As 2007 began, we found ourselves awaiting two decisions from the administrative judges in ED's Office of Hearings and Appeals that we believed would have a big impact on program reviews and enforcement actions for years to come. One of them came through as hoped. The other case, described immediately below, will never be decided.
In late 2005 and early 2006, I worked with the Virginia law firm of Ritzert & Leyton as their Title IV compliance expert in the Harrison Career Institute emergency action and termination case. The emergency action was lifted in pretty short order, but of course having an emergency action lifted and getting ED to turn the money loose are two different things.
As an expert witness, I was privileged to sit in on almost all of the sessions of the hearing. ED tried to have me sequestered, of course, but Chief Administrative Judge Ernest C. Canellos permitted me to stay. This was important, because it allowed me to take notes on the ridiculous testimony ED put forth, so as to assist attorneys Steve Gombos, Gerry Ritzert, and Arthur "Buzz" Schumann in skewering ED's witnesses properly on cross-examination.
Not that expert input was all that necessary to the defense in many cases. ED's "90-10 Rule" expert testified that it was improper for the school's owner to have used the proceeds of institutional loans he sold to a related company as tuition revenue, but couldn't cite a regulation that this practice violated.
A paralegal from ED's Administrative Actions and Appeals Division testified that the program review team, of which she was a member from the get-go, didn't interview any of the ability-to-benefit testers (who were accused of testing irregularities) because "they always lie." She testified further that students "never lie." Ah, the voice of experience. I almost felt sorry for her, sitting there on the witness stand, looking at her feet nearly the entire time she was up there.
One of the ATB students testified that a certain school staff member gave her the ATB test (she was positive of the identification; she remembered because he was gay), instead of an independent test administrator, as should have been the case. But unfortunately for ED's case, the staff member, gay or not, never tested anyone for ability to benefit, and in any event, didn't start working for the school until after the complaining student had been tested and had been in school for awhile. Oopsie.
ED employees who testified were mostly evasive, poorly informed on the regulations, and basically came off as the zealots and frustrated wanna-be FBI agents they often are. To paraphrase the lady on the Focus Factor commercial that's on TV about 20 times a day ("They're giving it away free? Must be good!"), the ED reviewers' feeling was, pretty clearly, "Proprietary? Must be scum!"
In the defense case in chief, Buzz and I took the judge through the labyrinth of the Return of Title IV Funds regulations, and I think he may have understood it by the time we were done. Well, maybe not. I mean, ED wrote it so even experienced program reviewers often can't understand it, and I was on the witness stand for only 6 or 8 hours . . . But even if he didn't understand it, at least I think he believed me when I told him if I had an R2T4 to be calculated, I'd be more likely to get the right answer from the folks at Harrison Career Institute than from the program reviewers.
At some point during the testimony, ED decided that a huge fine against the school wasn't such a great idea, after all, and they dropped that aspect of the proceedings. So now, all that was left was, would the school be terminated?
We were hoping to have Judge Canellos's initial decision on the termination action early in 2007. Unfortunately, the school lost its accreditation in April, so now the case is moot and the case will never be decided. That is the kind of heartbreak we of the defense sometimes have to endure. Still, I think the hearing will be to the benefit of other schools in the long run. Judge Canellos got an earful on a lot of issues that are bound to come up in the future.
But . . . We won a big one in April, 2007. Here is what happened.
ED Administrative Judge shreds Dear Colleague Letter
Glenn Bogart, J.D.
Administrative Judge Richard F. O’Hair recently issued a decision which, when it becomes final, should have a significant impact on many schools that participate in Title IV federal student aid. It has to do with timeliness of Returns of Title IV Funds, or refunds. It is a rare school that doesn’t have problems with this.
Mr. Carl Barney, CEO of CollegeAmerica – Denver, asked me to appeal a final program review determination last year. The narrow issue was this -- can the Department of Education consider a refund “late” on the basis of a Dear Colleague Letter that goes way beyond what the regulations require, in setting an earlier deadline for when refunds must be paid? The answer, according to Judge O’Hair, is that the Department cannot do this. Not when the regulations are “clear and unambiguous,” which they are in this case.
Let me caution the reader that for now, schools should not relax their determination-of-withdrawal procedures. Judge O’Hair’s decision becomes final in a little more than 30 days (mid- to late May, 2007) only if no timely appeal is filed. Yes, the Department of Education has a right to appeal to the Secretary if it doesn’t like an administrative judge’s decision. After that, the Secretary can “deliberate” on the case for a month or a year, or even longer. So, we have to wait and see.
Why is this case significant? Specifically, it calls into question many situations in which the Department has imposed a letter-of-credit requirement on a school for having late refunds, or imposes interest liabilities for late payment of refunds. This is especially true where the issue is how soon a refund must be paid when students drop out of school without notice. If you read the case, you’ll see that only the interest liabilities are addressed, but trust me, the bigger impact stands to be on refund reserve letters-of-credit.
More generally, the decision calls into question any “requirement” the Department puts into a Dear Colleague Letter or the Federal Student Aid Handbook that goes beyond an existing regulation’s specific requirements. It might cause the Department to think twice before doing that again. But I doubt it.
The Department published Dear Colleague Letter GEN-04-03, in February, 2004, wherein it attempted to set a deadline of seven days for determining student withdrawals in schools required to take attendance, when a student drops out without notice – and as you probably know, lots of them do just that. Nine months later, in GEN-04-12, it changed this deadline from seven days to 14 days.
Interestingly (well, at least it was interesting to me), the Final Program Review Determination the Department sent to CollegeAmerica didn’t cite these Dear Colleague Letters. On top of that, the FPRD didn’t cite the two sections of the Federal Regulations that do apply to this subject. They did cite one section that does not apply. Naturally, my first argument was that the Department can’t collect liabilities when they can’t cite an applicable regulation that was violated. It’s a little thing called due process, and adequate notice of a violation is a part of that . . .
I believe the judge could have thrown out the case on that basis alone, but I’m glad he didn’t. He went on to address my main argument. I suggested that in reality the Department was trying to enforce the Dear Colleague Letters they hadn’t bothered to cite. Then I argued that, on the basis of binding precedent, the Dear Colleague requirements were unenforceable because they sought to impose deadlines more strict than the deadlines already set forth in the regulations. Judge O’Hair agreed.
In case you’re interested in what the regulations say about all this, a school actually has until 30 days after the end of the payment period to determine that a student has disappeared, and another 45 days after that to make any refund that may be due (it used to be 30 days, but it has been changed to 45). Under the regulations, this is true whether the school is required to take attendance or not. But, of course, the Department has taken the attitude that, “We don’t need no stinkin’ regulations.” (Thanks, Mel Brooks.) I’ve seen the Department try to impose earlier deadlines on schools that are not required to take attendance, too. All of that is now more questionable than ever.
You may recall that when Dear Colleague Letter GEN-04-03 came out, the Career College Association and probably quite a few others wrote to the Department to protest. Too bad it takes a case in controversy to be litigated in order to get the Department to back off. At least, it did in this case. And as explained above, it isn’t over yet.
You can read the judge’s decision on the Internet, by going to http://www.ed-oha.org , then clicking on “OHA Decisions,” then “List of Decisions.” Scroll down to the bottom, and you will find In the Matter of College America – Denver.
While we are waiting to see what the Department will do with this, feel free to write and ask them to release you from your refund reserve letter-of-credit, if you are under one as a result of DCL GEN-04-03 or 04-12. Send a copy of Judge O’Hair’s decision with your letter. Let me know what they say.
Update: Federal Student Assistance has filed an appeal of the initial decision discussed above, so it's not over yet. I filed a brief in opposition. Eventually there will be a decision from the Secretary of Education. But don't hold your breath.
My friends at Dow, Lohnes & Albertson won the initial decision in the Saint Louis University case, the government appealed it to the Secretary, and the Secretary's decision came out in 2007, nearly seven years later, sending the matter back to the administrative judge for further proceedings. What a beating!