Blanchette v. Devos

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
TAMARA BLANCHETTE, :
:
Plaintiff, : Civil Action No.: 19-1775 (RC)
:
v. : Re Document Nos.: 10, 12, 15
:
ELISABETH DEVOS, in her official :
capacity as U.S. Secretary of :
Education, et al., :
:
Defendants. :
MEMORANDUM OPINION
GRANTING DEFENDANTS’ MOTION TO DISMISS
I. INTRODUCTION
As alleged in the complaint, Plaintiff Tamara Blanchett took out federal student loans to
finance her education at the Minnesota School of Business (“MSB”). MSB staff told her that if
she completed an associate degree in criminal justice, she would be able to work as a probation
officer in Minnesota and that her credits would easily transfer to other institutions. These
representations were not true. With thousands of dollars in student debt, Plaintiff eventually
found herself unable to keep up with her monthly payments and she defaulted. Defendants, the
Secretary of Education (“Secretary”) and the Department of Education (“Education”), sought to
collect on Plaintiff’s debt by referring it to the Department of Treasury’s (“Treasury”) Treasury
Offset Program (“TOP”), which allows federal agencies to collect past-due, legally enforceable
debts through tax refund offsets. Plaintiff filed this lawsuit alleging that Defendants’ actions
violate the Administrative Procedure Act (“APA”) and her rights to due process. She claims that
Defendants knew about the fraudulent activities of MSB and failed to consider them before
certifying that her debt was legally enforceable. She also claims that Defendants should have
provided notice of her right to challenge collection efforts based on the fraudulent actions of
MSB. Defendants have moved to dismiss and argue that Plaintiff fails to state a claim. For the
reasons set forth below, the Court grants Defendants’ motion but will allow Plaintiff to amend
her complaint.
II. BACKGROUND
A. Statutory and Regulatory Framework
When a person defaults on a loan owed to a federal agency, one way that federal law
allows the agency to collect on that debt is through tax refund offsets. 31 U.S.C. § 3720A(a).
Debt collection through tax refund offsets is managed by Treasury through TOP. See 31 C.F.R.
§ 285.5. Prior to collection of a debt through TOP, the agency to which the debt is owed must,
inter alia, notify the person of its intent to seek collection through a tax refund offset, provide at
least sixty days to present evidence “that all or part of such debt is not past-due or not legally
enforceable,” and “consider[] any evidence presented by such person and determine[] that an
amount of such debt is past due and legally enforceable.” 31 U.S.C. § 3720A(b). Treasury’s
regulations require that the agency certify that “[t]he debt is past-due and legally enforceable in
the amount submitted” when it refers a debt to TOP. 31 C.F.R. § 285.2(d). Treasury defines
“legally enforceable” for purposes of TOP in the following manner:
Legally enforceable refers to a characteristic of a debt and means there has been a
final agency determination that the debt, in the amount stated, is due, and there are
no legal bars to collection by offset. Debts that are not legally enforceable for
purposes of this section include, but are not limited to, debts subject to the
automatic stay in bankruptcy proceedings or debts covered by a statute that
prohibits collection of such debt by offset. For example, if a delinquent debt is the
subject of a pending administrative review process required by statute or regulation,
and if collection action during the review process is prohibited, the debt is not
considered legally enforceable for purposes of this section. Nothing in this section
2
is intended to define whether a debt is legally enforceable for purposes other than
offset under this section.
31 C.F.R. § 285.5(b). The agency must recertify the debt at least annually as legally enforceable.
Id. § 285.5(d). Treasury’s regulations do not specify what particular actions are required prior to
an agency certifying a debt as legally enforceable.
Education also has regulations that govern collection of student loan debt through TOP.
See 34 C.F.R. §§ 30.24, 30.33. These regulations require the Secretary to give a debtor sixty-
five days from the date notice is provided to the debtor of the Secretary’s intent to use TOP to
request a review of the existence, amount, enforceability, or past-due status of the debt. 34
C.F.R. § 30.33. A request for review must include “the debtor’s Social Security number” and
“[a]n explanation of the reasons the debtor believes that the notice” provided is inaccurate. 34
C.F.R. § 30.24. Relatedly, federal law requires that the Secretary “specify in regulations which
acts or omissions of an institution of higher education a borrower may assert as a defense to
repayment of a loan.” 20 U.S.C. § 1087e(h). In fulfilment of this duty, a separate portion of
Education’s regulations allows borrowers 1 to assert a “borrower defense” to repayment based on
“any act or omission of the school attended by the student that relates to the making of the loan
for enrollment at the school . . . that would give rise to a cause of action against the school under
applicable State law.” 34 C.F.R. § 685.206(c)(1). A borrower defense may be asserted both as
“[a] defense to repayment” and as “[a] claim to recover amounts previously collected.” Id. The
Secretary has promulgated regulations that specify how a borrower may assert borrower
defenses, including how such defenses can be asserted and considered as a group. See id. §
685.222.
1
The Court does not discern a meaningful difference between “debtor” and “borrower”
in these different parts of the Code of Federal Regulations.
3
B. Factual Background and Procedural History
For the purposes of considering Defendants’ motion to dismiss, the Court accepts as true
the factual allegations in Plaintiff’s complaint, which she filed on June 18, 2019. See Compl.,
ECF No. 1. 2
Plaintiff attended MSB from approximately January 2009 until May 2011. Id. ¶ 62. To
finance her education, she borrowed $23,500 in federal student loans. Id. ¶ 63. Plaintiff
attended MSB to pursue a degree in criminal justice because she wanted to become a probation
officer. Id. ¶¶ 64–66. An MSB representative had assured her “that upon graduation from the
two-year program she could begin her career as a probation officer.” Id. ¶ 66 (internal quotations
omitted). After explaining to the representative that she wanted to transfer to another school at
some point, she was falsely told that transferring credits would not be a problem. Id. ¶ 67.
Plaintiff has not completed her degree. Id. ¶ 68. After she was forced to suspend her studies due
to her life circumstances, she resumed working as a waitress and bartender. Id. ¶¶ 68–69.
During this time, she struggled financially and eventually defaulted on her student loans. Id. ¶¶
69–70.
In 2016, the Minnesota Attorney General secured a judgment against MSB and an
affiliated school for violation of state consumer fraud and deceptive trade practices laws. Id. ¶
51; see also State v. Minnesota Sch. of Bus., Inc. (MSB), No. 27-CV-14-12558, 2016 WL
9709976 (Minn.Dist.Ct. Sep. 08, 2016). The court’s findings related specifically to MSB’s
2
Plaintiff’s complaint includes allegations made on behalf of all others similarly situated.
See id. ¶¶ 15–61, 79–87. Her motion to certify the class, Pl.’s Mot. Certify Class, ECF No. 8,
has not been fully briefed and has been stayed until fourteen days after a ruling on Defendants’
motion to dismiss that does not wholly grant the motion. See Min. Order (Sep. 27, 2019). As
such, for the purposes of this ruling, the Court only considers the factual allegations common to
the class as they apply to Plaintiff.
4
criminal justice program and the unfounded representation that an associate degree would be
sufficient to secure a job as a probation officer. Compl. ¶ 52; MSB, 2016 WL 9709976, at *49.
The court also made findings of fact about specific MSB students, including Plaintiff. Compl. ¶
53; MSB, 2016 WL 9709976, at *36–37 (factual findings about Plaintiff).
In December 2016, the Minnesota Attorney General sent a copy of the state court
findings and judgment to Education. Compl. ¶ 54. Education relied on the state court decision
when it denied recertification for MSB to participate in federal student aid programs under Title
IV. Id. ¶¶ 55–61. Education “explicitly incorporated in its recertification denials the Minnesota
District Court’s factual findings about MSB’s . . . misrepresentations to specific students who
testified or submitted sworn affidavits, including [Plaintiff].” Id. ¶ 61.
Although Education had knowledge of these findings, the Secretary certified Plaintiff’s
debt as “legally enforceable” and referred the loans for collection to TOP. Id. ¶ 71. Plaintiff
alleges that, while she did receive notice of the Secretary’s intent to use TOP, she was “unable to
hire legal counsel to help her interpret the notice” of proposed tax refund offset. Id. ¶ 72. The
notice, however, “did not specifically alert [Plaintiff] to the fact that she could dispute the
proposed offset by raising a defense against repayment.” Id. ¶ 71. She alleges that “TOP seized
at least $1,906 of [her] 2017 state tax refund.” Id. ¶ 74. Although Plaintiff has since
“successfully rehabilitated her defaulted student loans,” id. ¶ 76, she claims that her limited
financial resources make it possible she will default again and that “she will not be able to get
out of default through loan rehabilitation a second time,” id. ¶ 77. As of January 2019, she has
$29,418 in outstanding student loan debt. Id. ¶ 78.
Plaintiff’s complaint raised one cause of action under the APA and another under the Due
Process Clause of the Fifth Amendment. With respect to the APA claim, Plaintiff argues that
5
“[i]n light of [Education’s] actual knowledge of MSB’s . . . illegal misconduct . . . Secretary
DeVos’[s] and [Education’s] final agency determination that [Plaintiff’s] . . . student loan debt
was legally enforceable is arbitrary and capricious.” Id. ¶ 91. Plaintiff’s due process claim
alleges that Education failed to provide notice about “the possibility of challenging the offset by
asserting a defense to repayment.” Id. ¶ 96. Furthermore, Plaintiff alleges the notice should
have explained that MSB’s misconduct rendered her debt not legally enforceable and that the
Secretary has “general authority to compromise, cancel, or settle student loan debt.” Id.
Before the Court is Defendants’ motion to dismiss. Defs.’ Mot. Dismiss, ECF No. 10;
Defs.’ Mem. Supp. Mot. Dismiss. (“Defs.’ Mem.”), ECF No. 10-1. Defendants argue that
Plaintiff has not alleged sufficient facts to state a claim under the APA or the Due Process
Clause. See Defs.’ Mem. at 11–23. In addition to her opposition, Pl.’s Opp’n Mot. Dismiss
(“Pl.’s Opp’n”), ECF No. 13, Plaintiff has filed a motion asking the Court to take judicial notice
of a letter sent by a group of senators to the Secretary that references “borrower defense group
discharge application[s]” submitted by state attorneys general and the Secretary’s reply. See
Pl.’s Mot. to Take Judicial Notice, ECF No. 12; Pl.’s Mot. to Take Judicial Notice Ex. A, ECF
No. 12-2; Pl.’s Mot. to Take Judicial Notice Ex. B, ECF No. 12-3. Plaintiff has also requested
leave to file a surreply. Pl.’s Mot. Leave to File Surreply, ECF No. 15; Proposed Surreply, ECF
No. 15-1. 3 All three motions are ripe for resolution.
3
The Court grants Plaintiff leave to file and accepts Plaintiff’s proposed surreply. While
surreplies are generally disfavored, a party may obtain leave to file by showing “that the reply
filed by the moving party raised new arguments that were not included in the original motion.”
Stanford v. Potomac Elec. Power Co., 394 F. Supp. 2d 81, 86 (D.D.C. 2005) (quoting Longwood
Vill. Rest., Ltd. v. Ashcroft, 157 F. Supp. 2d 61, 68 n.3 (D.D.C. 2001)). Plaintiff’s proposed
surreply addresses matters raised for the first time in Defendants’ reply. Therefore, the Court
accepts as filed the proposed surreply.
6
III. LEGAL STANDARD
The Federal Rules of Civil Procedure require that a complaint contain “a short and plain
statement of the claim” in order to give the defendant fair notice of the claim and the grounds
upon which it rests. Fed. R. Civ. P. 8(a)(2); accord Erickson v. Pardus, 551 U.S. 89, 93 (2007)
(per curiam). A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of a
complaint” under that standard; it asks whether the plaintiff has properly stated a claim.
Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). “To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). This means that a plaintiff’s factual allegations “must be
enough to raise a right to relief above the speculative level, on the assumption that all the
allegations in the complaint are true (even if doubtful in fact).” Twombly, 550 U.S. at 555–56
(citations omitted). “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements,” are therefore insufficient to withstand a motion to dismiss. Iqbal, 556
U.S. at 678. A court need not accept a plaintiff’s legal conclusions as true, see id., nor must a
court presume the veracity of legal conclusions that are couched as factual allegations, see
Twombly, 550 U.S. at 555. However, a court considering a motion to dismiss presumes that the
complaint’s factual allegations are true and construes them liberally in the plaintiff’s favor. See,
e.g., United States v. Philip Morris, Inc., 116 F. Supp. 2d 131, 135 (D.D.C. 2000).
IV. ANALYSIS
A. APA Claim
Under the APA, a plaintiff challenging agency action can prevail if a court finds that the
action was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the
7
law.” 5 U.S.C. § 706(2)(A). This standard of review encourages courts to defer to the agency’s
expertise. See Motor Vehicle Mfrs. Ass’n of U.S., Inc., v. State Farm Mut. Auto. Ins. Co., 463
U.S. 29, 43 (1983). Agency action is arbitrary and capricious if
the agency has relied on factors which Congress has not intended it to consider,
entirely failed to consider an important aspect of the problem, offered an
explanation for its decision that runs counter to the evidence before the agency, or
is so implausible that it could not be ascribed to a difference in view or the product
of agency expertise.
Del. Riverkeeper Network v. FERC, 753 F.3d 1304, 1313 (D.C. Cir. 2014) (quoting State Farm,
463 U.S. at 43). Rather than resolving factual issues, the district court’s role in reviewing agency
action “is to determine whether or not as a matter of law the evidence in the administrative
record permitted the agency to make the decision it did.” Bates v. Donley, 935 F. Supp. 2d 14,
22–23 (D.D.C. 2013) (quoting Stuttering Found. of Am. v. Springer, 498 F. Supp. 2d 203, 207
(D.D.C. 2007)). To state a proper claim under the APA, a plaintiff must allege facts that, if true,
plausibly establish that the agency action is arbitrary and capricious. See James V. Hurson
Assocs., Inc. v. Glickman, 229 F.3d 277, 284 (D.C. Cir. 2000); Akpan v. Cissna, 288 F. Supp. 3d
155, 165 (D.D.C. 2018); XP Vehicles, Inc. v. Dep’t of Energy, 118 F. Supp. 3d 38, 78 (D.D.C.
2015).
Defendants argue that Plaintiff has not stated a proper claim under the APA. 4 They say
that Plaintiff points to “no source of law that prohibits collection activity against a borrower
merely because the borrower attended a school that engaged in wrongdoing.” Defs.’ Mem. at 13.
Defendants claim that because Plaintiff did not raise a borrower defense herself, their actual
4
Defendants note that Plaintiff pled no facts suggesting that she was subject to wage
garnishment, even though wage garnishment is discussed throughout the complaint. Defs.’
Mem. at 12. Acknowledging this, Plaintiff withdrew her request for relief as it relates to wage
garnishment. Pl.’s Opp’n at 16 n.16.
8
knowledge of MSB’s misconduct is irrelevant and cannot form the basis of an APA claim. Id. at
14. They state that until the Secretary determines that a borrower defense applies—only after a
borrower has claimed the defense with the appropriate form—“the mere existence of evidence of
a school’s wrongdoing creates no particular “legal bar[] to collection by offset.” Id. (quoting 31
C.F.R. § 285.5(b)). As such, Defendants claim, the agency can appropriately certify a debt as
legally enforceable despite actual knowledge of a school’s fraudulent activities. Defendants see
Plaintiff’s lawsuit as an attempt to impose an affirmative obligation to investigate whether a
valid borrower defense might apply before certifying a debt for TOP—an obligation they claim
would be too burdensome. Id. at 15. They state that “‘federal law does not prohibit debt
collection merely because the borrower may have an as yet unasserted defense against
repayment’ based on her school’s misconduct.” Defs.’ Reply at 5 (quoting Massachusetts v.
United States Dep’t of Education, 340 F. Supp. 3d 7, 16 (D.D.C. 2018)), ECF No. 14. Based on
this, Defendants argue that the Court need not review the full administrative record. Id. at 11–
12. They say that to allow Plaintiff’s claim to move forward, the Court must assume that their
“knowledge of a school’s wrongdoing renders the debts of all students who attended that school
legally unenforceable under [Education’s] borrower defense regulation” even if individual
borrower defense applications have not been made and considered. Id. at 12. Because
Defendants argue this legal theory is incorrect, the factual assertions in the complaint cannot
form the basis of a valid claim; they state that “[i]t does not matter whether [Education] ‘failed to
consider’ various evidence of MSB’s wrongdoing before certifying the debt.” Id. Defendants
also suggest that because regulations require borrowers to submit borrower defense applications
and Plaintiff has not, the Court should dismiss the claim based on her failure to exhaust
administrative remedies. Id. at 16–17.
9
Plaintiff counters that dismissal of her APA claim without reviewing the administrative
record would be premature. Pl.’s Opp’n at 15. According to Plaintiff, the “record will explain
how [Education] considered the evidence in its possession when it certified Plaintiff’s debt as
legally enforceable.” Id. at 16. Plaintiff argues that the evidence in Defendants’ possession—
including the Minnesota state court findings about MSB and Plaintiff and “the pending group
borrower defense claim on behalf of MSB” students 5—renders the certification of her debt as
legally enforceable arbitrary and capricious. Id. at 16–17. Furthermore, because a certification
of debt as legally enforceable is final agency action, and the statute allowing for TOP has no
administrative exhaustion requirement, Plaintiff says the Court cannot dismiss the claim for
failure to exhaust administrative remedies and should instead review the agency action. See id.
at 13–14.
Because the statute authorizing TOP does not define “legally enforceable,” the Court
begins with the regulatory definition. As noted above, Treasury’s regulations define “legally
enforceable” as “a characteristic of debt [that] means there has been a final agency determination
that the debt, in the amount stated, is due, and there are no legal bars to collection by offset.” 31
C.F.R. § 285.5(b). Under this definition, the agency must first determine that the debt is due in
the amount stated. Plaintiff concedes that she defaulted on her loans, Compl. ¶ 69, and she does
not appear to contest the amount of her debt. As such, Plaintiff’s challenge focuses on the
second element of the definition that requires a determination that “there are no legal bars to
collection by offset.” 31 C.F.R. § 285.5(b). The regulations state that a legal bar to collection
might be an “automatic stay in bankruptcy proceedings” or a “pending administrative review
5
The Court notes that, despite the arguments made in her briefing, Plaintiff does not
mention a pending group borrower defense claim in her complaint. This omission is discussed in
further detail below.
10
process required by statute or regulation.” Id. Plaintiff does not allege in her complaint that her
debt was subject to an automatic stay or that any administrative review process was pending
when her debt was certified. Instead, Plaintiff argues that Education’s “actual knowledge of
MSB’s . . . illegal misconduct,” Compl. ¶ 91, counts as a legal bar to collection for Plaintiff’s
debt.
Plaintiff’s claim hinges on what the law requires Education to consider before certifying
a debt as legally enforceable. Plaintiff argues that the requirement that an agency must certify a
debt as legally enforceable comes with an affirmative duty to “appl[y] the evidence it already
had . . . and consult[] several sources of law to determine” whether a loan is legally enforceable.
Pl.’s Opp’n at 18. But the examples provided in Treasury’s regulations about what constitutes a
legal bar to collection—bankruptcy proceedings or a pending administrative review process—do
not suggest that the agency bears such an affirmative duty to evaluate all evidence in its
possession. Instead, the examples suggest that agencies should not certify a debt for TOP where
another proceeding remains pending regarding the debt’s enforceability or where such a
proceeding has concluded that the debt is not legally enforceable. See 31 C.F.R. § 285.5(b).
Indeed, one such example of a bar to collection would be the presence of a borrower
defense application—something Plaintiff concededly never submitted. Under Education’s
regulations, if a borrower is in default on a loan for which she has asserted a borrower defense,
Education “[s]uspends collection activity on the loan until the Secretary issues a decision on the
borrower’s claim.” 34 C.F.R. 685.222(e)(2)(ii). The suspension in collection efforts also occurs
when a group borrower defense application is under consideration. See 34 C.F.R.
685.222(f)(2)(iii) (explaining that if group members have not filed an individual application, the
Secretary follows the procedures in paragraph (e)(2) of this section). Given this language, a
11
borrower defense application appears to be exactly the type of “pending administrative review
process required by statute or regulation” where “collection action during the review process is
prohibited” contemplated by Treasury’s regulations. 31 C.F.R. § 285.5(b). 6 But Plaintiff does
not allege in her complaint that she submitted a borrower defense application or that a group
borrower defense application was submitted on her behalf.
Plaintiff does not point to any statutory or regulatory language to support her argument
that certification of debt requires a general review of all evidence that the agency knows about.
Instead, Plaintiff reads this affirmative duty into Treasury’s regulation. See Pl.’s Opp’n at 17–
18. Plaintiff maintains that Treasury’s regulations prohibit collection activity when Education
“knows about specific wrongdoing engaged in by a specific school” and when the agency
“knows about specific students who were victims of that misconduct.” Id. at 17. According to
Plaintiff, Education cannot “ignore its actual knowledge—whether from a state court judgment,
its own internal investigations, or otherwise.” Id. But Plaintiff points to no statutory or
regulatory framework that requires such a sweeping review of all evidence in the agency’s
possession prior to certifying an individual’s debt for collection. Instead, Plaintiff asks the Court
to infer this framework from Treasury’s regulation that says a debt is legally enforceable when
there are no “legal bars to collection by offset.” 31 C.F.R. § 285.5(b). The Court declines to
infer such an expansive affirmative duty—especially given that the provided examples of “legal
bars to collection” in Treasury’s regulation do not suggest that such an expansive investigation is
6
Before the current regulations went into effect in 2018, Education’s regulations did not
contain the same language prohibiting collection action during the review of a borrower defense
application. See 34 C.F.R. § 685.206(c). Even absent that language, however, a pending
borrower defense application may still serve as a legal bar to collection by offset. See Vara v.
DeVos, No. 19-12175-LTS, 2020 WL 3489679, at *2–4 (D. Mass. June 25, 2020) (explaining
how the regulatory scheme prior to 2018 required the Secretary to adjudicate borrower defenses
to repayment).
12
required. See 31 C.F.R. § 285.5(b); see also Red River Farms v. United States, No. CV 08-2078-
PHX-NVW, 2009 WL 2983195, at *4 (D. Ariz. Sept. 17, 2009) (finding that no limitations
period applies to collection by offset because “the ‘legal bars’ language refers to other
prohibitions on collection through offset, such as ‘debts subject to the automatic stay in
bankruptcy proceedings or debts covered by a statute that prohibits collection of such debt by
offset.’”) (quoting 31 C.F.R. § 285.5(b)); Kipple v. United States, 105 Fed. Cl. 651, 657 (2012)
(finding that the “legally enforceable” definition of § 285.5 “focus[es] the agency’s inquiry on
whether some legal bar such as an automatic stay in a bankruptcy proceeding precludes
collection”).
The reasoning in Massachusetts v. United States Dep’t of Education supports a rejection
of Plaintiff’s theory. There, a court in this District considered a challenge similar to Plaintiff’s
but brought by state attorneys general on behalf of their constituents. See Massachusetts, 340 F.
Supp. 3d at 9–10. The states argued that debts incurred by students who attended schools that
engaged in fraudulent activities were not legally enforceable for purposes of TOP. Id. The states
sought to prevent further collection efforts “against all potentially defrauded borrowers,” not just
those who had asserted borrower defenses. Id. at 11. The court ultimately concluded that the
states lacked standing. Id. at 18. In its discussion of paren patriae standing, the court found that
the federal government’s collection efforts did not appear to be contrary to any federal law. The
court stated:
[F]ederal law does not prohibit debt collection merely because the borrower may
have an as yet unasserted defense against repayment. Indeed, the law embodying
Congressional intent appears to require the Department to continue its attempts to
collect such debt . . . Thus, the executive action being challenged here fits squarely
within federal law.
13
Id. at 16 (emphasis in original) (citations omitted). The court concluded that the applicable
federal statutes and regulations do not require Education to affirmatively determine, based on all
information known to the agency, whether an individual borrower might have a valid borrower
defense—this Court concludes the same.
This conclusion is fortified by observing other regulations that do require more
affirmative action on Education’s part. The Secretary is required to discharge a borrower’s
obligation to repay a student loan “if a school falsely certifies the eligibility of the borrower (or
the student on whose behalf a parent borrowed) to receive the proceeds” of a federal student
loan. 34 C.F.R. § 685.215(a)(1). Like borrower defenses to repayments, the Secretary
determines whether a borrower is eligible for discharge based on a false certification upon
application submitted by the borrower. See id. § 685.215(c). Unlike borrower defenses to
repayments, if the Secretary determines that a borrower “may be eligible for a discharge” based
on false certification, the Secretary “provides the borrower an application and an explanation of
the qualifications and procedures for obtaining a discharge.” Id. § 685.215(d)(1) (emphasis
added). Additionally, if the Secretary determines that a borrower “may be eligible for a
discharge” based on false certification, the Secretary “promptly suspends any efforts to collect
from the borrower on any affected loan.” Id. (emphasis added). In other words, if the Secretary
has information that suggests eligibility for such a discharge—even if that information does not
come from an application for discharge—the borrower is made aware, provided an application,
and collection activities stop.
Based on this language, courts have held that Education must proactively suspend
collection efforts when the agency knows about potential false certifications. In Salazar v. King,
the Second Circuit found that the regulatory language noted above requires Education “to
14
consider information available from guaranty agencies, 7 the Secretary’s records, state authorities,
and accrediting associations.” 822 F.3d 61, 79 (2d Cir. 2016). Similar to Plaintiff here, the class
members in Salazar alleged that Education had knowledge of a particular school falsely
certifying students as eligible for student loans. See id. at 71. Despite this knowledge, Education
did not cease collection efforts—action that the class members claimed, just as Plaintiff does
here, amounted to arbitrary and capricious agency action. See id. Unlike Plaintiff, however, the
class members in Salazar could point to “the mandatory direction of the statute and regulations
to suspend [collection] and notify” borrowers of their potential eligibility for discharge. Id. at
82. The Court has not found, and Plaintiff has not highlighted, any source of law that amounts to
a similar “mandatory direction” on the facts alleged here.
Perhaps sensing weakness in her position outlined in the complaint, Plaintiff bolsters her
argument in opposition to the motion to dismiss by claiming that Education had, and failed to
consider, a group borrower defense application applicable to MSB students. See Pl.’s Opp’n at
10, 11–12, 15–20. This allegation is not included in the complaint. As such, Plaintiff’s
arguments about Education’s failure to consider the pending group borrower defense application
do not support her overall position that her complaint states a plausible claim. While the
existence of a group borrower defense application may change the calculus—the Court takes no
position on this point at present—the Court only considers whether the factual allegations made
in the complaint, not those made in briefing, state a plausible claim. See Twombly, 550 U.S. at
555–56.
7
A guaranty agency is a “State or private nonprofit organization that has an agreement
with the Secretary under which it will administer a loan guarantee program.” 34 C.F.R. §
682.200.
15
Plaintiff points to two cases recently decided in the District of Massachusetts to support
her argument, but these cases are distinguishable in an important way—they involved an actual
group borrower defense application. In Williams v. DeVos, the court considered claims that the
Secretary “improperly certified the student loan debts of plaintiffs . . . as legally enforceable for
purposes of referral to the U.S. Department of Treasury’s Treasury Offset Program.” No. CV
16-11949-LTS, 2018 WL 5281741, at *1 (D. Mass. Oct. 24, 2018). The plaintiffs in Williams
were students who took out federal student loans to attend a school that had engaged in deceptive
conduct in violation of Massachusetts state law. See. id. at *3. In contrast to the current case,
the court had before it a submission the state attorney general had made to Education that
requested discharge of the student loan obligations for students who attended the school in
question. Id. at *1. Specifically, the submission contained a request for “the immediate
discharge of federal student loans taken in connection with [the school], full refunds to
borrowers of amounts paid on the loans and the reversal of negative credit reporting.” Id. at *4
(quotations omitted). The state attorney general submission in Williams also included details
regarding specific students and a list of deceptive practices that influenced the students to attend.
See id. at *4. Even though the submission lacked some qualities of a formal borrower defense
application, the court found it “was sufficient to require the Secretary to determine the validity of
the plaintiffs’ borrower defense.” Id. at *12. The court concluded that Education acted
arbitrarily and capriciously by refusing to consider the attorney general’s submission prior to
certifying the plaintiffs’ debts for tax refund offsets. Id. at *14.
In Vara v. DeVos, which Plaintiff cites in a Notice of Supplemental Authority, ECF No.
16, the same District of Massachusetts court took the analysis of the same essential facts one step
further. No. CV 19-12175-LTS, 2020 WL 3489679 (D. Mass. June 25, 2020). The court
16
concluded that the same attorney general’s submission described in Williams “was a valid
borrower defense application on behalf of all individuals who took out federal student loans” to
pay for attendance at the university at issue, that the Secretary constructively denied the
borrower defense application by not rendering a reasoned decision, and that plaintiffs (a class of
all students mentioned in the attorney general’s submission) had “established that they are
entitled full loan discharges and a favorable borrower defense decision.” Id. at *34.
The existence of a group borrower defense application was central to both holdings. See
Williams, 2018 WL 5281741, at *12 (“The language of the [attorney general’s] submission itself
requested the application of the borrower defense on behalf of [the plaintiffs]”); Vara, 2020 WL
3489679, at *29 (finding that the attorney general’s submission “invoked a borrower defense
proceeding on behalf of the people listed” in the submission). As such, neither decision had
occasion to adopt, or even consider, Plaintiff’s theory that Education has an affirmative duty to
investigate whether a borrower might have a valid defense to repayment—absent a pending
borrower defense application—prior to certifying the debt for collection. While they may serve
as persuasive authority where an actual borrower defense application remains pending, these
decisions are not applicable to the facts alleged in Plaintiff’s complaint.
Because the regulatory language does not support the broad affirmative duty that Plaintiff
argues should apply, the Court agrees with Defendants and will grant their motion to dismiss.
However, given the additional factual allegations made in Plaintiff’s opposition to the motion,
and Plaintiff’s motion to take judicial notice, 8 the Court will allow Plaintiff to amend her
complaint.
8
Because consideration of the materials attached to the motion to take judicial notice are
unnecessary to support the Court’s conclusion that Plaintiff fails to state a claim, the Court
denies the motion as moot.
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B. Due Process Claim
“To succeed on a due process claim, a plaintiff must show that there was a cognizable
liberty or property interest at stake.” Smirnov v. Clinton, 806 F. Supp. 2d 1, 12 (D.D.C. 2011)
(citing Mathews v. Eldridge, 424 U.S. 319, 332 (1976)). If a cognizable liberty or property
interest is at stake, due process requires only “a meaningful opportunity to present” a case.
Mathews, 424 U.S. at 349. To determine what procedural process is due, courts balance: (1) “the
private interest that will be affected by the official action;” (2) “the risk of an erroneous
deprivation of such interest through the procedures used, and the probable value, if any, of
additional or substitute procedural safeguards;” and (3) “the Government’s interest, including the
function involved and the fiscal and administrative burdens that the additional or substitute
procedural requirement would entail.” Mathews, 424 U.S. at 335. For purposes of due process,
adequate notice must be “reasonably calculated, under all the circumstances, to apprise interested
parties of the pendency of the action and afford them an opportunity to present their objections.”
Bliek v. Palmer, 102 F.3d 1472, 1475 (8th Cir. 1997) (citing Mullane v. Cent. Hanover Bank &
Tr. Co., 339 U.S. 306, 314 (1950)).
Defendants argue that Plaintiff’s due process claim should be dismissed because the
complaint shows that Education followed the procedures required by statute and regulation and
because other courts have held these procedures satisfy the requirements of due process. See
Defs.’ Mem. at 19–20 (listing cases). Plaintiff responds that none of these cases “address the
specific adequacy argument at issue here: whether the notice of proposed TOP offset must
include a reference to borrower defenses to repayment.” Pl.’s Opp’n at 23. Relying on the
Supreme Court’s decision in Memphis Light and cases from the Eighth and Third Circuits,
Plaintiff argues that Education’s “failure to include notice about borrower defenses to repayment
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is, by itself, sufficient to state a procedural due process claim.” Id. at 22 (citing Memphis Light,
Gas, & Water Div. v. Craft, 436 U.S. 1, 14–15 (1978); Bliek, 102 F.3d at 1476; Finberg v.
Sullivan, 634 F.2d 50, 62 (3d Cir. 1980) (en banc)). Plaintiff also argues that the Mathews
framework supports the claim that TOP notices should include references to available borrower
defenses. Id. at 24–25.
Based on the facts alleged in the complaint, Plaintiff received a notice that satisfies
constitutional due process requirements. 9 Under Education’s regulations, a notice of proposed
offset includes the amount of debt owed, a statement of the Secretary’s intent to refer the debt for
offset, and an explanation of the process the debtor may use to review the status of the debt. 34
C.F.R. § 30.33(b). Specifically, the notice informs the debtor that he or she may “[i]nspect and
copy Department records regarding the existence, amount, enforceability, or past-due status of
the debt,” “[o]btain a review within the Department of the existence, amount, enforceability, or
past-due status of the debt,” and “[e]nter into a written agreement with the Secretary to repay the
debt.” Id. § 30.33(b)(3). Such notice makes clear that the agency intends to collect on the debt
and that the debtor may first obtain a review of the underlying basis for collection or,
alternatively, settle the debt via written agreement. That Plaintiff failed to avail herself of this
process does not render the notice provided constitutionally defective. See English v. District of
Columbia, 717 F.3d 968, 974 (D.C. Cir. 2013) (“Appellant’s failure to initiate the required
proceeding is his alone.”); see also Alvin v. Suzuki, 227 F.3d 107, 116 (3d Cir. 2000) (“If there is
a process on the books that appears to provide due process, the plaintiff cannot skip that process
and use the federal courts as a means to get back what he wants.”).
9
The Court assumes that Plaintiff’s interest in her tax refund is a cognizable property
interest to which due process protections attach.
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The Court finds that Plaintiff has failed to state a plausible due process claim. Plaintiff
does not contest that she received notice of the Secretary’s intent to collect on her debt through
TOP. Compl. ¶ 71. She does not allege that the notice failed to adhere to the requirements
outlined by statute or Treasury’s regulations. She acknowledges that she was given the
opportunity to, and did not, request a pre-deprivation hearing to challenge the validity of her
debt. Pl.’s Opp’n at 11; Compl. ¶ 72. Numerous courts have found that the exact procedure
challenged here satisfies constitutional due process requirements. See, e.g., Omegbu v. U.S.
Dep’t of Treasury, 118 F. App’x 989, 991 (7th Cir. 2004); Hackworth v. Kansas City Veterans
Admin. Med. Ctr., No. 6:13-CV-03363-MDH, 2015 WL 506245, at *6 (W.D. Mo. Feb. 6, 2015)
(stating that “every decision reviewed by this Court considering the issue presented has found
that TOP satisfies procedural due process under the Fifth Amendment.”); Shlikas v. Dep’t of
Educ., No. WDQ-09-2806, 2013 WL 2149752, at *6 (D. Md. May 15, 2013) (“[C]ompliance
with TOP statutes and regulations governing offsets satisfies procedural due process.”); United
States v. Beulke, 892 F. Supp. 2d 1176, 1187 (D.S.D. 2012) (“The extensive regulatory
framework governing the TOP provide ample guidance for federal agencies to . . . protect a
debtor’s due process.”); McCarty v. Astrue, 505 F. Supp. 2d 624, 632 (N.D. Cal. 2007). While
Plaintiff’s position may make for better policy, the constitution requires only “a meaningful
opportunity to present” a case. Mathews, 424 U.S. at 349; see also English v. District of
Columbia., 815 F. Supp. 2d 254, 264 (D.D.C. 2011), aff’d, 717 F.3d 968 (D.C. Cir. 2013)
(“[P]laintiff is not entitled to perfect procedure or the procedures of his choice.”) (quoting
Bagenstose v. District of Columbia, 503 F. Supp. 2d 247, 257 (D.D.C. 2007)). The notice she
received admittedly allowed her to contest the collection efforts and request a hearing; that the
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notice did not specifically include the availability of a borrower defense does not make it
constitutionally deficient. 10
The cases cited by Plaintiff do not compel an opposite result. In Memphis Light, Gas and
Water Division v. Craft, the Supreme Court found that notice that “does not advise . . . of the
availability of a procedure for protesting a proposed termination of utility service” does not
satisfy due process. 436 U.S. 1, 15 (1978). But Plaintiff here was made aware of the procedures
available to her. See Brown v. District of Columbia, 115 F. Supp. 3d 56, 70 (D.D.C. 2015)
(“Memphis Light thus requires the government to make known any procedures for challenging
the deprivation of a private interest that are not codified or otherwise public[ly] available.”). The
two out of Circuit cases cited by Plaintiff also do not support her position. In Bliek v. Palmer,
the Eighth Circuit found that a notice provision that gave “the impression to the plaintiffs . . . that
they have no alternative but to agree to reduce their future allotment of food stamps” failed to
adequately inform plaintiffs of the available procedures. 102 F.3d 1472, 1476 (8th Cir. 1997).
The court described the demand letter at issue as “complex, confusing, and prolix.” Id. 1476 n.5.
Plaintiff here does not allege that the notice provided was inadequate in such a manner, nor that
the notice provision failed to alert her that she could request a hearing to contest collection. In
Finberg v. Sullivan, the Third Circuit found that a notice provision should have informed the
plaintiff about the applicability of certain exemptions to wage garnishment in part because
“[k]nowledge of these exemptions is not widespread.” 634 F.2d 50, 62 (3d Cir. 1980). Here,
information about borrower defenses is included in the Master Promissory Note signed by
student borrowers. Moreover, requiring the agency to inform a debtor of all possible defenses to
10
As Defendants point out, Plaintiff did have notice of the availability of a borrower
defense to repayment through the Master Promissory Note signed when she obtained the loans.
See Defs.’ Mem. at 22.
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collection that are not widely known is potentially limitless. The Constitution does not require
such a result.
In short, these cases are distinguishable from the facts alleged in Plaintiff’s complaint.
They do not suggest that the process Plaintiff received was constitutionally deficient simply
because the notice provided did not contain the particular language plaintiff prefers.
Accordingly, the Court finds that the complaint fails to allege a plausible due process claim.
V. CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss (ECF No. 10) is GRANTED.
Plaintiff’s Motion to Take Judicial Notice (ECF No. 12) is DENIED AS MOOT. Plaintiff’s
Motion for Leave to File Surreply (ECF No. 15) is GRANTED. Plaintiff shall have thirty days
to file an amended complaint. An order consistent with this Memorandum Opinion is separately
and contemporaneously issued.
Dated: September 22, 2020 RUDOLPH CONTRERAS
United States District Judge
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