Interboro Institute, Inc. v. Foley

Citations: 985 F.2d 90; 1993 U.S. App. LEXIS 1991Docket: No. 197, Dockets 92-7277, 92-7315

Court: Court of Appeals for the Second Circuit; February 4, 1993; Federal Appellate Court

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Interboro Institute, Inc., an accredited junior college, is appealing the denial of its motion for a preliminary injunction concerning claims of Fourteenth Amendment due process violations. The appeal arises from actions taken by Cornelius Foley, President of the Higher Education Services Corporation (HESC), who adopted findings from the Office of the Comptroller of the State of New York (OSC) without an evidentiary hearing. These findings indicated that certain Interboro students failed to meet published entrance requirements, leading to the disallowance of over $200,000 in funds from New York State's Tuition Assistance Program (TAP) and Supplemental Tuition Assistance Program (STAP).

Interboro sought to prevent the defendants from offsetting disallowed payments against current tuition assistance, publishing their findings, and denying a hearing before withholding future assistance. The court affirmed the lower court's decision and remanded with instructions to dismiss the complaint, stating that Interboro received adequate due process.

The background includes the Education Department's 1985 conclusions about Interboro's suspicious admission criteria, leading to an audit by the OSC in October 1985. Interboro had previously secured a temporary restraining order to allow its academic programs to remain registered. Subsequent audits resulted in proposed disallowances of TAP awards for students not meeting admissions criteria, to which Interboro responded multiple times, asserting bad faith in the findings. 

Despite the OSC delaying its audit resolution until after the litigation with the Education Department concluded, a new audit commenced in the 1988-89 academic year. A preliminary report sent in June 1990 proposed disallowance of 31 awards, citing insufficient documentation of tenth-grade completion. Interboro countered that students were admitted under new criteria accepting alternative assessments, which were unintentionally omitted from the catalog. However, the OSC maintained that this substitution was unacceptable, leading to a projected $120,000 overpayment.

On May 30, 1991, Interboro submitted a detailed report in response to an audit by the Office of the State Comptroller (OSC), which had resulted in a draft report supported by the Education Department and the Higher Education Services Corporation (HESC) that recommended disallowances of $228,843. Following this, Interboro communicated with HESC President Foley, providing extensive documentation and requesting a review before a final decision was made. Foley subsequently demanded repayment of the disallowed amount, informing Interboro of its right to dispute the demand and request an administrative hearing. Foley emphasized that HESC could not review issues under the jurisdiction of the State Education Department, particularly concerning academic standing and matriculation.

On September 10, 1991, Interboro submitted another response, seeking an evidentiary hearing. Foley denied this request and reiterated the repayment demand, warning that failure to comply within fifteen days would lead to deductions from Interboro’s TAP funds. On November 1, 1991, Interboro initiated legal action under 42 U.S.C. § 1983, seeking a preliminary injunction to prevent the withholding of financial aid and to compel a pre-deprivation hearing. Judge McAvoy ruled that the request for payment of withheld funds was barred by the Eleventh Amendment and denied the other requested relief.

On appeal, it was determined that Interboro could not prevail on its claims, which asserted violations of due process in relation to its property and liberty interests concerning TAP and STAP funds. Despite the potential interest, it was concluded that Interboro received constitutionally adequate notice and opportunity to be heard, as established in the precedent Oberlander v. Perales, where it was held that state procedural remedies provided sufficient opportunity to contest the issues, even without a pre-deprivation evidentiary hearing.

Procedures followed in the case were deemed sufficient to satisfy due process requirements. Interboro had multiple opportunities to present written responses at various stages of the OSC audit and HESC review process, which it utilized effectively. These responses were acknowledged and addressed in subsequent reports. Although Interboro had the option to initiate an Article 78 proceeding in New York courts, it chose not to. The pre-deprivation hearing's aim is to ensure that decision-makers consider the claimant's legal arguments comprehensively. Here, the procedures met the standards set by the Mathews test, demonstrating that Interboro's legal and factual positions were thoroughly examined, and an evidentiary hearing would not have altered the outcome. The need for efficient program administration across multiple state agencies further justified the absence of an additional evidentiary hearing, as requiring one would have been redundant.

Interboro's claims of bad faith by state agencies lack supporting evidence. Other arguments presented by Interboro were found to be without merit, and no provable facts could substantiate its claims. Consequently, the denial of the preliminary injunction was affirmed, and the complaint was remanded for dismissal due to the absence of disputed material facts. Interboro's appeal, while formally labeled as a cross-appeal, principally concerned the denial of its preliminary injunction motion. Foley and Regan had previously appealed a decision regarding qualified immunity, while Interboro sought to contest various aspects of that decision. However, both parties' motions were granted, narrowing the focus to the appeal concerning Interboro's preliminary injunction.