Legal Alert: Court Denies Preliminary Injunction in Borrower Defense Litigation (CAPPS v. DeVos)
By Linh T. Nguyen and Dennis M. Cariello
U.S. District Court Judge Randolph Moss has denied California Association of Private Postsecondary Schools (“CAPPS”)’ renewed motion for a preliminary injunction to enjoin certain provisions of the 2016 Borrower Defense to Repayment (“BDR”) Final Regulations. In denying a preliminary injunction, Judge Moss did not rule on the substantial likelihood of success for CAPPS’ many arguments and the case will proceed on cross-motions for summary judgment. This ruling, in conjunction with Bauer v. Devos, clears the way for the Department of Education to implement the 2016 BDR Final Regulations in its entirety. The Department said Friday that it will not seek a new delay for such implementation. It is unclear at this point whether the rules will be implemented immediately or if there will be some phase in to allow schools to come into compliance.
CAPPS, an industry group asserting associational standing on behalf of its members, sought to enjoin four provisions in the 2016 BDR Final Regulations: 1) an arbitration ban and class action waiver, 2) the financial responsibility provisions, 3) a repayment rate provision, and 4) the borrower defense provisions. The court found that CAPPS could only show a substantial likelihood of standing for its challenge of the arbitration ban and class action waiver, given that a number of its members use arbitration provisions in their enrollment agreements, will be required to send notices to their students and retrain staff under the rule change, and currently have disputes in arbitration. However, the court held that CAPPS failed to show across the board that its associational members will suffer irreparable harm in the absence of an injunction under each of the four challenged provisions. Namely, in a number of instances, CAPPS failed to show an imminent threat of harm in light of the Department’s statements in oral argument that enforcement actions will be delayed or subject to further notice and comment rulemaking. Moreover, the court noted that the Administrative Procedure Act afforded the associational members additional remedies following any enforcement actions by the Department.
Relevant to this decision, on Monday a U.S. Magistrate Judge in the Northern District of California certified a class of Corinthian College students who submitted borrower defense claims to the Department, while a District of Columbia District Court Judge found on Friday that a number of states lacked standing to pursue BDR claims on behalf of Corinthian College students in their respective states.
Of course, the true effect of this is not yet known. The Department may, for example, publish the final borrower defense regulations developed in the 2017-2018 negotiated rulemaking and designate those regulations for early implementation. This would minimize the reach of this ruling and, coupled with a phase in, may render the effect of the decision on institutions as relatively minor. On the other hand, if the Department believes it must re-regulate the borrower defense to repayment regulations, this decision (and the 2016 regulations) may apply to institutions for a longer period. These are only a few of the currently unanswered questions at his point.
Should you have any questions or concerns about the implications of this ruling, please feel free to contact HMBR’s Higher Education Group at 312-946-1800.