Three Administrative Process Pointers from Department of Education Decision

Federal rulemakings are serious business for courts and regulated industries, which is why we have chronicled the Trump Administration’s regulatory reform efforts, including proposals to undo rules implemented by previous administrations.

This week’s update focuses on Bauer v. DeVos, a federal district court decision rejecting the Trump Administration’s handling of the Department of Education’s “Borrower Defense Regulations,” which were published on November 1, 2016, and set to become effective on July 1, 2017. The Department designed these regulations to protect student borrowers from misleading and predatory practices.

Following President Trump’s election, the Department changed course and sought to delay these regulations through a flurry of filings pursuant to § 705 of the Administrative Procedures Act (APA) and the Higher Education Act of 1965 (HEA).

Section 705 of the APA authorizes an agency to postpone the effective date of a regulation, while under judicial review, if the agency so requires. A part of the HEA called the Master Calendar Provision also delays the effective date of certain regulations. It states that any regulatory change initiated by the Secretary and not published in its final form by November 1 delays the effective date by a year.

Here, the Department delayed the regulations in June of 2017 pursuant to § 705. Then delayed them again last October pursuant to the Master Calendar Provision in the HEA, and once again this past February pursuant to § 705. Student borrowers and 19 states sued in response, arguing that these delays were unlawful. A federal judge in the District of Columbia agreed.

Bauer v. DeVos provides three useful administrative process pointers:

1. If an agency wants to delay the implementation of a rule, it cannot ignore the process prescribed by statute.

In issuing a stay on the Borrower Defense Regulations, the Department argued that nothing in the text of § 705 or elsewhere requires that agencies apply the standard four-factor test used by courts to evaluate requests for preliminary injunctive relief in standard civil cases.

Alas, the court rejected this argument, because it found that the text and legislative history of § 705 provides a framework to evaluate an agency’s issuance of a stay. Even if an administrative agency does not use a standard identical to a court’s, the agency must weigh the same equities given the statute’s “equitable” mandate. Because the Department failed to do so here, the court found its invocation of § 705 as a method to delay the regulations to be arbitrary and capricious.

2. Agencies cannot adopt unreasonable interpretations where the statutory text is unambiguous.

The Department argued that the Master Calendar Provision means that a regulatory change affecting an HEA program may take effect only July 1, but the court rejected the interpretation and the result.

The court analyzed the text of the statute and found that for the Department’s justification to make sense, the meaning of “until” within the statute would have to change. “Until” means “up to” or “before” a specified time and does not mean “only at” that specified time. The court also concluded that the Department has broad discretion to make all regulation effective on a date certain as a matter of policy, as long as it has a “reasoned and considered basis for doing so.”

3. Courts will closely scrutinize agency decision-making even on procedural matters.

The Department justified its Final Delay Rule on the “good cause” exception under the HEA stating, “it would not be practicable before the July 1, 2018, effective date to engage in negotiated rulemaking and publish final regulations.” The court held that the Department’s “cursory statement” fails to establish good cause.

The court reasoned that regardless of whether an agency waives negotiated rulemaking under the HEA or notice-and-comment rulemaking under the APA, it must use the same legal standard to show it had “good cause.” A simple statement that negotiated rulemaking is time-consuming may be true, but such a statement can be insufficient to explain how that “unavoidably prevent[s]” the agency from performing its functions.