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St. Catharine College Inc. v. King

United States District Court, W.D. Kentucky, Louisville Division

March 21, 2017

JOHN B. KING, JR., in his Official Capacity as Acting Secretary of the United States Department of Education; and KATHY FEITH, in her Individual Capacity as an employee of the United States Department of Education DEFENDANTS


          Greg N. Stivers, Judge.

         This matter is before the Court on Defendants' Motions to Dismiss (DN 24, 35). For the reasons stated below, the motions are GRANTED.


         This lawsuit arises from claims asserted by Plaintiff Saint Catharine College (“SCC” or “the College”) against the Department of Education (“DOE”) and its personnel arising from the alleged illegally withholding of federal student aid. (Compl. ¶¶ 1-2, DN 1). Until it ceased operations in July 2016, SCC was a private college located in central Kentucky accredited by the Southern Association of Colleges and Schools Commission on Colleges (“SACS”). (Compl. ¶ 14). During the relevant time period, SCC was provisionally certified to participate in relevant federal student aid (“FSA”) programs under Title IV of the Higher Education Act (“HEA”), 20 U.S.C. § 1001 et seq. (Compl. ¶ 16).

         In January 2012, SCC entered into a Program Participation Agreement (“2012 PPA”) with the DOE.[1] (Compl. ¶ 21). The 2012 PPA incorporated the then-current version of 34 C.F.R. § 600.20 in a “Substantial Changes Provision.” (Compl. ¶¶ 22-25). Both the 2012 PPA and 34 C.F.R. § 600.20 required SCC to obtain the Secretary's approval to “[a]dd a location at which the institution offers or will offer 50 percent or more of an educational program . . . .”[2] 34 C.F.R. § 600.20(c)(1) (2012).

         Between 2011 and 2014, SCC added five new bachelor programs: (1) Bachelor of Science on Radiation Therapy; (2) Bachelor of Science in Radiologic Technology; (3) Bachelor of Art in Farming and Ecological Agrarianism; (4) Bachelor of Science in Farming and Ecological Agrarianism; and (5) Bachelor of Science in Athletic Training (collectively, “the 2011-2014 programs”). (Compl. ¶¶ 20, 26-28). Following the addition of these programs, in June 2014, SCC timely applied for recertification with the DOE, and a School Participation Team based in the DOE's Kansas City school participation division (“KCSPT”) conducted site visits in January and February 2015. (Compl. ¶ 32).

         During the first site visit, the DOE advised SCC that it would be subject to “heightened cash monitoring” (“HCM-2”) pursuant to 34 C.F.R. § 668.162(d). Heightened cash monitoring requires a participating institution to disburse FSA funds to students and seek reimbursement from the DOE, instead of the standard funding protocol under which the DOE provides the funds directly to the students. See 34 C.F.R. § 668.162(d). Within months of the site visits and SCC's placement on HCM-2, SCC replaced its President, its entire senior leadership team, substantially all of the staff in the business and financial aid offices, and a Director of Compliance position. (Compl. ¶ 34).

         Defendant Kathy Feith (“Feith”) is a program reviewer with the DOE. (Compl. ¶ 35). Following the site visits, she advised SCC that the DOE “considered [the 2011-2014 programs] to fall within the scope of the 2012 Substantial Changes Provision.” (Compl. ¶ 35). As alleged by SCC, it explained why the 2011-2014 programs were not a substantial deviation from SCC's already established educational programs, but Feith requested documentation showing that SACS had approved the 2011-2014 programs. (Compl. ¶¶ 37-38). SCC provided a letter from SACS to the DOE explaining that the 2011-2014 programs were within SCC's accreditation, but Feith was not satisfied with this letter because it did not contain the specific dates that the 2011-2014 programs were approved. (Compl. ¶¶ 38-39). SCC then provided another letter from SACS “explaining in detail the accreditation process and that neither SACS nor SCC considered the [2011-2014 programs] to be a substantial change from SCC's educational programs, and identifying the dates that each of the [2011-2014 programs] was approved.” (Compl. ¶ 39).

         The DOE then convened a panel in the summer of 2014 to review the eligibility of the 2011-2014 programs. (Compl. ¶¶ 41-42). Feith asserted that she would argue SCC's case regarding the 2011-2014 programs; SCC requested permission to attend the hearing, which Feith denied. (Compl. ¶ 42). On July 27, 2015, the DOE's Kansas City school participation division alerted SCC that it “had rejected SCC's efforts to satisfy [the DOE's] . . . demand to obtain the Secretary's approval” for the 2011-2014 programs. (Compl. ¶¶ 43-44). The director of the DOE's Kansas City school participation division also carbon-copied this statement to SACS and to the Kentucky Council on Postsecondary Education. (Compl. ¶ 44).

         Beginning in April 2015, SCC began submitting reimbursement requests to the DOE in accordance with its placement on HCM-2. (Compl. ¶ 49). Per Feith's directive, SCC did not request reimbursement for students enrolled in the 2011-2014 programs. (Compl. ¶ 49). On April 16, 2015, SCC submitted its first request for $253, 288 in FSA. (Compl. ¶ 52). The DOE initially rejected the entire amount, citing four reasons for the rejection, including failure to make the required monetary match of the Federal Supplemental Educational Opportunity Grant program (“FSEOG”). (Compl. ¶ 54). SCC addressed these issues and resubmitted the request. (Compl. ¶ 54). The DOE reimbursed SCC for all but $5, 500 of the requested funds for two students coded as majors of a pre-2011-to-2014 program, e.g., pre-Athletic Training. (Compl. ¶ 55).

         On May 21, 2105, SCC made a second submission for FSA funds in the amount of $601, 384. (Compl. ¶ 59). The DOE paid a portion of the submission, but denied the portion associated with: (1) students who were “formally undecided but interested in one of the [2011 to 2014 programs]”; and (2) students who were coded as a “pre-” some program other than the 2011 to 2014 programs, e.g., pre-Nursing. (Compl. ¶ 65). SCC alleges that this constituted a departure from the April 2015 submission in which the DOE reimbursed SCC for FSA funds given to students in these categories. (Compl. ¶¶ 66-67). Ultimately, and with Feith's knowledge, SCC began coding all students previously coded “pre-program” as “undecided.” (Compl. ¶ 78).

         On July 7, 2015, SCC made a third reimbursement request to the DOE in the amount of $613, 183. (Compl. ¶ 79). The DOE paid the requested amount in full, which included reimbursement for FSA given to twenty-eight students coded as “undecided.” (Compl. ¶¶ 81-82). On September 3, 2015, SCC made a fourth submission for reimbursement in the amount of $805, 184 to the DOE, which the DOE paid in full. (Compl. ¶¶ 84, 87). The reimbursement included amounts of FSA disbursed to thirty-six students coded as “undecided.” (Compl. ¶ 86).

         On October 9, 2015, SCC made a fifth submission to the DOE, which included a request for reimbursement in the amount of $741, 415 for FSA distributed to thirty-four students coded as “undecided.” (Compl. ¶¶ 89, 91). The DOE denied reimbursement in the amount of $182, 623 for the thirty-four “undecided” students. (Compl. ¶ 92). The DOE explained that, “[a]ccording to the open program review, there is still an issue with the students in the ‘undecided' program. These records have been rejected pending review from the lead reviewer [Feith].” (Compl. ¶ 93 (internal quotation marks omitted)). As alleged by SCC, Feith explained that “she would no longer approve students who were formally undecided but who had, on their enrollment forms, expressed an interest in perhaps someday pursuing one of the 2011 to 2014 Bachelor Programs . . . .” (Compl. ¶ 99). Ultimately, however, the DOE paid the entirety of the fifth submission, explaining that the rejection of reimbursement for the thirty-four “undecided” students “had . . . all been a mix-up . . . .” (Compl. ¶ 103).

         On November 18, 2015, SCC sent a sixth submission to the DOE requesting reimbursement in the amount of $869, 375. (Compl. ¶ 108). Five days later, the DOE notified SCC that it had been assigned a new payment analyst. (Compl. ¶ 110). The new analyst notified SCC on December 1, 2015, that she required certain documents, and SCC responded that the DOE already had those documents which had been provided for the previous reimbursements. (Compl. ¶¶ 111-112). In response, the DOE notified SCC on December 8, 2015, that it would be conducting an on-site visit for the purpose of reviewing the November 18, 2015, submission. (Compl. ¶ 113). SCC attempted to convince the DOE to begin the site visit in a quicker timeframe than it offered initially, but was unsuccessful. (Compl. ¶¶ 115-117). The site visit ultimately began on January 11, 2016, and lasted four days. (Compl. ¶ 121). SCC resubmitted the November 18, 2015, submission on January 15, 2016. (Compl. ¶ 122). On February 11, 2016, the DOE paid $320, 293 of the $869, 375 requested. (Compl. ¶ 123).

         There were a number of reasons the DOE cited for the denial of the requested aid, all of which “with a very few possible exceptions, ” according to SCC were resolved. (Compl. ¶¶ 126-129). These included conflict over FSEOG and federal work study (“FWS”) reimbursement, resulting in the loss of $40, 000 due to the ending of the FSEOG program for the 2014-2015 academic year, and failure to reimburse SCC for the FWS aid distributed in the 2015-2016 academic year.[3] (Compl.¶¶ 141-149).

         On January 19, 2016, SCC and the DOE entered into the 2016 PPA. (Compl. ¶ 150). Following a site visit, the DOE issues a Program Review Report (“PRR”), to which the institution may respond, and ultimately the DOE issues a Final Program Review Determination. (Compl. ¶ 154). As of the filing of the Complaint on February 22, 2016, the DOE had not issued a PRR. (Compl. ¶ 155). On June 1, 2016, SCC announced that it would be closing at the end of the July 2016. (Def.'s Reply Mot. Dismiss Ex. 1, DN 40-1).

         The Court has previously denied SCC's motion for preliminary injunction as moot. (Order, DN 44). Defendants have moved to dismiss all claims asserted against them. (Def.'s Mot. Dismiss, DN 24; Def.'s Mot. Dismiss, DN 35).


         This action arises under the laws of the United States and the Court has jurisdiction under 28 U.S.C. § 1331.


         The standards for dismissal under Fed.R.Civ.P. 12(b)(1) and 12(b)(6) differ in the Sixth Circuit. See RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). Threshold challenges to subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1) should generally be decided before any ruling on the merits under Fed.R.Civ.P. 12(b)(6). See Bell v. Hood, 327 U.S. 678, 682 (1946). In most circumstances, a plaintiff bears the burden to survive Fed.R.Civ.P. 12(b)(1) motions to dismiss for lack of subject matter jurisdiction. See id.

         Challenges to subject matter jurisdiction come in several varieties. Facial attacks challenge a plaintiff's establishment of jurisdiction in their complaint and require the court to examine the jurisdictional basis. See United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) (citation omitted). Factual attacks contest the existence of factual prerequisites to jurisdiction. See Id. In such motions, in contrast to motions under Fed.R.Civ.P. 12(b)(6), the district court is empowered to resolve the factual disputes affecting any jurisdictional prerequisites. See Rogers v. Stratton Indus., Inc., 798 F.2d 913, 915 (6th Cir. 1986). A plaintiff bears the burden in both of these situations. See Bell, 327 U.S. at 682.

         Sovereign immunity may also serve as a basis for a Fed.R.Civ.P. 12(b)(1) motion to dismiss for lack of jurisdiction. See Muniz-Muniz v. U.S. Border Patrol, 741 F.3d 668, 671 (6th Cir. 2013). “‘[W]hile the Eleventh Amendment is jurisdictional in the sense that it is a limitation on the federal court's judicial power, ' the defense ‘is not coextensive with the limitations on judicial power in Article III.'” Nair v. Oakland Cty. Cmty. Mental Health Auth., 443 F.3d 469, 474 (6th Cir. 2006) (citing Calderon v. Ashmus, 523 U.S. 740, 745 n.2 (1998)). “[U]nlike subject-matter jurisdiction, ‘the entity asserting Eleventh Amendment immunity has the burden to show that it is entitled to immunity.'” Id. (citation omitted).

         Courts analyzing challenges under Fed.R.Civ.P. 12(b)(6) “must construe the complaint in the light most favorable to plaintiff[] . . . .” League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted). Courts must also accept all of a plaintiff's allegations as true. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Mere “labels and conclusions, and a formulaic recitation of the elements of a cause of action's elements” are insufficient. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, this standard is satisfied when a plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation omitted).

         IV. ...

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