Nat'l Educ. Ass'n v. Devos (379 F. Supp. 3d 1001, 2019)

LAUREL BEELER, United States Magistrate Judge

INTRODUCTION

This case concerns regulations promulgated under Title IV of the Higher Education Act of 1965 ("HEA"), as amended, which authorizes the Secretary of Education and the Department of Education (collectively, "Department") to establish loan and grant programs to help students pay for post-secondary education.

In December 2016, the Department promulgated regulations ("Distance-Education Rules") intended to combat fraudulent practices relating to distance education and correspondence courses and to provide students and the public with disclosures about educational institutions that offered such programs (e.g., "online universities"). The rules originally were to go into effect in July 2018. But in July 2018, following a change in presidential administrations, the Department promulgated a regulation delaying the effective date of the Distance-Education Rules until July 2020 ("Delay Rule") and raised the prospect that it would revise and reconsider the Distance-Education Rules entirely.

In the HEA, Congress imposed a statutory requirement on the promulgation of all Title IV regulations. They must be subject to "negotiated rulemaking" - a process where the Department selects a committee of experienced individuals nominated by groups involved in student-financial-assistance programs to negotiate proposed rules - unless the Department "determines that applying such a requirement with respect to given regulations is impracticable, unnecessary, or contrary to the public interest (within the meaning of section 553(b)(3)(B) of Title 5 [of the Administrative Procedure Act] )[.]" 20 U.S.C. § 1098a(b)(2). It is undisputed that the Department did not subject the Delay Rule to negotiated rulemaking.

The National Education Association ("NEA"), the California Teachers Association ("CTA"), and individual plaintiffs Shane Heiman, Kwynn Uyehara, and Stephanie Portilla - NEA and CTA members who are enrolled or considering enrolling in online-education programs - filed this case to challenge the Delay Rule. The plaintiffs argue that the Department's failure to submit the Delay Rule to negotiated rulemaking violated the HEA and the Administrative Procedure Act ("APA"). They argue that the Delay Rule thus should be vacated and the Distance-Education Rules be allowed to go into effect as originally planned. The Department responds that it had "good cause" under Section 553(b)(3)(B) of the APA to forgo negotiated rulemaking because it would have been impracticable to submit a proposed delay rule to negotiated rulemaking, to complete that process, and to promulgate a final delay rule, before the effective date of the Distance-Education Rules. The Department also argues that any failure to engage in negotiated rulemaking was harmless error that does not warrant vacating the Delay Rule. The parties filed cross-motions for summary judgment.

The supposed insufficient time to promulgate a rule delaying the effective date of the Distance-Education Rules is not good cause to forgo the HEA's statutorily mandated negotiated-rulemaking process. Additionally, the supposed lack of time resulted from the Department's own delay, and an agency's own delay is not good cause. Furthermore, the Department's failure to engage in negotiated rulemaking here was not harmless error. The court grants the plaintiffs' motion for summary judgment, denies the defendants' motion for cross-summary judgment, and orders the Delay Rule vacated (but stays the vacatur for 30 days from the date of this order).

STATEMENT

1. Title IV of the Higher Education Act

Title IV of the HEA "assist[s] in making available the benefits of postsecondary education to eligible students ... in institutions of higher education" through federal grants and financial-assistance programs. 20 U.S.C. § 1070.

"Congress created the Title IV programs to foster access to higher education." Ass'n of Private Sector Colls. and Univs. v. Duncan , 681 F.3d 427, 435 (D.C. Cir. 2012). "Every year, Congress provides billions of dollars through loan and grant programs to help students pay tuition for their postsecondary education." Id. at 433. "The Department of Education ('the Department' or 'the agency') administers these programs, which were established under Title IV[.]" Id. "Students must repay their federal loans; the costs of unpaid loans are borne by taxpayers." Id.

1.1 Authorization of Educational Institutions

"To participate in Title IV programs - i.e., to be able to accept federal funds - a postsecondary institution ('a school' or 'an institution') must satisfy several statutory requirements." Ass'n of Private Sector Colls. , 681 F.3d at 433-34. "These requirements are intended to ensure that participating schools actually prepare their students for employment, such that those students can repay their loans." Id. at 434. Among other things, "a school must qualify as an 'institution of higher education,' 20 U.S.C. § 1094(a) (2006) - meaning, inter alia, that the school is 'legally authorized' to provide education in the state in which it is located, id. § 1001(a)(2)." Id. "The HEA does not define 'legally authorized.' " Id. at 435. "This lack of a statutory definition has meant that, for virtually all of the HEA's history, each state has determined for itself the method of authorizing schools within its borders." Id.

"Congress has delegated to the Secretary [of Education] the authority to promulgate regulations governing the Department's administration of Title IV and other federal programs." Id. at 436. "The grant of authority provides that '[t]he Secretary, in order to carry out functions otherwise vested in the Secretary by law or by delegation of authority pursuant to law, ... is authorized to make, promulgate, issue, rescind, and amend rules and regulations governing the manner of operation of, and governing the applicable programs administered by, the Department.' " Id. (citing 20 U.S.C. §§ 1098a(a)(1), 1221e-3 ). This authority to promulgate regulations extends to regulations defining what is "legally authorized" for purposes of the HEA. Id. at 458-59 ("This is a federal program, federal dollars are at stake, and the most sensible reading of the statute is that the Secretary has discretion to determine what is 'legal authorization' in order to protect federal interests.") (quoting Sistema Universitario Ana G. Mendez v. Riley , 234 F.3d 772, 778 (1st Cir. 2000) ).

1.2 Negotiated Rulemaking

In general, under the HEA, all regulations pertaining to Title IV are subject to "negotiated rulemaking." 20 U.S.C. § 1098a(b)(2).

In negotiated rulemaking, the Department selects individuals nominated by "groups involved in student financial assistance programs under [Title IV], such as students, legal assistance organizations that represent students, institutions of higher education, State student grant agencies, guaranty agencies, lenders, secondary markets, loan servicers, guaranty agency servicers, and collection agencies" to participate in the negotiations process. 20 U.S.C. § 1098a(a)(1), (b)(1), (b)(2). The HEA requires the Department to "select individuals with demonstrated expertise or experience in the relevant subjects under negotiation, reflecting the diversity in the industry, representing both large and small participants, as well as individuals serving local areas and national markets." 20 U.S.C. § 1098a(b)(1), (b)(2).

If the negotiated-rulemaking participants reach a consensus about proposed regulations, the Department must propose the consensus for promulgation, unless it reopens the negotiated-rulemaking process or provides a written explanation why it is not proposing the consensus. 20 U.S.C. § 1098a(b)(2) ("All published proposed regulations shall conform to agreements resulting from such negotiated rulemaking unless the Secretary reopens the negotiated rulemaking process or provides a written explanation to the participants in that process why the Secretary has decided to depart from such agreements.").

The Department may bypass the negotiated-rulemaking process only if it "determines that applying such a requirement with respect to given regulations is impracticable, unnecessary, or contrary to the public interest (within the meaning of section 553(b)(3)(B) of Title 5), and publishes the basis for such determination in the Federal Register at the same time as the proposed regulations in question are first published." Id.

2. 2012-2016 and the Distance-Education Rules

The Distance-Education Rules were the product of a multi-year rulemaking process.

2.1 Negotiated Rulemaking

On May 1, 2012, the Department published a notice in the Federal Register of its intent to convene a negotiated-rulemaking committee "to develop proposed regulations designed to prevent fraud and otherwise ensure proper use of Title IV, HEA program funds, especially within the context of current technologies." Negotiated Rulemaking Committee; Public Hearings , 77 Fed. Reg. 25,658, 25,658 (May 1, 2012).

On April 16, 2013, the Department announced that it was "considering regulatory changes related to State authorization for programs offered through distance education or correspondence education" and was adding "State authorization for programs offered through distance education or correspondence education" as a topic for consideration for action by the next negotiated-rulemaking committee. Negotiated Rulemaking Committee; Public Hearings , 78 Fed. Reg. 22,467, 22,468 (Apr. 16, 2013). The Department "also announce[d] three public hearings at which interested parties may comment on the new topics suggested by the Department and may suggest additional topics for consideration for action by the negotiated rulemaking committee." Id. at 22,467. The Department further stated that "[f]or anyone unable to attend a public hearing, the Department will accept written comments." Id.

On May 13, 2013, the Department announced a fourth public hearing and extended its deadline for the submission of written comments. Negotiated Rulemaking Committee; Public Hearings , 78 Fed. Reg. 27,880, 27,880 (May 13, 2013).

On November 20, 2013, the Department announced that it would convene a negotiated-rulemaking committee to address a number of topics, including "State authorization for programs offered through distance education or correspondence education." Negotiated Rulemaking Committee, Negotiator Nominations and Schedule of Committee Meetings - Title IV Federal Student Aid Programs, Program Integrity and Improvement , 78 Fed. Reg. 69,612, 69,613 (Nov. 20, 2013). The Department requested nominations for individual negotiators representing key stakeholder constituencies, namely:

• Students.

• Legal-assistance organizations that represent students.

• Consumer-advocacy organizations.

• State higher-education executive officers.

• State attorneys general and other appropriate State officials.

• Business and industry.

• Institutions of higher education eligible to receive Federal assistance under title III, Parts A, B, and F, and title V of the HEA, which include Historically Black Colleges and Universities, Hispanic-Serving Institutions, American Indian Tribally Controlled Colleges and Universities, Alaska Native and Native Hawaiian-Serving Institutions, Predominantly Black Institutions, and other institutions with a substantial enrollment of needy students as defined in title III of the HEA.

• Two-year public institutions of higher education.

• Four-year public institutions of higher education.

• Private, non-profit institutions of higher education.

• Private, for-profit institutions of higher education.

• Regional accrediting agencies.

• National accrediting agencies.

• Specialized accrediting agencies.

• Financial-aid administrators at postsecondary institutions.

• Business officers and bursars at postsecondary institutions.

• Admissions officers at postsecondary institutions.

• Institutional third-party servicers who perform functions related to the title IV Federal Student Aid programs (including collection agencies).

• State approval agencies.

• Lenders, community banks, and credit unions.

Id. at 69,612, 69,614.

The Department selected a negotiated-rulemaking committee of 18 representatives (two Department representatives and 16 stakeholder-constituency representatives) and 15 alternate representatives. See Program Integrity and Improvement , 81 Fed. Reg. 48,598, 48,600 -01 (July 25, 2016) (Distance-Education-Rules NPRM). The committee met in 2014 on February 19 to 21, March 26 to 28, April 23 to 25, and May 19 to 20 to develop proposed regulations. Id. at 48,601. The committee agreed to negotiate an agenda of six issues related to student financial aid, including "State authorization of distance education." Id.

Under the committee's protocols, the committee had to reach a consensus on all six issues, with no committee member expressing dissent, in order to reach a final consensus. Id. If the committee had reached a consensus, then the Department would have used the consensus-based language in its proposed regulations and would not have been able to alter the consensus-based language unless it reopened the negotiated-rulemaking process or provided a written explanation to the committee members regarding why it decided to depart from that language. Id. ; see 20 U.S.C. § 1098a(b)(2). The committee did not reach a final consensus. Distance-Education-Rules NPRM, 81 Fed. Reg. at 48,601. Because the committee did not reach a consensus, the Department had discretion regarding the regulations it proposed on the issues that were subject to the committee's negotiations. Id.

2.2 Notice of Proposed Rulemaking

On July 25, 2016, the Department published a Notice of Proposed Rulemaking ("NPRM"), proposing what would become the Distance-Education Rules. Distance-Education-Rules NPRM, 81 Fed. Reg. 48,598.

The Department reported that "[t]he Office of the Inspector General (OIG), the Government Accountability Office (GAO), and others have voiced concerns over fraudulent practices, issues of noncompliance with requirements of the title IV programs, and other challenges within the distance education environment." Id. at 48,598. "Such practices and challenges include misuse of title IV funds, verification of student identity, and gaps in consumer protections for students." Id. "Documented wrong-doing has been reflected in the actions of multiple State attorneys general who have filed lawsuits against online education providers due to misleading business tactics." Id. at 48,599. "For example, the attorney general of Iowa settled a case against a distance education provider for misleading Iowa students because the provider stated that their educational programs would qualify a student to earn teacher licensure, which the programs did not lead to." Id.

The Department observed that that "[t]he HEA established what is commonly known as the program integrity 'triad' under which States, accrediting agencies, and the Department act jointly as gatekeepers for [Title IV] Federal student aid programs[.]" Id. at 48,598. "Because institutions that offer distance education programs usually offer the programs in multiple States, there are unique challenges with respect to oversight of these programs by States and other agencies." Id. "Many States and stakeholders have expressed concerns with these unique challenges, especially those related to ensuring adequate consumer protections for students as well as compliance by institutions participating in this sector." Id. "For example, some States have expressed concerns over their ability to identify which out of State providers are operating in their States; whether those programs prepare their students for employment, including meeting licensure or certification requirements in those States, the academic quality of programs offered by those providers, as well as the ability to receive, investigate and address student complaints about out-of-State institutions." Id.

The Department announced its proposed rules to "establish[ ] requirements for institutional disclosures to prospective and enrolled students in programs offered through distance education or correspondence courses, which we believe will protect students by providing them with important information that will influence their attendance in distance education programs or correspondence courses as well as improve the efficacy of State-based consumer protections for students." Id. at 48,599. "These disclosures will provide consistent information necessary to safeguard students and taxpayer investments in the title IV, HEA programs." Id. "[R]equiring disclosures that reflect actions taken against a distance education program, how to lodge complaints against a program they believe has misled them, and whether the program will lead to certification or licensure[,] will provide enrolled and prospective students with important information that will protect them." Id. The Department extended the public 30 days (i.e., until August 24, 2016) to submit written comments on its proposed rules. Id. at 48,598.

The Department received 139 written comments and also had a consultative meeting with staff from the Department of Defense. Program Integrity and Improvement , 81 Fed. Reg. 92,232, 92,333 (Dec. 19, 2016) (Distance-Education-Rules Announcement).

2.3 Final Rule

On December 19, 2016, the Department promulgated the final Distance-Education Rules. Distance-Education-Rules Announcement, 81 Fed. Reg. 92,232 (amending 34 C.F.R. §§ 600.2, 600.9(c) - (d), and 668.2, and promulgating 34 C.F.R. § 668.50 ). The Distance-Education Rules required that (among other things) educational institutions that offered distance-education or correspondence-course programs meet certain requirements and issue certain disclosures, both publicly and individually to their enrolled and prospective students.

Among other things, the Distance-Education Rules required that educational institutions that offer distance-education or correspondence-course programs "document that there is a State process for review and appropriate action on student complaints from any of those enrolled students concerning the institution" in each state in which its enrolled students reside (either directly or through a state-authorization-reciprocity agreement). Id. at 92,262 ( 34 C.F.R. § 600.9(c)(2) ). In addition, the Distance-Education Rules required that such educational institutions disclose the following:

• whether the institution is authorized by each state where its enrolled distance-education or correspondence-course students reside to provide that distance-education or correspondence-course program, id. at 92,263 ( 34 C.F.R. § 668.50(b)(1) );

• the process for submitting consumer complaints in the state where the institution's main campus is located and in each state where its enrolled distance-education or correspondence-course students reside, id. ( 34 C.F.R. § 668.50(b)(2), (3) );

• any adverse actions that a state entity or an accrediting agency might have initiated against the institution (e.g., a state attorney general's suing the institution for defrauding students or an accrediting agency's revoking the institution's accreditation), id. ( 34 C.F.R. § 668.50(b)(4), (5), (c)(ii)(A) ); and

• for programs that prepare students for certain occupations, what the educational prerequisites are in each state where the institution's enrolled distance-education or correspondence-course students reside for licensure or certification for those occupations (e.g., for a program that prepares students to become teachers, what the education prerequisites are for teaching certificates), and whether the program satisfies those requirements, id. ( 34 C.F.R. § 668.50(b)(7), (c)(i), (c)(ii)(B) ).

In announcing the Distance-Education Rules, the Department addressed comments that it received on its initial NPRM. Id. at 92,233 -52.

Several commenters noted that some states, such as California, did not have processes for reviewing complaints brought by students within the state against educational institutions located outside the state, and that the Rules thus appeared to prohibit the use of Title IV funding to pay for students in those states to enroll in distance-education or correspondence-course programs from institutions outside those states. Id. at 92,238. The Department confirmed that the Rules prohibited that use of Title IV funding unless those states provided a complaint process, either directly or through a state-authorization-reciprocity agreement. Id. Several commenters also asked for clarification about the definition of the term "reside" as used in the Rules. Id. at 92,249. The Department stated that where a student "resides" under the Rules was defined by "a student's true, fixed, and permanent home of a student, usually where their domicile is located" and that "a student is considered to reside in a State if the student meets the requirements for residency under State law[.]" Id. at 92,250.

The Distance-Education Rules were to go into effect on July 1, 2018. Id. at 92,232.

3. 2017

On January 20, 2017, Donald Trump was inaugurated as president of the United States.

On January 24, 2017, President Trump's chief of staff issued a memorandum instructing federal agencies, including the Department, that "[w]ith respect to regulations that have been published in the [Office of the Federal Register] but have not taken effect, as permitted by applicable law, temporarily postpone their effective date for 60 days from the date of this memorandum, subject to [certain] exceptions ..., for the purpose of reviewing questions of fact, law, and policy they raise." Memorandum for the Heads of Executive Departments and Agencies: Regulatory Freeze Pending Review , 82 Fed. Reg. 8346, 8346 (Jan. 24, 2017). The memorandum further stated, "[w]here appropriate and as permitted by applicable law, you should consider proposing for notice and comment a rule to delay the effective date for regulations beyond that 60-day period. In cases where the effective date has been delayed in order to review questions of fact, law, or policy, you should consider potentially proposing further notice-and-comment rulemaking." Id.

On January 30, 2017, the Department announced that it was delaying the effective date of regulations promulgated under the Every Student Succeeds Act. Elementary and Secondary Education Act of 1965, as Amended by the Every Student Succeeds Act - Accountability and State Plans; Open Licensing Requirement for Competitive Grant Programs; Family Educational Rights and Privacy Act , 82 Fed. Reg. 8669 (Jan. 30, 2017). In that announcement, the Department stated that "[t]his is the first of several regulatory actions the Department intends to take regarding regulations that have been published in the Federal Register but had not taken effect as of January 20, 2017, including the Department's regulations for ... State Authorization (RIN 1840-AD20) issued under title IV of the Higher Education Act of 1965, as amended" (i.e., the Distance-Education Rules). Id. at 8669.

On June 16, 2017, the Department announced its intention to convene two negotiated-rulemaking committees, one to revise certain "gainful employment" regulations that the Department had promulgated in 2014 and one to revise regulations on student-borrower defenses to repayment of federal loans that the Department promulgated in 2016. Negotiated Rulemaking Committee; Public Hearings , 82 Fed. Reg. 27,640, 27,640 (June 16, 2017).

On June 22, 2017, the Department announced that it was "seeking input on regulations that may be appropriate for repeal, replacement, or modification." Evaluation of Existing Regulations , 82 Fed. Reg. 28,431, 28,431 (June 22, 2017). The Department extended the public sixty days (i.e., until August 21, 2017) to submit comments. Id.

On August 1, 2017, the Western Interstate Commission for Higher Education ("WICHE") Cooperative for Educational Technologies ("WCET") and the WCET State Authorization Network ("SAN") submitted an eight-page written response to the Department's June 22, 2017 request for input on regulations that may be appropriate for repeal, replacement, or modification. Letter from Russ Poulin, Director, Policy and Analysis, WICHE Cooperative for Educ. Techs., and Cheryl Dowd, Director, WCET State Authorization Network, to Hilary Malawer, Assistant Gen. Counsel, Office of the Gen. Counsel, U.S. Dep't of Educ. (Aug. 1, 2017), available at https://www.regulations.gov/document?D=ED-2017-OS-0074-0073 (last visited Apr. 26, 2019) (2017 WCET Letter). The Letter stated that "WCET represents more than 370 institutions, systems, and higher education organizations in their creation of tools and implementation of technology for distance education" and that "SAN represents more than 650 institutions interested in navigating the State and Federal regulatory nuances of compliance management for their institutions," and that representatives from WCET had served on the Department's 2014 negotiated-rulemaking committee. Id. at 1.

In the Letter, WCET and SAN stated that they "support[ed] the intent of these regulations to tie title IV funding to the requirement that institutions verify that they are following applicable laws in the states where the institutions are serving students" and "support[ed] the intent of the regulations to require important general disclosures as well as individualized disclosures to the students." Id. at 1-2. WCET and SAN stated that:

We encourage the Department to strongly consider maintaining State authorization of distance education regulations. Requiring State compliance to participate in title IV funding will not require additional labor by the institutions, as they are legally mandated to follow the rules and laws of each state in which they enroll students. Additionally, our organizations believe that licensure-related notifications and disclosures support students' abilities to achieve their academic and career goals. Institutions should be required to dutifully notify enrolled and prospective students participating in educational programs completed solely through distance education or correspondence of all factors relevant to their pursuit of their academic and career goals. These Federal regulations will increase the level of consumer protection to ensure students are not exposed to unscrupulous actions that could impair the student's investment in higher education.

• Proof of State Authorization provides transparency.

In addition to the states' legal requirements for authorization, the ability to tie title IV funds to authorization provides transparency to students about the use of their funding and the ability to participate and complete the academic program that they choose. Students benefit from the clarity due to a federal directive for the institution to supply proof of the completion of state mandated compliance requirements in the states where students are enrolled or receiving services. The federal rule need be little more than the assurance that the Department will seek proof that the institution is following state laws. States have the obligation to oversee higher education within their borders. Put the emphasis on state oversight.

• Notifications and Disclosures lessens ambiguity for students.

Institutions are far more able than students to access information from state licensure boards about acceptable pre-requisites for programs leading to professional licensure and certification. Students encounter unfamiliar language and have difficulty understanding whether and/or how they may pursue their desired academic program in their state if the institution does not provide reasonable notice. Institutional notifications and disclosure eliminates or at least minimizes the ambiguity.

Id. at 6-7 (bolding in headings added).

WCET and SAN raised several issues, stating that they "wish[ed] to obtain clarification of terms important for the implementation of the regulations." Id. at 2. In addition to other issues, WCET and SAN raised the following.

First, WCET and SAN asked whether the Department planned to enforce the Distance-Education Rules on July 1, 2018. Id. at 3. They noted that the Department had recently delayed enforcement and/or compliance with gainful-employment and borrower-defenses regulations (the regulations for which the Department had announced in June 2017 that it was convening negotiated-rulemaking committees). Id.

They stated "[i]nstitutions spend considerable time in compliance activities and wish to be clear regarding what is expected of them. Our member institutions would enjoy receiving early notification about whether the Department will enforce, further interpret/clarify, delay, or redevelop [the Distance-Education Rules] well in advance of the July 1, 2018 deadline." Id.

Second, WCET and SAN raised a question about the Distance-Education Rules' requirement that educational institutions make disclosures based on where enrolled students "reside." Id. at 3-4. They noted that the term "reside" is confusing, particularly in the context of a student who is located in and taking classes from a state other than the state of the student's "official residency," and asked the Department to provide guidance or to set out its requirements based on where students are "located," as opposed to where they "reside." Id. at 4.

Third, WCET and SAN raised a question about the Distance-Education Rules' requirement that educational institutions document that there is a state process for review and appropriate action on student complaints in each state where their students reside. Id. at 5. They noted that California in particular does not have a process for receiving complaints from students located in California about educational institutions not in California (and that California had not entered into a state-authorization-reciprocity agreement). Id. They asked whether the Department could work with California on a compromise. Id.

WCET and SAN "request[ed] that the Department indicate a timeline to expect to receive a response to comments," stating that "compliance requirements for the federal state authorization regulations will require time to implement a process to achieve compliance by July 1, 2018" and that "[the Department's] response and direction will be very important." Id. at 7.

On August 25, 2017, the Department announced two public hearings where interested parties could provide input "on Department regulations related to postsecondary education that may be appropriate for repeal, replacement, or modification." Regulatory Reform; Public Hearings , 82 Fed. Reg. 40,518, 40,518 (Aug. 25, 2017). On October 1, 2017, WCET and SAN appeared at a public hearing and reiterated their support for the Distance-Education Rules and re-raised the questions they had raised in their 2017 Letter, including their questions about whether the Department would enforce the Rules beginning July 1, 2018 and about how the Department was defining the word "reside" as used in the Rules. U.S. Dep't of Educ., Transcript of Public Hearing on Regulatory Reform 166-72 (Oct. 4, 2017), available at https://www2.ed.gov/policy/highered/reg/reform/2017/washingtondchearingtranscript.pdf (last visited Apr. 26, 2019).

The Department did not take any steps in 2017 to propose a rule delaying the effective date of the Distance-Education Rules.

4. 2018 and the Delay Rule

4.1 The 2018 ACE and WCET Letters

On February 6, 2018, the American Council on Education ("ACE") sent the Department a one-page letter. Letter from Terry W. Hartle, Senior Vice President, Am. Council on Educ., to Betsy DeVos, Sec'y of Educ., U.S. Dep't of Educ. (Feb.

6, 2018), available at https://www.acenet.edu/news-room/Documents/ACE-Letter-on-State-Authorization-Concern.pdf (last visited Apr. 26, 2019) (2018 ACE Letter). The full text of the Letter reads:

As you may be aware, the state authorization regulations finalized by the Department of Education on December 19, 2016 are set to go into effect starting July 1, 2018. As that deadline approaches, a number of institutions have raised concerns about possible unintended consequence with the possibility of significant harm to students.

In brief, the regulations appear to make students who are residents of certain states ineligible for federal financial aid if they are studying online at institutions located outside their states.

This is related to the requirement imposed by the state authorization regulations that mandates institutions disclose to students the appropriate state complaint process for their state of residence.

A number of states, including California, do not currently have complaint processes for all out-of-state institutions. This would appear to effectively bar some of their residents from receiving federal financial aid if they choose to study online at institutions located outside their states.

As colleges and universities are currently in the process of finalizing enrollments and aid packages for the fall semester (after the effective date of the regulations), we write you in hope that you can clarify the Department's position on the eligibility of students so situated.

Thank you for considering this request.

Id.

On February 7, 2018, WCET, the National Council for State Authorization Reciprocity, and the Distance Education Accrediting Commission sent the Department a one-page letter. Letter from Russell Poulin, Director, Policy and Analysis, WICHE Cooperative for Educ. Techs., et al. to Frank Brogan, Acting Assistant Sec'y of Postsecondary Educ., U.S. Dep't of Educ. (Feb. 7, 2018), available at https://wcet.wiche.edu/sites/default/files/WCET-SARA-DEAC-Letter-2-7-18_0.pdf (last visited Apr. 26, 2019) (2018 WCET Letter). The full text of the Letter reads:

Thank you for the opportunity to meet with you and your team at the U.S. Department of Education. I appreciate your interest and willingness to listen to a discussion about critical issues on accreditation and distance education. To follow up on our discussion on state authorization, my colleagues and I respectfully would like to bring to your attention concerns in the higher education distance education community regarding the USDE's rules on state authorization of distance education set to go into effect July 1, 2018 (34 CFR - Sections 600 and 668). Those of us who represent major postsecondary distance education organizations receive many questions about implementing the rules. The institutions we represent clearly desire to comply with the rules, but are struggling with how to prepare to do so.

Compliance with the new rules will be a costly and burdensome effort for most colleges and universities that offer distance education. These institutions need a clear understanding of USDE's expectations. Specifically, the rules require institutions to provide (for each state where students are enrolled in distance education programs) public and individualized disclosures of state authorization status for every state, complaint resolution processes for every state, and details on state licensure eligibility for every discipline that requires a license to enter a profession (e.g., teaching, counseling, dietician, nursing). The rules also require institutions to comply with refund policy requirements for each state where students are enrolled, regardless of membership in the State Authorization Reciprocity Agreements. Clarification is needed on the USDE's desired format for the disclosures. Another area of concern is that issue is that the regulation defines "residence" in a way that conflicts with state laws and common practice.

The U. S. House of Representatives' draft of the PROSPER Act would remove those rules and forbid issuing future regulations on the topic. But even if the removal of state authorization is included in future HEA reauthorization legislation, reauthorization is highly unlikely to occur before July 1, 2018, when the rules go into effect. The U.S. Department of Education could (1) delay the rules and submit the issues to additional negotiated rulemaking or (2) issue clarification via a dear colleague letter on USDE's expectations for compliance. A third option would require Congress to take action to delay or suspend implementation. Otherwise, the rules will go into effect, as written, with the potential for broad misunderstandings.

Institutions that know the most about these issues are the most concerned. WCET's State Authorization Network includes 700 institutions. (WCET is an acronym for the WICHE Cooperative for Educational Technologies.) Institutional participation in the State Authorization Reciprocity Agreement (SARA) now includes about 1,750 institutions from the current 48 SARA member states (plus the District of Columbia and the U.S. Virgin Islands). DEAC (the Distance Education Accrediting Commission) accredited institutions are a part of the WCET and SARA communities. Our institutions want to comply with the regulatory environment, but many questions remain.

Thank you for your consideration. If there is any way we can provide assistance or further details, we would be pleased to do so.

Id.

4.2 Notice of Proposed Rulemaking

On May 25, 2018, the Department published a Notice of Proposed Rulemaking, proposing a rule to delay the effective date of the Distance-Education Rules from July 1, 2018 to July 1, 2020. Program Integrity and Improvement , 83 Fed. Reg. 24,250 (May 25, 2018) (Delay-Rule NPRM). The Department stated that it "propose[d] the delay based on concerns recently raised by regulated parties and to ensure that there is adequate time to conduct negotiated rulemaking to reconsider the final regulations, and as necessary, develop revised regulations." Id. at 24,250.

The Department stated that "[t]wo letters in particular prompted this proposed delay": the 2018 ACE Letter and the 2018 WCET Letter. Id. at 24,251. The Department stated that the 2018 ACE Letter

expressed concerns that, "students who are residents of certain states may be ineligible for federal financial aid if they are studying online at institutions located outside their states. This is related to the requirement imposed by the state authorization regulations that mandates institutions disclose to students the appropriate state complaint process for their state of residence. A number of states, including California, do not currently have complaint processes for all out-of-state institutions."

Id. (quoting 2018 ACE Letter). The Department stated that the 2018 WCET Letter

stated that there is widespread concern and confusion in the higher education community regarding the implementation of the final regulations, particularly with respect to State authorization of distance education and related disclosures. The authors of the February 7 letter argued that the new regulations will be costly and burdensome for most colleges and universities that offer distance education and that some States have not implemented the necessary policies and procedures to conform to the student complaint procedures required by the regulations. The authors also expressed that institutions need additional information from the Department to better understand how to comply with the new regulations. They stated, for instance, that the way the term "residence" is described in the preamble of the 2016 rule may conflict with State laws and common practice among students for establishing residency.

Id. (citing 2018 WCET Letter).

The Department stated that "[t]hese issues are more complex than we understood when we considered them in 2016." Id. "The Department does not believe guidance would be sufficient to address the complexities institutions have encountered, even prior to the rule's effective date." Id. "For both of the residency and disclosure issues, guidance is not the appropriate vehicle to provide the clarifications needed." Id. "Guidance is inherently non-binding and, therefore, could not be used to establish any new requirements." Id. "More importantly, due to the complexity of these issues, we are not confident that we could develop a workable solution through guidance and without the input of negotiators who have been engaged in meeting these requirements." Id. "Additionally, the necessary changes may impose a greater burden on some regulated parties, or could significantly minimize burden to institutions, which would require an updated estimate of regulatory impact." Id. "In sum, the Department believes that the clarifications requested are so substantive that they would require further rulemaking including negotiated rulemaking under the Higher Education Act of 1965, as amended (HEA)." Id.

The Department stated that "[i]t would be confusing and counterproductive for the [Distance-Education Rules] to go into effect before the conclusion of this reconsideration process." Id. at 24,252. It thus "propose[d] delaying the current effective date - July 1, 2018 - until July 1, 2020." Id.

The Department did not submit its proposed delay rule to negotiated rulemaking. Instead, it stated that "has not had sufficient time to effectuate this delay through negotiated rulemaking." Id. "Negotiated rulemaking requires a number of steps that typically takes the Department well over 12 months to complete." Id. "In this instance, the catalysts for the delay are the February 6 [2018 ACE Letter] and February 7 [2018 WCET Letter]." Id. "The Department could not have completed the well-over 12-month negotiated rulemaking process, described in the previous paragraph, between February 6, 2018, and the July 1, 2018, effective date." Id. "Thus, the Department has good cause to waive the negotiated rulemaking requirement with regard to its proposal to delay the effective date of the final regulations to July 1, 2020, in order to complete a new negotiated rulemaking proceeding to address the concerns identified by some of the regulated parties in the higher education community." Id. The Department also stated that it "believes it will be in the public interest to delay the effective date of these regulations so that these issues can be resolved before the regulations go into effect." Id. "The approach may also benefit from input from States that are in the process of changing requirements for distance education programs." Id.

The Department extended the public until June 11, 2018 (i.e., 17 days) to submit comments on its proposed delay rule. Id. at 24,250. It stated that "[w]e are doing so because the 2016 rule is scheduled to take effect on July 1, 2018, and a final rule delaying the effective date must be published prior to that date." Id. "A longer comment period would not allow sufficient time for the Department to review and respond to comments, and publish a final rule." Id. (Seven of the days in the 17-day period were either weekends or federal holidays.)

The Department received 39 comments. Program Integrity and Improvement , 83 Fed. Reg. 31,296, 31,297 (July 3, 2018) (Delay-Rule Announcement).

4.3 Final Rule

On July 3, 2018, the Department promulgated the final Delay Rule. Delay-Rule Announcement, 83 Fed. Reg. 31,296.

While the Delay-Rule Announcement purports to be dated June 28, 2018, id. at 31,303, it was not published in the Federal Register until July 3, 2018, id. at 31,296, two days after the original effective date for the Distance-Education Rules.

ANALYSIS

The HEA provides that:

All regulations pertaining to [Title IV] that are promulgated after October 7, 1998, shall be subject to a negotiated rulemaking (including the selection of the issues to be negotiated), unless the Secretary determines that applying such a requirement with respect to given regulations is impracticable, unnecessary, or contrary to the public interest (within the meaning of section 553(b)(3)(B) of Title 5), and publishes the basis for such determination in the Federal Register at the same time as the proposed regulations in question are first published.

20 U.S.C. § 1098a(b)(2).

The parties agree that this negotiated-rulemaking provision applies to the Delay Rule. The parties also agree that under this provision, the Department could forgo negotiated rulemaking only if it satisfied the standard set out in Section 553(b)(3)(B) of the APA for forgoing notice and comment, namely, that "the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest." 5 U.S.C. § 553(b)(3)(B).

The Department argues that it had good cause under Section 553(b)(3)(B) to forgo negotiated rulemaking with respect to the Delay Rule and that any failure to engage in negotiated rulemaking was harmless error. Both arguments fail.

1. Good Cause

1.1 Governing Law

"Good cause" under Section 553 of the APA "is determined on a 'case-by-case' basis, based on the 'totality of the factors at play.' " California v. Azar , 911 F.3d 558, 575 (9th Cir. 2018) (citing United States v. Valverde , 628 F.3d 1159, 1164 (9th Cir. 2010) ). The Ninth Circuit and other courts have identified several generally applicable principles regarding the good-cause standard.

" 'The good cause exception goes only as far as its name implies: It authorizes departures from the APA's requirements only when compliance would interfere with the agency's ability to carry out its mission.' " Id. (quoting Riverbend Farms, Inc. v. Madigan , 958 F.2d 1479, 1485 (9th Cir. 1992) ). "Good cause is to be 'narrowly construed and only reluctantly countenanced.' " Id. (quoting Alcaraz v. Block , 746 F.2d 593, 612 (9th Cir. 1984) ). "[T]he good cause exception should be interpreted narrowly, so that the exception will not swallow the rule" and should be found "only when 'delay would do real harm.' " Buschmann v. Schweiker , 676 F.2d 352, 357 (9th Cir. 1982) (citing cases). "As such, the good cause exception is usually invoked in emergencies, and an agency must 'overcome a high bar' to do so." Azar , 911 F.3d at 575 (citing Valverde , 628 F.3d at 1164-65 ).

Good cause may be found where " 'delay would do real harm' to life, property, or public safety." Id. at 576 (some internal quotation marks omitted) (quoting East Bay Sanctuary Covenant v. Trump , 909 F.3d 1219, 1253 (9th Cir. 2018) ). Good cause may be found where "the agency cannot 'both follow section 553 and execute its statutory duties.' " Id. (quoting Riverbend Farms , 958 F.2d at 1484 n.2 ).

By contrast, "an agency's desire to eliminate more quickly legal and regulatory uncertainty is not by itself good cause," because "[i]f 'good cause' could be satisfied by an Agency's assertion that normal procedures were not followed because of the need to provide immediate guidance and information, then an exception to the notice requirement would be created that would swallow the rule." Id. (internal brackets and ellipsis and some internal quotation marks omitted) (quoting Valverde , 628 F.3d at 1167 ). Similarly, " '[g]ood cause cannot arise as a result of the agency's own delay, because otherwise, an agency unwilling to provide notice or an opportunity to comment could simply wait until the eve of a statutory, judicial, or administrative deadline, then raise up the 'good cause' banner and promulgate rules without following APA procedures.' " NRDC v. Nat'l Highway Traffic Safety Admin. , 894 F.3d 95, 114-15 (2d Cir. 2018) (internal brackets and some internal quotation marks omitted) (quoting Council of the Southern Mountains, Inc. v. Donovan , 653 F.2d 573, 581 (D.C. Cir. 1981) ).

"A new administration's simple desire to have time to review, and possibly revise or repeal, its predecessor's regulations falls short of this exacting [good-cause] standard." Pineros y Campesinos Unidos del Noroeste v. Pruitt , 293 F.Supp.3d 1062, 1067 (N.D. Cal. 2018) (citing Clean Air Council v. Pruitt , 862 F.3d 1, 9 (D.C. Cir. 2017) ). Likewise, "[t]hat a regulated entity might prefer different regulations that are easier or less costly to comply with does not justify dispensing with notice and comment" and does not constitute good cause. NRDC , 894 F.3d at 115 (citing Mack Trucks, Inc. v. EPA , 682 F.3d 87, 94 (D.C. Cir. 2012) ); accord Bauer v. DeVos , 325 F.Supp.3d 74, 100 (D.D.C. 2018) (same) (citing Mack Trucks , 682 F.3d at 94 ).

The burden is on the agency to demonstrate that it has good cause. NRDC , 894 F.3d at 113-14 (citing Action on Smoking and Health v. Civil Aeronautics Bd. , 713 F.2d 795, 801 n.6 (D.C. Cir. 1983) ); accord Azar , 911 F.3d at 575 ("an agency must 'overcome a high bar' to [invoke the good-cause exception]") (citing Valverde , 628 F.3d at 1164-65 ). An agency's determination that it has satisfied the good-cause exception is not entitled to deference from a court. Reno-Sparks Indian Colony v. EPA , 336 F.3d 899, 909 n.11 (9th Cir. 2003) ("Court[s] review[ ] de novo the agency's decision not to follow the APA's notice and comment procedures. The agency is not entitled to deference because complying with the notice and comment provisions when required by the APA 'is not a matter of agency choice.' ") (quoting Sequoia Orange Co. v. Yeutter , 973 F.2d 752, 757 n.4 (9th Cir. 1992) ); accord, e.g. , Sorenson Commc'ns Inc. v. FCC , 755 F.3d 702, 706 (D.C. Cir. 2014) ("[W]e cannot find that an exception applies simply because the agency says we should.... Deference to an agency's invocation of good cause - particularly when its reasoning is potentially capacious, as is the case here - would conflict with this court's deliberate and careful treatment of the exception in the past.").

1.2 Application

To invoke the good-cause exception and forgo negotiated rulemaking, the Department must "publish[ ] the basis for such determination in the Federal Register at the same time as the proposed regulations in question are first published." 20 U.S.C. § 1098a(b)(2). In claiming that it had good cause to forgo negotiated rulemaking for the Delay Rule, the Department thus is limited to the explanations it provided in the Delay-Rule NPRM. Cf. Bauer , 325 F.Supp.3d at 97-98, 100 (analyses that do not appear in the Department's NPRM "lie outside the bounds of proper consideration").

The Delay-Rule NPRM did not identify any emergency or "real harm" that would have resulted from subjecting its delay proposal to negotiated rulemaking. Cf. Azar , 911 F.3d at 575 ; Buschmann , 676 F.2d at 357. The Delay-Rule NPRM did not identify how subjecting the Department's delay proposal to negotiated rulemaking would have interfered with the Department's ability to carry out its statutory duties. Cf. Azar , 911 F.3d at 576. Instead, the Delay-Rule NPRM offered as "good cause" only that it would have been impracticable to subject a proposed delay rule to negotiated rulemaking, complete that process, and issue a final delay rule in time to stop the Distance-Education Rules from going into effect. Delay-Rule NPRM, 83 Fed. Reg. at 24,252. But that is not the standard. The Department has not established why subjecting its proposed delay rule to negotiated rulemaking - and allowing the Distance-Education Rules to go into effect in the meantime - would have constituted an emergency, caused "real harm," or interfered with its ability to carry out its statutory duties. The new administration's desire to suspend the Distance-Education Rules while it tries to reverse or revise them is not an "emergency" that justifies the Department's circumventing the statutorily required negotiated-rulemaking procedures. Cf. Pineros y Campesinos , 293 F.Supp.3d at 1067 ("A new administration's simple desire to have time to review, and possibly revise or repeal, its predecessor's regulations falls short of this exacting [good-cause] standard.") (citing Clean Air Council , 862 F.3d at 9 ); see generally Organized Vill. of Kake v. U.S. Dep't of Agric. , 795 F.3d 956, 968 (9th Cir. 2015) (en banc) (while an agency may try to reverse its predecessor's regulations - "[e]lections have policy consequences" - it may not violate the APA to do so).

1.2.1 Courts reject claims of "good cause" of the type the Department raises here

The District Court for the District of Columbia recently rejected a similar attempt by the Department to forgo negotiated rulemaking by promulgating a rule to delay the effective date of certain regulations promulgated by the prior administration. Bauer , 325 F.Supp.3d at 74. In November 2016, the Department promulgated regulations regarding student-borrower defenses to federal-loan repayment. Bauer , 325 F.Supp.3d at 81. The regulations were to go into effect on July 1, 2017. Id. In June 2017, the Department published a notice delaying the effective date of the regulations pending resolution of certain judicial challenges to the regulations, id. at 83, and in October 2017, the Department issued a NPRM proposing a rule to further delay the effective date of the regulations to July 1, 2019, id. at 85. The Department did not subject its delay proposal to negotiated rulemaking. Id. at 86. (The proposed delay rule was promulgated as a final rule in February 2018. Id. ) Student borrowers and a coalition of states brought suit to challenge the delays. Id. at 78-79.

The court granted the plaintiffs summary judgment and vacated the Department's delay rule. Id. at 110 ; Bauer v. DeVos , 332 F.Supp.3d 181, 186 (D.D.C. 2018). Among other things, the court held that the Department had not identified any "emergency" or "serious harm" that would have resulted from subjecting its delay proposal to negotiated rulemaking. Bauer , 325 F.Supp.3d at 99 (citing Jifry v. FAA , 370 F.3d 1174, 1179 (D.C. Cir. 2004) ). The Department argued that it had been planning to change the borrower-defense regulations and that, absent a delay, the 2016 regulations would go into effect before the Department could make its changes and regulated parties would have to comply with them, thereby subjecting those parties to additional costs and confusion. Id. at 100-01. The court rejected this argument, holding that "the good cause exception should be 'narrowly construed and only reluctantly countenanced,' " and that regulated parties' interest in avoiding the administrative costs of complying with the 2016 regulations did not meet the good-cause standard. Id. at 100 (quoting Mack Trucks , 682 F.3d at 94 ). The court held that accepting the Department's argument would lead to the good-cause exception "swallow[ing] the rule," because an agency could always use that excuse to delay the effective date of regulations. Id. at 101 ; accord id. at 99 ("Indeed, if [the Department's argument] was sufficient, it is difficult to imagine a circumstance in which an agency would be required to comply with the requirements of notice and comment and, where applicable, negotiated rulemaking, to delay the effective date of a regulation.").

The Second Circuit recently rejected an analogous attempt by an agency to forgo notice and comment under the APA by promulgating a rule to delay the effective date of certain regulations promulgated by the prior administration. NRDC , 894 F.3d 95. In December 2016, the National Highway Traffic Safety Administration ("NHTSA") promulgated penalty rates for car manufacturers that violated fuel-efficiency standards. Id. at 102. The rates were to go into effect starting with cars manufactured for model-year 2019. Id. Between January and July 2017, the NHTSA promulgated a series of rules delaying the effective date of the 2016 penalty rates. Id. at 102-03. The last of these rules suspended the 2016 penalty rates indefinitely on the ground that NHTSA was reconsidering the rates altogether. Id. at 103. The NHTSA did not subject these rules to notice and comment under the APA. Id. Environmental organizations and a coalition of states brought suit to challenge the delays. Id.

The NHTSA argued that it had good cause to forgo notice-and-comment rulemaking for the indefinite-suspension rule because the underlying 2016 penalty rates would otherwise "imminent[ly]" go into effect. Id. at 114. The Second Circuit rejected this argument, noting that the penalty rates were promulgated in December 2016, that the NHTSA chose to issue a series of finite delays between January and July 2017 before issuing an indefinite suspension in July 2017, and that "[g]ood cause cannot arise as a result of the agency's own delay[.]" Id. at 114. The NHTSA additionally argued that it suspended the effective date of the 2016 penalty rates because it needed more time to consider the responses it anticipated receiving to its announcement that it was reconsidering the rates. Id. at 115. The Second Circuit rejected this argument too, holding that "[t]his is not a situation of acute health or safety risk requiring immediate administrative action" or "an emergency or other extraordinary circumstance that would justify forgoing notice and comment." Id. The Second Circuit vacated the NHTSA's delay rule and ordered that the 2016 penalty rates were immediately effective and in force. Id. at 115-16.

Another court in this district recently rejected an analogous attempt by an agency to forgo notice and comment under the APA by promulgating a rule to delay the effective date of certain regulations promulgated by the prior administration. Pineros y Campesinos , 293 F.Supp.3d 1062. In early January 2017, the EPA promulgated a rule strengthening regulations surrounding the certification and use of certain pesticides. Id. at 1063. The rule was to go into effect on March 6, 2017. Id. Beginning in late January 2017, the EPA reversed course and issued four successive delays of the rule. Id. at 1063-64. For one delay, the EPA provided four days for interested parties to provide comments; for the other three delays, the EPA provided no opportunity to comment. Id. at 1063 n.1. Farmworker unions and advocacy groups brought suit to challenge the delays. Id. at 1064.

The EPA argued that it had good cause to forgo notice-and-comment rulemaking for its delays because more time was needed for "further review and consideration of new regulations" and confusion could result if the pesticide rule went into effect "but was subsequently substantially revised or repealed." Id. at 1066-67 (quoting administrative record). The court rejected this argument on the ground that it did not satisfy the "extraordinarily narrow" good-cause exception, which "is reserved for situations where delay would do real harm." Id. at 1067 (citing Valverde , 628 F.3d at 1164-65 ). The court held that "[a] new administration's simple desire to have more time to review, and possibly revise or repeal, its predecessor's regulations falls short of this exacting standard," and it vacated the EPA's delay rules on the ground that they violated the APA. Id. (citing Clean Air Council , 862 F.3d at 9 ).

1.2.2 The Department cites only one case in response, and it is inapposite

To counter Bauer , NRDC , and Pineros y Campesinos , the Department cites only one case to support its argument that it had good cause to forgo the HEA's statutory negotiated-rulemaking requirement: Oregon Trollers Association v. Gutierrez , No. Civ. 05-6165-TC, 2005 WL 2211084 (D. Or. Sept. 8, 2005) ( Or. Trollers I ), aff'd, 452 F.3d 1104 (9th Cir. 2006) ( Or. Trollers II ). That case is inapposite.

Oregon Trollers involved the Magnuson-Stevens Fishery Conservation and Management Act ("Magnuson Act"), an act passed in response to overfishing and inadequate conversation measures. Or. Trollers I , 2005 WL 2211084, at *1. The Magnuson Act called for "fishery management plans which will achieve and maintain, on a continuing basis, the optimum yield from each fishery." Id. (quoting 16 U.S.C. § 1801(b)(5) ). The Magnuson Act also established "Regional Fishery Management Councils" to prepare, monitor, and revise fish-management plans in conjunction with the participation and advice of inte