This Court has jurisdiction under 28 U.S.C. § 1291. The district court entered an order granting summary judgment to defendants on November 12, 1998; plaintiff Renee Jordan filed a timely motion for reconsideration which was denied by Order entered December 30, 1998. Plaintiff Jordan filed a notice of appeal on January 12, 1999. The district court had jurisdiction under 20 U.S.C. § 1082(a)(2) and under 28 U.S.C. § 1331 because this case arises under the Higher Education Act, 20 U.S.C. § 1071 et. seq.
ISSUES PRESENTED FOR REVIEW
20 U.S.C. § 1087(c)(1) provides that the Secretary of Education "shall" discharge student loans under the Higher Education Act if the "student's eligibility to borrow . . . was falsely certified by the eligible institution." 20 U.S.C. § 1087(c)(1). This appeal presents the following issues:
1. Are the Secretary of Education's regulations on false certification discharges, 34 C.F.R. § 682.402(e), consistent with the statute where the regulations require that, in order to receive a discharge, a borrower who satisfies the statutory language must also satisfy additional conditions relating to the borrowers' subsequent employment and attempts to seek employment after the borrower left the school?
2. Did the district court err in upholding the Secretary of Education's decision to deny plaintiff's application for discharge on a ground that is different from the basis for the decision articulated by the agency, particularly when the ground cited by the district court presumes that the Secretary has adopted a minimum standard of proof, and no such standard has been adopted by the agency?
STATUTES AND REGULATIONS INVOLVED
Pertinent statutes and regulations are set forth in an addendum to this brief.
STATEMENT OF THE CASE
This appeal concerns the Department of Education's implementation of a statute that mandates that the Secretary of Education discharge the loans of student borrowers whose eligibility was falsely certified by the schools that they attended. 20 U.S.C. § 1087(c) (1994). If a borrower qualifies for discharge, the government is obligated to cancel the borrower's loan, restore the borrower's eligibility for federal assistance, and refund any money collected from the borrower. 34 C.F.R. § 682.403(e)(2) (1998). The Secretary, however, has attempted to reduce the number of loans that he is obligated to discharge by adopting regulations which require that borrowers who were falsely certified must also show that they were rejected for employment in the vocation for which they were trained. These subsequent employment requirements do not appear in the statute and have the anomalous effect of denying relief to many borrowers who were falsely certified unless they make futile applications for employment in the very vocations for which they were improperly recruited by schools.
After suit was filed, the Secretary granted a discharge to one of the two plaintiffs in this action, but denied the discharge application of plaintiff Jordan, who is the appellant here. On cross-motions for summary judgment, the district court upheld the Secretary's regulations requiring proof of unsuccessful efforts to obtain employment to qualify for discharge, and it affirmed the Secretary's decision to deny plaintiff Jordan's application for discharge, but it relied on a rationale that was not the reason given by the agency.
A. Statutory Requirements for False Certification Discharge.
The Guaranteed Student Loan Program ("GSLP") is one of a number of programs established by the Higher Education Act of 1965, 20 U.S.C. § 1071 et seq. ("HEA") to promote educational opportunities.(1) Under the GSLP, private lenders make loans for "eligible borrowers" to attend "eligible institutions." 20 U.S.C. § 1085(a). State and private guaranty agencies insure these loans against default, and the Secretary of Education, in turn, reinsures the guaranty agencies against their losses. See 20 U.S.C. § 1078(c)(1), (7).
Eligibility for these federally-insured student loans is generally limited to students who have completed a high school education. However, the Act allows vocational schools to enroll students who do not have a high school degree or equivalency if the school certifies that the student has "the ability to benefit" from the school's vocational training. 20 U.S.C. § 1085(c); 34 C.F.R. § 600.7(a) (1988). The criteria for determining whether a student has the "ability to benefit" have varied over time, but the statute and regulations generally require that the school "certify" that the student has passed a properly administered nationally recognized test that demonstrates that the student has the aptitude to complete the educational program for which the student has applied. See 20 U.S.C. § 1091(d)(1988); 34 C.F.R. § 600.11(b)(1) (1988); id. § 668.7(b)(1).(2)
In the late 1980s and early 1990s, investigations into the student loan program found that many vocational schools defrauded students and the loan program by aggressively recruiting individuals who did not have high school educations and falsely certifying that these individuals satisfied the "ability to benefit" test.(3) "The integrity of [the student loan and grant] programs," noted the Senate Committee responsible for amending the Higher Education Act, "has been harmed immeasurably by persistent reports of fraud and abusive actions by schools and other program participants, especially in the Stafford loan program where profit incentives are great." Reauthorizing the Higher Education Act of 1965, S. Rep. No. 204, 102d Cong., 1st Sess. 3 (1991).
When the Act was reauthorized in 1992, Congress sought to provide relief for students victimized by these abuses. Section 1087(c)(1) now provides that, for any GSL loan received on or after January 1, 1986, "the Secretary shall discharge the borrower's liability on the loan (including interest and collection fees) by repaying the amount owed on the loan" if the "student's eligibility to borrow under this part was falsely certified by the eligible institution." 20 U.S.C. § 1087(c)(1). If a borrower qualifies for a discharge, the borrower's loan is canceled, and any adverse consequences arising from the loan are eliminated.(4) The statute does not give the Secretary any authority to establish conditions or qualifications for discharge eligibility beyond those set forth in the statute.
Plaintiffs Jordan and Black attended one of the vocational schools that government investigators have found illegally enrolled students who did not have high school degrees. The school was known as "NBS" or "National Business School," and was operated by Market Tire Educational Services, Inc., with campuses in the District of Columbia and Maryland. NBS used federally-insured student loans to recruit individuals to enroll in its six-month course in Law Enforcement training. JA 83-100. NBS's recruiting practices were investigated in 1988 when the Department of Education's Inspector General received information that NBS admitted students "who could not pass the entrance examination" and even enrolled students "who could not read or write." JA 57-58. The Inspector General and the FBI conducted a joint investigation in which undercover officers visited the school and confirmed that NBS was enrolling unqualified students by providing individuals who did not have a high school education with test answers and by improperly administering its tests. JA 52-54. In 1990 the investigation was abandoned when NBS lost its accreditation and closed its Law Enforcement Program. JA 51.(5)
When NBS recruited plaintiff Jordan in September 1987 and plaintiff Black in December 1988, neither had a high school diploma or a GED, and neither passed a properly administered "ability to benefit" test. See JA 44 ¶ 4; JA 113 ¶ 3. Nonetheless, NBS arranged for plaintiff Jordan to sign a guaranteed student loan for $ 2,625, and arranged for plaintiff Black to sign two guaranteed student loans totaling $3,425.
After completing the NBS program in 1988, plaintiff Jordan sought employment as a security officer. The employer she contacted, however, told her that she was not qualified because she did not have a high school diploma or GED. JA 44-45 ¶ 6, JA 107. Similarly, plaintiff Black applied for a position as a security officer and was rejected. JA 113 ¶ 5. The Secretary of Education and holders of the loans proceeded to enforce the NBS loans against plaintiffs. The federal government seized plaintiff Black's tax refund in 1992, and loan holders collected over $900 from plaintiff Jordan. See JA 18.
B. The Secretary's False Certification Requirements
In 1994, several years after plaintiffs left NBS, the Secretary adopted regulations to implement the false certification discharge amendments adopted by Congress in 1992. In the regulations, the Secretary concluded that the statute's reference to "false certification" of the student's eligibility refers to situations where the school certified the student's eligibility for a loan "on the basis of ability to benefit from its training and the student did not meet the applicable requirements described in 34 C.F.R. Part 668 and section 484(d) of the Act [20 U.S.C. § 1091(d)]." 34 C.F.R. § 682.402(e)(1)(i). False certification occurs where the school "was required to test for ability to benefit, but either failed to test at all, or tested in disregard of the requirements for proper use of the test adopted." 59 Fed. Reg. 2489 (1994); see also 34 C.F.R. § 682.402(e)(3)(ii) (discharge claim may be based on defective testing of ability to benefit).
Accordingly, subpart B of the Secretary's regulations requires that an applicant seeking a discharge submit a sworn declaration attesting that he or she was admitted to the school "on the basis of ability to benefit and did not meet the applicable requirements for admission on the basis of ability to benefit as described in paragraph (e)(13) of this section." 34 C.F.R. § 682.402(e)(3)(ii)(B). Paragraph (e)(13) describes the "ability to benefit" testing requirements. See id. § 682.402(e)(13)(ii)(B).
However, subpart C requires that borrowers seeking a discharge satisfy additional conditions not found in the statute. If the borrower withdrew from the school before completing the program, the regulations require that the borrower must provide a sworn statement affirming that he or she did not find employment in the occupation for which the program was intended to provide training. 34 C.F.R. § 682.402(e)(ii)(3)(C). If the borrower completed the course, the borrower must provide a statement affirming that he or she "made a reasonable attempt to obtain employment in the occupation for which the program was intended to provide training," and either "was not able to find employment in that occupation" or "obtained employment in that occupation only after receiving additional training" from another school. Id.
When these regulations were proposed, commenters objected that these additional requirements are without statutory basis because 20 U.S.C. § 1087(c) does not impose any requirements concerning subsequent attempts to obtain employment. The Secretary dismissed these objections and concluded that he could deny discharge if a borrower might have benefitted from training by finding employment, even if the school's certification of eligibility was improper. See 59 Fed. Reg. 2486, 2489 (Jan. 14, 1994); see also 59 Fed. Reg. 22462, 22471 (April 29, 1994) (affirming earlier discussion of reasons for employment requirements).
C. Plaintiffs' Discharge Applications and the Decision Below.
Although Section 1087(c) places responsibility for discharging loans on the Secretary, the Secretary's regulations require that, where a guarantor or lender holds the loan, the guarantor shall determine whether the discharge shall be granted, subject to review by the Secretary. See 34 C.F.R. §§ 682.402(e)(3), 682.402(e)(6)(iv), 682.402(e)(11). Accordingly, in 1996 plaintiffs Jordan and Black submitted requests for discharge to the holders of their loans. JA 43, 112.
Plaintiff Jordan's loan was held by a guaranty agency, the Nebraska Student Loan Program, which denied her application. JA 108. On appeal, the Secretary denied the application on the ground that Ms. Jordan was offered a position as a security officer but declined the position. See JA 109. Plaintiff Black's request for discharge was submitted to both her guarantor and the Department of Education because each held loans arranged by NBS. No action was taken on her application for discharge before this suit was filed.
Plaintiffs brought suit under the Administrative Procedure Act, 5 U.S.C. § 706, and moved for summary judgment on the ground that the subsequent employment conditions in the Secretary's regulations went beyond the conditions authorized by statute. In response, the Secretary discharged both of plaintiff Black's loans and moved to dismiss her claim as moot. See JA 151-52. With respect to Ms. Jordan, the Secretary moved for summary judgment on the ground that the regulations requiring that borrowers demonstrate that they were unable to obtain employment are a permissible interpretation of the phrase "falsely certified." Record, Doc. No. 17.
The district court granted the uncontested motion to dismiss plaintiff Black's claim as moot. The district court also granted the Secretary's motion for summary judgment with respect to plaintiff Jordan, but did so on grounds that were neither articulated by the Secretary in his administrative decision, nor argued in the Secretary's summary judgment motion.
The district court first stated that the Secretary's regulations were permissible because "falsely certified" was not defined and the regulations are consistent with legislative history indicating that the statute was designed to help students left without the skills to obtain employment. JA 164-66. The court did not, however, address the plaintiff's argument that the employment-related requirements were incompatible with the statutory language stating that discharge shall be granted if eligibility is falsely certified "by the eligible institution," and that certification concerns pre-enrollment testing, not post-graduation employment. See 20 U.S.C. § 1091; 34 C.F.R. § 682.611.
After finding the regulations permissible, the district court went further and held that the regulatory requirement that plaintiff Jordan show "a reasonable attempt to obtain employment," 34 C.F.R. § 682.402(e)(3)(ii)(C), required that Jordan show at least three unsuccessful attempts to find employment. Because "[a] sample size of one is too small," the court stated, "it was reasonable for the Secretary to establish minimum standards" requiring three attempts. JA 167-68.
The district court reached this conclusion even though the Secretary's administrative decision was not based on any minimum standard requiring three attempts to obtain employment, and the Secretary has never published or articulated any rationale for such a standard. To the contrary, the reference to "rules" requiring "three separate attempts to secure employment" appeared in the correspondence and decision of the guaranty agency that first received and denied plaintiff Jordan's claim. See JA 101-02, 108. When plaintiff Jordan appealed this decision to the Secretary, the Secretary did not endorse the guaranty agency's suggestion that an applicant must make three separate attempts to secure employment to qualify for discharge, and denied the application solely on the ground that Ms. Jordan was offered a position as a security officer but declined the position. See JA 153, 133, 154.
The district court recognized that the Secretary's stated reason for denying Jordan a discharge could not be sustained on summary judgment because the evidence showed that the employer to whom Ms. Jordan applied rejected her application because she did not have a high school degree. See JA 44-45 ¶ 6; JA 107. JA 162 n.4. However, the district court then proceeded to affirm the Secretary's decision on the basis that Jordan's application did not show three unsuccessful attempts to secure employment.
Plaintiff Jordan filed a motion urging the district court to reconsider because its decision affirmed the Secretary on grounds that were never articulated by the agency, because the issue of whether a minimum standard of three unsuccessful attempts existed, let alone would be valid, had not been briefed by the parties, and because denial of plaintiff's Jordan's application on the ground that three unsuccessful attempts are necessary was inconsistent with the Secretary's decision to grant plaintiff Black's similar discharge application. See Record, Doc. No. 40. The district court denied the motion for reconsideration without further comment. JA 173.
STANDARD OF REVIEW
This Court's review of the district court's ruling granting summary judgment for defendants is de novo.
SUMMARY OF ARGUMENT
The decision below should be reversed because (1) the regulations requiring proof concerning subsequent employment are not authorized by the discharge statute; and (2) even if the regulations are valid, the district court's decision to affirm on a rationale never articulated by the Secretary is improper and presumes a three unsuccessful attempt standard that does not exist.
The Secretary's regulations are invalid because they go beyond the statute's requirement that borrowers must have been "falsely certified" when they were enrolled in the school. Requiring that borrowers also show that they were unable to obtain employment in the vocation after they left the school violates the basic principle that regulations cannot be used to add to a statute "something that is not there." United States v. Calamaro, 354 U.S. 351, 359 (1957).
The Secretary's argument that the subsequent employment regulations are entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), because Congress did not define the phrase "falsely certified," is without merit. The absence of a definition of a statutory phrase does not mean that an agency is free to adopt additional conditions in the guise of "interpretation." Moreover, although "falsely certified" is not defined, the statute does define "the eligibility of the borrower" that is "certified by the eligible institution." Those definitions make clear that "falsely certified" does not refer to employment after leaving the school, but to whether the student had a degree or passed an appropriate aptitude test before the school enrolled the student in its program. The subsequent employment rules are no more an "interpretation" of 20 U.S.C. § 1087(c) than the agency glosses on statutes that have been struck down in other cases as improper efforts by agencies to go beyond the conditions specified by Congress. See, e.g., Brown v. Gardner, 513 U.S. 115 (1994).
The Secretary also argues that the regulations are good policy and consistent with the legislative history because they deny discharges to applicants that the Secretary believes are undeserving because the borrowers "benefitted" from training in a vocational program for which they were improperly certified. Even if the regulations did implement such a policy, however, they would still be unlawful because the statute does not give the Secretary the authority to decide that some falsely certified students deserve a discharge, and others do not. Similarly, the legislative history cannot be used as a basis for establishing requirements that are not authorized by the statutory text.
Moreover, the regulations result in students who were falsely certified in an identical manner being treated differently, allowing some to receive discharges, while denying them to others based on factors that have nothing to do with the certification of their eligibility. Because this result cannot be reconciled with the statutory language mandating that the Secretary discharge the loans of falsely certified borrowers without limitation, the regulations are invalid.
Even if the employment regulations were authorized by the statute, the district court's affirmance of the Secretary's decision to deny plaintiff Jordan a discharge was improper because it was not based on the rationale articulated by the Secretary. The Secretary's decision was based on the conclusion that plaintiff Jordan was offered employment as a security officer -- a conclusion that the district court recognized is not supported by the evidence. Instead, the district court ruled that the regulatory language requiring that a borrower attest that he or she made "a reasonable attempt to obtain" employment requires proof of a minimum of three unsuccessful attempts. The Secretary, however, has never adopted such a minimum standard of proof, let alone published such a standard in the Federal Register. Denial of plaintiff Jordan's discharge application on this ground is also inconsistent with the Secretary's decision granting plaintiff Black's application, and applying such a standard to plaintiff Jordan would be unreasonable because she left NBS years before the Secretary's subsequent employment regulations were even proposed.
I. THE SECRETARY'S REGULATIONS REQUIRING THAT IMPROPERLY CERTIFIED BORROWERS PROVE THAT THEY WERE UNSUCCESSFUL IN SUBSEQUENT EFFORTS TO OBTAIN EMPLOYMENT ARE NOT VALID BECAUSE THEY ARE NOT AUTHORIZED BY SECTION 1087(c)(1).
Plaintiff's argument that the Secretary's regulations on subsequent employment are invalid rests on the straightforward premise that agencies cannot, by regulation, add conditions or requirements that are not authorized by statute. The discharge statute provides that the Secretary "shall" discharge the loan of any borrower whose eligibility to borrow was falsely certified by the school that he or she attended. 20 U.S.C. § 1087(c)(1). The Secretary's regulations, however, limit his obligation by requiring borrowers to meet additional conditions that are not authorized in the legislation. The regulations imposing these additional conditions must be struck down because they exceed the Secretary's statutory authority. In short, regulations cannot be used to add to a statute "something that is not there." United States v. Calamaro, 354 U.S. 351, 359 (1957).
A. The Regulations on Subsequent Employment Impose Requirements That Are Not Authorized By The Statute.
A comparison of the statute and regulations makes clear that the subsequent employment requirements go beyond the statutory mandate. 20 U.S.C. § 1087(c)(1) provides that the Secretary shall discharge the loans of any borrower who received a loan after January 1, 1986, if the student's eligibility to borrow "was falsely certified by the eligible institution." The regulations, however, provide that an applicant seeking such a discharge must submit a sworn statement that the applicant:
(B) Was admitted to that school on the basis of ability to benefit from its training and did not meet the applicable requirements for admission on the basis of ability to benefit as described in paragraph (e)(13) of this section; and
(C) Withdrew from the school and did not find employment in the occupation for which the program was intended to provide training, or completed the training program for which the loan was made and made a reasonable attempt to obtain employment in the occupation for which the program was intended to provide training, and -
(1) Was not able to find employment in that occupation; or
(2) Obtained employment in that occupation only after receiving additional training that was not provided by the school that certified the loan;
This Court has repeatedly found that agency regulations imposing conditions beyond those set forth by Congress are improper because "it is axiomatic that an administrative agency's power to promulgate legislative regulations is limited to the authority delegated by Congress." Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988). For example, in National Mining Ass'n v. United States Department of the Interior, 105 F.3d 691 (D.C. Cir. 1997), a statute provided that a mining permit shall be denied if a mining operation "owned or controlled by the applicant" is currently in violation of the statute. Id. at 693. The agency, however, adopted a rule that also allowed such permits to be denied if an operation owned or controlled "'by either the applicant or by any person who owns and controls the applicant' is currently in violation" of the statute. Id. at 693 (italics in original) (quoting 30 C.F.R. § 773.15(b)(1) (1995)). This Court held that the agency's effort to expand the violations that would disqualify a permit applicant beyond those set forth in the statute was invalid under step one of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). 105 F.3d at 693, 694-95.
Similarly, in Ethyl Corp. v. EPA, 51 F.3d 1053 (D.C. Cir. 1995), the statute at issue provided that the EPA must authorize a new fuel additive if the additive will not interfere with obtaining emission standards. Id. at 1058. The EPA, however, denied Ethyl authority to use its new additive based on public health concerns unrelated to emission standards. Id. at 1057. This Court held that this was improper because the EPA had no authority to impose conditions that were not authorized by the express language of the statute. Id. at 1058. Even though public health was implicated, the Administrator "plainly overstep[ped] her authority" by considering factors that were not in the statute. Id. at 1063-64. Similarly, in this case, the Secretary cannot rely on a borrower's ability to obtain, or failure to seek, employment as a factor in granting discharges when the statute does not make the borrower's subsequent employment a factor.
B. The Subsequent Employment Regulations Are Not Entitled To Deference As A Definition Of "Falsely Certified".
The regulatory requirements concerning subsequent employment cannot be justified as an interpretation of the statute. In the district court, the Secretary argued that, because "falsely certified" is not defined, it follows that the subsequent employment regulations are an interpretation of this term that should be upheld under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). However, neither Chevron nor any other case holds that, if a statutory phrase is not defined, agencies may impose whatever requirements they wish on the theory that those requirements "define" an undefined term in the statute, especially where that "definition" provides significant financial benefit to the agency. To the contrary, the agency's interpretation must be supported by the statutory language and may not impose new requirements that go "beyond the text of a statute.'" American Mining Congress v. Mine Safety & Health Admin., 995 F.2d 1106, 1110 (D.C. Cir. 1993) (quoting Fertilizer Inst. v. United States Environmental Protection Agency, 935 F.2d 1303, 1308 (1991)).
For example, in Brown v. Gardner, 513 U.S. 115 (1994), the Supreme Court held that a Department of Veterans Affairs regulation requiring proof of fault to qualify for benefits was invalid because the applicable statute did not impose or authorize such a requirement. The government argued that the fault regulation was a reasonable gloss on the terms "injury" or "as a result of" in the statute because these terms were ambiguous. The Supreme Court unequivocally rejected this claim. "Ambiguity," the Court observed, "is not a creature of definitional possibilities but of statutory context," and other portions of the statute demonstrated that these terms could not reasonably be read to impose a fault requirement. Id. at 118-20. The Court specifically rejected the claim that Chevron deference applied to the agency's effort to add a requirement not stated in the statute. Id. at 122. This Court's decisions also recognize that Chevron does not allow agencies to add conditions that are not in the statute in the name of interpretation. See National Mining Ass'n v. United States Department of the Interior, 105 F.3d 694-95 (agency's regulation was invalid under step one of Chevron because it went beyond the conditions set by Congress in statute); Mova Pharmacheutical Corp. v. Shalala, 140 F. 3d 1060, 1067-68 (D.C. Cir. 1998) (FDA was not authorized to add successful defense of patent requirement for exclusive marketing rights where statute contains no such requirment).
As in Brown v. Gardner, the Secretary's regulations here cannot be justified as a definition of undefined terms. Although the phrase "falsely certified" is not defined, the surrounding text makes its meaning clear. The statute states that the Secretary shall discharge loans where the borrower's "eligibility to borrow under this part was falsely certified by the eligible institution," 20 U.S.C. § 1087(c) (emphasis added). Other provisions of the statute and the program regulations define "eligibility to borrow," describe what is "certified by the eligible institution," and define "ability to benefit." See 20 U.S.C. § 1077, 1091(d), (e); 34 C.F.R. § 600.11 (1988). These provisions make clear that what is "certified" by the institution is that the borrower applying for a loan meets one of the criteria in the statute for determining "ability to benefit," i.e., the borrower has a high school degree, or is in the course of completing a GED preparation course, or has passed a standardized "ability to benefit" test that demonstrates his or her aptitude to successfully complete the educational program.
Consequently, the subsequent employment requirements are not a proper definition of the statutory text for two reasons. First, subsequent employment has no bearing on the borrowers' "eligibility to borrow," as defined by the statutory and regulatory provisions on student eligibility. When a school certifies that a borrower is "eligible," the school does not certify that the borrower will obtain employment in the vocation covered by the school's training, or even that the borrower has promised to seek employment in that vocation. Second, the phrase "eligibility . . . falsely certified by the eligible institution," 20 U.S.C. § 1087(c)(1), cannot refer to subsequent employment because eligible institutions are not required to make any certification concerning a student's subsequent employment, or efforts to obtain employment.
Thus, the district court's assertion that the Secretary's regulations are permissible because "Congress provided no implicit or explicit standard for reviewing the truth of an 'ability to benefit' determination," JA 164, is both inaccurate and irrelevant. It is inaccurate because the statutory text and context implicitly and explicitly show that the certification referenced in the statute does not concern subsequent employment, but is the school's certification that a student had a high school degree, had a GED, or had passed an aptitude test. Moreover, whether the statute defines the "standard for reviewing the truth" is irrelevant because the regulation at issue does not define a standard of proof, but the substantive matters to be proven.
In the proceedings below, the Secretary's counsel argued that a certification by the eligible institution that was "false" when the school enrolled the student is, nevertheless, not false if the student subsequently completes the course and can obtain employment because the employment demonstrates that the student "in fact" benefitted from the training received. This argument is untenable because it ignores the language of the statute specifying what is certified. The certification by an eligible institution does not represent the school's subjective prediction that a borrower will benefit by finding employment in the future. Rather, the statute and regulations require institutions to make an objective certification that the borrowers have a high school degree or have passed the necessary aptitude at the time the borrower begins training at the school.
Moreover, the argument that the regulations merely define "falsely certified" cannot be reconciled with any ordinary meaning of the term "false." If a school certifies that a student is eligible to borrow, even though the student did not take or did not pass an "ability to benefit" test, the certification is "false." The fact that the student later completes the course and obtains employment does not retroactively transform the "false" certification into a "true" one. Similarly, if a school improperly certifies a student without testing, a subsequent decision by the student not to pursue employment in the field for which the school provided training does not convert the school's false certification into a true one.
The flaw in the argument that the employment requirements define "falsely certified" is underscored by another aspect of the employment regulations: the regulations treat those who withdraw from a course differently form those who complete it, with only the latter having to show that they were unable to obtain employment in the field covered by the course. For example, consider two students without high school degrees who were both falsely certified by the same vocational school as having passed the aptitude test need to enroll in the school. If one student withdrew a week before graduation and the other stayed an additional week to complete the program, the student who withdrew would be entitled to a false certification discharge even if he or she never sought employment in the vocation. Only the student who completed the program would be required to prove a reasonable attempt to obtain employment. See 34 C.F.R. § 682.402(e)(3)(ii)(C). Thus, Ms. Jordan would qualify for a discharge under the regulations if she had withdrawn from the school for any reason.
If the requirement that the borrowers prove unsuccessful attempts to obtain employment was genuinely a definition of the phrase "falsely certified" in Section 1087(c)(1), the Secretary would have had to impose this requirement on all borrowers seeking discharges based on false certification, including those borrowers who did not complete the course. The Secretary's decision to apply these requirements only to those borrowers who completed the course shows that these regulations do not arise from an interpretation of the statutory language, but from the Secretary's conclusion that it would be good public policy to impose additional conditions on borrowers who completed their training.
Finally, the argument that the subsequent employment regulations are merely an interpretation of "falsely certified" must be rejected because it is a post hoc explanation devised for this litigation, and was not the stated rationale for the regulations. If the government's argument were the Secretary's actual rationale, the regulations and notice accompanying the regulations would define "falsely certified" in a way that refers to subsequent employment. Instead, the regulations define "falsely certified" based solely on whether the student met the objective criteria for certification before being admitted: a student's eligibility shall be considered to have been "falsely certified by the school" where the school certified the student's eligibility for a loan "on the basis of ability to benefit from its training and the student did not meet the applicable requirements described in 34 C.F.R. Part 668 and section 484(d) of the Act [20 U.S.C. § 1091(d)]." 34 C.F.R. § 682.402(e)(1)(i). Similarly, the notice explaining the regulations states that "the Secretary believes that the term 'falsely certified,' when used for purposes of a false certification discharge, applies to cases involving a school's invalid certification that a student had the ability to benefit from the training offered by the school." See 59 Fed. Reg. at 22470 (1994). Thus, when the Department promulgated the regulations it interpreted "falsely certified" as Plaintiff-Appellant does here, and adopted the subsequent employment provisions as additional conditions, not as part of a definition of "falsely certified."
C. Policy Arguments and Legislative History Do Not Authorize Imposing Conditions Not Found In The Statute.
The Secretary's notices announcing the discharge regulations indicate that he adopted the subsequent employment conditions because he believed that some borrowers, although falsely certified, do not deserve a discharge because they might have obtained, or did obtain, employment after attending a vocational school. See 59 Fed. Reg. at 2489. The statute, however, did not give the Secretary authority to set policy on which falsely certified students should receive a discharge and which should not. Instead, the statute unequivocally directs that "the Secretary shall discharge the borrower's liability on the loan," if the student's eligibility was falsely certified. 20 U.S.C. § 1087(c)(1). Where, as here, the statute gives specific direction, the agency charged with implementing the statute has "no power to amend it by regulation," and cannot impose its own policy by adding provisions that go beyond the conditions set by Congress. Koshland v. Helvering, 298 U.S. 441, 446-47 (1936). The Secretary's decision to impose his own policy preference and limit relief to falsely certified students who tried, but failed, to obtain employment is no more permissible than the Secretary of Veteran's Affairs effort in Brown v. Gardner to limit benefits to veterans who show that they were victims of negligence.
Decisions of this Court also make clear that the Secretary's general regulatory authority does not provide any basis for him to add additional conditions on Section 1087(c) discharges. A general grant of rule making authority cannot be used "to trump Congress's specific statutory directive," National Mining Ass'n, 105 F.3d at 694, or be used "as justification for adding new factors to a list of statutorily specified ones." American Petroleum Inst. v. United States EPA, 52 F.3d 1113, 1119 (D.C. Cir. 1995). Even if the Department believes that Section 1087(c)(1) should limit discharges to borrowers unable to obtain employment, it "has no power to correct flaws that it perceives in the statute," and its "rule making power is limited to adopting regulations to carry into effect the will of Congress as expressed in the statute." Federal Reserve Board v. Dimension Financial Corp., 474 U.S. 361, 374 (1986).
Moreover, any claim that the Secretary may impose additional conditions beyond those in Section 1087(c) because Congress did not specifically prohibit him from doing so is also without merit. This Court's decisions make clear that "we will not presume a delegation of power based solely on the fact that there is not an express withholding of such power." American Petroleum Inst., 52 F.3d at 1120; accord Ethyl Corp. v. EPA, 51 F.3d at 1060; National Mining Ass'n, 105 F.3d at 695. "[W]ere courts to presume a delegation of such power, agencies would enjoy virtually limitless hegemony, a result plainly out of keeping with Chevron and quite likely with the Constitution as well." Railway Labor Executives' Ass'n v. National Mediation Bd., 29 F.3d 655, 671 (D.C. Cir. 1994) (en banc), cert. denied, 514 U.S. 1032 (1995).
The district court upheld the subsequent employment regulations because it found that they were "compatible with Congress's purpose in enacting the statute." JA 168. Without reconciling the regulations with the statutory language, the district court pointed to legislative history that shows that Congress enacted 20 U.S.C. § 1087(c) in response to evidence that students whose eligibility was falsely certified "were left without the skills needed to obtain employment." JA 165-66 (quoting H. Rep. No. 447, 102d Cong., 2d Sess. 52 (1992)).
Nothing in this legislative history, however, indicates that Congress intended to require loan discharge applicants to demonstrate that, in addition to being falsely certified, they lacked employment skills. Indeed, if Congress intended to make proof of inability to obtain employment a qualification for receiving a discharge, it certainly could have placed such a condition in the statute.
Moreover, legislative history cannot be used to provide authority that is not in the statutory text. "The plain meaning of legislation should be conclusive, except in the 'rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.'" United States v. Ron Pair Enterp., Inc., 489 U.S. 235, 242 (1989) (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571 (1982)); see also Lever Brothers Co. v. United States, 981 F.2d 1330, 1333 (D.C. Cir. 1993) (statutory language will be disrupted only if there is a clearly expressed legislative intention contrary to that language). No such conflict between the legislative history and the statute exists here. Legislative history indicating that concern for borrowers left without employment skills influenced Congress' decision to direct the Secretary to discharge the loans of falsely certified borrowers cannot be used to rewrite the statute to include new conditions concerning subsequent employment.
II. THE DISTRICT COURT'S DECISION TO AFFIRM ON THE GROUNDS THAT THE SECRETARY COULD HAVE REQUIRED THREE SEPARATE UNSUCCESSFUL ATTEMPTS TO PROVIDE A LARGER SAMPLE OF EVIDENCE FOR DISCHARGE WAS ERRONEOUS.
Even if the Secretary's subsequent employment regulations are authorized by the statute, plaintiff Jordan qualifies for discharge if she made "a reasonable attempt to obtain employment" as a security officer, but was unable to obtain such employment. 34 C.F.R. § 682.402(e)(3)(ii)(C). Plaintiff Jordan has satisfied this standard. Her application for discharge shows that she applied for employment as a security officer after leaving NBS and was rebuffed because she did not have a high school degree. JA 44-45, 107.
Nevertheless, the district court granted judgment for the Secretary on the premise that the Secretary's "minimum standards for evidence directed to evaluating" whether this regulation is satisfied require proof of three unsuccessful attempts to find employment. JA 168. In doing so, the district court improperly (A) upheld the Secretary based on a rationale that the agency never articulated, and (B) assumed the existence of a mandatory minimum standard of proof that, in fact, the Secretary never adopted.
A. The District Court Recognized That The Agency's Reasoning Could Not Be Upheld, And Improperly Created An Alternative Rationale.
Since the Supreme Court's decision in SEC v. Chenery, 318 U.S. 80 (1942), it has been "a cardinal rule of administrative law that a reviewing court may not affirm an agency decision on the basis of a rationale the agency did not itself adopt." Amerada Hess Pipeline Corp. v. FERC, 117 F.3d 596, 605 (D.C. Cir. 1997) (citing Chenery). This rule is reflected in numerous decisions holding that, when a court reviews an agency decision, the decision must "stand or fall on the grounds articulated by the agency." Algonquin Gas Trans. Co. v. FERC, 948 F.2d 1305, 1312 n.12 (D.C. Cir. 1991); see, e.g., Puerto Rico Higher Educ. Ass't Corp v. Riley, 10 F.3d 847, 850 (D.C. Cir. 1993) (court may not consider basis for decision that the Department itself did not offer at the administrative stage); Exportal LTDA v. United States, 902 F.2d 45, 51 (D.C. Cir. 1990) (where agency offers only one ground for decision, decision cannot be upheld based on alternative ground offered by counsel on review). This rule assures that discretionary decisions to develop or apply policies are made by the agency, not by the courts. Chenery, 318 U.S. at 88-89.
The district court ignored this rule here. Instead, it affirmed the Secretary's decision on the ground that Ms. Jordan made only one attempt to obtain employment, and it would be reasonable to require an applicant to prove three unsuccessful attempts to qualify for a discharge. JA 167-68. But the Secretary's decision relied solely on the ground that Plaintiff Jordan "was offered a position in the security officer field . . but declined the position." JA 109. Indeed, in the district court the Secretary's counsel did not argue for affirmance based on a three unsuccessful attempts standard but, instead, emphasized that the Secretary's decision was based on the assumption that Ms. Jordan was offered and declined employment. See JA 154.
As we show below, the Secretary has never adopted a rule that "a reasonable attempt to obtain employment," 34 C.F.R. 682.402(e)(3)(ii)(C), requires three unsuccessful attempts. Moreover, even if such a minimum standard had been adopted, there is no basis for presuming that the Secretary would apply it in this case. Indeed, the record suggests that the Secretary deliberately decided not to adopt this ground. The guaranty agency that initially reviewed Ms. Jordan's claim suggested that it be denied on the ground that one attempt to find employment was insufficient, see JA 108, 153, but the Secretary did not include this reason in his administrative decision.
Moreover, while the Secretary's decision to deny the application was based on a factual determination, the Court's decision is based on a policy "guideline" concerning a standard of proof that may be discretionary in its application. Where agency policy judgments are at issue, "a judicial judgment cannot be made to do service for an administrative judgment." Chenery, 318 U.S. at 88. The district court's adoption of a substitute rationale is improper here because a decision on whether to adopt a minimum proof standard, and the decision on whether to apply it in this case, must be made by the agency and not by the Court.
Finally, the Secretary's stated reasons for denying Ms. Jordan's discharge application are clearly erroneous. Two sworn statements by plaintiff Jordan affirm that she was not selected for employment because she did not have a GED or high school diploma. JA 107, 44-45 ¶ 6. There is no competent contrary evidence to support the Secretary's determination. Indeed, in the district court the Secretary did not even argue that the evidence supported the assertion that Ms. Jordan declined a job, and the district court acknowledged that the Secretary's decision was inconsistent with the evidence. See JA 162 n.4. Under these circumstances, Chenery dictates that the agency's decision be overturned.
B. The District Court Presumed The Existence Of A Minimum Evidence Rule That Does Not Exist.
The district court's substitute rationale for denying plaintiff Jordan's discharge application erroneously presumes that the Secretary has established "minimum standards for evidence" that require that applicants demonstrate three unsuccessful attempts to obtain employment. JA 168. The Secretary has, however, never adopted or published such a minimum standard. The district court based its reference to three unsuccessful attempts on a 1995 memorandum issued for the guidance of guaranty agencies. JA 162 n.3. That memorandum states only that it would be "reasonable" for a guaranty agency to consider three attempts "as a persuasive indication of the student's good faith effort." Id.(6) Nothing in the Department's memorandum states that three separate attempts is a minimum requirement for discharge.
To the contrary, in the district court the Secretary's counsel stated that this 1995 memorandum is "not a rule," but "merely guidance the Secretary gave to guaranty agencies" and "should not be held against the Secretary." Record, Doc. No. 17, Memorandum in Support of Defendant Secretary's Motion to Dismiss and Motion for Summary Judgment at 5 n.4. The Secretary has never published or referred to three attempts as a minimum standard or rule.
The district court also identified statistical "sample size" as the Secretary's "rational basis" for demanding a minimum of three unsuccessful attempts. JA 167. But this rationale appears for the first time in the district court's opinion; nothing in the record indicates that it has even been considered by the Secretary.
Moreover, if the Secretary had denied plaintiff Jordan's application based on such a minimum standard, the application of such a standard to plaintiff Jordan here would be unlawful and irrational for three reasons.
First, no such rule has ever been published or noticed for comment. The Administrative Procedure Act requires that a rule, policy or interpretation like this, which sets fixed requirements for satisfying a more general standard, must be published in the Federal Register before it can be used as a basis for denying applications. See 5 U.S.C. §§ 552(a)(1).
Moreover, the Department cannot "make a fundamental change in its interpretation of a substantive regulation without" following the procedures for notice and comment rule making. Paralyzed Veterans of America v. D.C. Arena, 117 F.3d 579, 586 (D. C. Cir. 1997), cert. denied, 118 S.Ct. 1184 (1998). The three unsuccessful attempts rule created by the district court is a fundamental change from the Secretary's published statements concerning what is required by the regulations. The regulation does not refer to multiple attempts, but states that the borrower must affirm that he or she "made a reasonable attempt to obtain employment." 34 C.F.R. § 682.402(e)(ii)(3)(C). In the explanation accompanying the regulation, the Secretary stated that this requirement would not require onerous documentation because, "[i]n the absence of evidence to the contrary, a student who states that he or she made a 'reasonable attempt to obtain employment' will be presumed to have done so. The student is simply being asked to sign a statement to that effect." 59 Fed. Reg. 22462, 22471 column 3 (April 29, 1994).
Second, denial of plaintiff Jordan's application on the basis that discharge applicants must show a minimum of three unsuccessful attempts is inconsistent with the Secretary's decision to grant the application of co-plaintiff Black. Both plaintiffs attended the same school, both stated that their eligibility was falsely certified, both completed the school's training, and the discharge applications submitted by both plaintiffs state that they contacted one employer who rejected them. "[R]easoned decision making requires treating like cases alike." Hall v. McLaughlin, 864 F.2d 868, 872 (D.C. Cir. 1989). Thus, if the Secretary had denied Ms. Jordan's application on the ground that she had only contacted one employer that decision would have been "arbitrary and capricious," in light of the discharge granted to plaintiff Black, whose rejection by a single employer was found adequate. Any post hoc explanation to reconcile the different outcomes would be impermissible.
Third, the district court's rationale for requiring three unsuccessful attempts is flawed. The district court concluded that such a requirement was reasonable because additional attempts would provide probative information on whether the borrower benefitted from the school's program. JA 167-68. In a footnote the district court cited the Secretary's reply brief for the proposition that "'nothing precludes Ms. Jordan from again attempting to find employment as a security officer and submitting another request to the Secretary for loan discharged based on failure of those attempts.'" JA 168 n. 6. The district court's reasoning, however, ignores the fact that additional attempts to obtain employment are not probative because circumstances have changed in the years between when Ms. Jordan left the school and the Secretary's adoption of the subsequent employment regulations in 1994.
For example, a decade has passed since Ms. Jordan left NBS, and in 1992 she obtained her high school degree. JA 171. Additional attempts by Ms. Jordan to obtain employment now, with a high school degree, do not provide meaningful information on whether the training at NBS made her employable without a high school degree in 1988. Similarly, for borrowers who have entered other vocations in the years since they were falsely certified, the district court's decision would require borrowers to make misleading applications for jobs that they do not want or need. Thus, even if a three separate attempts guideline has "probative value" in some circumstances, it is not appropriate for evaluating Ms. Jordan's situation, or those of other borrowers whose educational and/or vocational circumstances have changed since the school falsely certified their eligibility.
Moreover, if the Secretary promulgated a three unsuccessful attempts requirement like the one contemplated by the district court, application of such a rule to borrowers like Ms. Jordan would arguably be unlawful because of the retroactive effect of such a rule. See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208-209 (1988). The statute mandates the discharge of loans going back to 1986, but the Secretary did not even announce that he intended to require borrowers to provide evidence of attempts to obtain employment until 1994. Ms. Jordan could not have known in 1988 that in 1995 the Department, through an unpublished memorandum, would demand that she make three separate attempts to secure employment before she obtained a high school degree. Yet, under the district court's rationale, borrowers like Ms. Jordan who obtained a high school degree without first obtaining three separate rejections from employers are disqualified from receiving a discharge of their falsely certified loans.
In summary, the district court's ruling that plaintiff Jordan's discharge application was properly denied because "a reasonable attempt" to obtain employment requires three unsuccessful attempts should be reversed because (i) no such rule or minimum standard has ever been published to provide notice of such a requirement; (ii) it would be arbitrary to apply such a rule to plaintiff Jordan where no such rule was applied to Ms. Black; and (iii) it would be irrational to apply such a rule to borrowers like plaintiff Jordan, who were falsely certified many years before the Secretary's regulations, let alone any three unsuccessful attempts standard, were even promulgated.
This Court should reverse the judgment below and order discharge of plaintiff Jordan's loan because the subsequent employment conditions in the regulation are unlawful. In the alternative, the Court should reverse the judgment below and direct the district court to remand to the agency because the decision cannot stand on the rationale given by the agency.
Michael E. Tankersley Alan B. Morrison
PUBLIC CITIZEN LITIGATION GROUP
1600 20th Street, NW
Washington, DC 20009
June 29, 1999 Counsel for Appellant Renee Jordan
1. 1 In 1992, the program was renamed the "Federal Family Education Loan Program." 20 U.S.C.A. § 1071 (Supp. 1998).
2. The text of the statute and regulations from 1988 are cited here and provided in the addendum because this language was in effect at the time the loans at issue were made. Although testing is the most prevalent means of establishing ability to benefit, the HEA also provides that this standard may be satisfied by the school determining that the student can obtain a General Education Diploma ("GED") certificate prior to graduation, or by the school providing the student with a program of remedial education. 20 U.S.C. § 1091(d).
3. Higher Education Amendments of 1992, H. Rep. No. 447, 102d Cong., 2d Sess. 52 (1992) (The Committee heard testimony that "institutions falsely certified the eligibility of students for Federal loans."); see also Abuses in Federal Student Aid Programs, H.R. Rep. No. 58, 102d Cong., 1st Sess. 13 (1991) ("Widespread abuse and fraud also occur in connection with so-called 'ability to benefit' students."); Abuses in Federal Student Aid Programs, Hearings before the Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs, 101st Cong., 2d Sess., S. Hrg. No. 659, 35, 149-51 (1990) (testimony of the Inspector General, Department of Education).
4. The Secretary cancels the borrower's outstanding indebtedness on the loan and reimburses any funds collected from the borrower through voluntary payments or through collection actions. See 34 C.F.R. § 682.402(e)(2)(i)-(ii). In addition, the borrower is relieved of penalties associated with default on a student loan. Under the HEA, a borrower who is in default on a loan is disqualified from receiving federal educational loans or grants, and the Department of Education or guaranty agencies issue adverse credit reports on the borrower to all national credit bureaus. 20 U.S.C. § 1080a; 34 C.F.R. § 682.410(b)(5) (1996). However, if the borrower qualifies for a false certification discharge, all adverse credit history assigned to the loan is deleted, and the borrower's eligibility for federal educational assistance is restored. 20 U.S.C. § 1087(c)(4)-(5); 34 C.F.R. § 682.402(e)(2).
5. 5 Shortly after closing, NBS's parent corporation filed for bankruptcy in the District of Maryland. See In re: Market Tire Educational Services, Bankr. D. Md., Chapter 7, No. 90-42799.
6. The text of the memorandum is as follows:
Ordinarily, a person who makes a reasonable attempt to obtain employment does not limit his or her job search to only one such effort. More commonly, an individual will try several times to obtain employment in a specific occupation. Therefore, if there were no unusual circumstances faced by a specific individual, it would be reasonable for a guaranty agency to consider three separate attempts by the student to find a job as a persuasive indication ofthe student's good-faith effort.