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California Association of Private Postsecondary Schools v. DeVos

United States District Court, District of Columbia

November 18, 2019

ELISABETH DeVOS, Secretary, U.S. Department of Education, et al., Defendants, MEAGHAN BAUER AND STEPHANO DEL ROSE, Defendant-Intervenors .



         Intervenors Meaghan Bauer and Stephano Del Rose (“the Intervenors”) are former students at the New England Institute of Art (“NEIA”) who took out large student loans in reliance on what they contend were false promises by NEIA. See Dkt. 22-1; Dkt. 22-2. On November 1, 2016, the Department of Education (“the Department”) promulgated new rules that would have made it easier for Bauer and Del Rose to seek administrative relief from their debts and to bring class action claims on behalf of other former NEIA students against NEIA. See generally Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, William D. Ford Federal Direct Loan Program, and Teacher Education Assistance for College and Higher Education Grant Program, 81 Fed. Reg. 75, 926 (Nov. 1, 2016) (to be codified at 34 C.F.R. scattered sections) (“the 2016 Rule”). The California Association of Private Postsecondary Schools (“CAPPS”) filed this lawsuit challenging those new rules as unlawful and seeking to enjoin their implementation. Dkt 1. In response to this suit, the Department announced that it would delay implementation of the challenged rules, see Dkt. 20, and, in response to the Department's action, Bauer and Del Rose then filed a separate suit challenging that delay as unlawful, see Bauer v. DeVos, 17-1330 (filed July 6, 2017). They also moved to intervene in this case based on their concern that the Department's decision to stay implementation of the 2016 Rule might signal less than full resolve to defend the rule in the present action. Dkt. 22. The Court granted their motion to intervene. See Dkt. 63 at 56-57 (Sept. 14, 2018 Hrg. Tr.). CAPPS now moves for reconsideration of that decision in light of new evidence. Dkt. 64.

         For the reasons explained below, the Court will deny CAPPS's motion but will order that the Intervenors show cause why the Court should not now revoke their status as intervenors for lack of standing.

         I. BACKGROUND

         The history of the development of and challenges to the 2016 Rule and the Department's interim and final delay rules and the related litigation is set forth in this Court's prior opinions denying CAPPS's motion for a preliminary injunction, Cal. Ass'n of Private Postsecondary Schools v. DeVos, 344 F.Supp.3d 158, 163-66 (D.D.C. 2018) (“CAPPS I”), and resolving the parties' cross-motions for summary judgment in Bauer v. DeVos, 325 F.Supp.3d 74, 78-87 (D.D.C. 2018). For purposes of the present motion, an abridged version-with a focus on the procedural history of this case-will suffice. The regulations at the center of this lawsuit were promulgated on November 1, 2016 and are referred to as the “Borrower Defense Regulations” or the “2016 Rule.” 81 Fed. Reg. at 75, 926. Among other things, these regulations prohibit schools “participating in the [Federal] 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, ” and “from requiring students to engage in internal dispute processes before contacting accrediting or government agencies” regarding the claims forming the basis of such a class action lawsuit. (“Arbitration and Class Action Waiver Provision”). CAPPS I, 344 F.Supp.3d at 166 (quoting 81 Fed. Reg. at 75, 926-27). Under the pre-existing rules, borrowers could apply for relief from their loans on the ground that their educational institutions had engaged in certain forms of misconduct. Id. 165-66. The 2016 Rule also contained a provision amending the standards and procedures applicable to the Department's adjudication of these so-called borrower defense applications (“Borrower Defense Provision”). Id. Although not relevant to CAPPS's motion for reconsideration, challenged portions of the 2016 Rule also require “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')” and “adopt[] 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').” Id. at 166 (quoting 81 Fed. Reg. at 75, 926-27).

         CAPPS filed this lawsuit on May 24, 2017 challenging the 2016 Rule in its entirety. Dkt. 1. Eight days after filing suit, CAPPS moved for a preliminary injunction precluding portions of the 2016 Rule from taking effect. Dkt. 6. In response, the Department issued a rule staying implementation of most, but not all, provisions of the 2016 Rule pursuant to 5 U.S.C. § 705, see Dkt. 20, which allows agencies to “postpone the effective date of an action taken by it” if it concludes that “justice so requires.” That action by the Department prompted CAPPS to withdraw its motion for a preliminary injunction, see Dkt. 21, and prompted Meaghan Bauer and Stephano Del Rose to move to intervene as defendants in this action so they could defend the 2016 Rule, see Dkt. 22. Eight states and the District of Columbia also sought to intervene to defend the 2016 Rule. Dkt. 16. Around that same time, Bauer and Del Rose filed a separate lawsuit, Bauer v. DeVos, l7-cv-1330 (D.D.C. filed July 6, 2017), challenging the Department's rule staying the 2016 Rule's implementation and the interim and final rules delaying implementation of the 2016 Rule.

         The Intervenors based their motion to intervene on the fact that they had taken out large Federal Direct Loans to attend NEIA, which, they contend, misrepresented the education and employment opportunities it would provide to them. See Dkt. 22 at 9-10; Dkt. 22-1; Dkt. 22-2. They explained that they stood to benefit from the 2016 Rule in two ways. First, they sought to bring a class action lawsuit against NEIA and its parent company, Education Management Corporation (“EDMC”), for various violations of Massachusetts law, and that lawsuit would have been barred or channeled into individual arbitration proceedings unless the Arbitration and Class Action Waiver Provision of the 2016 Rule was allowed to take effect. See Dkt. 22 at 13. Second, they explained, albeit in a footnote in their reply brief, that they had each filed borrower defense applications with the Department as a defense to repayment and would benefit from the 2016 Rule's more borrower-friendly procedures for adjudicating those administrative applications. See Dkt. 44 at 12 n.1.

         The Court stayed the CAPPS case pending resolution of cross-motions for summary judgment in Bauer addressing the lawfulness of the Department's delay in implementing the 2016 Rule. Then, in Bauer, the Court held that the Department's § 705 stay rule and the Department's subsequent interim and final delay rules were invalid. Bauer, 325 F.Supp.3d at 79. On September 14, 2018, the Court held a status conference with the parties in both CAPPS and Bauer to address how the litigation in both matters should proceed in light of that holding. See Dkt. 63. During the status conference, the Court granted the Intervenors' motion to intervene in the CAPPS action. See Id. at 56-57 (Sept. 14, 2018 Hrg. Tr.). The Court found that the Intervenors had standing to defend the 2016 Rule, notwithstanding the limited nature of their interests, because CAPPS sought to invalidate the rule in its entirety, and CAPPS confirmed that characterization of its challenge on the record. See Id. at 46-47. In other words, if CAPPS was successful in challenging any portion of the 2016 Rule, and if the remaining provisions were held non-severable, as CAPPS maintained at that time, the entire rule would fall. Id. The Court further concluded that the Intervenors had satisfied the requirements of Federal Rule of Civil Procedure 24(a), see Id. 56-57, which provides for intervention as a matter of right, Fed.R.Civ.P. 24(a). With respect to the States' separate motion to intervene, the Court explained that it would permit the States to participate fully as amici in the preliminary injunction litigation and that, as a result, resolution of the motion to intervene would serve no material purpose at that stage of the proceeding. Id. at 40, 53-54. Based on that understanding, the States agreed to withdraw their motion to intervene without prejudice, Dkt. 61, but continued to participate fully as amici, see Dkt. 67.

         On September 22, 2018, CAPPS moved for reconsideration of the Court's order granting the Intervenors leave to intervene and simultaneously moved for a preliminary injunction to prevent the Department from implementing the 2016 Rule. Dkt. 64; Dkt. 65. CAPPS premised its motion for reconsideration on the “newly discovered” fact that NEIA and EDMC had filed for bankruptcy while the motion to intervene was pending (but after briefing was complete) and that the bankruptcy, according to CAPPS, deprived the Intervenors of standing to intervene in this case. See Dkt. 64.

         The Department and the Intervenors filed briefs opposing CAPPS's motion for a preliminary injunction, Dkt. 68; Dkt. 69, and the States that had previously sought to intervene participated as amici defending the rule, Dkt. 67. The Court denied the motion for preliminary injunction, concluding that, with respect to three of the four challenged provisions, CAPPS had not demonstrated a likelihood of success on the merits because it had not made an adequate showing that it was likely to have standing and, in any event, had not established that any of its members would suffer irreparable injury. CAPPS I, 344 F.Supp.3d at 176, 178, 181. With respect to the fourth-the Arbitration and Class Action Waiver Provisions-the Court held that CAPPS had not shown that any of its members would suffer irreparable injury if the preliminary injunction were denied. Id. at 170-73.[1]


         Any order or decision that is not a final judgment “may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.” Fed.R.Civ.P. 54(b). District courts have “broad discretion to hear a motion for reconsideration brought under Rule 54(b), ” Isse v. Am. Univ., 544 F.Supp.2d 24, 29 (D.D.C. 2008), but should grant motions for reconsideration “only as justice requires.” Capitol Sprinkler Inspection, Inc. v. Guest Servs., Inc., 630 F.3d 217, 227 (D.C. Cir. 2011) (quoting Greene v. Union Mut. Life Ins. Co. of Am., 764 F.2d 19, 22-23 (1st Cir.1985)). Typically, the Court should not grant a motion to reconsider “unless the movant presents either newly discovered evidence or errors of law that need correction.” Davis v. Joseph J. Magnolia, Inc., 893 F.Supp.2d 165, 168 (D.D.C. 2012). “The burden is on the moving party to show that reconsideration is appropriate and that harm or injustice would result if reconsideration were denied.” United States ex rel. Westrick v. Second Chance Body Armor, Inc., 893 F.Supp.2d 258, 268 (D.D.C. 2012) (citing Husayn v. Gates, 588 F.Supp.2d 7, 10 (D.D.C. 2008)).

         III. ANALYSIS

         CAPPS comes to Court with newly discovered-and significant-evidence: while the motion to intervene was pending, NEIA and EDMC filed for bankruptcy. The Intervenors concede that this bankruptcy filing rendered their “earlier plans to sue NEIA and EDMC as defendants who might possibly pay a judgment . . . no longer viable.” Dkt. 71 at 10. Indeed, as institutions that had filed for bankruptcy, NEIA and EDMC were no longer subject to the 2016 Rule. See 20 U.S.C. ยง 1002(a)(4)(A). CAPPS argues, then, that because the Intervenors could not have brought suit against NEIA and EDMC at the time this Court decided the motion to intervene for reasons wholly independent of the challenged Arbitration and Class Action Waiver Provision, they lacked standing to intervene. Dkt. 64 at 12-13. And, CAPPS argues, because the decision permitting them to intervene was predicated on the false premise that ...

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