants moved to dismiss the case, arguing that the States
lack standing to sue, that they fail to sufficiently allege
“agency action” as required by the APA, and that
the Department's collection activity is lawful.
See Defs.' Mem. at 14-32. Because the Court
finds that the States have not established standing to bring
this action, it will grant the Defendants' motion.
I.
Title
IV of the Higher Education Act allows college students to
apply for and receive loans from the federal government to
pay for educational expenses. See 20 U.S.C. §
1087a et seq. While these loans must generally be
repaid, the Department has the authority to specify certain
“acts or omissions of an institution of higher
education [that] a borrower may assert as a defense to
repayment of a loan made under [the Act].” Id.
at § 1087e(h). The Department's regulations allow
borrowers to raise as a defense “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.” 34 C.F.R. § 685.206(c).
Federal
law requires the Department to “try to collect”
any “claim of the United States Government for money or
property arising out of the activities of, or referred to,
the agency.” 31 U.S.C. § 3711(a)(1). Accordingly,
the Department refers “legally enforceable nontax debt
that is over 120 days delinquent” to the Treasury
Department. 31 U.S.C. § 3716(c)(6)(A). Through
administrative offsets, the Treasury may withhold tax refunds
and other monies payable to a borrower to recover the debt.
See 31 U.S.C. §3701(a)(1). The Department of
Education also may garnish wages when attempting to collect
claims. 31 U.S.C. §3720D(a). A borrower may raise the
conduct of a school as a defense in response to such wage
garnishments, tax refund seizures, and other offsets. 34
C.F.R. § 685.206(c). But until this defense is asserted
and the Department adjudicates the borrower's
application, collection activities continue. See
Defs.' Mem. 2.
At
issue in this case are the delinquent student loan debts of
borrowers who attended Corinthian's colleges. Between
2010 and 2014, at least 71 Corinthian campuses across the
country fraudulently misrepresented job placement rates for
many of their programs of study. Pls.' Mem. in Opp'n
to Defs.' Mot. to Dismiss 6, ECF No. 27 (“Pls.'
Mem.”). In response, the Department simplified the
process for asserting defenses to loan repayment. Defs.'
Mem. at 9. It created “attestation forms”
requiring student borrowers to provide the name and dates of
the program they attended, the degree they sought, and a
certification that they enrolled based on the school's
advertising materials or similar representations.
Id. at 10. Once borrowers submit this form, their
loans are “placed in forbearance or stopped collection
until their claim is resolved.” Id. at 11.
But
this is not enough, according to the States. They seek to
prevent the Department from engaging in further debt
collection against all potentially defrauded borrowers, not
just those who file attestation forms. Pls.' Mem. 9. They
argue that the debts incurred by former Corinthian students
are not legally enforceable because of the company's
fraudulent misrepresentations, and that the Department knows
these debts are unenforceable. Pls.' Mem. at 26. Thus, by
submitting the debts to the Treasury for collection upon
delinquency, the Department is acting arbitrarily and
capriciously in violation of the APA. Id.
The
States claim standing to bring this claim on three grounds.
First, they allege harm to their “sovereign interest in
the correct interpretation of their state laws as
incorporated into federal law.” Id. at 2. The
Department's debt collection efforts rest on a
“misinterpretation of state law regarding the
enforceability of the debts in question, ” and the
States have an interest in the proper interpretation and
enforcement of their legal codes. Id. Second, the
States suggest they have a quasi-sovereign interest in the
economic well-being of their residents that entitles them to
sue the Department as parens patriae.[1] Id.
Third, they argue that the Department's “unlawful
collection activities” have directly harmed their
proprietary interests. Id. at 21. But for this debt
collection “individuals would have additional
assets” and would also be able to “attend the
States' community colleges and universities.”
Id. at 21-23. The Department's conduct therefore
caused the States to “pay increased government
benefits” and receive “reduced revenues.”
Id. at 21-22.
The
Defendants disagree. They argue that the Department's
conduct does not interfere with the States' exercise of
their sovereign powers, that a state cannot assert standing
as parens patriae against the federal government,
and that the alleged direct injury to the States'
proprietary interests is not attributable to the
Department's actions. See Defs.' Mem. at
14-20. Thus, because the States lack standing, the Defendants
contend that the Court does not have subject matter
jurisdiction over their claims and seek dismissal pursuant to
Federal Rule of Civil Procedure 12(b)(1). Id. at 13.
They also seek dismissal under Rule 12(b)(6), as they believe
that the Department's debt collection efforts are lawful
and not subject to challenge under the APA. Id. at
21-25.
II.
Article
III of the U.S. Constitution limits this Court's
jurisdiction to “actual cases or controversies.”
Clapper v. Amnesty Int'l USA, 568 U.S. 398, 408
(2013). “No principle is more fundamental to the
judiciary's proper role in our system of government than
the constitutional limitation of federal-court jurisdiction
to actual cases or controversies, ” and the
“concept of standing is part of this limitation.”
Simon v. E. Kentucky Welfare Rights Org., 426 U.S.
26, 37 (1976) (citation omitted). To establish their
standing, the States must allege an injury that is
“concrete, particularized, and actual or imminent;
fairly traceable to the challenged action; and redressable by
a favorable ruling.” Clapper, 568 U.S. at 409.
The
parties invoking the Court's jurisdiction bear the burden
of establishing standing. Susan B. Anthony List v.
Driehaus, 134 S.Ct. 2334, 2342 (2014). When facing a
motion to dismiss under Rule 12(b)(1), they “must
clearly allege facts demonstrating each element.”
Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016)
(cleaned up). The Court presumes that it “lack[s]
jurisdiction unless the contrary appears affirmatively from
the record.” Renne v. Geary, 501 U.S. 312, 315
(1991). The Court will “draw all reasonable inferences
from [the States'] allegations in [their] favor, ”
but will not “accept inferences that are unsupported by
the ...