Opinion ID: 3202882
Heading Depth: 2
Heading Rank: 3

Heading: The DOE’s Investigation of Wilfred

Text: The DOE began investigating Wilfred’s fraud as early as the 1980s. In 1982, the DOE found five Wilfred schools ineligible for continued participation in the federally guaranteed loan program. The DOE’s Office of Inspector General (“OIG”) investigated the financial aid practices of Wilfred’s schools in Massachusetts in 1983, Wilfred’s Florida schools in 1985, and Wilfred’s schools 20 nationwide by 1986. The OIG and the United States Department of Justice (“DOJ”) formed a joint federal task force to investigate Wilfred’s principals and employees. The DOJ brought criminal prosecutions against Wilfred, its officers, and individual employees for financial aid fraud, false certification, racketeering, wire fraud, embezzlement, making false statements, and other crimes, resulting in the conviction of Wilfred, along with its president and other employees, for financial aid fraud and defrauding the federal government. In December 1988, the DOE attempted to terminate fifty‐eight Wilfred schools from the federally guaranteed loan program, but this attempt was defeated on procedural grounds. Wilfred filed for Chapter 11 bankruptcy in May 1990, and the last Wilfred school ceased operation in 1994. In 1996 the DOE issued a report titled “Documentation of ATB violations,” based on OIG reports of approximately 50 Wilfred schools. JA 187. The report concluded that Wilfred’s “[c]onsistent pattern of gross violations of DOE regulations in multiple programs over multiple years indicates a strong resistance to following DOE regulations for administering funds and ATB student testing. Violations appeared system wide.” JA 188. The report recommended that “[s]ince the corporation was cited as early as June 1984 for 21 improper grading practices it is recommended that all ATB applications be discharged.” Id. Due to these widespread findings of fraud in Wilfred schools, the DOE has a policy of “granting all facially valid [discharge] claims from Wilfred students.” JA 216 (Letter from Chad Keller, Supervisory Program & Mgmt. Analyst, Fed. Student Aid, U.S. Dep’t of Educ., to Jane Greengold Stevens, Dir. of Litig, N.Y. Legal Assistance Grp. (Feb. 18, 2014)); see JA 200 ¶ 16 (Declaration of Chad Keller). But with the exception of former students who attended the Philadelphia campus of Wilfred between July 1, 1987 and 1989, the DOE has refused to temporarily cease collection on federally guaranteed student loans attributable to Wilfred or to notify all students who attended Wilfred schools of their potential eligibility for a permanent discharge if the school falsely certified their ATB. See JA 216; JA 212‐14 (Letter from Janet Greengold Stevens, Dir. of Litig., N.Y. Legal Assistance Grp., to Arne Duncan, Sec’y of Educ., U.S. Dep’t of Educ. (Sept. 24, 2013)). The DOE has also continued to actively collect on loans made to former Wilfred students, including by seizing their income tax refunds, garnishing the wages, and tarnishing their credit. 22 III. Procedural History Plaintiffs filed this action on behalf of themselves and similarly situated Wilfred borrowers, alleging that the DOE violated the APA by arbitrarily and capriciously refusing to suspend collection on the Wilfred loans and to notify Wilfred borrowers of their discharge application rights.6 Plaintiffs moved to certify a class of all individuals who obtained federal student loans to attend Wilfred after January 1, 1986, and whose ATB was falsely certified by Wilfred. The DOE opposed the motion and moved to dismiss, primarily on the grounds that the Secretary’s actions were unreviewable because they were “committed to agency discretion by law,” 5 U.S.C. § 701(a)(2) and were not “final,” id. § 704. The district court granted the DOE’s motion to dismiss and denied plaintiffs’ motion for class certification as moot. Plaintiffs timely appealed that dismissal. Prior to oral argument, we asked plaintiffs to provide the current status of each of the named plaintiffs’ applications for false‐certification discharge. Order, 6 Plaintiffs brought other claims which they have explicitly abandoned on appeal, including that the DOE is required to grant a blanket discharge of all Wilfred borrowers’ loans without requiring individualized applications, and that the Secretary unlawfully withheld agency action in violation of 5 U.S.C. § 706(1). See Plaintiffs‐Appellants’ Br. 14. These now‐abandoned arguments were addressed in the district court’s opinion below. Salazar v. Duncan, No. 14 CIV. 1230 (RWS), 2015 WL 252078, at  (S.D.N.Y. Jan. 16, 2015). The claims plaintiffs present on appeal were adequately raised below and have not been waived. 23 Salazar v. Duncan, No. 15‐832 (2d Cir. Oct. 22, 2015), ECF No. 85. Both parties submitted letter briefs. Plaintiffs informed the Court that the discharge applications of all the named plaintiffs had been granted, but that at the time the complaint and amended complaint were filed, “the Named Plaintiffs were still subject to Defendant’s collection activities in relation to their loans.” Letter Br. for Plaintiffs‐Appellants 2, Salazar v. Duncan, No. 15‐832 (Oct. 28, 2015), ECF No. 86. Plaintiffs argued that the fact that the DOE had subsequently granted the named plaintiffs’ discharge applications did not render their claims moot because their claims come within the mootness exception for inherently transitory claims. Id. The DOE submitted a letter brief arguing that the discharge of the named plaintiffs’ loans rendered the appeal moot and that the inherently transitory exception does not preserve jurisdiction because “[t]here is nothing intrinsically fleeting about plaintiffs’ claims.” Letter Br. for Defendant‐ Appellee 2, Salazar v. Duncan, No. 15‐832 (Oct. 30, 2015), ECF No. 89.