Microcomputer Technology Institute v. Riley , 139 F.3d 1044 ( 1998 )

REVISED, May 13, 1998
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 97-20329
_______________
MICROCOMPUTER TECHNOLOGY INSTITUTE,
Plaintiff-
Counter Defendant-
Appellee,
VERSUS
RICHARD W. RILEY,
Secretary of Education,
and
UNITED STATES DEPARTMENT OF EDUCATION,
Defendants-
Counter Claimants-
Appellants.
_________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________
April 27, 1998
Before JONES and SMITH, Circuit Judges, and FITZWATER,* District
Judge.
JERRY E. SMITH, Circuit Judge:
I.
Microcomputer Technology Institute (“MTI”) is an accredited
for-profit vocational-technical school. In the late 1980's, MTI
entered into an agreement with certain privately operated prison
*
District Judge of the Northern District of Texas, sitting by designation.
facilities in Texas to provide training programs for inmates.
Under the agreement, and under the terms of its exemption from
certain state licensing requirements, MTI was obligated to provide
its programs to inmates regardless of their willingness or ability
to pay or to obtain financial aid. It was understood, however,
that MTI would receive compensation by having the inmates obtain
federal Pell Grants in order to pay for their classes, even though
the inmates were not obligated to provide funding.
The Higher Education Act, 20 U.S.C. §§ 1000 et seq., places
significant responsibility for the administration of student aid on
individual institutions of higher learning. Under the Pell Grant
program, 20 U.S.C. §§ 1070 et seq., a student sends an application
to the Department of Education (“Department”), which determines his
eligibility to receive a grant. This information is then sent to
the student's schoolSSwhose participation must be approved in a
separate processSSand the school determines the exact amount of the
award he may receive, based on the tuition and fees “normally
charged” students at that school. See 20 U.S.C. § 1070a-6(5)(A).
The school then gives the grant money to the student either by
paying it out directly, orSSas was the case hereSSby directly
crediting the money to the student's tuition account.
As a participant in this process, MTI based the amount of the
Pell Grants it awarded to its prisoner students on the amounts
normally charged its non-prisoner students. Because the prison
programs were shorter than regular classes, however, MTI “charged”
somewhat less. In the award years 1989-90 and 1990-91, MTI based
2
its Pell Grant awards on a cost of attendance of $4,000: $2,300
tuition and fees and $1,700 for books, living expenses, and
miscellaneous costs. In the award years 1991-92 and 1992-93, MTI
raised its cost of attendance to $4,200: $2,400 tuition and fees
and $1,800 expenses.
Using these figures, MTI awarded Pell Grants of $2,300 to its
inmate students for the 1989-90 and 1990-91 award years, and Pell
Grants of $2,400 for the 1991-92 and 1992-93 award years.2 The
total Pell Grants distributed by MTI to its inmate students during
this period amounted to about $8.1 million. MTI disbursed this
entire amount to its students by crediting their tuition accounts
at MTI, so that MTI itself received all of those funds.
In 1992, the Department's Office of Inspector General
conducted an audit of MTI's inmate education programs and
determined that because the students were under no obligation to
pay tuition, there was no tuition “charge” that could be offset by
a Pell Grant. The Inspector General also found that because the
State of Texas generously paid for its prisoners’ living
arrangements, and because the inmates did not pay for books or
other expenses, MTI could not include the amounts for the
prisoners' “expenses” in the Pell Grant awards.
Thus, the Inspector General determined that none of the inmate
students had ever qualified for Pell Grants, and that MTI should be
2
Pursuant to the statutory scheme, MTI calculated the Pell Grants by
awarding sixty percent of the students' cost of attendance, subject to an outside
limit of $2,300 through 1991 and $2,400 through 1993. Because 60% of the cost
of attendance in each case slightly exceeded the maximum Grant, MTI consistently
awarded the maximum.
3
required to reimburse the Department a total of $8,139,146. The
1992 audit report led to a 1994 final audit determination by the
Department's Student Financial Assistance Program division that MTI
had over-awarded and must reimburse the $8.1 million.
MTI took its case before an Administrative Law Judge (“ALJ”),
who affirmed the audit determination. The ALJ's decision was
subsequently affirmed by the Secretary as the final decision of the
Department. MTI then filed this suit, seeking a declaratory
judgment that it had properly made the Pell Grants and an
injunction against the Department's recovery of the $8,139,146.
The district court rejected the Department's determination.
II.
During the relevant time periods, the Higher Education Act
provided that Pell Grants “shall not exceed 60 percent of the cost
of attendance . . . at the institution at which the student is in
attendance.” 20 U.S.C. § 1080a(b)(3). The statute further defined
“cost of attendance” as “the tuition and uniform compulsory fees
normally charged a full-time student at the institution,” 20 U.S.C.
§ 1070a-6(5)(A), plus an allowance for “expenses incurred by the
student which shall not exceed $1,7003 for a student without
dependents living at home with parents,” id. § 1070a-6(5)(B)(i).
The Department disallowed MTI's calculations both of tuition
“normally charged” and of the inmates' expense allowance.
3
This amount was raised to $1,800 in 1991.
4
A.
Because we deal here with an agency's interpretation of the
statute it is charged with administering, we must apply the two-
step analysis described in Chevron U.S.A. v. Natural Resources
Defense Council, 467 U.S. 837 (1984). If the language of the
statute plainly resolves the point, we of course must enforce it.
See Louisiana Dep't of Labor v. Department of Labor, 108 F.3d 614,
618 (5th Cir.) (citing Chevron, 467 U.S. at 842-44), cert. denied,
118 S. Ct. 80 (1997). But if the statute is ambiguous, we must
defer to “reasonable interpretations” made by the agency charged
with administering it. Id.
It matters not that the Department's interpretations were
adjudicative decisions, rather than purely prospective rulemaking.
“Congress has long been aware of the common practice of both courts
and agencies to make binding policy through case-by-case
adjudications.” 1 K. DAVIS & R. PIERCE, JR., ADMINISTRATIVE LAW TREATISE
§ 3.5, at 120 (1994). An agency's interpretation need not occur in
the context of formal rulemaking, so long as it is the considered
and final policy decision of the agency.4
Even the adjudicative interpretations of policy-making
agencies are entitled to Chevron deference. Cf., e.g.,
NationsBank, N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251,
254-57 (1995) (deference accorded to Comptroller's letter ruling);
4
But see, e.g., Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212-13
(1988) (no deference given to agency litigation positions).
5
see also DAVIS & PIERCE, supra, at 120. Unless the Department's
interpretation of the statute is contrary to its plain language or
is simply unreasonable, we defer to it.
B.
It is not difficult to see the merit in the Department's
interpretation of the expense allowance provision. The statute
provides for “an allowance for room and board costs, books,
supplies, transportation, and miscellaneous expenses incurred by
the student which shall not exceed” a set maximum. 20 U.S.C.
§ 1070a-6(5)(B)(i) (emphasis added). The parties here spend some
time arguing what maximum should apply. But by doing so, they miss
the plain meaning of the provision: The expense allowance is not
a gift from the federal government, but is to coverSSsubject to a
maximum amountSSexpenses incurred by the students.
Here, no one has challenged the Inspector General's
determination that the prisoners incurred no expenses whatsoever,
save the minimal amount they spent in the prison commissary. The
prisoners were provided with free lodging and clothing, three
square meals every day, and free transportation to and from
classes. Further, the inmate students were not required to
purchase, or in any way pay for, the use of their books and other
educational materials.
In effect, MTI argues that the expense allowance need bear no
relation to expenses incurred by the prisoners, but rather that
students may automatically receive the maximum allowance provided
6
in the statute. This logic would require us also to uphold for the
prisoners, under subsection (iv), “an allowance for child care
which shall not exceed $1,000.” 20 U.S.C. § 1070a-6(5)(B)(iv).
This would be absurd, just as would the allowance for living
expenses awarded to those who are literally incapable of incurring
any such expenses. “No expenses” should result in “no allowance.”
Therefore, not only was the Department's interpretation
“reasonable,” it was necessary: Any interpretation of the statute
to allow for unincurred expenses would be contrary to its plain
meaning.
C.
Slightly more difficult is the interpretation of the tuition
and fees “cost” for the prisoners. The HEA defines the tuition and
fees component of a student's “cost of attendance” not as the
actual amount charged a student. Rather, it pegs a student's
tuition and fees to those “normally charged” at the institution.
20 U.S.C. § 1070a-6(5)(A). This allows schools to give tuition
waivers and scholarships to individual students without reducing
the amount of the Pell Grant to which the student may be entitled.
The Department interprets this phrase to mean tuition
“normally charged of similarly-situated students.” Thus, a state
university could not claim that in-state students were “normally
charged” the higher out-of-state rates. Even though a large body
of the student population did in fact pay the higher rates, the
relevant “normally charged” population for in-state students would
7
be other in-state students.
MTI challenges this interpretation. It claims that the
statute does not permit the subclassification of students for the
purpose of determining what they are “normally charged.” It also
asserts, in effect, that even if subclassification could be
permitted, the distinction drawn here is impermissible.
1.
We have no problem upholding the agency's subclassification of
students to determine what is “normally charged” of a discrete
population. Courts have recognized that in some instances, an
agency requirement limiting the availability of a statutory benefit
beyond the requirements of the statute may be inherently
unreasonable. See, e.g., Snowa v. Commissioner, 123 F.3d 190 (4th
Cir. 1997). We are not presented with such a case, however, for it
is eminently reasonableSSand squarely in accord with the statutory
mandateSSthat dissimilar students should be treated as such. In-
state students are not “normally charged” out-of-state rates, and
history majors may not be “normally charged” the same as nursing
students. The statute plainly allows distinctions to be drawn
among groups of students who are normally charged different
amounts. Subclassification, per se, is appropriate.
2.
The problem with this approach is defining the relevant
student population. The inherent problems in imposing any
8
meaningful standards by which to classify the students, asserts
MTI, dictate a single, “plain vanilla” standard. For example, MTI
argues, if some students are given tuition waivers and some are
not, the Department might divide the relevant populations as those
who are charged full price, versus those who are given tuition
waivers. This, of course, could lead to a morass of individualized
tuition charge determinations, in direct contravention of the
statute, which bases Pell Grants not on actual charges but on
normal ones.
The Department rejoins that such is not the circumstance here.
The inmates were under no legal obligation to pay tuition. Neither
party disputes that tuition waivers were not a matter of
discretion, but were mandated by state regulation and by MTI's
contractual arrangements with the prisons. This, argues the
Department, makes them more like in-state students and less like
gratuitous recipients of financial aid.
The argument, then, comes down to the reasonableness of the
agency's determination that for prison inmates, to whom MTI was
required to provide classes free of charge, the tuition “normally
charged” was zero. We cannot say that either interpretation would
have been unreasonable. As both sides' counsel demonstrate, good
arguments can be made for either approach. We must therefore defer
to the agency's reasonable interpretation of its own statute.
Where, as here, Congress has left open a question arising from
a statute, some institution must resolve it. And where Congress
has charged an agency with administering the statute, courts must
9
not substitute their judgment for the delegated policymaking role
of the agency.
Judges . . . are not part of either political branch of
government. . . . In contrast, an agency to which
Congress has delegated policymaking responsibility may,
within the limits of that delegation, properly rely upon
the incumbent administration's views of wise policy to
inform its judgments. While agencies are not directly
accountable to the people, the Chief Executive is, and it
is entirely appropriate for this political branch of
government to make policy choices.
Chevron, 467 U.S. at 865-66. We therefore defer to the
Department's interpretation of the statute.
III.
MTI asserts that even if we uphold the Department's
interpretation of the Higher Education Act, this interpretation
should not be applied retroactively to disgorge the $8.1 million
that MTI had previously collected. MTI also objects that the
government should be equitably estopped from enforcing this policy
against MTI.
A.
To establish that the instant determination reverses previous
policy, MTI relies on a memorandum from the Department's Office of
the General Counsel dated February 1982, addressing the situation
of a Virginia for-profit school that, like MTI, offered vocational
programs to prisoners. Eighty percent of the school's students
were inmates. Like MTI, the Virginia school distributed Pell
Grants to its inmate students based on the tuition charged the
10
twenty percent of its students who were not prisoners. In the case
of the prisoners, the school routinely waived the difference
between its normal tuition and the amount awarded in the Pell
Grant.
The memorandum states that the Department had “consistently
defined tuition and fee waivers as student financial aid,” so that
the availability of these waivers does not affect the “cost of
attendance” for Pell Grant purposes. There is no hint in that
memorandum that the Department would treat inmate students as a
discrete group for purposes of determining tuition charges.
Further, that the prisoners in fact paid nothing made no difference
to the determination of their “cost of attendance.” This was said
to be the “long standing policy of the Department,” and the memo
opined that “changes would, in our view, require regulations.”
The Department now attempts to distinguish the policy
articulated in that memorandum, baldly guessing that the Virginia
school “presumably” granted such waivers as a matter of discretion,
while MTI was compelled to waive tuition charges. But there is no
evidence as to whether the Virginia school could have collected
tuition dollars from inmates. Furthermore, even were the
distinction to exist, nothing in the memorandum foreshadows the
Department's recent determination that where waivers are granted
not as a matter of discretion, the cost of attendance will be zero.
From this memorandumSSand there is nothing to contradict itSSit
appears that the Department's determination is a departure from its
former policies.
11
B.
When an agency changes its policy prospectively, a reviewing
court need only determine the reasonableness of the new
interpretation in terms of Chevron. But where an agency makes a
change with retroactive effect, the reviewing court must also
determine whether application of the new policy to a party who
relied on the old is so unfair as to be arbitrary and capricious.
See DAVIS & PIERCE, supra, at 241-42; see also Public Serv. Co. v.
FERC, 91 F.3d 1478, 1488 (D.C. Cir. 1996), cert. denied, 117 S. Ct.
1723 (1997).
In S.E.C. v. Chenery Corp., 332 U.S. 194 (1947), still the
leading case on administrative retroactivity, the Court recognized
that "problems may arise in a case which the administrative agency
could not reasonably foresee, problems which must be solved despite
the absence of a relevant general rule." Id. at 202. The Court
held:
[W]e refuse to say that the [S.E.C.], which has not
previously been confronted with the problem of management
trading during reorganization, was forbidden from . . .
announcing and applying a new standard of conduct. That
such action might have a retroactive effect was not
necessarily fatal to its validity. Every case of first
impression has a retroactive effect, whether the new
principle is announced by a court or by an administrative
agency. But such retroactivity must be balanced against
the mischief of producing a result which is contrary to a
statutory design or to legal and equitable principles. If
that mischief is greater than the ill effect of the
retroactive application of a new standard, it is not the
type of retroactivity which is condemned by law.
Id.
This principle is often applied in the circuit courts by
12
balancing variously articulated factors that measure unfairness to
the parties against the “mischief” of allowing the previousSSnow
incorrectSSinterpretation to stand. The most oft-cited approach is
the five factors articulated in Retail, Wholesale & Dep't Store
Union v. NLRB, 466 F.2d 380, 390 (D.C. Cir. 1972),5 but that
formulation has not been adopted by this court.
Rather, we have recognized that the balance must be examined
case-by-case, and factors such as those articulated in Retail,
Wholesale are of little practical use. Thus, in McDonald v. Watt,
653 F.2d 1035 (5th Cir. Unit A Aug. 1981), we examined the extent
of the agency's departure from previous interpretation and the
reasonableness of the aggrieved party's reliance, on one side of
the balance, and the statutory or regulatory interest in
retroactivity, on the other. Finding justified and detrimental
reliance, and finding no interest at all in retroactive
application, we refused to impose retroactivity. Id. at 1045-46.
The test in this circuit, then, is simply to balance the ills of
retroactivity against the disadvantages of prospectivity.
1.
Before we attempt to evaluate the balance, we must address the
5
Cf., e.g., Lehman v. Burnley, 866 F.2d 33, 37 (2d Cir. 1989) (employing
Retail Union factors); Dole v. East Penn Mfg. Co., 894 F.2d 640, 647 (3d Cir.
1990) (same); NLRB v. Ensign Elec. Div. of Harvey Hubble, Inc., 767 F.2d 1100,
1103 n.2 (4th Cir. 1985) (same); J.L. Foti Constr. Co. v. OSHA Review Comm'n,
687 F.2d 853, 858 (6th Cir. 1982) (same); NLRB v. Wayne Transp., 776 F.2d 745,
751 (7th Cir. 1985) (same); Oil, Chem. & Atomic Workers Int'l Union Local 1-547
v. NLRB, 842 F.2d 1141 (9th Cir. 1988) (same). Cf. also, e.g., Ryan Heating Co.
v. NLRB, 942 F.2d 1287, 1288 (8th Cir. 1991) (employing different but similar
formulation).
13
question of what deference, if any, we should accord an agency's
determination that a rule should be applied retroactively. Some
circuits have held that an agency's determination on retroactivity
is entitled to no deference. See, e.g., Retail Wholesale, 466 F.2d
at 390. Others defer to an administrative decision on
retroactivity unless it is “manifestly unjust.” See, e.g., NLRB v.
W.L. Miller Co., 871 F.2d 745 (8th Cir. 1989). In McDonald, we
indicated that an agency's decision on retroactive application
might be entitled to some deference, but we did not actually decide
the issue. See id. 653 F.2d at 1043 n.18.
Such deference, like deference to any other agency policy
decision, seems, at first blush, to be within Chevron's concept of
the administrative state: Where Congress has delegated
policymaking power, expert and politically accountable agencies,
rather than generalist and unaccountable judges, should fill
statutory interstices. See Chevron, 467 U.S. at 844-45, 865-66.
Retroactivity, however, involves no policy considerations, but
concerns only the application of settled policy under particular
circumstances. It does not call any agency expertise into play;
rather, it is a legal concept involving settled principles of law
and is no more subject to deference than is an agency's
interpretation of, say, a statute of limitations.
In short, the rationale of Chevron simply has no bearing on
this inquiry. Therefore, we accord no deference to the agency's
position on retroactivity.
14
2.
Accordingly, we must weigh the disadvantages of
retroactivitySSfrustration of parties' expectationsSSagainst the
detrimental effect of prospectivitySSpartial frustration of what we
have now determined is the proper statutory interpretation. As we
have stated, at no time was MTI entitled to Pell Grant payments for
providing training programs to inmates to whom MTI was required to
provide classes free of charge, and for whom the tuition “normally
charged” was zero. Thus, the United States has a considerable
interest in seeing that Pell Grant awards be properly distributed,
and that an errant educational institution not be allowed to keep
the proceeds of its improper distributions.
On the other side of the balance is MTI's assertion of
reliance on the Department's previous interpretation. We conclude,
as an initial matter, that MTI's apparent belief that it could
award Pell Grants based upon non-existent and unincurred “living
expenses” was entirely unjustified. The statute makes plain that
the expense allowance must be based on “expenses incurred by the
student.” 20 U.S.C. § 1070a-6(5)(B)(I) (emphasis added).
This was not ambiguous, but obviously foreclosed an expense
allowance of $1,700 or $1,800 for inmates who quite literally had
no living expenses aside from the paltry amounts they spent at the
prison commissary on toiletries and the like. MTI was never
entitled to make awards based on these expense amounts and could
never reasonably have believed that it was. MTI therefore must
15
surrender that portion of the erroneously collected $8.1 million.
With regard to the erroneously awarded amounts based on
tuition “normally charged,” however, the balance appears to tilt
the other way. The 1982 memorandum explicitly states that,
although eighty percent of the students at the school were
prisoners, the fact that twenty percent of its studentsSSthe non-
inmatesSSpaid full price allowed the school to calculate tuition
“normally charged” for Pell Grant purposes on the basis of the full
price paid by non-inmate students. It was reasonable for MTI to
rely on this statement in its Pell Grant disbursals, and on the
Department's opinion that any changes in that “long standing
policy” would be made only by prospective regulations.
We recognize the Department's interest in ensuring that money
be distributed only to those entitled to receive it, but we find
this interest outweighed by the detriment that would befall MTI if
we applied this interpretation retroactively. Given the
Department's previous statements, and MTI's reliance thereon, the
Department cannot now require the repayment of the millions of
dollars in Pell Grants that MTI disbursed to inmate students, based
on the tuition it charged non-inmate students.6
C.
MTI asserts that the Department should be estopped from
6
This, of course, leaves the district court on remand to determine what
portion of the total amount collected by MTI was attributable to the “living
expenses” component of the Pell GrantSSand thus must be refunded to the
governmentSSand what portion was attributable to the “tuition” component that
cannot be disgorged retroactively.
16
requiring the return of money wrongfully distributed to MTI's
inmate students, because the Department's failure to end the
practice amounted to its tacit approval. We disagree.
Equitable estoppel is almost never available against the
government. In Premier Bank v. Mosbacher, 959 F.2d 562, 569 n.3
(5th Cir. 1992), we stated that we had “yet to decide” whether the
government could ever be estopped. Since then, we have not found
any situation in which estoppel would be warranted. Cf., e.g.,
United States v. Marine Shale Processors, 81 F.3d 1329, 1348-50
(5th Cir. 1996) (noting separation of powers problem with judicial
estoppel of coordinate branches).
Further, the Supreme Court has specifically foreclosed
estoppel where such would call for the payment of funds not
authorized by Congress. See Office of Personnel Management v.
Richmond, 496 U.S. 414 (1990). Here, where we have just stated
that Pell Grant distributions to the inmates were not authorized
under the Higher Education Act, a finding that the government is
estopped from recovering the unauthorized payments would be in
direct contravention of Richmond.
Finally, even were estoppel generally available against the
United States, it likely would not be available here. There is
simply no evidence that the Department gave any indication of
approval of the Pell Grant distributions MTI made to the inmates.
A party cannot not be estopped by a position it never took.
IV.
17
We thus conclude that the Department's interpretation of the
Higher Education Act is consistent with the plain text of the
statute and is reasonable. We defer to that interpretation, and
find that at no time were MTI's inmate students eligible to receive
Pell Grants.
But, because MTI reasonably and detrimentally relied on the
Department's previous interpretation with regard to the tuition-
based portion of the awards, and because we believe that detriment
outweighs the Department's interest in applying its new rule, the
new interpretation may not be applied retroactively to force MTI to
reimburse that portion of the awards. For the portion of the
awards that is attributable to MTI's erroneous determination of
expenses incurred by the students, however, MTI must reimburse the
Department the entire amount.
We therefore VACATE the judgment and REMAND for proceedings
consistent with this opinion.
18