Court Opinion

ID: 14714
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:38:04+00
Date Added: 2024-06-11T16:46:35.543153
License: Public Domain

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