Secretary. Moreover, this remand will provide CTS with the opportunity to contest Education's loss formula and calculations.
As a final matter, CTS challenges Education's extrapolation of violations from the 187 students reviewed to the entire universe of GSL program loans disbursed to CTS students.
CTS essentially makes three arguments: Education lacks the authority to use statistical extrapolation, CTS had no prior notice of this methodology, and the methodology is flawed.
Education argues that the use of this projection is a straightforward application of the Secretary's authority to collect improperly disbursed funds. See 34 C.F.R. § 682.609(a). In addition, Education cites numerous cases were courts have upheld an agency's decision to project sample liabilities to a larger universe in determining program liabilities. See, e.g., Yorktown Med. Lab. v. Perales, 948 F.2d 84 (2d Cir 1991); Michigan Dep't of Educ. v. United States Dep't of Educ., 875 F.2d 1196, 1205 (6th Cir. 1989); Commonwealth of Mass. Dep't of Public Welfare v. Sec'y of Agriculture, 984 F.2d 514, 521-22 (1st Cir. 1993). Although these cases did not specifically involve Title IV program loans, they are nevertheless apposite here. Indeed, government agencies would be hamstrung without the ability to rely on review sampling. Thus, the Court holds that the Secretary possesses the authority to use statistical extrapolation to calculate liability.
CTS raised its other sampling concerns in its appeal to the Secretary. However, the Secretary's decision does not address those concerns. In fact, neither Judge Canellos nor the Secretary provide any support in the record for this Court to determine the appropriateness of Education's extrapolation.
Although the scope of this Court's review is narrow, Education must examine the relevant data and articulate a satisfactory explanation for its action, including a rational connection between the facts found and the choice made. See Motor Vehicle Manufs Ass'n of the U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S. Ct. 2856, 2866, 77 L. Ed. 2d 443 (1983); Burlington Truck Lines v. United States, 371 U.S. 156, 168, 83 S. Ct. 239, 245, 9 L. Ed. 2d 207 (1962). Furthermore, in reviewing that explanation, we must be able to "consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error in judgment." Bowman Transp. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285, 95 S. Ct. 438, 442, 42 L. Ed. 2d 447 (1974). As the Ninth Circuit has stated: "The administrative record . . . must sufficiently provide a clue to the agency's decisionmaking analysis for such review to be meaningful. This court should not supply a reasoned basis for the agency's action that the agency itself has not given." Sears Sav. Bank v. Federal Sav. and Loan Ins. Corp., 775 F.2d 1028, 1029 (9th Cir. 1985) (citing SEC v. Chenery Corp., 332 U.S. 194, 196, 67 S. Ct. 1575, 1577, 91 L. Ed. 1995 (1947)).
Accordingly, the Court must conclude that CTS was denied the ability to challenge Education's sampling and extrapolation methodology--a methodology upon which CTS' liabilities were significantly predicated. The Court does not mean to imply that the specific extrapolation methodology used was improper, particularly in light of CTS apparent refusal to perform its own full file review. Rather, inadequate evidence in the record to support this aspect of the Secretary's decision precludes a finding that the Secretary's decision was not arbitrary or capricious.
Where, as here, the record is inadequate to allow meaningful judicial review, the Court should remand to the agency for further findings. See Citizens to Preserve Overton Park, 401 U.S. at 420, 91 S. Ct. at 825; Sierra Club v. U.S. Army Corps of Engineers, 772 F.2d 1043, 1053 (2d Cir. 1985); Sears Sav. Bank, 775 F.2d at 1030 ("If the administrative record is inadequate to explain the action taken, the preferred practice is to remand to the agency for amplification.").
C. Due Process
CTS also argues that the Secretary's decision should be overturned because CTS was denied the right to a full evidentiary hearing. Specifically, CTS argues that the relevant statute in force and principles of due process require that Education provide an on-the-record evidentiary hearing.
In response, Education correctly points out that section 490(b) of the Higher Education Amendments of 1992, Pub. L. No. 102-325, specifically amended section 487(b)(2) of the HEA to delete the phrase "on the record." See 20 U.S.C. § 1094(b)(2) (1993). Therefore, CTS' appeal was appropriately conducted under the amended statute because the FPRD was not issued until August 27, 1992, after the effective date of the 1992 amendments.
Under Education's regulations, an institution may appeal an adverse FPRD to Education's Office of Higher Education Appeals. See generally 34 C.F.R. § 668. The administrative appeal is conducted under Education's regulations as a "paper hearing," consisting of the submission of evidence and written briefs to the hearing official, with oral argument allowed if required or requested. See 34 C.F.R. § 668.116. The hearing official is required to issue an initial decision setting forth the basis of his findings and conclusions. See 34 C.F.R. § 668.118(d). Each party can appeal the initial decision to the Secretary, who may affirm, modify, reverse, or remand the initial decision to the hearing official. See 34 C.F.R. § 668.120.
In this instance, there is no evidence that Education failed to follow the above procedures in handling CTS' appeal of the FPRD. Although CTS' requests for an evidentiary hearing were denied, CTS' appeal was appropriately conducted under the relevant statutes in force at the time of the FPRD. See 20 U.S.C. § 1094(b)(2).
CTS' second challenge to Education's appeal procedures is that due process requires a full evidentiary hearing. Specifically, CTS appears to be arguing that Education's "paper hearing" was insufficient because CTS was precluded from calling and cross-examining witnesses directly.
In response, Education argues that CTS has no property interest in the $ 2,085,008 it seeks to recover. This argument carries little weight. Unlike the cases that Education cites in support of its argument, this is not a case about government benefits or CTS' continued participation in a government subsidy. Instead, Education is attempting to recover loan proceeds that were paid to CTS by its students to cover the costs of those students' educations. CTS clearly has a property interest in retaining the funds in its accounts.
Consequently, CTS has a constitutionally protected property interest in the money sought by Education, and thus it is entitled to some form of hearing before being deprived of that interest. However, "due process rarely demands full evidentiary hearings." U.S. v. Staula, 80 F.3d 596, 601 (1st Cir.), cert. denied, 136 L. Ed. 2d 101, 117 S. Ct. 156 (1996); see also Boddie v. Connecticut, 401 U.S. 371, 378, 91 S. Ct. 780, 786, 28 L. Ed. 2d 113 (1971) ("the formality and procedural requisites for the hearing [required under the Due Process Clause] can vary, depending upon the importance of the interests involved and the nature of the subsequent proceedings") (footnote omitted).
In Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 47 L. Ed. 2d 18, (1976), the Supreme Court outlined the criteria by which to evaluate whether the administrative procedures provided are constitutionally sufficient:
First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.
Id. at 335, 96 S. Ct. at 903.
Generally, unless an evidentiary hearing is required by statute, an agency has considerable discretion in deciding how to proceed. See Washington v. Office of the Comptroller of the Currency, 856 F.2d 1507, 1512 (11th Cir. 1988) ("Since the OCC is not required by statute to hold a public hearing [the] denial of a hearing may be reviewed only to determine whether the decision was arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.")
Turning to the Mathews factors, the Court notes that although CTS' interest is substantial, the risk of erroneous deprivation through the procedures used is not sufficiently great to warrant a full, formal evidentiary hearing. Determining whether CTS lacked financial aid transcripts, engaged in incomplete file verification practices, maintained incorrect file review procedures, or failed to satisfy minimum required program hours is wholly a "paper based" review. Furthermore, calculating loan balances, interest subsidies, and reinsurance fees is largely a mathematical determination. When a determination is for the most part based upon objective, documentary evidence, there is less reason to fear that lack of a formal evidentiary hearing will result in an erroneous decision. See, e.g., Mathews, 424 U.S. at 343-44, 96 S. Ct. at 906-07; Eguia v. Tompkins, 756 F.2d 1130, 1138-39 (5th Cir. 1985); Ciechon v. City of Chicago, 634 F.2d 1055, 1059 (7th Cir. 1980).
Furthermore, when a participating institution is required to perform these file checking functions before it certifies a student as eligible for GSL program loans, it is reasonable to infer neglect when the files are not in order. In addition, resolution of the dispute here does not depend upon assessment of the credibility of witnesses.
See Mathews, 424 U.S. at. 343-44, 96 S. Ct. at 906-07; Califano v. Yamasaki, 442 U.S. 682, 696-7, 99 S. Ct. 2545, 2555, 61 L. Ed. 2d 176 (1979).
Moreover, additional or substitute procedural requirements would entail unnecessary fiscal and administrative burdens on the Department of Education. As already noted, the issue of student eligibility for GSL program loans is essentially a "paper record" dispute. To require Education to perform a full evidentiary hearing whenever an institution contests an adverse finding would be an undue administrative burden--a burden due process does not demand. In those few instances where disputed issues of fact warrant a full evidentiary hearing, it is within the discretion of an Administrative Law Judge to make that determination, or state on the record why no such hearing is warranted. Cf. Calvin v. Chater, 73 F.3d 87, 91-92 (6th Cir. 1996) (decision to grant or deny cross-examination rests in the sound discretion of the agency).
Finally, it should be noted that although CTS did not receive a full evidentiary hearing, it did receive an informal hearing before Administrative Law Judge Canellos prior to the adverse administrative action. In that hearing, CTS was capable of defending its file verification practices through written documentation and briefing. After consideration of the aforementioned factors, the Court holds that the constitutional guarantee of due process of law did not require a full evidentiary hearing.
In summary, the Court finds that the Secretary's decision to uphold the FPRD and the Secretary's conclusion that CTS violated Title IV program regulations was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. However, the Secretary's calculation of CTS' liability, based on the face value of CTS' GSL loans, was an abuse of discretion and must be set aside. In addition, there is inadequate evidence in the record to support the Secretary's decision to extrapolate CTS' liability from a review sample of 187 students.
For the foregoing reasons, Defendants' Motion for Summary Judgment and Plaintiff's Cross-Motion for Summary Judgment are GRANTED IN PART and DENIED IN PART, consistent with this Order. This case is REMANDED to the Secretary of Education for reconsideration and further proceedings consistent with this opinion. All other requests for relief are denied.
IT IS SO ORDERED.
June 10, 1997
Albany, New York
HON. THOMAS J. McAVOY
Chief U.S. District Judge