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MILDRED ELLEY BUS. SCH., INC. v. RILEY

August 22, 1997

MILDRED ELLEY BUSINESS SCHOOL, INC., Plaintiff,
v.
RICHARD W. RILEY, Secretary of the United States Department of Education, Defendant.



The opinion of the court was delivered by: SCULLIN

 Introduction

 This is an action seeking judicial review of an administrative agency decision under the Higher Education Act ("HEA"), 20 U.S.C. § 1001 et seq., the Administrative Procedure Act ("APA"), 5 U.S.C. § 500 et seq., and the Due Process Clause of the Fifth Amendment to the United States Constitution. The Plaintiff is a private post-secondary educational institution with campuses in Albany, New York, and Pittsfield, Massachusetts. The Defendant is the Secretary of the United States Department of Education, and is being sued in his official capacity.

 This action arises out of the Defendant's decision to terminate Plaintiff's eligibility to participate in the Federal Family Education Loan ("FFEL") program established by the HEA. Plaintiff maintains that the Defendant has acted arbitrarily, capriciously, and contrary to law with respect to two administrative appeals filed by the Plaintiff. Plaintiff also contends that the Secretary failed to explain adequately the basis of its ruling which constitutes a violation of the Due Process Clause. Plaintiff seeks declaratory relief proclaiming the Defendant's rulings null and void. Presently before the Court are cross-motions for summary judgment.

 Factual Background

 The material facts of this case are largely undisputed. Prior to Plaintiff's termination of eligibility, students attending the Mildred Elley Business School received a substantial amount of financial assistance under the FFEL program. Under that program, students at eligible institutions borrow money for tuition and expenses from participating lenders, such as commercial banks. These loans are insured, in the first instance, by guarantee agencies, such as the New York State Higher Education Services Corporation ("NYSHESC"). The loans are reinsured by the Department of Education. See 20 U.S.C. § 1078.

 In order to control the cost of these programs, the Secretary has a duty, pursuant to 20 U.S.C. § 1080(m)(1)(A), to calculate, as accurately as possible, the number of current and former students at each participating institution who after entering repayment on FFEL loans in a fiscal year ("FY"), then default on those loans before the end of the following fiscal year. This is known as an institution's Cohort Default Rate ("CDR"). If an institution's CDR exceeds 25% for three consecutive fiscal years, the HEA mandates that the Secretary terminate that school's eligibility to participate in the FFEL program, absent exceptional circumstances. See 20 U.S.C. § 1085(a)(2)(A), (B).

 Discussion

 Under Rule 56(c), summary judgment is warranted if, when viewing the evidence in a light most favorable to the non-movant, the court determines that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 457, 119 L. Ed. 2d 265, 112 S. Ct. 2072 (1992); Commander Oil v. Advance Food Serv. Equip., 991 F.2d 49, 51 (2d Cir. 1993). Where, as here, the Court is faced with cross-motions for summary judgment, "a district court is not required to grant judgment as a matter of law for one side or the other. 'Rather the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration.'" Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993) (quoting Schwabenbauer v. Board of Educ., 667 F.2d 305 (2d Cir. 1981)).

 In this motion for summary judgment, the Plaintiff asserts essentially three arguments. First, Plaintiff claims that the Defendant's ruling on Plaintiff's loan servicing appeal must be vacated because the Defendant improperly failed to remove six loans from Plaintiff's FY 1993 CDR. Second, Plaintiff claims that the Defendant's decision was arbitrary and capricious in that it failed to exclude two other loans that were improperly counted in Plaintiff's FY 1993 CDR due to erroneous data was arbitrary and capricious. Finally, Plaintiff argues that the Defendant failed to explain adequately the basis for his rulings in violation of the APA and Due Process Clause. The Court will address each of these arguments in turn.

 I. Loan Servicing and Collection Appeal

 As stated, Plaintiff claims that the Defendant should have excluded six loans from Plaintiff's FY 1993 CDR due to errors in loan servicing and collection. Specifically, Plaintiff claims that the administrative record does not contain any evidence indicating that the issuing lenders performed the requisite "skip tracing" in order to locate missing borrowers. The Defendant contends that the entries "skip determined" and "skip start" in the computer records of the guarantee agency (NYSHESC) that paid claims to these lenders are sufficient to support the Defendant's determination that those loans did not default due to improper servicing or collection efforts under 20 U.S.C. § 1085(m)(1)(B) and 34 C.F.R. § 668.17(h)(3)(viii)(E). Thus, the Secretary argues that those six loans were properly counted in Plaintiff's FY 1993 CDR. The Secretary further argues that the HEA is ambiguous ...


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