Infusino v. Devos ( 2022 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
ROBERT J. INFUSINO, et al.,
Plaintiffs,
v.
MIGUEL A. CARDONA, in his official Case No. 19-cv-3162 (CRC)
capacity as U.S. Secretary of Education, et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiffs were formerly enrolled as students at two for-profit art institutes. After learning
that the schools were not accredited during a portion of the time they attended, Plaintiffs brought
this lawsuit. Due to the loss of accreditation, Plaintiffs claimed that the student loans issued to
them by the Department of Education (the “Department”) were unlawful, and they sought a
declaratory judgment to that effect. The Department voluntarily cancelled the loans in question
shortly after Plaintiffs filed suit, and the parties agreed to a settlement in 2020. Before the Court
is Plaintiffs’ petition for attorneys’ fees and costs under the Equal Access to Justice Act
(“EAJA”). For the reasons explained below, the Court finds that Plaintiffs are prevailing parties
and will grant an award of fees, although in a smaller amount than Plaintiffs request.
I. Background
Title IV of the Higher Education Act of 1965 (“HEA”), 20 U.S.C. § 1070 et seq., governs
the administration of the federal student loan program. Compl. ¶ 17. To participate in Title IV
programs, for-profit colleges must be accredited by a recognized accrediting agency, and
nonprofit schools must be either accredited or pre-accredited. Id.; see 34 C.F.R. §§ 600.4(a),
600.5(a).
Plaintiffs attended two for-profit art schools, the Illinois Institute of Art (“IIA”) and the
Art Institute of Colorado (“AIC”). Compl. ¶ 1. In January 2018, a nonprofit corporation—the
Dream Center Foundation—purchased the schools while the Plaintiffs were still students. See
id. ¶¶ 10–13, 24. The Dream Center applied to the Department of Education to convert the
schools to nonprofit status, as defined by the Department’s regulations. Id. ¶ 26. The Dream
Center also applied to the Higher Learning Commission (“HLC”), the accrediting agency that
had accredited the schools before the Dream Center’s purchase, to approve the change in
ownership and retain the schools’ accreditation. Id. ¶ 34. On September 12 2017, the
Department sent the Dream Center a letter regarding its request for nonprofit status, stating that
after a preliminary review, it did “not see any impediment” to approving nonprofit status, but
that formal approvals were “contingent on” the schools’ further demonstration of “compliance
with the requirements of 34 C.F.R. § 600.20(g) and (h), the Department’s review and approval of
any submissions required by those regulatory provisions, and any further documentation and
information requested by the Department.” Compl. Ex. C at 2. The Department added that the
Dream Center would “have to submit additional documentation and information to confirm” that
it met all the regulatory elements of nonprofit status. Id. at 6.
On November 16, 2017, HLC sent the Dream Center a letter—cc’ing the Department—
stating that the Board had voted to approve the schools’ change in ownership “subject to the
requirement” that the schools enter “Change of Control Candidacy Status,” a pre-accreditation
status during which the schools would have to demonstrate their full compliance with HLC’s
criteria for accreditation. See Compl. Ex. E at 1–2, 7. The schools accepted HLC’s pre-
accreditation offer. Compl. ¶ 37; see Compl. Ex. F. On February 20, 2018, the Department
executed temporary program participation agreements (“TPPAs”) with the schools allowing
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them to participate in federal student loan programs, despite their pre-accreditation status.
Compl. ¶ 41.
Sometime in the next several months, the Department came to the belated realization that,
because of the change of ownership, the schools were no longer accredited, as stated in HLC’s
November 2017 letter. On May 3, 2018, the Department sent letters to IIA and AIC informing
them that, because the schools were merely candidates for accreditation, they were not eligible to
participate in Title IV and had not been eligible since January 20, 2018. Id. ¶¶ 47–50; see
Compl. Exs. A & B. To avoid a lapse of eligibility, however, the Department retroactively
placed the schools on a “temporary interim nonprofit status.” Compl. Exs. A & B. In June
2018, the schools and the Dream Center informed the students about the loss of accreditation.
Compl. ¶¶ 65–66. Most of the Plaintiffs soon withdrew from the schools, and both schools
closed by the end of 2018. Id. ¶¶ 10–13, 80.
In October 2019, Plaintiffs brought this lawsuit against the Department, alleging that its
“decisions allowing IIA and AIC to participate in Title IV, and students to take out loans to
attend those schools” violated the Administrative Procedure Act (“APA”). Id. ¶ 5. On October
30, 2019, a week after Plaintiffs had filed suit but before they had served the complaint on the
Department, the Secretary of Education approved the decision to cancel the loans taken out by
IIA and AIC students between January 20, 2018 and December 2018, a decision which the
Department announced about a week later via press release. Declaration of Principal Deputy
Undersecretary Diane Jones (“Jones Decl.”) ¶¶ 11–12. After issuing the press release, the
Department contacted Plaintiffs seeking a dismissal. Pet. for Attorneys’ Fees at 11. Plaintiffs
declined to dismiss the case, stating that, among other things, they wanted the Department to
confirm that it would not issue former students IRS Form 1099s for the cancelled loan amounts,
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and that it would extend the closed-school discharge lookback period, notify potential class
members about the expanded eligibility, and ensure that loan servicers were updated about
cancelled loans. Id. After some negotiation, the parties reached an agreement to settle the case.
The parties filed a Stipulated Order of Dismissal (“Stipulated Order”) on March 27, 2020.
The Stipulated Order detailed the actions the Department had already taken (such as cancelling
the relevant loans and confirming that no 1099s would issue), as well as additional tasks that it
would perform later, including emailing student borrowers about the loan cancellations and
updating its webpage with a copy of the Stipulated Order and contact information for the
Department’s loan servicers. See Stipulated Order at 1–4. The stipulation concluded by asking
the Court to sign the proposed order (1) staying the case for 60 days, after which the Department
would be required to “file a report addressing each of the obligations listed above,” and (2)
dismissing the case “[u]pon . . . Defendants’ fulfillment of the obligations provided herein.” Id.at 4–5. In lieu of signing the Stipulated Order, the Court entered two Minute Orders. The first
Order stayed the case for 60 days and ordered the Department “to file a report by May 29, 2020
addressing each of the obligations listed in the [12] Stipulated Order of Dismissal,” as the parties
had requested. Minute Order, Mar. 30, 2020 (“March Minute Order”). On May 29, 2020, the
Department filed a status report updating the Court on the completion of its obligations contained
in the Stipulated Order. Defs.’ Report Regarding Obligations Contained in Stipulation of
Dismissal, ECF No. 15. The Department reported that it had completed the outstanding tasks in
the Stipulated Order. Id. Accordingly, in the second Minute Order, the Court dismissed the case
“[i]n light of Plaintiff’s [12] Stipulation of Dismissal and the Government’s [15] Status Report.”
Minute Order, June 3, 2020 (“June Minute Order”); see Stipulated Order at 5.
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Plaintiffs petitioned for attorneys’ fees and costs under the Equal Access to Justice Act
(“EAJA”), 28 U.S.C. § 2412, and the petition is ripe for the Court’s consideration.
II. Analysis
A. Subject Matter Jurisdiction
Under the EAJA, “a court shall award to a prevailing party” fees and other expenses
“incurred by that party in any civil litigation . . . brought by or against the United States in any
court having jurisdiction of that action.” 28 U.S.C. § 2412(d)(1)(A) (emphasis added).
Accordingly, to obtain fees under the EAJA, “there must be standing and otherwise proper
subject matter jurisdiction for the underlying action.” Advanced Mgmt. Tech. v. FAA, 211 F.3d
633, 638 (D.C. Cir. 2000) (emphasis omitted). The Department contends that this Court lacked
subject matter jurisdiction over Plaintiffs’ underlying action because, according to the
Department, “the key relief sought by Plaintiffs, and the only relief that would redress their claim
of injury, is injunctive relief,” which is unavailable under the HEA. Opp. at 12; see 20 U.S.C.
§ 1082(a)(2) (stating that “no attachment, injunction, garnishment, or other similar process,
mesne or final, shall be issued against the Secretary or property under the Secretary’s control”);
Student Loan Mktg. Ass’n v. Riley, 907 F. Supp. 464, 474 (D.D.C. 1995).
The Court has subject matter jurisdiction. The Court begins by noting the incongruity of
the Department’s invocation of the Court’s jurisdiction to endorse the parties’ settlement
agreement by signing the Stipulated Order and its current position that the Court lacked
jurisdiction from the start. In any case, although the HEA’s anti-injunction provision bars
injunctive relief, such “anti-injunction clauses do not preclude consideration of requests for
declaratory relief.” Id. (citing Thomas v. Bennett, 856 F.2d 1165, 1167 (8th Cir. 1988); and then
citing Pro Schs., Inc. v. Riley, 824 F. Supp. 1314, 1315–16 (E.D. Wis. 1993))); accord Bank of
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America NT & SA v. Riley, 940 F. Supp. 348, 351 (D.D.C. 1996) (“There is no indication in the
HEA, and none has been cited from its legislative history, that Congress intended to
eliminate all federal jurisdiction”—including jurisdiction to issue declaratory relief—“by the
enactment of § [1082](a)(2).”). Here, Plaintiffs’ complaint sought declaratory relief, including
declarations that the Department’s decisions to enter into TPPAs with IIA and AIC, to convert
the schools to retroactive nonprofit status, and to issue loans to Plaintiffs after January 20, 2018
were arbitrary, capricious, and unlawful. Compl. at 32. Even if some of Plaintiffs’ prayers for
relief—such as the request for a declaration obliging the Department to “vacate, cancel,
discharge, forgive and/or otherwise nullify” the disputed loans, id.—appear to seek injunctive
relief by another name, see Am. Ass’n of Cosmetology Schs. v. Riley, 170 F.3d 1250, 1254 (9th
Cir. 1999), those requests would not deprive the Court of “jurisdiction of th[e] action” as to
Plaintiffs’ other requests for declaratory relief, 28 U.S.C. § 2412(d)(1)(A).
Indeed, the Department concedes that “a declaration of invalidity and remand to the
agency might provide some redress for a plaintiff’s injury even in the absence of injunctive
relief.” Opp. at 13. The Department nevertheless asserts that no such relief was possible here
because the Department voluntarily cancelled the loans shortly after Plaintiffs filed suit. Id. But,
as described more thoroughly below, Plaintiffs both sought and obtained further relief from the
Department as a result of this litigation even after the Department cancelled the loans at issue.
For the same reasons, the Court also rejects the Department’s suggestion that Plaintiffs’ case was
mooted when the parties negotiated and sought the Court’s sanction of the settlement of
Plaintiffs’ claims. Accordingly, the Court has subject matter jurisdiction and proceeds to the
merits of Plaintiffs’ fee petition.
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B. Prevailing Party
To be entitled to fees under the EAJA, Plaintiffs must first establish that they are a
“prevailing party.” 28 U.S.C. § 2412(d)(1)(A). The D.C. Circuit follows a three-part test to
determine whether a litigant is a prevailing party under the EAJA. See Thomas v. Nat’l Sci.
Found., 330 F.3d 486, 492–93 (D.C. Cir. 2003); Buckhannon Bd. & Care Home, Inc. v. W. Va.
Dep’t of Health & Hum. Res., 532 U.S. 598, 603–07 (2001). “To obtain ‘prevailing party’
status, the plaintiff must show first that there was a court-ordered change in the legal relationship
between the plaintiff and the defendant; second, that the judgment was rendered in the claimant’s
favor; and third, that the claimant was not a prevailing party merely by virtue of having acquired
a judicial pronouncement rather than judicial relief.” Artis ex rel. S.A. v. District of Columbia,
543 F. Supp. 2d 15, 22 (D.D.C. 2008) (quoting Robinson v. District of Columbia, No. 06-1253
(RCL), 2007 WL 2257326, at *4 (D.D.C. Aug. 2, 2007)); see also Thomas, 330 F.3d at 492–93.
To start, a defendant’s agreement to terms in a stipulation memorialized in a court order
is a suitable basis for awarding attorney’s fees. Texas v. Holder, 63 F. Supp. 3d 54, 64 (D.D.C.
2014); see Campaign for Responsible Transplantation v. FDA, 511 F.3d 187, 197 (D.C. Cir.
2007) (“Even though the parties arrived at a mutually acceptable agreement, we held that the
order memorializing the agreement created the necessary judicial imprimatur for plaintiffs to be
a prevailing party.”); see also Davy v. CIA, 456 F.3d 162, 163–64 (D.C. Cir. 2006) (explaining
that the district court memorializing a stipulation into an order made the stipulation judicially
enforceable). Here, the parties filed a proposed stipulated order of dismissal, detailing the
Department’s actions in response to Plaintiffs’ suit and conditioning dismissal on, among other
things, “Defendants’ fulfillment of the obligations provided herein.” Stipulated Order at 5. The
proposed order included a signature block for the Court to adopt the order. Id. at 5–6. The Court
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did not sign the proposed order because the stipulation required the Department to undertake
several obligations in the future. Accordingly, the Court “ordered” the Department “to file a
report by May 29, 2020, addressing each of the obligations listed in the” Stipulated Order, see
March Minute Order, and only after the Department filed a status report confirming that it had
complied with those outstanding obligations did the Court dismiss the case “[i]n light of” the
stipulation and status report, see June Minute Order. Thus, “[e]ven though the parties arrived at
a mutually acceptable agreement” on their own, the Court’s “order memorializing the agreement
created the necessary judicial imprimatur for plaintiffs to be a prevailing party.” Campaign for
Responsible Transplantation, 511 F.3d at 197 (emphasis omitted).
Additionally, the stipulation and the Court’s two Minute Orders effected a court-ordered
change in the parties’ legal relationship in Plaintiffs’ favor. A party is eligible for a fee award
when there is a “material alteration of the legal relationship of the parties.” Buckhannon, 532
U.S. at 604 (quoting Tex. State Teachers Ass’n v. Garland Independent Sch. Dist., 489 U.S. 782,
792–93 (1989)). Here, the Stipulated Order contained, among other things, the Department’s
commitment that “no IRS Form 1099s will be issued for the Cancelled Loans or refunds
described” therein. Stipulated Order at 2. By placing the Court’s imprimatur on that promise,
the Court’s Minute Orders constituted a “judicially sanctioned change in the legal relationship of
the parties.” Buckhannon, 532 U.S. at 605; see also Davy, 456 F.3d at 166 (“Where a settlement
agreement is embodied in a court order such that the obligation to comply with its terms is court-
ordered, the court’s approval and the attendant judicial over-sight (in the form of continuing
jurisdiction to enforce the agreement) may be equally apparent.” (quoting Smyth ex rel. Smyth v.
Rivero, 282 F.3d 268, 281 (4th Cir. 2002))).
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Moreover, before the Court would order the case dismissed, the Department was tasked
with completing specific obligations and submitting a status report addressing the completion of
those obligations. And, the Department’s obligations benefitted the Plaintiffs beyond merely
“facilitat[ing] the litigation process.” Campaign for Responsible Transplantation, 511 F.3d at195–96 (order compelling production of a Vaughn index, without more, was not enough to create
prevailing party status). To comply with the Court’s Minute Order and achieve a dismissal of
the action, the Department was required to notify borrowers that it had extended the closed
school loan discharge period back to January 20, 2018, to update its webpage regarding the
closed schools with a web link to the Closed School Discharge application (thereby enabling
students to obtain debt relief), and to confirm that loan servicers had updated credit reporting
agencies about the cancelled loans so that borrowers would not have any remaining balance on
those loans. Stipulated Order at 2–4. The Department took these steps “only after the order was
issued” directing them to do so, and it fulfilled its obligations “pursuant to that order.”
Campaign for Responsible Transplantation, 511 F.3d at 197. Accordingly, the Court’s
incorporation of the parties’ stipulation is a sufficient “court-ordered change” in the relationship
between them. See id. (“Once an order has been adopted by the court, requiring the agency to
release documents, the legal relationship between the party changes.” (emphasis omitted));
SecurityPoint Holdings, Inc. v. TSA, 836 F.3d 32, 37–38 (D.C. Cir. 2016) (holding that a
prevailing party need not “obtain a change in the opposing party’s ‘primary conduct’” so long as
the party achieved “‘some of the benefit . . . sought in bringing suit,’” including, for instance,
remand to the agency (alteration in original) (first quoting Waterman S.S. Corp. v. Maritime
Subsidy Bd., 901 F.2d 1119, 1122 (D.C. Cir. 1990); and then quoting Shalala v. Schaefer, 509
U.S. 292, 302 (1993))).
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Finally, for similar reasons, the Court’s order is a “judicial pronouncement” accompanied
by “judicial relief.” Thomas, 330 F.3d at 492 (emphasis omitted) (quoting Buckhannon, 532
U.S. at 606). To succeed on this element, Plaintiffs need not show that the Stipulated Order
granted them “all of the items [they] requested in [their] prayer for relief.” Ctr. for Food Safety
v. Burwell, 126 F. Supp. 3d 114, 122 (D.D.C. 2015). Rather, it is sufficient for this element that
Plaintiffs “ha[ve] obtained ‘something of value in the real world’” relating to their claims as a
result of the litigation. Id. (quoting Env’t Def. Fund, Inc. v. Reilly, 1 F.3d 1254, 1257 (D.C. Cir.
1993)). Here, in addition to listing the Department’s voluntary actions described in the whereas
clauses of the Stipulated Order, the Court required the Department to file a status report
concerning additional obligations, fulfillment of which was a prerequisite to the stipulated
dismissal. Those obligations included that the Department communicate with borrowers about
the loan cancellation, update its webpage with important information on cancellation, and other
steps that materially advanced Plaintiffs’ overall goals of obtaining debt relief for attendees of
IIA and AIC. Stipulated Order at 2–4. Although the Department had already agreed to cancel
the disputed loans by the date of the Stipulated Order, these additional obligations afforded
Plaintiffs “some of the benefit . . . sought in bringing suit.” SecurityPoint, 836 F.3d at 38
(alteration in original) (quoting Schaefer, 509 U.S. at 302); see also Univ. Legal Servs. Prot. &
Advoc., Inc. v. Knisley, No. 1:04-cv-01021 (RBW), 2006 WL 3623695, at *1, *3, *5 (D.D.C.
Dec. 11, 2006) (finding that a stipulation ordering defendant to supply plaintiff requested
information, even if not “based on” the statute underlying plaintiff’s claim, gave plaintiff some
of the benefit sought by bringing suit). The Court therefore concludes that the Plaintiffs are
prevailing parties.
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Analogizing to Summers v. Department of Justice, 569 F.3d 500, 505 (D.C. Cir. 2009), in
which the D.C. Circuit concluded that a plaintiff obtained no judicial relief for prevailing party
purposes when the Court merely ordered the parties to “file another joint status report by [a
specific date] indicating” that an additional FOIA disclosure had “been made to plaintiff,” the
Department contends that the Stipulated Order similarly did not require them to take any
“specific, substantive actions.” Opp. at 18–20 (quoting Summers, 569 F.3d at 505). Summers is
not on point. The court orders at issue there “required the FBI to do no more than to join with
the plaintiff in filing status reports updating the court on any voluntary disclosures the agency
may have made.” Summers, 569 F.3d at 505. The court explained that these orders did not
require “the FBI to make disclosures” or do anything aside from filing a status report. Id. Here,
by contrast, the Court incorporated the parties’ Stipulated Order into its March and June Minute
Orders and dismissed the case only upon the “fulfillment” of the “obligations” described in the
stipulation. Had the Department not complied with those substantive obligations, the Court
would not have dismissed the case, even if the Department had filed status reports. By requiring
the Department to take additional, real-world steps before dismissing the case, the orders in this
case did more than merely recognize the existence of a settlement agreement, see Opp. at 20–21,
and required more than a “strictly procedural” step of “facilitat[ing] the litigation process,”
Campaign for Responsible Transplantation, 511 F.3d at 196–97.
The Department also asserts that Plaintiffs are not prevailing parties because a party must
show that it has achieved some success “on the merits of his claim” and that, here, “the three
things that the Department said it would do were insubstantial and not part of the relief sought in
Plaintiffs’ complaint.” Opp. at 22 (quoting Nat’l Black Police Ass’n v. D.C. Bd. of Elections &
Ethics, 168 F.3d 525, 528 (D.C. Cir. 1999)). But, as already explained, Plaintiffs obtained
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“judicial relief” by the Court’s orders when they secured “something of value in the real world’”
as a result of the litigation. Ctr. for Food Safety, 126 F. Supp. 3d at 122 (quoting Env’t Def.
Fund, 1 F.3d at 1257). What’s more, although perhaps not the core of the relief sought in
Plaintiffs’ complaint, the additional obligations imposed by the Court’s orders were intimately
related to the complaint’s primary goals of cancelling the loans and relieving borrowers of debts.
Guaranteeing that credit reporting agencies were aware of the cancelled loans would ensure that
Plaintiffs were not adversely affected by any outstanding payments on the loans. Likewise,
providing public information on the Department’s website about the lawsuit and how to apply for
closed-school student loan discharge would ensure that the affected borrowers could actually
benefit from the relief sought in the complaint. Reply at 10 n.4. By obtaining an order requiring
the Department to take those measures, Plaintiffs prevailed “on an ‘important matter’ in the
course of the litigation.” Ctr. for Food Safety, 126 F. Supp. 3d at 120 (quoting Tex. State
Teachers Ass’n, 489 U.S. at 790). To the extent the Department “question[s] the ‘degree of the
plaintiff’s success,’ this bears on ‘the size of a reasonable fee, not [the] eligibility for a fee award
at all.’” Id. at 122 (second alteration in original) (quoting Tex. State Teachers Ass’n, 489 U.S. at
790).
C. Substantially Justified
Under the EAJA, a prevailing party is entitled to attorneys’ fees and expenses “unless the
court finds that the position of the United States was substantially justified.” 28 U.S.C.
§ 2412(d)(1)(A). This inquiry focuses not only on the agency’s litigation position but also its
underlying actions. Am. Wrecking Corp. v. Sec’y of Lab., 364 F.3d 321, 325 (D.C. Cir. 2004).
“‘Substantially justified’ means ‘justified in substance or in the main—that is, justified to a
degree that could satisfy a reasonable person.’” Carey v. FEC, 864 F. Supp. 2d 57, 62–63
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(D.D.C. 2012) (quoting Pierce v. Underwood, 487 U.S. 552, 565 (1988)); see also Taucher v.
Brown-Hruska, 396 F.3d 1168, 1173 (D.C. Cir. 2005) (position is substantially justified if it has
“a reasonable basis both in law and fact” (quoting Underwood, 487 U.S. at 565)). The
“Government has the burden of proving that its position . . . was ‘substantially justified’ within
the meaning of the Act.” LePage’s 2000, Inc. v. Postal Regul. Comm’n, 674 F.3d 862, 867
(D.C. Cir. 2012) (alteration in original).
The Department has not carried its burden of showing that it was substantially justified in
permitting IIA and AIC to participate in Title IV despite the schools’ change in ownership and
loss of accreditation. To start, the Department does not meaningfully dispute that its February
2018 decision to enter into TPPAs with the two schools was contrary to applicable regulations.
Indeed, as the Department admitted in its May 2018 letters to IIA and AIC granting them
retroactive interim nonprofit status, “[t]he provisions of 34 C.F.R. 600.5(a)(6) require a
proprietary institution of higher education to be fully accredited to qualify as an eligible
institution for purposes of Title IV” and “do not allow for pre-accredited (or candidacy) status.”
Compl. Ex. A at 2; see also Compl. Ex. B at 2. And, although the Department may continue an
institution’s participation in Title IV after a change of control “on a provisional basis,” the
institution must first submit a “materially complete application” that includes, among other
things, a “copy of the document from the institution’s accrediting association that—as of the day
before the change in ownership—granted or will grant the institution accreditation status.” 34
C.F.R. § 600.20(g)(2)(ii); see id. § 600.20(h)(3)(iii) (requiring “approval of the change of
ownership from the institution’s accrediting agency” for extensions of provisional participation
agreements).
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Instead, the Department mainly asserts that, although it might have been wrong to grant
the schools Title IV eligibility after the change in ownership, that mistake was excusable in light
of “the confusion arising from HLC’s decision to place the Institutes into a status that HLC had
never used before.” Opp. at 25; see also id. at 26–30. For instance, the Department suggests it
was surprised to learn in March 2018 that the schools’ “change of control candidacy status” was
“equivalent to a preaccreditation status,” maintaining that “[n]owhere in” its November 2017
letter “did HLC state that the Institutes were no longer accredited institutions, or that by
accepting the” change of control candidacy status condition “it would forfeit its fully accredited
status.” Id. at 26, 29.
The Department should not have been so surprised. HLC’s November 2017 letter stated,
quite clearly, that the accrediting commission “considers five factors in determining whether to
approve a requested Change of Control,” that it “is the applying institution’s burden . . . to
demonstrate with clear and convincing evidence that the transaction meets these five factors,”
and that “the Institutes did not demonstrate that the five approval factors were met without
issue.” Compl. Ex. E at 1–2 (emphasis added). Rather, the schools demonstrated compliance
sufficient only “to be considered for pre-accreditation status identified as ‘Change of Control
Candidate for Accreditation,’ during which time each Institute can rebuild its full compliance
with all the Eligibility Requirements and Criteria for Accreditation and can develop evidence
that each Institute is likely to be operationally and academically successful in the future.” Id. at
2. The letter went on to identify specific steps the schools must take in order to regain
accreditation, including, for example, submitting “a highly detailed plan with timelines, action
steps, and personnel assignments to remedy issues related to” compliance with some core
accreditation standards. Id. at 3. Only if the schools complied with those steps and “provide[d]
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clear, convincing and complete evidence of each institution meeting each Eligibility
Requirement and of making substantial progress towards meeting the Criteria for Accreditation”
would HLC reinstate accreditation. Id. at 4. Lest there be any doubt, HLC followed up with
another letter in January 2018 stating that any approval of the schools’ change in ownership was
“specifically subject to a Change of Control Candidacy, which is effective immediately upon the
closing of the transaction,” and requiring that the schools “have properly notified their students
of the acceptance of the Board’s condition of Change of Control Candidacy and have clearly
stated its impact on current and prospective students.” Compl. Ex. G at 2. In other words, by
November 2017 and certainly by January 2018, it was unambiguous that HLC had put the
schools in the equivalent of pre-accreditation status and had neither granted nor committed itself
to granting the schools accreditation after the change of ownership. The Department’s
contention to the contrary does not withstand scrutiny. 1
Acknowledging its mistake, the Department next contends that, after it belatedly realized
that the schools lacked HLC accreditation, it acted reasonably when it granted them retroactive
temporary nonprofit status in May 2018 to avoid an interruption in their eligibility for Title IV
funds. Opp. at 31–35. Specifically, the Department asserts that Plaintiffs have identified “no
law that restricts the Department’s exercise of discretion for when it can designate an institutions
[sic] as a nonprofit” and that nothing in the HEA or the regulations restricted “the Department’s
discretion to approve nonprofit status” once the schools had submitted “documentation and
1
The Department cites a few HLC policies to imply that the schools’ accreditation status
was unclear. See Opp. at 27–28. But as Plaintiffs correctly note, HLC’s policy regarding change
of control states that when “HLC’s Board decides to approve a proposed Change of Control,
Structure or Organization, it may decide so subject to conditions on the institution or its
accreditation.” HLC Policy INST.B.20.040, Higher Learning Comm’n (rev. Feb. 2022),
https://www.hlcommission.org/Policies/change-of-control-structure-or-organization.html
(emphasis added). That is just what happened here.
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approvals required by 34 C.F.R. § 600.20(g) and 34 C.F.R. § 600.20(h).” Id. at 31–32. But, as
already explained, the Department was informed as early as November 2017 that the schools did
not meet the requirements of §§ 600.20(g) and (h) because HLC had withdrawn its accreditation.
See Compl. Ex. C at 7 (noting that approval of the change in ownership by the schools’
accrediting agency was a material condition for provisional participation in Title IV and
conversion to nonprofit status).
Moreover, the Department’s argument ignores the fact that the regulations do restrict the
Department’s discretion in designating an institution a nonprofit. As the Department itself
explained in its September 2017 letter to the schools regarding their request for conversion to
nonprofit status, programs that “seek to participate in Title IV” as nonprofit institutions “must
meet the Department’s requirements for that status” as defined in 34 C.F.R. § 600.2. Compl. Ex.
C at 3. Specifically, the institution must (1) be “owned and operated by one or more nonprofit
corporations or associations, no part of the net earnings of which benefit any private shareholder
or individual;” (2) be “legally authorized to operate as a nonprofit organization by each State in
which it is physically located;” and (3) be “determined by the U.S. Internal Revenue Service to
be an organization to which contributions are tax-deductible in accordance with section 501(c)(3)
of the Internal Revenue Code.” 34 C.F.R. § 600.2.
Even if the Department is entitled to some discretion when deciding whether to designate
an institution as a nonprofit for purposes of Title IV, that decision must be “based on a
consideration of the relevant factors.” Conservation Law Found. v. Ross, 374 F. Supp. 3d 77, 89
(D.D.C. 2019) (quoting Am. Oceans Campaign v. Daley, 183 F. Supp. 2d 1, 4 (D.D.C. 2000)).
Yet here, the Department’s May 2018 letter announcing its decision to grant the schools
temporary interim nonprofit status not only fails to mention any of the factors listed in § 600.2
16
but accounts for different considerations entirely—specifically the Department’s interest in
“avoid[ing a] lapse of eligibility” resulting from its earlier misunderstanding of the schools’
accreditation status. Compl. Exs. A & B at 2; see Nat. Res. Def. Council v. Nat’l Marine
Fisheries Serv., 71 F. Supp. 3d 35, 55 (D.D.C. 2014) (agency decision is arbitrary and capricious
if it “relied on factors which Congress has not intended it to consider” (quoting Motor Vehicle
Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983))).
The Department now asserts that it had “already spent months analyzing the change in
ownership” and the schools’ “request that the Institutes be converted to nonprofit status (as that
term is defined in 34 C.F.R. § 600.2)” and that “nothing had come to the Department’s attention”
since the fall of 2017 “that would have been at odds with approving the conversion to nonprofit
status.” Opp. at 29–30. But aside from noting a desire to avoid a lapse in the schools’ eligibility,
the Department’s May letter never identified any basis for according the schools interim
nonprofit status. And the Department’s last written analysis of the schools’ nonprofit
eligibility—in its September 2017 letter—stated that, although the Department did “not see any
impediment” to approving nonprofit status, formal approvals were “contingent on” the schools’
“compliance with the requirements of 34 C.F.R. § 600.20(g) and (h), the Department’s review
and approval of any submissions required by those regulatory provisions, and any further
documentation and information requested by the Department.” Compl. Ex. C at 2. The
Department’s September 2017 letter further stressed that the schools, among other things, would
“have to submit additional documentation and information to confirm” the second and third
“elements of nonprofit status,” would “need to establish that the Institutions’ net income does not
benefit any party other than the Institutions,” and would need to “submit evidence that the
consideration” stated in the purchase agreement “does not exceed the value of the assets being
17
transferred resulting in an impermissible benefit to another party.” Id. at 6. Nothing in the
Department’s May 2018 letter or briefing suggests that the schools ever took those steps to
demonstrate that they qualified for nonprofit status.
Thus, this case is wholly unlike Ambach v. Bell, 686 F.2d 974 (D.C. Cir. 1982) (per
curiam), which the Department cites for the proposition that the Court cannot scrutinize its
decision to award retroactive nonprofit status. Opp. at 34–35. In Ambach, the D.C. Circuit
deferred to the Department’s thoughtful and thorough balancing—in a memorandum’s “seven
numbered paragraphs”—of the pros and cons of using an older set of census data to allocate
educational assistance funds, when newer data would become available weeks before the funding
distribution deadline, see id. at 982–86. Here, by contrast, the Department’s May 2018 letters
neither explained whether the schools met § 600.2’s criteria nor reasoned why avoiding a lapse
in Title IV eligibility would outweigh the risks to students of taking on debt to pay for courses
that were neither accredited nor eligible for nonprofit status. 2
The Court does not question the Department’s motives for allowing the schools to
continue to participate in Title IV so that their students could complete their studies. But for the
foregoing reasons, the Court concludes that the Department has not carried its burden of showing
2
The Department’s reliance on Armstrong v. Accrediting Council for Continuing
Education & Training, Inc., 980 F. Supp. 53 (D.D.C. 1997), is similarly misplaced. Opp. at 32–
33. There, the plaintiff, who had enrolled in a poor-performing vocational school, sued the
lenders and guarantors of loans used to attend the school. Id. at 56, 62. The “gravamen of
plaintiff’s complaint” was that “she was defrauded by” the vocational school she attended and
that the school was “a sham because it did not meet the standards for accreditation.” Id. at 56.
Here, Plaintiffs’ suit is based not on whether the schools were properly or improperly accredited
but rather on the Department’s failure to follow the law and its own regulations in permitting
AIC and IIA to continue to participate in Title IV, despite their clear lack of accreditation.
18
its position was substantially justified. 3 Plaintiffs are therefore entitled to fees under the EAJA,
and the Court proceeds to calculating the appropriate fee award.
D. Fee Amount
“The most useful starting point for determining the amount of a reasonable fee is the
number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate.”
Bennett v. Castro, 74 F. Supp. 3d 382, 397 (D.D.C. 2014) (quoting Hensley v. Eckerhart, 461
U.S. 424, 433 (1983)). In calculating that lodestar, the Court focuses on “(1) whether the
attorneys charged a reasonable hourly rate; and (2) whether the time attorneys logged on the case
was reasonable.” In re Donovan, 877 F.2d 982, 990 (D.C. Cir. 1989).
But determining the “product of reasonable hours times a reasonable rate does not end the
inquiry.” Hensley, 461 U.S. at 434; see also F.J. Vollmer Co. v. Magaw, 102 F.3d 591, 599
(D.C. Cir. 1996) (noting “that the product of a reasonable hourly rate and the number of hours
reasonably expended on the entire case only establishes a base for calculating the amount of
reimbursable fees”). Aside from the lodestar, “[t]here remain other considerations that may lead
the district court to adjust the fee upward or downward, including the important factor of the
‘results obtained.’” Hensley, 461 U.S. at 434. To evaluate that factor, courts must address
whether the plaintiff “fail[ed] to prevail on claims that were unrelated to the claims on which he
succeeded” or “achieve[d] a level of success that makes the hours reasonably expended a
satisfactory basis for making a fee award.” Id. When much of counsel’s time is devoted “to the
litigation as a whole,” the court “should focus on the significance of the overall relief obtained
3
Plaintiffs do not defend the Complaint’s alternate theory for the Department’s
liability—that the Department’s actions violated the Due Process Clause of the Fifth
Amendment. Compl. ¶¶ 122–27. But whether or not that theory would have succeeded on the
merits does not affect the Court’s conclusion that the Department’s actions were not substantially
justified for the reasons just explained.
19
by the plaintiff.” Id. at 435. When a party achieves only a “partial or limited success,” then the
lodestar value “may be an excessive amount.” Id. at 436. In weighing these considerations, the
Court has “substantial discretion in fixing the amount of an EAJA award.” Commissioner, INS
v. Jean, 496 U.S. 154, 163 (1990); see Hensley, 461 U.S. at 436–37 (“There is no precise rule or
formula for making these determinations. The district court may attempt to identify specific
hours that should be eliminated, or it may simply reduce the award to account for the limited
success. The court necessarily has discretion in making this equitable judgment.”).
1. The Lodestar Value
The Court begins with the reasonable hourly rate. The Department does not dispute that
Plaintiffs, if entitled to any fees at all, are entitled to a cost-of-living adjustment to the EAJA’s
default $125 per hour rate. Opp. at 37; see Role Models Am., Inc. v. Brownlee, 353 F.3d 962,
969 (D.C. Cir. 2004) (noting that the court had “found no case” denying a cost-of-living
adjustment). Accordingly, at least to start, the Court adopts the hourly rate of $205.84 per hour.
The Court rejects, however, Plaintiffs’ requests for bad-faith and specialized-skill
enhancements. Under the EAJA, an award of attorney fees can be calculated at market rate—
such that the statutory cap in 28 U.S.C. § 2412(d)(2)(A)(ii) does not apply—upon a finding of
bad faith on the part of the opposing party. See Gray Panthers Project Fund v. Thompson, 304 F.
Supp. 2d 36, 38 (D.D.C. 2004). Such a finding must be supported by clear and convincing
evidence, and corresponding attorney’s fees “will be awarded only when extraordinary
circumstances or dominating reasons of fairness demand.” Ass’n of Am. Physicians &
Surgeons, Inc. v. Clinton, 187 F.3d 655, 660 (D.C. Cir. 1999) (quoting Nepera Chem., Inc. v.
Sea-Land Serv., Inc., 794 F.2d 688, 702 (D.C. Cir. 1986)). Actions evincing bad faith include
the “filing of a frivolous complaint or meritless motion,” or “discovery-related misconduct.”
20
Am. Hosp. Ass’n v. Sullivan, 938 F.2d 216, 219–20 (D.C. Cir. 1991). Pre-litigation bad faith
may also be found where “a party, confronted with a clear statutory or judicially-imposed duty
towards another, is so recalcitrant in performing that duty that the injured party is forced to
undertake otherwise unnecessary litigation to vindicate plain legal rights.” Id. at 220 (quoting
Fitzgerald v. Hampton, 545 F. Supp. 53, 57 (D.D.C. 1982)).
Plaintiffs have not shown that they are entitled to a bad-faith fee enhancement. The
Department was not recalcitrant in remedying Plaintiffs’ grievances, nor did it engage in any
dilatory litigation tactics. To the contrary, the Department voluntarily granted the most
consequential relief Plaintiffs sought—the loan cancellations and extension of the closed-school
loan discharge relief—before Plaintiffs served their complaint. Jones Decl. ¶¶ 11–12.
Furthermore, while the Department’s confusion regarding the status of the schools’ accreditation
was not justified, this type of error is distinguishable from situations in which parties are
“confronted with a clear statutory duty or judicially-imposed duty toward another” and
nevertheless disregard that duty. Am. Hosp. Ass’n, 938 F.2d at 220 (quoting Fitzgerald, 545 F.
Supp. at 57). Plaintiffs have not identified any “extraordinary circumstances” that would justify
market-rate fees. Gray Panthers, 304 F. Supp. 2d at 39 (quoting Ass’n of Am. Physicians, 187
F.3d at 660).
Finally, Plaintiffs seek an additional enhancement for distinctive knowledge or
specialized skill. See 28 U.S.C. § 2412(d)(2)(A) (permitting fees above the statutory rate upon a
showing of “a special factor, such as the limited availability of qualified attorneys for the
proceedings involved”). This enhancement is not justified when sufficiently skilled lawyers are
merely “in short supply.” See Underwood, 487 U.S. at 577–72 (explaining that such an
interpretation would obviate the statutory cap because “prevailing market rates for [a service] are
21
obviously determined by the relative supply of that [service]”). Instead, enhancement is justified
where: (1) attorneys have “distinctive knowledge or specialized skill” necessary for the litigation
and (2) such attorneys can be obtained only at their market rates. Id. at 572; see also F.J
Vollmer, 102 F.3d at 598 (“[F]ee enhancement is available only for lawyers whose specialty
‘requir[es] technical or other education outside the field of American law.’” (quoting Waterman
Steamship Corp. v. Maritime Subsidy Bd., 901 F.2d 1119, 1124 (D.C. Cir. 1990))).
Plaintiffs argue that the enhancement is justified because their counsel “has extensive
knowledge, unique experience, and specialized skill in higher education, consumer protection,
and student loan law.” Pet. for Attorneys’ Fees at 24. But “expertise the lawyer acquired
through practice in a specific area of administrative law” alone is insufficient for an
enhancement. Select Milk Producers, Inc. v. Johanns, 400 F.3d 939, 950 –51 (D.C. Cir. 2005).
Plaintiffs’ successful litigation of alleged violations of the APA did not depend on “specialized
training justifying fee enhancement” but rather on their experience. Id. at 951 (quoting F.J.
Vollmer, 102 F.3d at 598); see also F.J. Vollmer, 102 F.3d at 598 (“If expertise acquired through
practice justified higher reimbursement rates, then all lawyers practicing administrative law in
technical fields would be entitled to fee enhancements.”). Nor is counsel’s familiarity with the
specific proceedings and factual record involved in this case a basis for an enhancement, as “in
all federal cases, clients presumably want to be represented by an attorney with experience in
federal litigation and who is familiar with the record at issue.” In re Sealed Case 00-5116, 254
F.3d 233, 236 (D.C. Cir. 2001). The Court accordingly declines to apply a fee enhancement for
specialized knowledge or skill and will therefore start with the cost-of-living-adjusted rate of
$205.84 per hour.
22
As for the number of hours reasonably expended, Plaintiffs initially requested 296.1
hours but agreed, in their reply, to discount 11 disputed hours. Reply at 21, 23. Plaintiffs thus
request reimbursement for 285.1 hours of work, amounting to a total lodestar amount of
$58,684.98.
2. Plaintiffs’ Degree of Success
The Department disputes at least 80 hours’ worth of time entries submitted by Plaintiffs.
Opp. at 41–44. Rather than “performing an item-by-item accounting” of Plaintiffs’ hours, the
Court is “empowered to make percentage reductions” of fee requests. Peyton v. Kijakazi, 557 F.
Supp. 3d 136, 144 (D.D.C. 2021) (quoting Copeland v. Marshall, 651 F.2d 880, 903 (D.C. Cir.
1980) (en banc)); see also Cobell v. Jewell, 234 F. Supp. 3d 126, 175–76 (D.D.C. 2017) (noting
that “this Court has the discretion to impose a reasonable percentage reduction to the petition as a
whole” and collecting cases). In light of the peculiar procedural posture and immediate
settlement of this case, the Court believes employing the “hatchet” is more appropriate than the
“scalpel” in this case, cf. Nat’l Venture Capital Ass’n v. Nielson, 318 F. Supp. 3d 145, 153
(D.D.C. 2018), and accordingly will reduce the fee award substantially.
Although the Court has concluded that Plaintiffs are properly considered prevailing
parties in this action, some of the Department’s arguments concerning subject matter jurisdiction
and prevailing party status militate in favor of a significant across-the-board fee reduction. As
the Department points out, the chief relief sought by Plaintiffs—the loan cancellation—was
already in the works when Plaintiffs filed their complaint and was voluntarily granted before
Plaintiffs effected service. Jones Decl. ¶¶ 11–12. To be sure, the filing of Plaintiffs’ complaint
may have spurred the Department to act more quickly, but Plaintiffs offer no evidence proving
that point. Plaintiffs did successfully convince the Department to take additional steps, as stated
23
in the Stipulated Order, that protected borrowers from adverse tax treatment and enabled them to
seek loan cancellation. See supra at 8–11. But the “overall relief obtained by the” Stipulated
Order, Hensley, 461 U.S. at 435, was limited to the Department’s obligations to notify borrowers
that it had extended the closed-school loan discharge period back to January 20, 2018, to update
its webpage, and to confirm that loan servicers had updated credit reporting agencies. Those
achievements, while sufficient to confer prevailing party status, were not expressly sought in
Plaintiffs’ complaint and are quite minimal compared to the actions the Department took on its
own, without the Court’s intervention.
Moreover, although the Court was empowered to order declaratory relief sufficient to
create subject matter jurisdiction, see supra at 5–7, the Department is correct that the Court likely
could not have ordered the principal relief sought in the complaint in any event—a declaration
that the Department “must vacate, cancel, discharge, forgive and/or otherwise nullify Plaintiffs’
outstanding federal loan balances incurred on or after January 20, 2018, and refrain from
attempting to collect Plaintiffs’ outstanding federal loan balances.” Compl. at 32. The Court
could not have granted that relief, although framed as a declaration, without violating the HEA’s
anti-injunction bar. See Am. Ass’n of Cosmetology Schs., 170 F.3d at 1254 (“[T]he anti-
injunction bar cannot be skirted by the simple expedient of labeling an action that really seeks
injunctive relief as an action for ‘declaratory relief.’”).
The “most critical factor” in determining the size of a fee award “is the degree of success
obtained.” Hensley, 461 U.S. at 436. Focusing specifically on the relief provided by the
Stipulated Order, as opposed to the actions the Department took on its own, and considering that
this case involved no discovery, no answer, and no motion practice until the filing of this fee
petition, the Court concludes that Plaintiffs did not “achieve a level of success that makes the
24
hours reasonably expended a satisfactory basis for making a fee award” of the size Plaintiffs’
request. F.J. Vollmer, 102 F.3d at 599 (quoting Hensley, 461 U.S. at 434).
Accordingly, the Court will exercise its discretion and reduce Plaintiffs’ fee award by
about 80%, to $11,737. This figure more accurately represents “the degree of success obtained”
in the Stipulated Order. Hensley, 461 U.S. at 436. 4
III. Conclusion
For the foregoing reasons, the Court finds that Plaintiffs are prevailing parties within the
meaning of 28 U.S.C. § 2412(d)(1)(A), and that their net worth is below $2,000,000.
Accordingly, it is hereby
ORDERED that [17] Plaintiffs’ Motion for Attorneys’ Fees is GRANTED. It is further
ORDERED that Plaintiffs are awarded $11,737 in fees and $424 in costs.
SO ORDERED.
CHRISTOPHER R. COOPER
United States District Judge
Date: November 4, 2022
4
The Department does not dispute Plaintiffs’ request for $424 in costs, which the Court
will add to Plaintiffs’ fee award.
25