California Association of Private Postsecondary Schools v. Devos

          MEMORANDUM OPINION AND ORDER

          RANDOLPH D. MOSS UNITED STATES DISTRICT JUDGE

         This is not the first (and presumably not the last) chapter in a dispute about the fate of regulations that the Department of Education promulgated in November 2016 to address perceived deficiencies in the William D. Ford Federal Direct Loan Program (“Direct Loan Program”), which allows students who attend participating schools to obtain federal loans. The regulations were intended to “protect student loan borrowers from misleading, deceitful, and predatory practices.” William D. Ford Federal Direct Loan Program (“2016 Rule”), 81 Fed. Reg. 75, 926 (Nov. 1, 2016). Shortly before the 2016 Rule was scheduled to take effect, Plaintiff California Association of Private Postsecondary Schools (“CAPPS”) brought this action seeking to set the rule aside in its entirety. Dkt. 1 at 75-76. About a week later, CAPPS moved preliminarily to enjoin the implementation or enforcement of a single provision, which prohibits participants in the Direct Loan Program from employing predispute arbitration clauses and class action waivers in certain disputes with student-borrowers (“Arbitration and Class Action Waiver Provision”). Dkt. 6. That motion was never fully briefed or decided, however, because the Department of Education, on its own accord, stayed the effective date of most of the 2016 Rule pursuant to 5 U.S.C. § 705 pending resolution of this case. William D. Ford Federal Direct Loan Program (“Section 705 Stay”), 82 Fed. Reg. 27, 621 (June 16, 2017).

         The Department's Section 705 Stay led to the next chapter of the dispute. Within weeks of issuance of the stay, two student-borrowers and a coalition of nineteen states and the District of Columbia filed separate lawsuits seeking to invalidate the stay. See Bauer v. DeVos, No. 17-cv-1330 (D.D.C. filed July 6, 2017); Massachusetts v. Dep't of Education, No. 17-cv-1331 (D.D.C. filed July 6, 2017). The Department subsequently issued an interim final rule on October 24, 2017, staying the effective date of the 2016 Rule to July 1, 2018, and then issued a final rule staying the effective date for another year. See William D. Ford Federal Direct Loan Program (“Interim Final Rule”), 82 Fed. Reg. 49, 114 (Oct. 24, 2017); William D. Ford Federal Direct Loan Program (“Final Delay Rule”), 83 Fed. Reg. 6, 458 (Feb. 14, 2018). With each new rulemaking, the student-borrower and state plaintiffs amended their complaints to challenge the new action. The Court consolidated the Bauer and Massachusetts cases and, on September 12, 2018, issued an opinion resolving the consolidated action. Bauer v. DeVos, No. 17-cv-1330, 2018 WL 4353656 (D.D.C. Sept. 12, 2018) (“Bauer I”). In that decision, the Court held that the Section 705 Stay was arbitrary and capricious and thus unlawful under the Administrative Procedure Act (“APA”); that the Interim Final Rule was, for the most part, moot; and that the Final Delay Rule was issued in violation of the Higher Education Act's negotiated rulemaking requirement. Id. Five days later, the Court entered a remedial order vacating the Final Rule and Section 705 Stay but staying vacatur of the Section 705 Stay until October 12, 2018. Bauer v. DeVos, No. 17-cv-1330, 2018 WL 4483783 (D.D.C. Sept. 17, 2018) (“Bauer II”). On October 12, 2018, the Court extended that stay until noon on October 16, 2018. Minute Order (Oct. 12, 2018), Bauer, No. 17-cv-1330.^[1]

         The Bauer I decision, in turn, opened the current chapter of the dispute. Two days after issuing that decision, the Court held a status conference in this action and set a schedule for CAPPS to renew its motion for a preliminary injunction to enjoin the 2016 Rule, which would go into effect upon expiration of the Court's stay. See Minute Order (Sept. 17, 2018). The Court also granted the Bauer plaintiffs leave to intervene (“Bauer Intervenors”) and granted the interested states and the District of Columbia leave to participate as amici (“State Amici”).^[2] See Minute Entry (Sept 14, 2018); Minute Order (Sept. 18, 2018). On September 22, 2018, CAPPS filed the pending motion for a preliminary injunction. Dkt. 65. This time, however, CAPPS has sought preliminarily to enjoin four provisions of the 2016 Rule: (1) the Arbitration and Class Action Waiver that it targeted in its original motion; (2) the “Financial Responsibility Provision;” (3) the “Repayment Rate Provision;” and (4) the “Borrower Defense Provision.” Id. at 17. The United States and Bauer intervenors filed briefs in opposition, and the states and the District of Columbia filed an amicus brief in opposition. See Dkt. 67 (State Amici); Dkt. 68 (Bauer Intervenors); Dkt. 69 (United States). CAPPS filed a reply brief on October 8, 2018, Dkt. 72, and the Court held oral argument the following day, Minute Order (Oct. 9, 2018).

         Each of the four provisions that CAPPS seeks to enjoin raises a distinct set of issues; overall, CAPPS raises twenty-four challenges to the four provisions. As to most of the challenged provisions, CAPPS has failed to demonstrate that it has standing or that the dispute is ripe for decision. Moreover, with respect to each of the four provisions, CAPPS has failed to carry its burden of demonstrating that any one of its members is likely to suffer an irreparable injury in the absence of an injunction. Because irreparable injury is the sine qua non for obtaining a preliminary injunction, that flaw is dispositive. In light of these threshold obstacles, the Court need not reach the merits of the plethora of substantive arguments that CAPPS raises- and, indeed, concludes that it would not be prudent to do so on such an abbreviated schedule. Those issues, in short, are for the next chapter.

         The Court will, accordingly, deny the motion for a preliminary injunction and will set a schedule for cross-motions for summary judgment.

         I. BACKGROUND

         Title IV of the Higher Education Act of 1965 (“HEA”), 20 U.S.C. § 1070 et seq., empowers the Secretary of Education “to assist in making available the benefits of postsecondary education to eligible students . . . in institutions of higher education” through various types of financial aid. Id. § 1070(a). The William D. Ford Federal Direct Loan Program (“Direct Loan Program”) allows students who attend “participating institutions of higher education” to obtain direct loans from the federal government to pay for their educational expenses. Id. § 1087a(a). To participate in the Direct Loan Program, institutions of higher education must enter into contracts, called Program Participation Agreements (“PPAs”), with the Secretary of Education and agree to comply with the HEA, all applicable regulations, and certain other conditions. See 20 U.S.C. §§ 1087c(a), 1094(a)(4); 34 C.F.R. §§ 668.14, 685.300(b). These contracts may include any provisions “the Secretary determines are necessary to protect the interests of the United States and to promote the purposes of” the Direct Loan Program. 20 U.S.C. § 1087d(a)(6); see also id. § 1087c.

         By statute, students who are harmed by a Title IV school's violation of certain laws, including prohibitions on fraud, may be entitled to relief from their federal Direct Loan obligations through a process known as “borrower defense” to repayment. Id. § 1087e(h); see also 34 C.F.R. § 685.206(c). In administering the Direct Loan Program, the Secretary must also “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” made under the Direct Loan Program. 20 U.S.C. § 1087e(h). And more generally, the Secretary has authority “to make, promulgate, issue, rescind, and amend rules and regulations governing the” Direct Loan Program. Id. § 1221e-3.

         Pursuant to these authorities, in January 1994, the Secretary issued “standards, criteria, and procedures governing the Federal Direct Student Loan . . . program, ” including the first iteration of the Borrower Defense Rule. Federal Direct Student Loan Program, 59 Fed. Reg. 472, 472 (Jan. 4, 1994). In December 1994, the Secretary amended the Direct Loan Program regulations, including those governing borrower defenses, see William D. Ford Federal Direct Loan Program, 59 Fed. Reg. 61, 664, 61, 696 (Dec. 1, 1994), and under those regulations, borrowers were permitted to assert “as a defense against repayment, 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.” 34 C.F.R. § 685.206(c)(1). The 1994 regulations (1) permitted a student borrower to assert her school's misconduct as a reason for nonrepayment, and (2) if the borrower was successful, permitted the Department of Education to recoup the loan from the school. Id. § 685.206(c)(2), (3).

         The adequacy of the 1994 Borrower Defense Rule was tested by the collapse of Corinthian Colleges in May 2015. See William D. Ford Federal Direct Loan Program (“June 16, 2016 Notice of Proposed Rulemaking (‘NPRM')”), 81 Fed. Reg. 39, 330, 39, 330 (June 16, 2016). Corinthian, a for-profit company that “operat[ed] numerous postsecondary schools that enrolled over 70, 000 students at more than 100 campuses nationwide, ” id. at 39, 335, filed for bankruptcy in 2015. In the wake of Corinthian's closure, the Department ultimately determined “that the college had misrepresented its job placement rates.” Id. In the aftermath, “thousands of claims for student loan relief” were filed, and Corinthian's bankruptcy meant that there was “no other party from which the Federal government [could] recover any losses.” 2016 Rule, 81 Fed. Reg. at 76, 022. The Department concluded, against this backdrop, that the 1994 borrower defense rule was outdated and was no longer adequate to deal with the changed “landscape of higher education.” June 16, 2016 NPRM, 81 Fed. Reg. at 39, 335.

         To address these perceived deficiencies, the Department commenced a rulemaking, and on November 1, 2016, it published the final rule governing the Direct Loan Program that is at issue in the present action. 2016 Rule, 81 Fed. Reg. at 75, 926. In relevant part, the 2016 Rule: (1) prohibits schools “participating in the Direct Loan Program from obtaining” or relying upon a borrower's “waive[r] [of] his or her right to initiate or participate in a class action lawsuit, ” or “from requiring students to engage in internal dispute processes before contacting accrediting or government agencies” (“Arbitration and Class Action Waiver Provision”); (2) requires “financially risky institutions [to be] prepared to take responsibility for the losses to the government for discharges of and repayments for [f]ederal student loans” (“Financial Responsibility Provision”); (3) adopts certain disclosure obligations for institutions “at which the median borrower has not repaid in full, or made loan payments sufficient to reduce by at the least one dollar the outstanding balance of the borrower's loans received at the institution” (“Repayment Rate Provision”); and (4) amends the standards and procedures applicable to the borrower defense process (“Borrower Defense Provision”). Id. at 75, 926-27.

         CAPPS seeks preliminarily to enjoin the implementation of each of these provisions.

         II. ANALYSIS

         “A preliminary injunction is an extraordinary remedy never awarded as of right, ” Winter v. Natural Res. Def. Council, 555 U.S. 7, 24 (2008), but “only when the party seeking the relief, by a clear showing, carries the burden of persuasion, ” Cobell v. Norton, 391 F.3d 251, 258 (D.C. Cir. 2004). To secure a preliminary injunction, a plaintiff “must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Winter, 555 U.S. at 20. Although the moving party may rely on “evidence that is less complete than in a trial on the merits, ” NRDC v. Pena, 147 F.3d 1012, 1023 (D.C. Cir. 1998), he nevertheless “bear[s] the burden of produc[ing] . . . credible” evidence sufficient to demonstrate his entitlement to injunctive relief, R.I.L-R v. Johnson, 80 F.Supp.3d 164, 173 (D.D.C. 2015) (quotation marks omitted) (first alteration in original).

         Before the Supreme Court's decision in Winter, courts in this circuit applied a “sliding-scale” approach to the preliminary injunction analysis under which “a strong showing on one factor could make up for a weaker showing on another.” Sherley v. Sebelius, 644 F.3d 388, 392 (D.C. Cir. 2011). Since Winter, the D.C. Circuit has hinted on several occasions that “a likelihood of success is an independent, freestanding requirement for a preliminary injunction, ” id. at 393 (quoting Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1296 (D.C. Cir. 2009)), but it “has not yet needed to decide the issue, ” League of Women Voters of United States v. Newby, 838 F.3d 1, 7 (D.C. Cir. 2016); see also Am. Meat Inst. v. U.S. Dep't of Agric., 746 F.3d 1065, 1074 (D.C. Cir. 2014), reinstated in relevant part by 760 F.3d 18 (D.C. Cir. 2014) (“This circuit has repeatedly declined to take sides . . . on the question of whether likelihood of success on the merits is a freestanding threshold requirement to issuance of a preliminary injunction.”) (en banc); Sherley, 644 F.3d at 393 (reading “Winter at least to suggest if not to hold ‘that a likelihood of success is an independent, free-standing requirement for a preliminary injunction'” but declining to decide the issue (quoting Davis, 571 F.3d at 1296)).

         But, regardless of whether the sliding scale approach applies, a party seeking a preliminary injunction must clear two, non-negotiable hurdles. First, a court must-at each successive stage of the proceeding-evaluate whether it has jurisdiction to provide the relief sought, and it must do so through the lens of the standard applicable at that stage of the proceeding. Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992). As a result, “a party who fails to show a ‘substantial likelihood' of standing is not entitled to a preliminary injunction.” Food & Water Watch, Inc. v. Vilsack, 808 F.3d 905, 913 (D.C. Cir. 2015) (citation omitted). That same reasoning, moreover, extends to other jurisdictional prerequisites, such as ripeness.

         Second, as Winter makes clear, a mere “possibility” of irreparable harm will not suffice. Winter, 555 U.S. at 22. “Rather, a showing that irreparable injury is ‘likely' is the sine qua non for obtaining a preliminary injunction-it is what justifies the extraordinary remedy of granting relief before the parties have had the opportunity fully to develop the evidence and fully to present their respective cases.” Achagzai v. Broad. Bd. of Governors, No. 14-cv-768, 2016 WL 471274, at *3-4 (D.D.C. Feb. 8, 2016); see also Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006) (“A movant's failure to show any irreparable harm is therefore grounds for refusing to issue a preliminary injunction, even if the other three factors entering the calculus merit such relief.”); Texas Children's Hosp. v. Burwell, 76 F.Supp.3d 224, 241-42 (D.D.C. 2014); Trudeau v. FTC, 384 F.Supp.2d 281, 296 (D.D.C. 2005), aff'd, 456 F.3d 178 (D.C. Cir. 2006). As a result, if the moving party fails to demonstrate that it is likely to suffer an irreparable injury, the Court must deny the motion.

         With these guideposts in mind, the Court will consider whether CAPPS has established that there is a “substantial likelihood” that the Court has Article III jurisdiction to consider its challenge to each of the four provisions at issue and whether it has shown that the association, or one of its members, is likely to suffer an irreparable injury if the Court does not issue a preliminary injunction.

         A. Arbitration and Class Action Waiver

         The first of the provisions that CAPPS seeks to enjoin adds conditions to the Direct Loan Program Participation Agreements-or “PPAs”-that participating schools must enter with the Secretary of Education in order to receive Title IV funding. 2016 Rule, 81 Fed. Reg. at 75, 927. To qualify as a “participating institution, ” a school must enter a PPA promising to undertake an array of responsibilities, such as estimating the needs of student-borrowers, reconciling certain records on a monthly basis, and implementing a quality assurance system. 34 C.F.R. § 685.300. As relevant here, the 2016 Rule amended this regulation to require that each participating school must also agree that (1) it “will not seek to rely in any way on a predispute arbitration agreement or on any other predispute agreement with a student who has obtained or benefited from a Direct Loan, with respect to any aspect of a class action that is related to a borrower defense claim;” (2) it “will not enter into a predispute agreement to arbitrate a borrower defense claim, or rely in any way on a predispute arbitration agreement with respect to any aspect of a borrower defense claim;” and (3) if the school has existing contracts with student-borrowers that include covered predispute class action waivers or arbitration agreements, “the school must either ensure [that] the agreement[s] [are] amended . . . or provide the student[s] with written notice” that it will not “use” the predispute class action waivers or arbitration agreements. 2016 Rule, 81 Fed. Reg. at 76, 087-88 (34 C.F.R. § 685.300(e)(1), (e)(3)(ii), (e)(3)(iii)(B), (f)(1), (f)(3)(ii), (f)(3)(iii)(B)).

         According to CAPPS, these additional conditions “conflict with” the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2; exceed the Secretary's authority under the HEA, 20 U.S.C. 1087d; were promulgated in violation of the APA, 5 U.S.C. § 702(2); and violate the Due Process Clause. See Dkt. 65 at 11-20. For present purposes, however, the Court does not reach these questions but, instead, considers whether CAPPS has established standing to bring these claims and, if so, whether it has established that at least one of its members is likely to suffer an irreparable injury if the Court does not issue a preliminary injunction. The answer to the first question is “yes, ” but the answer to the second is “no.” As a result, the Court must deny CAPPS's motion for a preliminary injunction with respect to the Arbitration and Class Action Waiver Provision.

         1. Standing

         As a first step, the Court must consider whether CAPPS has met its burden of establishing a “substantial likelihood” that it has standing to challenge the Arbitration and Class Action Waiver Provision. See Food & Water Watch, Inc., 808 F.3d at 913. When an association, like CAPPS, seeks to establish standing, it may proceed in one of two ways: it may show that the association has “organizational standing” to sue on its own behalf, or it may demonstrate that it has “associational standing” to sue on behalf of its members. See Public Citizen, Inc. v. Trump, 297 F.Supp.3d 6, 17 (D.D.C. 2018). Here, CAPPS relies only on the latter theory.

         Associational standing is premised on the theory that the plaintiff is not seeking a remedy on its own behalf but, rather, is proceeding “as the representative of its members.” Warth v. Seldin, 422 U.S. 490, 511 (1975). As such, the plaintiff need not establish that it has standing to sue in its own right, but must show that (1) at least one of “its members would otherwise have standing to sue in [her] own right, ” (2) the interests that the association “seeks to protect” in the litigation “are germane to the organization's purpose, ” and (3) “neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.” Hunt v. Wash. State Apple Advert. Comm'n, 432 U.S. 333, 343 (1977). Viewed through the lens of the pending motion, the Court has little difficulty in concluding that CAPPS is “likely” to satisfy the second and third prongs of the Hunt test. According to the CAPPS's executive director, Robert Johnson, CAPPS provides its member schools with advice regarding compliance with regulatory mandates and assists “in the drafting of enrollment agreements and arbitration provisions.” Dkt. 65-2 at 1 (Johnson Decl. ¶ 1). And this is not a case-like a damages action, for example-that requires the participation of individual members. The first prong-the requirement that at least one member have standing to sue-however, requires more detailed analysis.

         The standing inquiry begins with the oft-quoted test articulated in Lujan v. Defenders of Wildlife:

[T]he irreducible constitutional minimum of standing contains three elements. First, the plaintiff must have suffered an “injury in fact”-an invasion of a legally protected interest which is (a) concrete and particularized, . . . and (b) “actual and imminent, not ‘conjectural' or ‘hypothetical.'” . . . Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be “fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court.” . . . . Third, it must be “likely” as opposed to merely “speculative, ” that the injury will be “redressed by a favorable decision.”

504 U.S. 555, 560 (1992) (alterations in original) (internal citations omitted). Because standing must be evaluated on a claim-by-claim basis, Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 185 (2000), and because standing must be assessed in light of the standard applicable at the relevant stage of the proceeding, Lujan, 504 U.S. at 561, this means that CAPPS must establish a “substantial likelihood” that at least one of its members (1) will suffer an “actual and imminent” injury, (2) that is “fairly traceable” to each of the challenged provisions, and (3) that “the injury will be redressed by a favorable ...