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CALISE BEAUTY SCH., INC. v. RILEY

September 30, 1996

CALISE BEAUTY SCHOOL, INC. d/b/a HAIR DESIGN INSTITUTE - LIVINGSTON and WESTCHESTER SCHOOL OF BEAUTY CULTURE, INC., Plaintiffs, against RICHARD RILEY, Secretary of the United States Department of Education, in his official capacity, Defendant.


The opinion of the court was delivered by: STEIN

 SIDNEY H. STEIN, District Judge:

 Plaintiffs, two vocational schools operating in the State of New York, have brought this action for declaratory and injunctive relief against Richard Riley, the United States Secretary of Education, pursuant to the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701 et seq., and the Higher Education Act ("HEA"), 20 U.S.C. § 1001 et seq. The action arises from the Secretary's decision to suspend plaintiffs from federal student loan programs administered under Title IV of the HEA. Plaintiffs seek an order setting aside the Secretary's decision and restoring their eligibility to participate in those programs. In addition, by Order to Show Cause dated August 28, 1996, plaintiffs have moved for a preliminary injunction prohibiting the Secretary from removing them from the programs pending the outcome of this litigation. Defendant opposes this motion on the ground that the Court lacks jurisdiction to issue injunctive relief against the Secretary pursuant to Section 1082(a)(2) of the HEA. For the reasons set forth below, the motion for a preliminary injunction is denied on the ground that 20 U.S.C. § 1082(a)(2) prohibits the requested relief.

 I. BACKGROUND

 The statute at issue in this case is the Higher Education Act, 20 U.S.C. 1001 et seq., and in particular the provisions relating to the administration of the Federal Family Education Loan ("FFEL") programs, 20 U.S.C. §§ 1070 et seq. Pursuant to the FFEL programs, students attending eligible postsecondary schools may borrow money for tuition and expenses from participating lenders, such as banks. These loans are insured by participating "guaranty agencies" which, in turn, are reinsured by the Department of Education. If a student fails to repay a FFEL loan, the lender submits all relevant records to the guaranty agency and requests reimbursement. 20 U.S.C. § 1078(b)-(c). If the guaranty agency determines that servicing and collection efforts have been properly performed by the lender, it repays the lender for the outstanding balance on the loan. 34 C.F.R. §§ 682.406(a)(1) and (3). The guaranty agency then undertakes collection efforts of its own, 34 C.F.R. § 682.410(b)(4), and, if these are unsuccessful, obtains repayment from the Department of Education. 20 U.S.C. § 1078(c); 34 C.F.R. §§ 682.100 and 682.404.

 In order to keep the cost of these programs down, the Secretary of Education reviews the number of defaulted loans each year and suspends the eligibility of any school whose "cohort default rate" (CDR) exceeds 25% for three consecutive years. 20 U.S.C. § 1085(a)(2)(A). A suspended school has the right to take an administrative appeal from this decision to the Secretary, either by challenging the accuracy of the CDR calculations, 20 U.S.C. § 1085(a)(2)(i), or by showing that the Secretary erroneously included "loans which, due to improper servicing or collection, would ... result in an inaccurate or incomplete calculation" of the school's default rate. 20 U.S.C. §§ 1085(a)(3) and 1085(m)(1)(B). Specifically, a defaulted loan may not be counted against a school if the lender failed to perform certain basic due diligence functions, such as locating and contacting the borrower, or seeking preclaims assistance. 34 C.F.R. § 682.411. To determine whether such functions were properly performed, the Secretary relies on detailed servicing and collection records prepared by the lender and maintained by the guaranty agencies. 59 Fed. Reg. at 61192. These records must also be provided to any suspended school for the purpose of its administrative appeal. 20 U.S.C. § 1085(a)(3).

 In this case, plaintiffs were suspended from participating in FFEL programs on the ground that their default rates exceeded 25% in 1991, 1992 and 1993. Their appeals of these decisions were subsequently denied, and they commenced this litigation. They now contend, among other claims, that the Secretary illegally authorized the relevant guaranty agency, the New York State Higher Education Services Corporation ("NYHESC"), to maintain incomplete summaries instead of proper loan servicing and collection records; that the Secretary's CDR calculations were therefore based on inadequate evidence; and that in the absence of complete records it was impossible for plaintiffs to mount an effective administrative appeal. Accordingly, plaintiffs seek a reversal of the Secretary's decision on the merits and a preliminary injunction restoring their FFEL eligibility during the pendency of this action.

 The Secretary contends that this Court is precluded from granting a preliminary injunction by virtue of the HEA's "anti-injunction" clause, 20 U.S.C. § 1082(a)(2). Plaintiffs reply that this clause cannot be read as an absolute jurisdictional bar, particularly where, as here, it is alleged that the Secretary violated mandatory statutory and regulatory duties. Oral argument on this jurisdictional issue was heard on September 13, 1996.

 The threshold issue presented by plaintiffs' motion is whether this Court has jurisdiction to grant injunctive relief against the Secretary of Education. It is well settled that the federal government or its agencies may be sued only to the extent that the traditional immunity of the sovereign has been waived. See Federal Deposit Insurance Corp. v. Meyer, 510 U.S. 471, 475, 114 S. Ct. 996, 1000, 127 L. Ed. 2d 308 (1994). Section 1082 of the HEA provides a partial waiver of the Secretary of Education's immunity, as follows:

 
In the performance of, and with respect to, the functions, powers and duties vested in him by this part, the Secretary may ... sue and be sued ... in any district court of the United States ...

 20 U.S.C. § 1082(a)(2). That provision goes on to state, however, that "no ... injunction ..., mesne or final, shall be issued against the Secretary or property under the Secretary's control."

 On its face, Section 1082 flatly prohibits the issuance of any injunction against the Secretary in relation to his powers and duties under the HEA. The language of the provision is unambiguous, and in the absence of some clear indication to the contrary, this Court must presume that Congress intended the words to mean what they say. See Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S. Ct. 2051, 2056, 64 L. Ed. 2d 766 (1980). A literal reading of the statute is further compelled by the Supreme Court's admonition that partial waivers of sovereign immunity must be "strictly construed in favor of the United States." Ardestani v. Immigration and Naturalization Service, 502 U.S. 129, 137, 112 S. Ct. 515, 520, 116 L. Ed. 2d 496 (1991) (citing Library of Congress v. Shaw, 478 U.S. 310, 318, 106 S. Ct. 2957, 2963, 92 L. Ed. 2d 250 (1986) and Ruckelshaus v. Sierra Club, 463 U.S. 680, 685-686, 103 S. Ct. 3274, 3277-3278, 77 L. Ed. 2d 938 (1983)).

 Section 1082 has in fact been strictly applied by numerous federal courts. See Thomas v. Bennett, 856 F.2d 1165, 1168 (8th Cir. 1988); Sanford Brown College v. Riley, C.A. No. 4:94CV1251 (E.D. Mo. July 15, 1994); Whayne v. Dep't of Education, 915 F. Supp. 1143, 1145 (D. Kan. Jan. 11, 1996). Nevertheless, plaintiffs contend that an exception to Section 1082 exists in this case because a court may always enjoin a federal officer who acts beyond his powers, even where a statute appears to prohibit injunctive relief. See, e.g., Canterbury Career School of Sacramento v. Riley, No. Civ. S-93-1475 (E.D. Ca. Dec. 14, 1993) ("Canterbury (Sacramento)") at 7 (relying on Larson v. Domestic and Foreign Commerce Corp, 337 U.S. 682, 690-91, 69 S. Ct. 1457, 1462, 93 L. Ed. 1628 (1949) and Manges v. Camp, 474 F.2d 97, 99 (5th Cir. 1973)); Bartels v. Alabama Commercial College, Inc., 918 F. Supp. 1565, 1573-74 (N.D. Ala. 1995); Canterbury Career School Inc. v. Riley, 833 F. Supp. 1097, 1102 (D.N.J. 1993) ("Canterbury (New Jersey) "); Concorde Career Colleges, Inc. v. Riley, 1992 U.S. Dist. Lexis 21951, at *3 (W.D. Mo. Dec. 23, 1992). See also Ulstein Maritime v. United States, 833 F.2d 1052, 1057 (1st Cir. 1987) (Small Business Act); Gross v. Bell Savings Bank, 974 F.2d 403, 407 (3d Cir. 1992) (Financial Institutions ...


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