Sweet v. Cardona

Background

The case arose from a backlog of borrower-defense applications. The borrower-defense program allows student-loan borrowers to assert certain claims against their schools as a defense to repayment. The plaintiffs sued to require the Secretary of Education to adjudicate the applications.

The district court approved a settlement on November 16, 2022. The settlement divided class members into three groups. Approximately 200,000 borrowers who attended schools listed in Exhibit C would receive full, automatic relief, including federal-loan discharges, refunds of amounts paid to the Department, and credit repair. Other groups would receive decisions on their applications within specified periods, with automatic relief if the Department missed those deadlines.

Four schools had intervened to oppose the settlement. Three of them—American National University, Everglades College, Inc., and Lincoln Educational Services Corporation—appealed the final approval order and jointly sought a stay pending appeal. They argued that the settlement could harm their regulatory rights and reputations. The opinion distinguishes this settlement from President Biden’s separate student-debt-forgiveness plan then under review by the Supreme Court.

Settlement effective date

The court rejected the schools’ argument that the settlement agreement automatically stayed its effectiveness during their appeals. It interpreted the agreement’s language to mean that the settlement’s effective date was January 28, 2023, after the applicable appeal period expired. The court also rejected the argument that another provision made the settlement void until all appeals were resolved. It concluded that the settlement was in effect, although loan discharges and discharge requests had been administratively paused while the stay motion was pending.

Stay factors

A stay pending appeal is discretionary. The applicant must show, among other things, a strong likelihood of success on appeal and likely irreparable injury without a stay. The court found that the three schools failed to make the required showing.

First, the court concluded that the settlement did not trigger the schools’ rights under the borrower-defense regulations. The settlement did not adjudicate the borrower-defense applications of class members who attended the schools, and the settlement’s relief came from a separate legal authority. The court also stated that the Department could not seek recoupment from the schools for amounts discharged under the settlement.

Second, the court found the schools’ claimed reputational injuries too speculative. Some evidence concerned other law-enforcement inquiries or did not show that the alleged harm resulted from Exhibit C or would be prevented by a stay. The court also considered new evidence submitted with the schools’ reply but found that evidence insufficient. A stay would not remove the schools from Exhibit C; only a merits ruling by the court of appeals could do that.

The court also found that the schools had not shown a sufficient likelihood of success because they had not addressed their independent constitutional standing to appeal. An intervenor appealing when the original parties did not appeal must show an injury in fact, a connection between that injury and the challenged conduct, and that a favorable decision would likely remedy the injury. The court found that the schools had not identified a sufficiently concrete injury caused by the settlement.

Finally, the court found that the balance of harms and public interest weighed against a stay. A stay would delay relief for borrowers who had waited for decisions on their applications and would frustrate the Department’s efforts to resolve the backlog. The court concluded that the settlement’s benefits to the borrowers and the Department outweighed the schools’ asserted harms.

Ruling

Judge William Alsup denied the joint motion to stay the entire judgment pending appeal and denied the alternative request to stay the judgment only as to the three intervening schools. The court granted a temporary, same-day stay covering discharges and discharge requests for loans associated with those schools. The temporary stay lasted seven days from entry of the order so the schools could ask the court of appeals for a stay. If they filed that appellate motion within seven days, the temporary stay would continue until the court of appeals ruled; otherwise, it would expire after seven days.