Sweet et al v. Cardona et al, No. 3:2019cv03674 - Document 345 (N.D. Cal. 2022)
Court Description: ORDER GRANTING 323 FINAL SETTLEMENT APPROVAL. SIGNED BY JUDGE ALSUP. (whalc2, COURT STAFF) (Filed on 11/16/2022)
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Sweet et al v. Cardona et al Doc. 345 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 1 of 25 1 2 3 4 5 UNITED STATES DISTRICT COURT 6 7 NORTHERN DISTRICT OF CALIFORNIA 8 9 10 THERESA SWEET, et al., Plaintiffs, United States District Court Northern District of California 11 12 13 14 No. C 19-03674 WHA v. MIGUEL CARDONA, et al., ORDER GRANTING FINAL SETTLEMENT APPROVAL Defendants. 15 16 17 INTRODUCTION 18 The United States Secretary of Education has reached a settlement with a class of 19 student-loan borrowers whose complaint alleges that, for years, the Department of Education 20 unlawfully delayed processing, or perfunctorily denied, hundreds of thousands of “borrower- 21 defense” applications — requests by students to discharge their loans in light of alleged 22 wrongful acts and omissions of the schools they attended. The settlement leaps over the 23 borrowers’ request to require administrative proceedings and provides for the automatic 24 discharge of billions of dollars of student loans and streamlined claim processing. This 25 settlement is separate and apart from President Biden’s broader program to forgive $430 26 billion in student debt. The key question now at final approval concerns whether the Secretary 27 has the authority to enter into such a settlement. 28 Dockets.Justia.com Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 2 of 25 1 STATEMENT 2 Title IV of the Higher Education Act directs the Secretary of Education “to assist in 3 making available the benefits of postsecondary education to eligible students” through 4 financial-assistance programs. The Student Loan Reform Act of 1993 directed the Secretary to 5 promulgate legislative regulations for agency consideration of discharges of loans due to the 6 wrongful acts or omissions of the schools attended by the borrowers. 20 U.S.C. §§ 1070, 7 1087e(h); Pub. L. No. 103-66 (1993). The Secretary established the first “borrower defense” program for certain federal loans 8 in 1994, which allowed a borrower to “assert as a defense against repayment of his or her loan United States District Court Northern District of California 9 10 any act or omission of the school attended by the student that would give rise to a cause of 11 action against the school under applicable State law.” 59 Fed. Reg. 61,664, 61,696 (Dec. 1, 12 1994); see also 60 Fed. Reg. 37,768 (July 21, 1995). These rules went largely unused for the 13 next twenty years (AR 590). That all changed in May 2015 with the collapse of Corinthian Colleges, Inc., a for-profit 14 15 college with more than 100 campuses and over 70,000 students. The Department faced a 16 “flood of borrower defense claims submitted by Corinthian students.” Secretary John B. King, 17 Jr. quickly moved to update the regulations for handling these applications to expedite 18 processing. 81 Fed. Reg. 39,330, 39,330, 39,335 (June 16, 2016); 81 Fed. Reg. 75,926 (Nov. 19 1, 2016) (final regulation).1 The Secretary recruited an interim “Special Master” Joseph Smith to assess the influx of 20 21 claims, and eventually created a “Borrower Defense Unit” (“BDU”) to address the backlog. In 22 total, by the end of the Obama Administration, the Secretary had approved 31,773 applications 23 for discharge and found 245 ineligible, for a 99.2% grant rate (a rate that includes both 24 Corinthian students and claimants who attended other schools). Borrowers, however, had 25 26 27 28 1 Our action does not directly address issues related to Corinthian, which proceeded in a separate action filed in our district, Calvillo Manriquez v. DeVos, No. C 17-07210 (N.D. Cal. filed Dec. 20, 2017) (Judge Sallie Kim). 2 United States District Court Northern District of California Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 3 of 25 1 submitted many thousands more which remained unexamined (AR 339–40, 347, 369, 384–85, 2 392–94, 502–03). 3 After the 2016 election and a change in administrations, new Secretary Elisabeth DeVos 4 paused claim adjudications in order to review the overall procedure. She did, however, honor 5 16,164 borrower-defense applications approved but not yet finalized before the change in 6 administrations, albeit with “extreme displeasure” (Dkt. No. 66-3, Ex. 7). Including all prior 7 decisions, by June 2018 the Department had granted in total 47,942 applications and denied or 8 closed 11,940, for an 80% grant rate for borrower defense-claims. (The grant rate under 9 Secretary DeVos alone was 58%.) By that point, borrowers had submitted, in total, 165,880 10 applications, leaving 105,998 still to be decided (AR 401). The flood of applications 11 continued. 12 Then, all adjudication stopped. For eighteen months, well into this suit, the Secretary 13 issued zero decisions. As of June 2019, borrowers had filed (from day one) 272,721 14 applications and 210,168 of them remained pending (AR 350, 397–404, 587–88). 15 Named plaintiffs accordingly brought this suit to require the Secretary to adjudicate these 16 applications. They argued the Secretary’s delay constituted unlawful stonewalling. The 17 complaint spelled out the relief sought: “[Named plaintiffs] do not ask this Court to adjudicate 18 their borrower defenses. Nor do they ask this Court to dictate how the Department should 19 prioritize their pending borrower defenses. Their request is simple: they seek an order 20 compelling the Department to start granting or denying their borrower defenses and vacating 21 the Department’s policy of withholding resolution” (Compl. ¶¶ 1, 10). 22 A Rule 23(b)(2) class was eventually certified as follows: 23 24 25 26 All people who borrowed a Direct Loan or FFEL loan to pay for a program of higher education, who have asserted a borrower defense to repayment to the U.S. Department of Education, whose borrower defense has not been granted or denied on the merits, and who is not a class member in Calvillo Manriquez v. DeVos, No. 17-7106 (N.D. Cal.) [the latter action concerning Corinthian Colleges specifically] 27 28 3 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 4 of 25 1 (Dkt. No. 46 at 14). Afterwards, an administrative record was lodged and cross-motions for 2 summary judgment were filed. At that point, the number of pending applications was around 3 225,000 (AR 591). 4 Before an order issued on summary judgment, the parties ostensibly reached a settlement 5 (an earlier one than the settlement now under consideration). A May 2020 order preliminarily 6 approved that proposal as it appeared to impose an eighteen-month deadline for the Secretary 7 to decide claims and a twenty-one-month deadline to effect relief for claims filed by April 7, 8 2020. That settlement also set reporting requirements and established hefty penalties should 9 the Secretary fail to uphold her end of the bargain (Dkt. No. 103). The parties notified the 10 United States District Court Northern District of California 11 class and solicited comments for a fairness hearing scheduled for October 2020. However, unbeknownst to class counsel or the Court, the Secretary had already adopted a 12 practice of sending alarmingly curt form-denial notices, in violation (as class counsel put it) of 13 both the spirit of the proposed settlement and the Administrative Procedure Act. Upon inquiry 14 from the Court, the Secretary acknowledged that, since December 2019 (when decisions on 15 borrower-defense applications had resumed), the Department used four templates to deny 16 118,300 of 131,800 applications reviewed (for an 89.8% denial rate). This was so out of 17 keeping with the supposed settlement that the Court found there had been no meeting of the 18 minds. An October 2020 order denied the class settlement and restarted discovery. The 19 Secretary thereafter agreed to abstain from those types of form denials until further order (Dkt. 20 Nos. 116, 146, 150). 21 Plaintiffs filed a supplemental complaint that alleged the Secretary had not actually 22 restarted adjudication of borrower-defense claims. Rather, plaintiffs argued she had violated 23 the law and the settlement by sending boilerplate denials without review. Plaintiffs asserted 24 the Secretary’s “presumption of denial” policy constituted further violations of the 25 Administrative Procedure Act and the Due Process Clause of the Fifth Amendment. 26 After a trip to our court of appeals regarding the extent of permissible discovery (In re 27 Dep’t of Education, 25 F.4th 692 (9th Cir. 2022)), an order herein set a new summary 28 judgment schedule with a hearing planned for July 28, 2022. During the pendency of the 4 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 5 of 25 1 summary judgment briefing schedule, and after another change in administrations, the parties 2 reached the instant settlement and filed their second motion for preliminary approval. 3 4 $10,000 of student debt for low- to middle-income borrowers. The reader should keep in mind 5 that this order does not consider President Biden’s initiative but considers only a discrete 6 settlement for a specific group of borrowers who have filed borrower-defense applications. 7 In brief, the settlement under consideration here sorts class members into three groups. 8 For group one, approximately 200,000 borrowers or 75% of the class as defined by the 9 United States District Court Northern District of California Separate from our litigation, President Biden announced a different plan to cancel up to settlement, the agreement provides for “full,” “automatic” relief, i.e., discharge of the 10 borrower’s federal loans, cash refunds of amounts paid to the Department, and credit repair. 11 This “up-front” relief would go to class members who attended one of the 151 schools listed in 12 Exhibit C to the settlement (151 of the 6,000 colleges operating in the United States). The 13 relief provided for this group will result in the discharge of approximately six billion dollars of 14 debt in the aggregate. 15 For group two, the remaining 25% of the class as defined by the settlement 16 (approximately 64,000 borrowers), the agreement provides for final written decisions on their 17 borrower-defense applications within specified periods of time, correlated to how long they 18 have been waiting for a decision. The Department will make those decisions according to a 19 streamlined process that provides certain presumptions in favor of the borrower. Should the 20 Department not issue a decision within a specified time, the borrower will receive full, 21 automatic relief like the borrowers in group one. The Secretary estimates the relief provided 22 for this group will result in the discharge of a further $1.5 billion in cumulative student debt. 23 For group three, those who submitted a borrower-defense application after execution of 24 the settlement on June 22, 2022, and before final approval (approximately 179,000 borrowers), 25 i.e., “post-class applicants” as defined by the settlement, the agreement provides a streamlined 26 process for their borrower-defense applications. If the Secretary does not render a decision 27 within three years of final approval, then the borrower would receive full, automatic relief like 28 5 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 6 of 25 1 the borrowers in group one. The settlement also has reporting requirements and some appeal 2 procedures (Dkt. No. 246-1). United States District Court Northern District of California 3 Four schools filed motions to intervene to oppose the settlement: American National 4 University (ANU), The Chicago School of Professional Psychology, Everglades College, Inc., 5 and Lincoln Educational Services Corporation. The schools take issue with their inclusion on 6 Exhibit C, which they label a scarlet letter. Argument on their motions to intervene were heard 7 during the hearing on preliminary approval. 8 Preliminary approval was granted. After no further interested parties moved to intervene, 9 an order found that the schools could not intervene as of right but could permissively intervene 10 to object to the settlement (Dkt. Nos. 307, 322). This order follows full briefing and oral 11 argument. 12 13 14 15 ANALYSIS 1. THE SECRETARY HAS AUTHORITY TO ENTER INTO THE SETTLEMENT. Let’s consider the central issue. The settlement provides extensive relief for the class: 16 complete and automatic discharge of all loans for 75% of the settlement class — about six 17 billion dollars in loan forgiveness; streamlined adjudication with a presumption towards 18 discharge for the rest of the settlement class; and a presumption of discharge and borrower- 19 friendly procedures for “post-class applicants,” as defined by the settlement. This bonanza 20 raises the question whether the Secretary has authority to provide such relief. 21 It is important to observe (again) that this settlement is separate and apart from the 22 significantly more expansive loan-forgiveness plan recently announced by President Biden. 23 That plan will (potentially) affect 40 million borrowers and cancel approximately $430 billion 24 in student debt. See The Congressional Budget Office, Re: Costs of Suspending Student Loan 25 Payments and Cancelling Debt (Sept. 26, 2022); The White House, Assessing Debt Relief’s 26 Fiscal and Cash-Flow Effects (Aug. 26, 2022). The instant settlement is anchored in separate 27 authority. Even if the broader loan-forgiveness plan recently announced by President Biden 28 6 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 7 of 25 1 lacks authority (and this order does not so hold), this lesser litigation settlement lies within the 2 authority of the government. United States District Court Northern District of California 3 “[T]he Attorney General has plenary discretion under 28 U.S.C. §§ 516 and 519 to settle 4 litigation to which the federal government is a party.” United States v. Carpenter, 526 F.3d 5 1237, 1241 (9th Cir. 2008). The compromise and settlement authority has long been 6 considered an inherent facet of the Attorney General’s charge to supervise litigation for the 7 United States. See Confiscation Cases, 7 Wall. 454, 19 L. Ed. 196 (1869); Power of the 8 Attorney General in Matters of Compromise, 38 U.S. Op. Atty. Gen. 124 (1934). And, Section 9 5 of Executive Order No. 6166 (June 10, 1933), transferred to the Department of Justice the 10 powers “to prosecute, or to defend, or to compromise, or to appeal, or to abandon prosecution 11 or defense” of actions involving the United States. See also 28 U.S.C. § 510; see generally 12 Authority of the United States to Enter Settlements Limiting the Future Exercise of Executive 13 Branch Discretion, 23 U.S. Op. Off. Legal Counsel 126, 135 (1999). 14 Of course, the Department of Justice, though it has plenary settlement authority, cannot 15 agree to something that the Secretary of Education cannot do in the first place. For example, 16 the Department of Justice could not settle a lawsuit against the Federal Communications 17 Commission by giving a plaintiff the privilege of putting a new pharmaceutical drug on the 18 market. The FCC lacks that authority (which is possessed by the Food and Drug 19 Administration). “The Attorney General’s authority to settle litigation for its government 20 clients stops at the walls of illegality.” Carpenter, 526 F.3d at 1242 (quoting Exec. Bus. 21 Media, Inc. v. Dep’t of Defense, 3 F.3d 759, 762 (4th Cir. 1993)); see also Heckler v. Chaney, 22 470 U.S. 821, 834 (1985). 23 The Secretary primarily relies upon two provisions of the Higher Education Act to 24 effectuate the instant settlement, 20 U.S.C. Sections 1082(a)(6) and 1087e(a)(1). See also 20 25 U.S.C. §§ 3441, 3471. Section 1082(a)(6) of Title 20 of the United States Code recites, in 26 relevant part, “In the performance of, and with respect to, the functions, powers, and duties, 27 vested in him by this part, the Secretary may . . . enforce, pay, compromise, waive, or release 28 any right, title, claim, lien, or demand, however acquired, including any equity or any right of 7 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 8 of 25 1 redemption.” This provision has been in effect since 1965 and passage of the original iteration 2 of the Higher Education Act. Upon a plain reading, it bestows the Secretary with broad 3 discretion over handling — and discharging — student loans. See Nat’l Ass’n of Mfrs. v. Dep’t 4 of Defense, 138 S. Ct. 617, 631 (2018); United States v. Lillard, 935 F.3d 827, 833–34 (9th 5 Cir. 2019). The legislative history supports this reading. See H.R. Rep. No. 89-621, at 49 6 (1965); see also Robert A. Katzmann, Judging Statutes 29, 51–52 (2014). United States District Court Northern District of California 7 The reader will note that the provision specifies “this part.” Section 1082 is housed 8 under Part B of the Student Assistance subchapter, which outlines the Federal Family 9 Education Loan (FFEL) Program. The Federal Direct Loan Program is under a different part, 10 Part D. Section 1087e(a)(1) of Part D, says in relevant part: “Unless otherwise specified in 11 this part, loans made to borrowers under this part shall have the same terms, conditions, and 12 benefits, and be available in the same amounts, as loans made to borrowers, and first disbursed 13 on June 30, 2010, under sections 1078, 1078-2, 1078-3, and 1078-8 of this title.” Since the 14 Department first proposed borrower-defense regulations in 1994, it has construed Section 15 1087e to confirm that the Secretary’s general discretion to discharge loans made pursuant to 16 the FFEL Program applied with equal force to the Direct Loan program, ensuring parity. See 17 59 Fed. Reg. 42,646, 42,649 (Aug. 18, 1994); 81 Fed. Reg. 39,330, 39,368, 39,379 (June 16, 18 2016). 19 “[C]ourts generally will defer to an agency’s construction of the statute it is charged with 20 implementing.” Chaney, 470 U.S. at 832. The legislative history supports this conclusion, in 21 part due to the fact that the Direct Loan Program was intended to eventually replace the FFEL 22 Program. H.R. Rep. 102-447, at 156 (1992); H.R. Doc. No. 103-82 at 3, 357 (1993); H.R. 23 Doc. No. 103-49, at 92 (1993). Another district court has also recently found that Section 24 1082(a)(6) covers both FFEL loans and Direct Loans. This order finds unpersuasive the dicta 25 from a different district court that reached the opposite conclusion as it considered different 26 issues and because Section 1082 is the only congressional authorization in the Higher 27 Education Act for the Secretary to sue and be sued regarding student aid, e.g., Direct Loans, 28 FFEL loans, or otherwise. Compare Weingarten v. DeVos, 468 F. Supp. 3d 322, 328 (D.D.C. 8 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 9 of 25 1 2020) (Judge Dabney L. Friedrich), with Pa. Higher Educ. Assistance Agency v. Perez, 416 F. 2 Supp. 3d 75, 96–97 (D. Conn. 2019) (Judge Michael P. Shea). This order finds the Secretary’s 3 interpretation of Section 1087e(a)(1) the most reasonable interpretation of the provision and 4 concludes that Section 1082(a)(6) applies to both FFEL loans and Direct Loans. 5 The school-intervenors argue, however, that the Secretary’s interpretation of the Higher 6 Education Act hides “elephants in mouseholes,” which sets this action apart as a “major 7 questions case.” See West Virginia v. EPA, 142 S. Ct. 2587 (2022). As the Supreme Court 8 recently explained, 9 Extraordinary grants of regulatory authority are rarely accomplished through modest words, vague terms, or subtle devices. Nor does Congress typically use oblique or elliptical language to empower an agency to make a radical or fundamental change to a statutory scheme. Agencies have only those powers given to them by Congress, and enabling legislation is generally not an open book to which the agency may add pages and change the plot line. We presume that Congress intends to make major policy decisions itself, not leave those decisions to agencies. 10 United States District Court Northern District of California 11 12 13 14 15 Id. at 2609 (cleaned up). In West Virginia, EPA had “issued a new rule concluding that the ‘best system of 16 emission reduction’ for existing coal-fired power plants included a requirement that such 17 facilities reduce their own production of electricity, or subsidize increased generation by 18 natural gas, wind, or solar sources.” “The White House stated that the Clean Power Plan 19 would ‘drive a[n] . . . aggressive transformation in the domestic energy industry.’” In other 20 words, the rule “restructure[ed] the Nation’s overall mix of electricity generation.” Id. at 2599, 21 2604, 2607. 22 Our settlement, in contrast, will not fundamentally transform a domestic industry, nor 23 will it have any national ripple effect. The relief will remain limited to class members in a 24 litigated case. Yes, this settlement will discharge over six billion dollars in loans, but West 25 Virginia made clear that determining whether a case contains a major question is not merely an 26 exercise in checking the bottom line. The representative decisions cited in West Virginia 27 considered “unusual” and “unheralded” applications of agency authority. Id. at 2608–09. 28 There is nothing unusual about the Secretary exercising his discretion to discharge student-loan 9 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 10 of 25 1 debt, and the scale of relief here is inherently limited to the metes and bounds of this federal 2 class-action litigation. Cf. Chaney, 470 U.S. at 833 n.4.2 3 Justice Frankfurter, as quoted with approval in West Virginia, reasoned that “just as 4 established practice may shed light on the extent of power conveyed by general statutory 5 language, so the want of assertion of power by those who presumably would be alert to 6 exercise it, is equally significant in determining whether such power was actually conferred.” 7 142 S. Ct. at 2610. The Secretary has exercised the authority utilized in our settlement many 8 times, even in the past few years, even across administrations: 9 School 10 Dream Center Education Holdings (Art Inst. of Colo.; Ill Inst. of Art) Weingarten v. Cardona, No. C 1902056 DLF, Dkt. No. 49 (D.D.C.) Minnesota School of Business / Globe University Marinello Schools of Beauty Corinthian Colleges, Inc. (Everest; Heald College; WyoTech) ITT Technical Institute Westwood College United States District Court Northern District of California 11 12 13 14 15 16 17 Date Announced Est. Number of Borrowers 2019 7,400 2021 7 2021–22 1,191 2022 2022 2022 2022 Est. Amount Discharged $175 M $0.283 M $26 M 28,000 560,000 $238 $5.8 M B 208,000 79,000 $3.9 $1.5 B B 18 These discharges addressed both Direct Loans and loans pursuant to the FFEL program. The 19 Secretary also stressed that the Department has discharged many student loans pursuant to 20 Section 1082(a)(6) on an individual basis (Dkt. No. 337). Our settlement will discharge less than three percent of the outstanding federal student 21 22 loan portfolio (see Dkt. Nos. 325-2; 331 at 16). Intervenors assert the Department’s press 23 releases regarding the above discharges did not specifically cite Section 1082(a)(6). This is 24 25 26 27 28 2 Everglades tears down a strawman when it argues that interpreting Section 1082(a)(6) to support the settlement leaves the Secretary with exclusive authority to eliminate a $1.6 trillion industry and discharge every student loan in America (Everglades Opp. 23). The Secretary has asserted no such broad authority. His actions remain rooted in, and limited to, this litigation. Recall, West Virginia based its analysis on EPA’s own projections of the effects of the “Clean Power Plan” it had promulgated. 142 S. Ct. at 2603–04. Common sense dictates we consider the actual agency action — the settlement — not a hypothetical. 10 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 11 of 25 1 specious. Statements to the general public regarding an agency action need not provide the 2 legal minutiae regarding the authority underlying the action. The Secretary has provided those 3 details in a filing herein (Dkt. No. 337). United States District Court Northern District of California 4 Here’s the practical litigation problem the Secretary faces and seeks to settle. The 5 borrower-defense program set up by Congress has devolved into an impossible quagmire. This 6 has been true across all administrations, as detailed above. As of now, approximately 443,000 7 borrowers have pending borrower-defense applications. That is a staggering number. If, 8 hypothetically, the Department’s Borrower Defense Unit had all 33 of its claim adjudicators 9 working 40 hours a week, 52 weeks a year (no holidays or vacation), with each claim 10 adjudicator processing two claims per day, it would take the Department more than twenty-five 11 years to get through the backlog. 12 Had each and every class member sued the Department individually, the Department 13 could have settled those individual actions one by one, and it could have done so using 14 precisely the same criteria set forth for Exhibit C — namely, indicia of misconduct and the 15 volume of claims associated with a given school. Indeed, it could have done so without even 16 revealing its internal criteria used to settle claims. If it can do that, then this order holds that it 17 can resolve them all in a class settlement using the same criteria and that such a settlement falls 18 within the plenary authority of the Secretary and the Attorney General. “For convenience, 19 therefore, and to prevent a failure of justice, a court of equity permits a portion of the parties in 20 interest to represent the entire body, and the decree binds all of them the same as if all were 21 before the court.” Smith v. Swormstedt, 57 U.S. 288, 303 (1853). This order holds that this 22 group approach is the only feasible way for the agency to give practical relief to class 23 members. Conducting individualized reviews is no longer practicable. 24 Yes, the agency has explained its criteria and placed 151 schools on a list (151 of the 25 6,000 colleges operating in the United States). This was done to explain why some class 26 members will get full relief whereas others will get less relief. This does not change the fact 27 that the Department could have used the very same criteria to settle each application one at a 28 11 United States District Court Northern District of California Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 12 of 25 1 time and therefore can now do the same thing on a class basis. The approach taken here is 2 group-wise and within the plenary settlement authority of the Secretary and Attorney General. 3 This order rejects intervenors remaining arguments. 4 First, intervenors dispute the Secretary’s authority under Section 1082(a)(6) based upon a 5 rescinded, January 2021 memorandum composed by the Department’s Office of General 6 Counsel, which the Department later substantively and procedurally disavowed. See Dep’t of 7 Educ., Office of the General Counsel, Memorandum re: Student Loan Principal Balance 8 Cancellation, Compromise, Discharge, and Forgiveness Authority (Jan. 12, 2021); 87 Fed. 9 Reg. 52,943 (Aug. 30, 2022). The memo stated: “[W]e believe 20 U.S.C. § 1082(a)(6) is best 10 construed as a limited authorization for the Secretary to provide cancellation, compromise, 11 discharge, or forgiveness only on a case-by-case basis and then only under those circumstances 12 specified by Congress.” The memo has been rescinded and this order disagrees with it for the 13 reasons stated above. 14 Second, at the hearing intervenors highlighted two other provisions they deemed statutory 15 bars to relief. The anti-injunction provision in 20 U.S.C. Section 1082(a)(2) is inapplicable 16 because the government is requesting and consenting to this settlement. Plaintiffs have also 17 maintained a viable theory throughout this litigation that the Secretary acted ultra vires, and 18 that consequently the anti-injunction provision does not apply. And, Section 1082(b) only 19 places a cap on the size of settlements where the Attorney General is not involved. The 20 government confirmed at the hearing the settlement is properly authorized. 21 Third, intervenors say that the settlement must incorporate the Department’s standard 22 borrower-defense regulations, citing the Accardi doctrine (e.g., Everglades Opp. 20). This 23 order disagrees. Those regulations constitute a procedure promulgated by the Department to 24 perform ordinary reviews of borrower-defense applications, as enabled by 20 U.S.C. Section 25 1087e(h). Within the specific context of settling this class-action litigation, in contrast, the 26 Secretary relies upon different, independent sources of statutory authorization — Sections 27 1082(a)(6) and 1087e(a)(1). The Secretary has plenary discretion to settle litigation within the 28 confines of the law; this order cannot dictate the basis by which the Secretary effectuates the 12 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 13 of 25 1 settlement, particularly in light of the fact that the Secretary has multiple sources of statutory 2 authority on which to premise action on student loans. See Carpenter, 526 F.3d at 1241; 3 United States v. Hercules, Inc., 961 F.2d 796, 798 (8th Cir. 1992). Imposing such a mandate 4 would limit the Secretary’s broad discretion in settlement — “the court’s role should be more 5 restrained.” Citizens for a Better Env’t v. Gorsuch, 718 F.2d 1117, 1126–27 (D.C. Cir. 1983). United States District Court Northern District of California 6 Fourth, intervenors similarly argue that the Secretary cannot “circumvent” notice-and- 7 comment rulemaking under the guise of settlement, citing Conservation Northwest v. Sherman, 8 715 F.3d 1181 (9th Cir. 2013). But in that opinion our court of appeals held “that a district 9 court abuses its discretion when it enters a consent decree that permanently and substantially 10 amends an agency rule that would have otherwise been subject to statutory rulemaking 11 procedures.” Id. at 1187 (emphasis added). The Secretary has not altered the borrower- 12 defense procedures at all. Those regulations remain in place. In fact, the Department recently 13 amended them. See 87 Fed. Reg. 65,904 (Nov. 1, 2022). Rather, for the specific group of 14 borrowers contemplated by the class certification order and this settlement, the Secretary has 15 crafted a process for resolving the enormous backlog of claims, and he has done so pursuant to 16 specific congressional authorization. See Turtle Island Restoration Network v. Dep’t of 17 Commerce, 672 F.3d 1160, 1167 (9th Cir. 2012). 18 Fifth, intervenors assert “the parties cannot achieve by settlement what the [p]laintiffs 19 could not have achieved by litigating the case to judgment” as a further reason that the 20 borrower-defense regulations must be followed (see Lincoln Opp. 17). The Supreme Court has 21 made clear, however, that “a federal court is not necessarily barred from entering a consent 22 decree merely because the decree provides broader relief than the court could have awarded 23 after a trial.” Local No. 93, Int’l Ass’n of Firefighters v. City of Cleveland, 478 U.S. 501, 525 24 (1986). This statement applies with equal force to settlements. See id. at 519; Conservation 25 Nw., 715 F.3d at 1185–86. 26 27 In sum, the Secretary has not exceeded his statutory authority or failed to follow the agency’s regulations by entering into the settlement. Intervenors’ constitutional arguments 28 13 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 14 of 25 1 concern their inclusion on Exhibit C, which this order considers next in conjunction with their 2 broader reputational harm contentions. 3 2. 4 The settlement grants full and automatic relief to all class members that attended the 5 schools listed on Exhibit C. Intervenors argue Exhibit C constitutes an impermissible scarlet 6 letter. This order finds the list does not carry the necessary legal significance to justify 7 denying final approval of the settlement. 8 9 United States District Court Northern District of California EXHIBIT C DOES NOT INVALIDATE THE SETTLEMENT. The settlement agreement recites that the Secretary “will effectuate Full Settlement Relief for each and every Class Member whose Relevant Loan Debt is associated with the 10 schools, programs, and School Groups listed in Exhibit C.” Intervenors point to a statement 11 made in the class and Secretary’s joint motion for preliminary approval: 12 The Department has determined that attendance at one of these schools justifies presumptive relief, for purposes of this settlement, based on strong indicia regarding substantial misconduct by listed schools, whether credibly alleged or in some instances proven, and the high rate of class members with applications related to the listed schools 13 14 15 16 (Dkt. No. 246 at 3). The joint motion for final approval further discussed automatic loan 17 discharge for students who attended a school on Exhibit C: 18 Such automatic relief is warranted in the context of the overarching settlement structure, as certain indicia of misconduct by the listed schools, including the high volume of Class Members with applications related to the listed schools, led the Department to conclude that these Class Members were entitled to summary settlement relief without any further time-consuming individualized review process 19 20 21 22 (Br. 11). Intervenors concentrate their fire on these statements and their inclusion on 23 Exhibit C. 24 These explanations do not impose any liability whatsoever on intervenors, for the schools 25 cannot be held liable for any remedial measures absent proceedings initiated specifically 26 against them. To understand why this is so, it is necessary to summarize the relevant 27 regulations. When a borrower-defense application criticizes a school, the Department gives the 28 school notice and the opportunity to file a responsive statement, although the school is not 14 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 15 of 25 1 required to do so. Regardless of whether the school files such a statement (or not), the grant of 2 a borrower-defense application has no binding effect on the school. If the Department 3 approves a borrower-defense application, then that can be the predicate for the department 4 initiating a proceeding against the school for recoupment. But even in such an instance, the 5 school still retains all due process rights, is not bound by the success of the student’s 6 application, and is free to litigate ab initio the merits of its performance. The Department may 7 also pursue other remedial actions against a school unrelated to a successful borrower-defense 8 application but, again, in those instances the school still has all of its due process protections. 9 See 34 C.F.R. § 685.308; 34 C.F.R. Pt. 668, Subpt. G.3 Nothing in this settlement will cause any school to lose a dime. 10 Moreover, the settlement does not constitute a successful or approved borrower-defense United States District Court Northern District of California 11 12 claim, a position maintained by both the class and Secretary (see Dkt. No. 300). Therefore, no 13 recoupment action could be initiated in any event as a result of the settlement. In Paul v. Davis, 424 U.S. 693, 701 (1976), the Supreme Court, in consideration of an 14 15 “active shoplifters” flyer distributed by police that listed the plaintiff therein, held that “[w]hile 16 we have in a number of our prior cases pointed out the frequently drastic effect of the ‘stigma’ 17 which may result from defamation by the government in a variety of contexts, this line of cases 18 does not establish the proposition that reputation alone, apart from some more tangible 19 interests such as employment, is either ‘liberty’ or ‘property’ by itself sufficient to invoke the 20 procedural protection of the Due Process Clause.” See also Fikre v. FBI, 35 F.4th 762, 776 21 (9th Cir. 2022). 22 23 24 25 26 27 28 3 For clarity, this order lays out the order of operations regarding a school’s participation in borrower-defense claims. For loans issued prior to July 1, 2017, a Department official notifies the school and considers any response or submission from the school. See 34 C.F.R. § 685.222(a)(1); id. § 685.206(c)(2); id. § 685.222(e)(3)(i). For loans issued on or after July 1, 2017 but before July 1, 2020, a Department official will follow that same procedure of notifying the school and considering any response or submission from the school. Id. § 685.222(a)(2), (e)(3)(i). For loans issued on or after July 1, 2020, the Department provides the school a copy of the borrower’s claim and other evidence, after which the school may respond and the borrower may reply (copies of which will also be provided to the school). Id. § 685.206(e)(8)–(12). A new set of regulations will go into effect July 1, 2023. See 87 Fed. Reg. 65,904 (Nov. 1, 2022). 15 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 16 of 25 1 2 No liberty or property interest has been disturbed. Any hypothetical, future remedial action 3 would proceed according to established regulations, which would provide the schools with full 4 due process. Cf. Endy v. Cnty. of Los Angeles, 975 F.3d 757, 764–65 (9th Cir. 2020). The 5 Department has also represented in the sworn declaration of Benjamin Miller that it does not 6 consider inclusion on Exhibit C a finding of misconduct and that inclusion does not constitute 7 evidence that could or would be considered in an action by the Department against a school. 8 The Court relied upon, and the Court expects the government to stand behind, the statements 9 made in the Miller Declaration (Dkt. No. 288-1). 10 United States District Court Northern District of California As explained, the schools have lost no procedural rights, nor has their status been altered. Furthermore, because the class and Secretary’s briefing advocating for approval of the 11 settlement had no legally binding effect on the intervenors, no actionable reputational harm 12 exists on that basis either. See Joshi v. Nat’l Transp. Safety Bd., 791 F.3d 8, 11–12 (D.C. Cir. 13 2015); see also Przywieczerski v. Blinken, 2021 WL 2385822, at *4 (D.N.J. June 10, 2021) 14 (Judge Kevin McNulty) (citing cases). The issues herein differ from those in Foretich v. 15 United States, 351 F.3d 1198, 1212–13 (D.C. Cir. 2003), which considered a fully enacted law 16 that embodied a congressional determination of misconduct. Here, there is no binding or 17 official determination of misconduct against the schools. To repeat, since the settlement does 18 not utilize the borrower-defense procedure, the Secretary cannot initiate a recoupment action 19 against any of the schools listed on Exhibit C premised upon a successful borrower-defense 20 application. 21 Finally, intervenors contend their inclusion on Exhibit C means the settlement is not fair 22 to them. They argue the “court must ‘reach a reasoned judgment that . . . the settlement, taken 23 as a whole, is fair, reasonable and adequate to all concerned’” (Lincoln Opp. 9, quoting 24 Officers for Just. v. Civ. Serv. Comm’n of City & Cnty. of S.F., 688 F.2d 615, 625 (9th Cir. 25 1982), emphasis in brief). In light of the foregoing, and taking stock of the settlement as a 26 whole, this order finds that intervenors’ speculative assertions of harm fail to render the 27 settlement unfair, especially in light of the significant benefits to both the class and Department 28 in settling this litigation. 16 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 17 of 25 1 2 using whatever criteria the Attorney General and Secretary felt wise in the circumstances, 3 including the criteria behind Exhibit C. That the claims are aggregated and now settled on a 4 class basis using the same criteria does not matter. 5 6 7 3. THE CASE IS NOT MOOT AND PLAINTIFFS STILL HAVE STANDING. The school-intervenors further argue the district court does not have jurisdiction to 8 entertain the settlement because plaintiffs lack standing and the action is now moot. Both 9 arguments fail. 10 United States District Court Northern District of California To repeat, had borrowers brought individual actions, each could have been compromised First, to establish Article III standing, plaintiffs must show they have suffered an injury 11 in fact that is concrete, particularized, and actual or imminent, that the injury was likely caused 12 by the defendants, and that the injury would likely be redressed by judicial relief. Plaintiffs 13 must demonstrate standing to the degree required by each stage of the litigation, including at 14 the class-action settlement stage. TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2203, 2208 15 (2021); Campbell v. Facebook, Inc., 951 F.3d 1106, 1116 (9th Cir. 2020). 16 This order finds all class members, including our named plaintiffs, have properly asserted 17 a real and concrete injury arising from the Secretary’s alleged unlawful handling of their 18 borrower-defense claims. The injury is two-fold. The Secretary’s improper delay and 19 suspension of processing claims for debt relief has directly led to a specific economic injury to 20 each class member. Unlawful delay of debt relief results in clear monetary harm. Moreover, 21 as detailed in the supplemental complaint, the Secretary’s “presumption of denial” policy and 22 form denials have resulted in another layer of injury to class members. These issues would 23 likely be redressed by judicial action. To this, the intervenors make the following arguments. 24 Everglades and ANU argue plaintiffs cannot demonstrate standing for the remedies 25 provided by the settlement (Everglades Opp. 8; ANU Opp. 24). The standing analysis, 26 however, considers plaintiffs’ stake in the case and whether they can demonstrate standing “for 27 each claim that they press and for each form of relief that they seek (for example, injunctive 28 relief and damages).” See TransUnion, 141 S. Ct. at 2203, 2208. Plaintiffs have properly 17 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 18 of 25 1 demonstrated such a stake in this action and for the judicial relief they seek. And again, a 2 settlement agreement can provide broader relief than a court could have awarded after a trial. 3 See Firefighters, 478 U.S. at 519, 525; Conservation Nw., 715 F.3d at 1185–86. ANU’s 4 assertion that the settlement’s rescinding of form denials impermissibly puts borrowers that 5 lack standing back into the class misses the mark for an additional reason: it wholly ignores 6 the supplemental complaint and the allegations that the Secretary never lawfully adjudicated 7 those claims in the first place. ANU’s contention that this constitutes a “second bite at the 8 apple” ignores the problem they never got a bite in the first place. United States District Court Northern District of California 9 The Chicago School and ANU further argue the class as defined is overbroad and 10 inherently includes individuals who lack standing. Their theory is incorrect. Per the class 11 definition, any class member that has their claims properly adjudicated will drop out of the 12 class. All current class members, therefore, have a concrete injury stemming from the 13 Secretary’s alleged improper delay and presumption of denial policy. The intervenors’ 14 reference to other settlements and discharges apart from this litigation is similarly inapposite. 15 This settlement provides no opportunity for any “unjust enrichment” as it simply discharges a 16 borrower’s affirmative obligation to repay their student loans. The agreement provides that a 17 borrower’s relief cannot exceed the student loan debt associated with their borrower-defense 18 application (Settlement Agreement II.W, Dkt. No. 246-1). On our record, there is no proof of 19 any double recovery and specifically no proof of any litigation against a school that resulted in 20 money going to a student specifically for loans. So, it is speculation by intervenors, and 21 speculation only, that some will get duplicative recovery. 22 Second, litigation that becomes moot during the proceedings “is no longer a ‘Case’ or 23 ‘Controversy’ for purposes of Article III, and is outside the jurisdiction of the federal courts.” 24 United States v. Sanchez-Gomez, 138 S. Ct. 1532, 1537 (2018) (quotations removed). 25 Dismissal based on mootness, however, “is justified only if it is absolutely clear that the 26 litigant no longer has any need of the judicial protection that it sought.” Pizzuto v. Tewalt, 997 27 F.3d 893, 903 (9th Cir. 2021) (cleaned up). 28 18 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 19 of 25 1 That is not the case here. Intervenors argue the Secretary has already “approved tens of 2 thousands of borrower defense applications” (Everglades Opp. 7, quoting Dkt. No. 249 at 1). 3 But what of the hundreds of thousands of applications that remain? It is not enough for merely 4 some absent class members to have dropped out of the class because they have had their claims 5 adjudicated. Unquestionably, five of our seven named plaintiffs’ borrower-defense 6 applications remain pending and their loans outstanding. The Chicago School says that two 7 class representatives who attended Corinthian (but are not part of the Calvillo Manriquez class 8 action) will have their loans discharged by the Secretary in a separate agency action (Chicago 9 Opp. 13). This does not render our action moot, nor otherwise impact the validity of the class. 10 United States District Court Northern District of California 11 See also Rosebrock v. Mathis, 745 F.3d 963, 971 (9th Cir. 2014). True, the Secretary argued that this action was moot in his most recent cross-motion for 12 summary judgment, briefing of which was interrupted by the joint filing of the motion for 13 preliminary approval (Dkt. No. 249). Like all litigants, however, the Secretary can 14 aggressively advocate for his position while simultaneously negotiating a settlement that will 15 end the litigation without the risk of trial. “Settlement is to be encouraged.” Turtle Island, 672 16 F.3d at 1167. Because the Secretary has not resolved all of the pending borrower-defense 17 applications, nor addressed the issues stemming from the presumption of denial policy used 18 during the pendency of this action, this litigation is not moot. 19 Finally, Everglades, ANU, and Lincoln all argue that class members lack standing or that 20 this action is moot in light of President Biden’s recently announced initiative for student loan 21 relief, which could provide up to $10,000 of debt relief for low and middle-income federal 22 student-loan borrowers. See The White House, Fact Sheet: President Biden Announces 23 Student Loan Relief for Borrowers Who Need It Most (Aug. 24, 2022). The instant settlement, 24 however, is anchored in separate authority and is completely independent from the Biden plan, 25 which has already been declared unlawful by one district court, so relief thereunder is in some 26 doubt. See Brown v. Dep’t of Education, 2022 WL 16858525, No. C 22-0908, Dkt. No. 37 27 (N.D. Tex. Nov. 10, 2022) (Judge Mark T. Pittman); see also, e.g., Nebraska v. Biden, No. 22- 28 3179 (8th Cir. Nov. 14, 2022). This order need not and does not opine on the authority of the 19 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 20 of 25 1 President to cancel student loans (one way or the other), but this order does hold that the 2 instant settlement, involving a narrower class and narrower relief, falls within the 3 government’s authority. 4 5 6 7 8 United States District Court Northern District of California 9 In sum, this order finds that plaintiffs have adequately demonstrated standing at this stage of the proceedings and that this action is not moot. 4. THE SETTLEMENT IS STILL VIABLE AND FAIR, REASONABLE, AND ADEQUATE. A settlement purporting to bind absent class members must be fair, reasonable, and adequate. See FRCP 23(e). This settlement is not only fair, reasonable, and adequate but a 10 grand slam home run for class members. They originally sued just to get a decision one way or 11 another on their applications. Now, they are getting total forgiveness in most cases. For the 12 remainder of the class, it is at least a home run. This is a very good deal for the class. 13 Intervenors initially question whether a viable Rule 23(b)(2) class still exists for which 14 settlement relief can be approved, challenging commonality, typicality, adequacy, the relief 15 provided by the settlement, and the validity of the “post-class applicant” group. 16 Considering commonality, “Rule 23(b)(2) applies only when a single injunction or 17 declaratory judgment would provide relief to each member of the class.” Wal-Mart Stores, 18 Inc. v. Dukes, 564 U.S. 338, 360 (2011). The class certification order, to this end, found “the 19 Department’s alleged policy of inaction applies to the proposed class as a whole.” The order 20 made clear that “whether a borrower defense claim has been pending for three years or three 21 months, all claims were subject to the same alleged policy of inaction” (Dkt. No. 46 at 12, 13). 22 As the litigation progressed, and the Secretary’s practice of issuing form denials came to light, 23 plaintiffs sought additional relief consistent with Rule 23(b)(2) to hold the Secretary 24 accountable for further alleged ultra vires actions (e.g., Dkt. No. 245 at 33). All class members 25 remain subject to the same delay and allegedly unlawful policies. A single judicial remedy 26 directed at the Secretary’s activities could provide class-wide relief in a single stroke. 27 Commonality remains. 28 20 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 21 of 25 1 2 typicality, but it provides no support for that argument. Typicality — like all the Rule 23 3 requirements — “limit[s] the class claims to those fairly encompassed by the named plaintiff’s 4 claims.” Dukes, 564 U.S. at 349 (quotation omitted). Plaintiffs’ claims focus on the 5 Department’s policy of inaction, form denials, and presumption of denial. Typicality is still 6 satisfied. 7 United States District Court Northern District of California Everglades argues that differences in class member’s individual circumstances defeat Next, Lincoln says that the settlement “effectively” provides damages, which therefore 8 destroys the viability of the class (Lincoln Opp. 15). Dukes explained that Rule 23(b)(2) “does 9 not authorize class certification when each class member would be entitled to an individualized 10 award of monetary damages.” 564 U.S. at 360–61. The settlement relief here fits squarely 11 within Rule 23(b)(2) as it in effect provides injunctive relief voiding the borrower’s obligation 12 to repay their student loans. In some cases a class member will receive refunds, but refunds 13 are restitution and fall within the relief available in an injunction/declaratory relief action. 14 Discharge of an obligation to repay a debt does not constitute monetary damages. 15 Intervenors similarly argue that the settlement is inadequate and unfair because some 16 class members will receive automatic debt relief while others will have their borrower-defense 17 applications reviewed. This mirrors the fairness inquiry recited by Rule 23(e)(2)(D), which 18 requires the settlement to treat class members equitably relative to one another, not for each 19 class member to receive identical relief. The class and Secretary have provided a logical and 20 reasoned explanation regarding how the volume of applications and certain indicia of 21 misconduct asserted against each school warrant tailoring settlement relief to certain 22 subgroups. This order finds such differentiation equitable. Rule 23(b)(2) does not affect this 23 conclusion because it remains true that a single injunction or declaratory judgment after a trial 24 could provide relief and, as explained, a settlement can provide broader relief than a court 25 could have awarded after a trial. See Firefighters, 478 U.S. at 519, 525; Conservation Nw., 26 715 F.3d at 1185–86. 27 28 The last issue intervenors raise regarding the general viability of the settlement concerns the “post-class applicant” group, which is composed of individuals that filed a borrower21 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 22 of 25 1 defense application in between execution of the settlement on June 22, 2022, and final 2 approval. The named plaintiffs and Department state that this group does not fall “within the 3 class definition and thus [is] not formally part of the Rule 23 analysis” (Mot. Final Approval 4 12 n.3). Contrary to these points, the class certification order set no cut-off date for 5 membership, so the class definition as recited in that order clearly encompasses all of these 6 borrowers. Nevertheless, to ensure the overall fairness of the settlement, this group will 7 receive relief under the agreement, namely their applications will be decided with streamlined 8 procedures within three years on pain of automatic discharge of the loans. This lesser relief is 9 justified on the ground that this group has not been waiting as long for a decision as groups one 10 United States District Court Northern District of California 11 and two. With no issues regarding the viability of the class, this order turns to the eight Churchill 12 factors our court of appeals has enumerated for review in the final fairness assessment to 13 determine whether the settlement is fair, reasonable, and adequate: (1) the strength of the 14 plaintiff’s case; (2) the suit’s risk, expense, complexity, and the likely duration of further 15 litigation; (3) the risk of maintaining class-action status throughout the trial; (4) the amount 16 offered in settlement; (5) the extent of discovery and the stage of the proceedings; (6) the 17 experience and views of counsel; (7) the presence of a governmental participant; and (8) the 18 reaction of class members of the proposed settlement. Rule 23(e)(2) also requires the district 19 court to consider an overlapping set of factors. See Kim v. Allison, 8 F.4th 1170, 1178–79 (9th 20 Cir. 2021) (quoting In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 946 (9th Cir. 21 2011)); Churchill Vill., LLC. v. Gen. Elec., 361 F.3d 566 (9th Cir. 2004). 22 Many of these factors have been addressed in the foregoing analysis. This order finds the 23 second, fifth, sixth, and seventh Churchill factors all clearly and strongly favor settlement. A 24 brief review of the docket (and this order) will reveal to the reader the complexity of the issues 25 this action considers. Continuing on with this litigation through summary judgment and 26 (possibly) trial would require still more expense and delay in an action directly addressing 27 undue delay and agency inaction. Indeed, we have already attempted a settlement once and 28 the proposed timeline for that entire process has come and gone. Discovery has already taken 22 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 23 of 25 1 place, so the parties have had an adequate opportunity to evaluate the strengths and weaknesses 2 of their respective positions. Counsel for both sides, which includes the government, have 3 advocated for the advantages of this settlement. 4 5 that the Secretary’s actions were unlawful, but as the opening salvos in the latest round of 6 summary judgment reveal, the ordinary risks of litigating on a class-wide basis persist. 7 Moreover, as plaintiffs acknowledge, questions remain about the remedies they could seek and 8 be granted after a trial. 9 United States District Court Northern District of California Next, the first and third factors also favor settlement. Plaintiffs have strong arguments The relief offered (the fourth factor) clearly favors settlement. This order pauses to again 10 emphasize that automatic loan discharges and a streamlined process for adjudicating the 11 remaining borrower-defense applications as provided for in the settlement will likely prove a 12 transformative opportunity for many class members. These class members decided to take on 13 considerable debt to attend schools that they now allege misled them on the value of such a 14 significant financial decision. The relief also furthers the Secretary’s interest in resolving the 15 backlog of claims. Notice was sufficient, the discharge process ranks as adequate, attorney’s 16 fees have been left to the Court’s discretion, and the method for processing relief is also fair. 17 The reaction of the class (the eighth and final Churchill factor) also supports the 18 settlement. The class has actively participated in the settlement approval process, sending both 19 class counsel and the Court over 1,500 letters and emails. 20 Most of these letters express complete support for the agreement. One class member 21 wrote that, “Like so many thousands of college students I was misled by my graduate school 22 and given a financial death sentence in student loan debt. I have spent my adult life following 23 the path of my heart and helping hundreds of patients, yet I can barely help myself.” Another 24 voiced support but “ask[ed] the Court to ensure that [the] final terms of the settlement protect 25 individual applicants from arbitrary treatment by the Department.” As this order demonstrates, 26 the settlement includes appropriate protections. 27 28 Fewer than 175 borrowers objected or requested changes to the settlement. Primarily, these borrowers requested: additional schools be added to Exhibit C; delay of the cut-off date 23 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 24 of 25 1 for class membership (as defined by the settlement); automatic debt relief for “post-class 2 applicants”; faster timelines for debt relief; and relief for those borrowers who refinanced their 3 loans into private loans. None of these concerns constitute meaningful objections to the 4 settlement as a whole. Rather, these borrowers request further relief and do not call into 5 question the overall fairness of the settlement. One “objector” expressed concern about never 6 receiving notice of this class action (she did not file her borrower-defense application until 7 after the announcement of the instant settlement). She hence objected to being considered a 8 “post-class applicant.” As discussed, this objector’s issues speak to the importance of the 9 streamlined procedures for the “post-class applicant” designation in ensuring the overall fairness of the settlement. Finally, private borrowers are not part of our class.4 10 In sum, the Churchill factors favor settlement. We turn to the remaining two factors United States District Court Northern District of California 11 listed in Rule 23(e)(2). 12 First, named plaintiffs and class counsel have adequately represented the class. 13 14 Everglades, the Chicago School, and one objector argued that, because class counsel was (until 15 recently) affiliated with Harvard Law School, a conflict of interest existed. The objector noted, 16 and intervenors echoed, that his program, the American Repertory Theater/Moscow Art 17 Theater Institute for Advanced Theater Training at Harvard (“ART”) was not on Exhibit C. 18 This order is not persuaded. Any speculative conflict of interest is now resolved (class counsel 19 have separated from Harvard) and neither the objecting class member nor the intervenors 20 provide any meaningful basis to call into question counsel’s representation or ART’s exclusion 21 from Exhibit C. The settlement provides substantial relief to class members, which supports 22 the conclusion named plaintiffs and class counsel have adequately represented the class. 23 Second, the proposal was negotiated at arm’s length. Everglades and the Chicago School 24 object that the settlement is collusive. Taking a step back, the purpose of any such objection is 25 to protect absent class members from settlements that disproportionately reward named 26 27 28 4 ANU makes a brief argument that the settlement is unfair to the class because it imposes tax risks that the Secretary and named plaintiffs failed to address. But every class member has voluntarily filed a borrower-defense application to have their loan discharged. Any ensuing tax consequences accordingly do not rank as unfair. 24 Case 3:19-cv-03674-WHA Document 345 Filed 11/16/22 Page 25 of 25 1 plaintiffs and their counsel at the expense of the class as a whole. Intervenors do not raise this 2 problem at all. They argue instead that the settlement provides so much to the class it could 3 not have been negotiated at arm’s length. This just underscores all the more that the settlement 4 is and will be in the best interest of the class. That the settlement was conducted in “secret” 5 goes nowhere. It’s a common practice. 6 In short, the Churchill and Rule 23 factors favor final approval of the settlement. 7 8 United States District Court Northern District of California 9 CONCLUSION For the foregoing reasons, all objections are OVERRULED. Final approval of the settlement is GRANTED. This action is hereby DISMISSED WITH PREJUDICE, except in that the 10 Court shall retain jurisdiction over this action as set forth in the settlement agreement. Once 11 the defendants have effectuated all appropriate relief, plaintiffs and defendants shall file a 12 notice with the Court. A joint status report regarding the class and Department’s progress in 13 carrying out the settlement is due JANUARY 26, 2023. 14 IT IS SO ORDERED. 15 16 Dated: November 16, 2022. 17 18 WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 19 20 21 22 23 24 25 26 27 28 25
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