The opinion of the court was delivered by: CHOLAKIS
Plaintiff maintains it is entitled to a preliminary injunction as it will suffer irreparable harm if forced to comply with the Refund Regulations. Plaintiff asserts that the refunds as calculated under the regulations conflict with the requirements of the statute concerning such refunds, thus exceeding the authority of the Secretary to promulgate regulations in this area and placing the schools in the untenable situation of having to refund monies they have already earned, and looking to their students for reimbursement. Plaintiff maintains that there is little to no likelihood of the students having access to such funds, as if they did, they would not qualify for much of the financial aid available under HEA, and would have already paid any outstanding monies owed. Thus, plaintiff asserts its member schools will suffer irreparable harm as a result of these regulations as the loss of revenues will have a negative impact upon the schools' ability to maintain their high quality of education, resulting in a loss of reputation and good will. Additionally, plaintiff asserts that because the regulations contain criminal penalty provisions, plaintiff faces even greater irreparable harm as a result of potential criminal prosecution, and because of those criminal sanctions, the regulations should be held to a stricter standard of review.
Defendant maintains that the prior decision as to the validity of these regulations in Career College Association v. Riley, 1994 U.S. Dist. LEXIS 11232, No. 94 Civ. 1372 (D.D.C. Aug. 9, 1994), is res judicata of the issues raised by plaintiff, and that this court should dismiss the current action. Defendant asserts that some of the schools which are members of the plaintiff were also members of the association plaintiff in the D.C. action and thus are bound by that court's determination upholding the regulations.
Defendant contends there is no equal protection claim under the regulations as all schools and their students are treated alike, and the refund is determined by the largest of the state or federal refund policy. Finally, defendant opposes the request for preliminary injunction and asserts that plaintiff has erroneously interpreted the statute and the regulations. Defendant maintains that the regulations are in full accord with the directives of the statute, and that the only appropriate question before this court is whether the agency's interpretation is based on a permissible construction of the statute. Defendant asserts that if the refund calculations are made in accordance with the practices espoused by plaintiff, then the federal government is picking up more than its anticipated share of the costs incurred by the students. Defendant further asserts that because the criminal penalty provisions are not the main purpose, the regulations are entitled to the high level of deference traditionally afforded any other agency regulations.
Defendant further asserts that there is no irreparable harm in this action, as any harm alleged is purely speculative and mere financial harm is insufficient to merit the drastic remedy of injunctive relief. Defendant maintains plaintiff has made no showing as to student withdrawal rate, or the financial condition of its member schools so as to demonstrate the alleged irreparable impact of the regulations. Defendant asserts that if there is any harm at all, it is harm to the students if the regulations are not upheld because if the schools do not repay the loans under the HEA, the students would have a greater amount of outstanding debt.
Looking first to the issue of res judicata, there must be an identity of parties before res judicata will be applied to a subsequent litigation. Allen v. McCurry, 449 U.S. 90, 66 L. Ed. 2d 308, 101 S. Ct. 411 (1988). An association which adequately represents the collective interests of its membership in litigation and is vested with the authority of representation will bind its membership. Alpert's Newspaper Delivery v. New York Times Co., 876 F.2d 266 (2d Cir. 1989) (citing, Expert Electric v. Levine, 554 F.2d 1227, 1233 (2d Cir. 1977)). The principle of res judicata will not apply however, to members of an organization which were not shown to have been effectively represented in prior litigation. Viceroy Gold Corp. v. Aubry, 858 F. Supp. 1007, 1018 (N.D.Cal. 1994). The burden is upon the defendant to show that the prior suit involves the same parties or their privies. G & Terminal Packaging v. Consolidated Rail Corp., 719 F. Supp. 153, 157 (S.D.N.Y. 1989) (citing, NLRB v. United Technologies Corp., 706 F.2d 1254, 1259 (2d Cir. 1983). Defendant has merely alleged that some of plaintiff's members may have been members of the association plaintiff in the prior litigation in the District of Columbia.
Defendant offers nothing further to support its allegation that plaintiff was a party or privy to such litigation, that plaintiff authorized or masterminded such litigation, nor that plaintiff had the requisite degree of control over such litigation to require application of the doctrine of res judicata. This court finds that there has not been the requisite showing that all members of plaintiff, or even a substantial majority, were party to the prior litigation. Thus plaintiff is not barred from maintaining this action by the prior decisions already issued in this area.
As recently reiterated by the Second Circuit, "to obtain a preliminary injunction, a plaintiff must demonstrate: (1) either a likelihood that he will succeed on the merits of his claim, or that the merits present serious questions for litigation and the balance of hardships tips decidedly toward the plaintiff; and (2) that without the injunction, he will likely suffer irreparable harm before the court can rule upon his claim." Fisher-Price, Inc. v. Well-Made Toy Mfg. Corp., 25 F.3d 119, 122 (2d Cir. 1994) (citations omitted).
Defendant challenges the plaintiff's assertion of irreparable harm, claiming such harm to be merely financial, and as such inadequate to sustain a showing of irreparable injury. However, the loss of good will, coupled with potential financial ruin constitutes sufficient irreparable harm to justify issuance of a preliminary injunction. Roso-Lino Beverage Distribs. v. Coca-Cola Bottling Co., 749 F.2d 124, 125 (2d Cir. 1984); Travellers Intern. AG v. Trans World Airlines, 684 F. Supp. 1206, 1216 (S.D.N.Y. 1988). Additionally, faced with potential criminal prosecution, plaintiff has undoubtedly met the standard of demonstrating sufficient irreparable harm to justify issuance of an injunction. See, Abbott Laboratories v. Gardner, 387 U.S. 136, 153-54, 18 L. Ed. 2d 681, 87 S. Ct. 1507 (1976).
Looking to the merits of plaintiff's claims, this court must next determine if plaintiff has demonstrated a likelihood of success on the merits, or sufficiently serious questions going to the merits and a balance of hardship in plaintiff's favor, before an injunction will issue. It is imperative in determining the validity of the Secretary's regulations that they be evaluated under established standards of review.
When a court reviews an agency's construction of a statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.
Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837, 842-43, 81 L. Ed. 2d 694, 702-03, 104 S. Ct. 2778 (1984) (citations omitted). As a general rule legislative regulations are given controlling weight unless they are determined to be arbitrary, capricious or manifestly contrary to the purpose of the statute. Id., at 843. The question is not whether the decision of the agency to regulate in a particular fashion is appropriate in light of the statutory scheme but rather, whether the agency's view is a reasonable one in the context of the particular program. Id., at 845.
The purpose of the Higher Education Assistance Act, 20 U.S.C. § 1001, et seq., is to support programs for low-income and disadvantaged students, allowing for expansion of the availability of such programs, and safeguarding the financial integrity of the schools which provide such programs. See, 20 U.S.C. §§ 1001, 1051 (1989, Supp. 1994). Requiring schools to provide for a fair and equitable refund policy of monies paid by both the student and the state and federal ...