Court: Court of Appeals for the D.C. Circuit; September 17, 2018; Federal Appellate Court
The United States District Judge, Randolph D. Moss, determined that the Department of Education's actions delaying the Borrower Defense Regulations were in violation of the Administrative Procedure Act (APA). The Court decided that the appropriate remedy for these unlawful agency actions is vacatur. Consequently, the Court will vacate both the 'Final Delay Rule' and the 'Section 705 Stay', with the latter's vacatur stayed for 30 days to allow the Department to address the identified deficiencies.
Background details include the promulgation of the Borrower Defense Regulations by the Department on November 1, 2016, set to take effect on July 1, 2017. Before this date, the California Association of Private Postsecondary Schools (CAPPS) filed a suit challenging the regulations and sought a preliminary injunction, which remained unresolved as the Department issued a stay under APA Section 705, delaying the implementation of the regulations. Subsequently, the Department issued an interim final rule on October 24, 2017, postponing the effective date to July 1, 2018, followed by another proposal to delay it further to July 1, 2019.
Ultimately, the Court ruled that both the Final Delay Rule and the Section 705 Stay were unlawful due to the Department's failure to comply with the Higher Education Act’s procedural requirements, particularly in bypassing negotiated rulemaking procedures without sufficient justification. The Court also found the Section 705 Stay to be arbitrary and capricious, stating that the Department's justifications for the delay did not meet the standards set by the APA.
The first rationale presented was deemed 'unsupported by any analysis' and conflicted with the Department's previous, unacknowledged conclusion. The second and third rationales similarly lacked meaningful analysis and were considered outside the scope of Section 705 because they were unrelated to the pending CAPPS case. Regarding legal standards, when a court finds agency regulations unlawful, the typical outcome is vacatur of the rules. However, this is not absolute; a remand without vacatur may be appropriate if there is a serious possibility that the agency could substantiate its decision and if vacating would be disruptive. Courts may also combine vacatur with a stay to allow agencies time to address identified defects. The criteria for ordering a stay have evolved, but the core principle of conferring equitable power remains intact. Courts possess inherent authority to postpone vacatur to enable agencies to rectify issues. In the analysis section, it is noted that all parties agree that vacatur is the correct remedy for the Final Delay Rule, which was issued without proper procedures under the HEA. The Department has not contested this position, and therefore, the Court will vacate the Final Delay Rule.
Plaintiffs and the Department disagree on how to address the Section 705 Stay regarding the Borrower Defense Regulations. Plaintiffs request the Court to vacate the stay and allow the regulations to take immediate effect or, alternatively, issue a temporary restraining order to stay specific provisions related to arbitration agreements and class action waivers. The Department argues for a remand without vacatur or a stay of implementation pending further briefing in a related case, CAPPS, Civ. No. 17-999. The Court declines to issue a TRO in the CAPPS case since it was not requested. Analyzing the Allied-Signal factors, the Court finds that while the Department could potentially justify the Section 705 Stay, there are significant challenges in doing so, making the first factor slightly favor remand without vacatur. The second factor also favors remand, as vacating the stay could lead to regulatory instability if the CAPPS case results in a preliminary injunction shortly after the regulations take effect. To balance these concerns, the Court vacates the Section 705 Stay but stays that vacatur for 30 days, allowing the Department time to address deficiencies while minimizing harm to student borrowers. The Final Delay Rule is ordered to be immediately vacated, and the Section 705 Stay is vacated but will remain stayed until October 12, 2018, at 5:00 p.m.
