# Petition for Writ of Certiorari — Jackson v. Culinary School of Washington, Ltd.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1995
- **Citation:** 515 U.S. 1139

## Text

94 886 NOV 1 5 199%
NO. ees Bie cutex

IN THE

Supreme Court of the GAnited States
OCTOBER TERM, 1994

MICHAEL JACKSON, ET AL.,
Petitioners,

Vv.

CULINARY SCHOOL OF WASHINGTON, LTD.,
ET AL.,
Respondents.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

Michael E. Tankersley Clare L. McCulla
(Counsel of Record) LEGAL SERVICES OF
Alan B. Morrison NORTHERN VIRGINIA
David C. Viadeck 110 N. Royal Street,

Public Citizen Litigation Group Suite 505
2000 P Street, N.W., Suite 700 Alexandria, VA 22314
Washington, D.C. 20036 (703) 684-5566
(202) 833-3000
Counsel for Petitioners

November 15, 1994

QUESTIONS PRESENTED

1. Did the Court below violate the rule of Klaxon Co. v.
Stentor Electric Manufacturing Co., 313 U.S. 487 (1941),
and subsequent cases holding that federal courts are required
to apply the choice of law rules of the forum in which they
sit, by directing the district court to refuse to entertain an
action for declaratory relief on the grounds that the choice of
law issues presented by a declaratory action must be resolved
in accordance with the choice of law rules of the forum
chosen by the defendant for a future coercive action?

2. May a federal court refuse to entertain an action for
declaratory relief on the ground that the issues should be
decided in a future coercive action, where such a coercive
action is not pending and may never be brought, and the
federal court’s refusal to entertain the action may deny the
plaintiffs any opportunity to have any determination of their
claims?

ii
PARTIES TO THE PROCEEDINGS BELOW

Petitioners are fifty-eight former students of the Culinary
School of Washington, Ltd., a vocational school operated in
the District of Columbia. Petitioners, who were plaintiffs
and appellants in the proceedings below, are Michael
Jackson, Mark Herrin, Daniel Love, Don Johnson, Randall
Hildebrand, Juana E. Lara, Darlene Pierce, Edwin Figueroa,
Matthew Depompa, Lois Flowers, Maria V. Vasquez, Mark
Turner, John Leonard, Michael Wiggins, Robert Jester,
Theresa Clark, Stephen Batchelor, Douglas Paris, Assad
Ghafoori, Jerome Lewis, James Gordon, Dorothy Valerie,
Pablo Cortes, Ronald Seegers, Bertha Habib, Colleen
Mahoney, Ricky Patterson, Carlton Goodwin, David Grant,
Alvin Brown, Mary Nwoye Turner, Sonia Magana, Maria
Guardado, Ralph Brown, Carlos Narvaez, Guillermo Moa,
Andy Fallas, Pamela Head, Heriberto Vasquez, Allen
French, Lolita Roberts, Robert Jones, Major Warren, Lee
Vernick, Braudulina Ruiz, Andrew Kirksey, Ronnie Lyons,
Joseph Link, Gwendolyn Coley, Linford Finn, John Quinn,
Warren Irving, Castro Vadell, John McCray, Clyde Cogdill,
Jacqueline Roswell, Elhambra Olatunji, and Arthur
Thompson.

The defendants-appellees in the proceedings for which
review is sought were Secretary of Education Richard Riley,
in his official capacity as reinsurer of all petitioners’ loans
under the Higher Education Act and assignee of some of
petitioners’ loans, see 20 U.S.C. §§ 1078(c), 1082; Crestar
Bank and Fifth Third Bank of Toledo, lenders which hold
loans issued to some of the petitioners; Virginia State
Education Assistance Authority, Ohio Student Loan
Commission, “igher Education Assistance Foundation, Great
Lakes Higher Education Corporation, Nebraska Student Loan
Program, and Texas Guaranteed Student Loan Corporation,
which acted as the guaranty agencies for petitioners’ loans
under 20 U.S.C. § 1085(j), and are the assignees of some of
the loans.

Another student who was a party to the judgment below,
Antonio Orr, is now deceased. Three other former students
of the Culinary School of Washington, Ricky Stokes,
Michael Tillman, and Cecelia Roberts, were plaintiffs in the
district court proceedings below, but did not appeal. The
Culinary School of Washington, Ltd., was a defendant in the
district court proceedings, but did not appear, and a default
judgment was entered against it. The Chairman and owner
of the Culinary School of Washington, Barkev Kibarian, was
initially named as a defendant in the district court, but was
dismissed upon the filing of plaintiffs’ Amended Complaint
on June 2, 1992. The Student Loan Marketing Association
was a defendant in the district court, but the claims against
it were dismissed without prejudice on March 26, 1992, and
that ruling was not appealed. None of these parties
participated in the appeal which resulted in the judgment of
the Court of Appeals for the District of Columbia for which
review is sought here.

(THIS PAGE INTENTIONALLY LEFT BLANK)

Vv

TABLE OF CONTENTS

os ee ae i
PARTIES TO THE PROCEEDINGS BELOW ..... ii

TABLE OF AUTHORITIES ................ vii
Pee UE. nb seas 8 Keene ee eee en l
PEED 6 RA ER l
STATUTORY PROVISIONS INVOLVED ........ |
STATEMENT OF THE CASE ... cc cececsvcs 2
A. The Guaranteed Student Loan Program. ..... 3
Pee GS es Powe heave eekewe 5
C. The Appellate Court’s Ruling. ........... 9
REASONS FOR GRANTING THE WRIT ....... 13

I. THE DECISION BELOW CONFLICTS WITH THE
DECISIONS OF THIS COURT THAT REQUIRE
FEDERAL COURTS DECIDING QUESTIONS OF
STATE LAW TO APPLY THE CHOICE OF LAW
PRINCIPLES OF THE FORUM IN WHICH THEY
Oks 2b bee eee de eee eee 13

Il. THIS COURT SHOULD REVIEW THE COURT OF
APPEALS’ RULING THAT A FEDERAL COURT
IS REQUIRED TO REFUSE TO ADJUDICATE AN
ACTION FOR DECLARATORY JUDGMENT
EVEN WHERE, AS HERE, DENIAL OF SUCH
RELIEF MAY DENY THE PLAINTIFF ANY
FORUM IN WHICH TO LITIGATE HIS OR HER
P| MPEP Ee Te Pee Re eee ree re 17

vi

(THIS PAGE INTENTIONALLY LEFT BLANK)

vii
TABLE OF AUTHORITIES
CASES PAGE

Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937) . 16

Bogart v. Nebraska Student Loan Program, 313 Ark.

me Re Oe Oe. ee re 6
Brillhart v. Excess Ins. Co., 316 U.S. 491

SEES aoe wa Kae Sk ek oa eee 12, 17-19, 23
Clay v. Sun Ins. Office, 363 U.S. 207 (1960) ...... 17
Colorado River Water Conservation District v. United

States, 4244 U.S. BID CISTB) ww cece wcces 18
Day & Zimmerman, Inc. v. Challoner, 423 U.S. 3

NS 6 o6 da Re Re ere wa 14
Eli Liliy and Co. v. Home Ins. Co., 764 F.2d 876

Ge a Se eke eke eee 16, 17
Ferens v. John Deere Co., 494 U.S. 516 (1990) .... 15
Games v. Cavazos, 737 F. Supp. 1368 (D. Del.

MER SO See e Tera ES SEUSS Por eee 19
Gerrard v. United States Office of Education, 656 F.

Se, Fe eas Cs SOE 8 ae wee ees 20
Gibson v. Berryhill, 411 U.S. 564 (1973) ........ 19
Griffin v. McCoach, 313 U.S. 498 (1941) ........ 14

Keams v. Temple Technical Institute, Inc., 807 F.
Pe. Dae a Se SE Se heb at hewn sees 6

viii

Klaxon Co. v. Stentor Electric Manufacturing Co., 313

Jt of). eer ee eae i, 2, 14-17
Melville v. American Home Assur. Co., 584 F.2d 1306

GE. TEE 6c oe eh ee emeasesexvcdves 16
Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp.,

2 eS: eee a a ae a eo 18
Munter v. Lankford, 127 F. Supp. 630 (D.D.C.

SE cog bak ewe Cee wee ae we ae 11
Tempco Elec. Heater Corp. v. Omega Engineering

Inc. , 819 F.2d 746 (7th Cir. 1987) .......... 22
Thomas v. Bennett, 856 F.2d 1165 (8th Cir.

SE 5a bo 6 66S ee ee ee. 20, 21
Tipton v. Secretary of Education, 768 F. Supp. 540

RS AO were es er ee eee eee 6
United States v. Griffin, 707 F.2d 1477 (D.C. Cir.

re area See a eee ee 9
United States v. Kimbell Foods, Inc., 440 U.S. 715

CON 6 bee oO ae he oe ee ee es 11, 16
Van Dusen v. Barrack, 376 U.S. 612 (1964) ...... 15

Whirlpool Corp. v. Ritter, 929 F.2d 1318 (8th Cir.
ia a ee ga ay ae a ae ee a ae ee 16

Will v. Calvert Fire Ins. Co., 437 U.S. 655 (1978) .. 23

Williams v. National School of Health Technology,
Inc., 836 F. Supp. 273 (E.D. Pa. 1993) ........ 6

ix

STATUTES
Higher Education Act of 1965, 20 U.S.C. §§
I sR in in 3
Oe Sire POT EP aS oc hb ek ce ee ww 4
i ME Sor oo 6 ho oe ko Se 2
Pe ae es bs a's oko eek kee 3
I a ee aoe 5
PP I 6s a oe hare ws ad ae 2
ee ee PD oo kn bh 6 ck eee ee 4
eR SR ee 2,4
ae es I io boo bb on oe bea es 3
ee Was ED os os bw hat oe bee 5, 21
a Oe Ek iG 6 6a He wees 4,5
Pub. L. No. 102-325, § 411, 106 Stat. 510 (1992) ... .3
8 ot | ARE N otuearareee tree oes luee 21
Pe Se PE oe oS eka OS l
rs I ho ete irate erties 15
fr aes OE bdo hv ok he ohh 15

The Rules of Decision Act, 28 U.S.C. § 1652 ... is 32

The Declaratory Judgment Act, 28 U.S.C. § 2201 ....2

ae a TEE Sa ee eA Uo be oes 22
PP PO So oo Wk bea Oe eae 4, 21, 22
Ariz. Rev. Stat. Ann. § 44-145 (1994) ........... 8

D.C. Code § 28-3807-09 (1991) ............... 8

x

N_Y. Gen. Bus. Law § 253 (Consol. 1993) ........ 8
Mass. Gen. Ann. Laws ch. 255, § 12F (1988) ...... 8
Md. Code Ann., Com. Law. § 12-309 (1993) ....... 8

REGULATIONS

16 C.F.R. § 433.2 (1994) 2... ee eee ee ee ees 8
26 C.F.R. § 301.6402-6(1) (1994) .. 2... ee eee 21
34 C.F.R. § 30.24-26 (1994) .. 1... ee eee ee eee 20
34 C.F.R. § 30.33 (1994) 2... ee cee wees 4, 5, 20
34 C.F.R. § 668.7(a)(7) (1993)... ....--+-+- 5, 22
MCP. COMO CD 2 nce cc cucescsvee
34 C.F.R. § 682.200 (1993) ... 2... cece eee eees g
34 C.F.R. § 682.208(b) (1993)... 2... ee ee ees 5, 21
34 C.F.R. § 682.404(g) (1993)... 6 ee ee ee eee 4
34 C.F.R. § 682.409 (1993) 2... ce eee ee eee ees 4
34 C.F.R. § 682.410 (1993) 2... 2. ee eee ees 4, 22

34 C.F.R. § 682.410(b)(6), 59 Fed. Reg. 22488 (April
SS cs aun ae 4, 19

34 C.F.R. § 682.410(b)(10), 59 Fed. Reg. 22488
teeth DD GOW 6 in co secs adetersseest 4

xi
ee eer ee Se fk isk wc hee keen. 19

34 C.F.R. § 682.604(f)(2)(iii) (1993) .......0.002.. 9

LEGISLATIVE MATERIALS

Abuses in Federal Student Aid Programs, Hearings
before the Permanent Subcommittee on
Investigations of the Committee on Governmental
Affairs, 101st Cong., 2d Sess., S. Hrg. 101-659
Pd 356 0'c Se ead eee Oo eS eS Oe 6,7

Abuses in Federal Student Aid Programs, 102d Cong..,
Ist Sess., S. Rep. 102-58 (1991).......... 5, 22

General Accounting Office, Analysis of Student Default
Rates at 7,800 Postsecondary Schools, GAO/HRD-
ee ae a ss bs ee cea ee es 5

Office of Inspector General, U.S. Department of
Education, SEMIANNUAL REPORT TO CONGRESS,

No. 22, October 1, 1990 - March 31, 1991 ...... 6
ADMINISTRATIVE MATERIALS

40 Fed. Reg. 53507-16, 53524-25 (1975) ......... 8

oe ae Oe, See GUD 8 bs hve eeu eeeeeeees 9

59 Fed. Reg. 22472, 22487, 22488 (April 29, 1994)... 4

Department of Education, Office of Inspector General,
Inspection Report of Culinary School of

Washington, Ltd. (Insp. No. N-0000903) (May 21,
EE he he oe ke ee ee ee a ee we 3

xii

MISCELLANEOUS

E. Borchard, DECLARATORY JUDGMENTS 2d
Py ye ee ee ee ee eo 18, 19, 22

Joseph D. Boyd and Carol Wennerdahl, THE
CHARACTERISTICS OF STAFFORD STUDENT LOAN
BORROWERS IN REPAYMENT AND THE IMPACT ON
EDUCATIONAL DEBT ON PERSONAL AND
ECONOMIC LIFE DECISIONS (June 1993) ........ 4

The College Board, Trends in Student Aid: 1982 to
1992 (September 1992) .......ce ee eeeves ,

J. Fonseca, HANDLING CONSUMER CREDIT CASES (3d
i Se oes one ck owes eee ee eee 8

RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187
5) Seeman re ptr ean re tS 11

Uniform Consumer Credit Code, 1974 Act, 7A U.L.A.
Se SE bak ce are eesket arene tere 8

IN THE

Supreme Court of the United States
OCTOBER TERM, 1994

MICHAEL JACKSON, ET AL..,
Petitioners,

Vv.

CULINARY SCHOOL OF WASHINGTON, LTD.,
ET AL.,
Respondents.

PETITION FOR A WRIT OF CERTIORARI

OPINIONS BELOW

The opinion of Court of Appeals for the District of
Columbia Circuit is reported at 27 F.3d 573, and is reprinted
in the Appendix to this petition at pages Al-A24. The
decision of the District Court for the District of Columbia is
set forth in two opinions, a March 26, 1993 Opinion and
Order reported at 788 F. Supp. 1233, which granted in part,
and denied in part, certain motions to dismiss petitioners’
claims, and a January 6, 1993 Opinion ieported at 811 F.
Supp. 714, which granted defendants’ motions for summary
judgment on all remaining claims. These opinions are
reprinted in the Appendix at pages A25-A94.

JURISDICTION

The judgment of the Circuit Court of Appeals for the
District of Columbia was entered on June 24, 1994. A
timely petition for rehearing was denied on August 17, 1994.
See A95. This Court has jurisdiction under 28 U.S.C.
§ 1254(1).

STATUTORY PROVISIONS INVOLVED
The Rules of Decision Act, 28 U.S.C. § 1652, provides:
The laws of the several states, except where the
Constitution or treaties of the United States or Acts of
Congress otherwise require or provide, shall be

2

regarded as rules of decision in civil actions in the

courts of the United States, in cases where they

apply.

The Declaratory Judgment Act, 28 U.S.C. § 2201,

provides, in pertinent part:

In a case of actua) controversy within its jurisdiction,
. . any court of the United States, upon the filing of

an appropriate pleading,*may declare the nghts and

other legal relations of any interested party seeking

such declaration, whether or not further relief is or

could be sought.

STATEMENT OF THE CASE

Petitioners are borrowers under the federal guaranteed
Student loan program administered by the Secretary of
Education who maintain that their loans are unenforceable
because the school that arranged the loans made false
representations and failed to deliver the educational services
it promised. In the decision below, the Court of Appeals for
the District of Columbia Circuit held that borrowers cannot
bring a declaratory relief action to have these defenses
adjudicated and enjoin further enforcement of the notes by
the Secretary of Education and other participants in the
federal guaranteed loan program.

The Court of Appeals’ ruling that the federal courts
cannot entertain petitioners’ action for declaratory relief
raises two issues, either of which would require reversal of
the judgment below if resolved in petitioners’ favor. First,
the Court concluded that declaratory relief is not available
because choice of law issues presented by the borrowers’
defenses are governed by the choice of law rules of the
forum in which a future coercive action would be brought,
and the forum of a future coercive action could nui be
determined with certainty. That conclusion, however, is
inconsistent with decisions of this Court, beginning with
Klaxon Co. v. Stentor Electric Manufacturing Co. , 313 U.S.

3

487 (1941), holding that federal courts are obligated to apply
the choice of law rules of the forum in which they sit.

Second, although the Court of Appeals assumed that there
would be future coercive actions brought by defendants, it
never examined whether such actions were likely or would
adequately protect the borrowers’ right to raise their
defenses. In fact, the federal student loan program allows
the Secretary of Education and guaranty agencies to collect
from borrowers who are alleged to be in default, and to
impose penalties on them, without ever instituting an action
that would allow borrowers to present their defenses in court.
Thus, the denial of declaratory relief here does not simply
defer the issues to a hypothetical future proceeding, but may
deprive the plaintiffs of any remedy.

A. The Guaranteed Student Loan Program.

The Guaranteed Student Loan Program (“GSLP”) is one
of a number of programs established by the Higher Education
Act of 1965, 20 U.S.C. § 100i-1146a (“HEA”). See 34
C.F.R. § 682.100 (1992). Under the relevant portion of the
Program, the federal government encourages lenders to make
loans for student tuition, fees, and expenses by paying
interest subsidies and special allowances to the lenders, and
covering the lenders’ losses in the event of default, provided
that certain federal requirements are met. See 20 U.S.C.
§§ 1078, 1087-1. The value of the loans issued annually
under this program has steadily grown from approximately
$9 billion in 1986, to almost $14 billion in 1992.’

Under the GSLP, private lenders make loans to eligible
students to attend schools that the Secretary of Education has
accepted for participation in the program as “eligible

' The College Board, Trends in Student Aid: 1982 to 1992 at
4, Table 1 (September 1992). Subsequent to the execution of the
loans at issue here, the Higher Education Act Amendments of 1992
renamed the GSLP the “Federal Family Education Loan
Program.” Pub. L. No. 102-325, § 411, 106 Stat. 510 (1992).

4

institutions.” 20 U.S.C. § 1085(a). State and private
guaranty agencies insure these loans against default, and the
Secretary of Education, in turn, reinsures the guaranty
agencies against their losses. If the borrower defaults, the
lender is reimbursed for the unpaid balance by the guaranty
agency, and the guaranty agency may recover up to 100% of
its losses, including administrative costs related to collection
of the loan, from the Secretary of Education. See 20 U.S.C.
§ 1078(c)(1), (7). After making a reinsurance payment to a
guaranty agency, the Secretary may demand an assignment
of the loan or have the guaranty agency collect the loan on
his behalf. See id. §§ 1078(c)(2)(D), 1078(c)(8); 34 C.F.R.
$§ 682.404(g), 682.409 (1993).

The Secretary and guaranty agencies may initiate judicial
proceedings to collect defaulted loans or invoke special
remedies allowing them to collect from borrowers through
extra-judicial means. The Higher Education Act authorizes
the Secretary and guaranty agencies to garnish the wages of
any borrower in default without filing a civil action. 20
U.S.C. § 109Sa; 59 Fed. Reg. 22488 (April 29, 1994) (to be
codified as 34 C.F.R. § 682.410(b)(10)). In addition,
guaranty agencies and the Secretary can collect on the loans
by having the Internal Revenue Service withhold tax refunds
owed to borrowers. See 31 U.S.C. § 3720A; 34 C.F.R.
§ 30.33 (1994); 59 Fed. Reg. 22472, 22487 (April 29, 1994)
(to be codified at 34 C.F.R. § 682.410(b)(6)(i)). Collections
through tax offsets alone have accounted for almost 25% of
the total collections on GSLP loans.? Before the loans are
collected through administrative wage garnishment or
intercepting tax refunds, the borrower is given notice by

Joseph D. Boyd and Carol Wennerdahl, THE
CHARACTERISTICS OF STAFFORD STUDENT LOAN BORROWERS IN
REPAYMENT AND THE IMPACT ON EDUCATIONAL DEBT ON
PERSONAL AND ECONOMIC LIFE DECISIONS, Appendix, Table X-
7.1 (June 1993),

5

mail, and may request that the Secretary or guarantee agency
review the existence, amount or enforceability of the debt,
but no judicial proceedings are required before garnishing
wages or intercepting tax refunds. See 20 U.S.C.
§ 1095a(a)(5); 34 C.F.R. § 30.33(b)(3)(ii) (1994).

In addition, the Higher Education Act imposes penalties
on borrowers in default, even if no efforts are ever made to
collect on the loan through judicial proceedings, wage
garnishment, or tax intercepts. Borrowers in default on a
GSLP loan are barred from receiving any grant, loan, or
other financial assistance under “he Higher Education Act of
1965. 20 U.S.C. § 1091(a)(3); 34 C.F.R. § 668.7(a)(7)
(1993). In addition, lenders and guaranty agencies are
required to issue adverse credit reports to national credit
bureaus on any borrowers who fail to make payments on
their loans. 20 U.S.C. § 1080a; 34 C.F.R. §§ 682.208(b),
682.410(b)(S) (1993).

B. Plaintiffs’ Claims.

In recent years, 20-30 percent of all GSLP loan funds
have gone to proprietary and vocational schools offering
relatively short term programs (six months to a year) in
trades or job skills.’ The default rate for students attending
vocational schools using GSLP loans, however, is
disproportinately high. For example, in 1987, the loan
default rate for students at vocational schools was 39%, in
contrast to 10% default rate for borrowers at 4 year
schools.‘ Investigations into the GSLP program have
repeatedly found that many vocational schools have engaged

> The College Board, Trends in Student Aid, at 3, 9, Table 6
(Sept. 1992).

* Abuses in Federal Student Aid Programs, §. Rep. 102-58,
102d Cong., Ist Sess. 2 (1991); General Accounting Office,
Analysis of Student Default Rates at 7,800 Postsecondary Schools,
GAO/HRD-89-63BR, at 15 (July 1989).

6

in fraud or other abuses to induce students to sign GSLP
loans, or failed to provide adequate training to students after
they enrolled.’ Numerous suits have been filed by former
students challenging the enforceability of GSLP loans
arranged by such vocational schools.°

The Culinary School of Washington (CSW) was a
proprietary school headquartered in Washington, D.C.,
which financed the enrollment of most of its students by
arranging for them to execute GSLP loans. Overall, CSW
received over $18.8 million in federal loans, including
approximately $6.6 million in 1989. App. at A26 n.4.

CSW recruited students by representing that it would
provide vocational training in the culinary arts which, after
25 weeks, would qualify students as certified gourmet chefs.
Among other things, the school promised to provide training
by master chefs in professionally equipped kitchens in
various embassies, as well as transportation, housing,
financial assistance, and job placement services. Relying on
these representations, petitioners in this case enrolled in the
school, and signed GSLP loans. App. at A5S-6.

CSW arranged petitioners’ loans, and the students had no
direct contact with the lenders. CSW presented the students
with pre-printed loan applications and promissory notes,

* Abuses in Federal Student Aid Programs, Hearings before the
Permanent Subcommittee on Investigations of the Committee on
Governmental Affairs, \101st Cong., 2d Sess., S. Hrg. 101-659, Pt.
2, 153-58 (1990); Office of Inspector General, U.S. Department
of Education, SEMIANNUAL REPORT TO CONGRESS, No. 22,
October 1, 1990-March 31, 1991, at 9-23.

° See, e.g., Tipton v. Secretary of Education, 768 F. Supp.
540 (S.D.W.Va. 1991); Keams v. Temple Technical Institute, Inc. ,
807 F. Supp. 569 (D. Ariz. 1992); Williams v. National School of
Health Technology, Inc., 836 F. Supp. 273 (E.D. Pa. 1993);
Bogart v. Nebraska Student Loan Program, 313 Ark. 656, 858
S.W.2d 78 (1993).

7

selected the lenders for the students’ loans, completed
portions of the loan notes, and was responsible for presenting
the terms of the loan to the students. CSW then forwarded
the completed forms to the lenders and guaranty agencies,
which approved the loans and issued the funds to CSW.
App. at A6é.

Official investigations of CSW repeatedly found that
CSW misrepresented its services, failed to fulfill its promises
to students, and mishandled loan funds.’ The training
provided by CSW was inadequate, its facilities were
unsanitary and outdated, and it often failed to provide the
transportation and housing it promised. App. A6. In
January 1990, after repeated complaints concerning its
misconduct, and in the midst of an investigation by the
District of Columbia Educational Licensure Commission,
CSW filed for bankruptcy, and the school ceased operations.
Id.

In 1991, petitioners filed this action against CSW, the
lenders on their loans, the guaranty agencies, and the
Secretary of Education. Petitioners alleged that CSW
fraudulently induced them to enroll and to execute GSLP
loans, and had breached its contractual obligations.
Petitioners further alleged that, because of CSW’s
involvement in arranging the loans, their claims and defenses
against CSW could be asserted as defenses to enforcement by
the lenders, the guaranty agencies, and the Secretary.

” See, e.g., Department of Education, Office of Inspector
General, Inspection Report of Culinary School of Washington, Ltd.
(Insp. No. N-0000903) (May 21, 1990); Abuses ir Federal Student
Aid Programs, Hearings before the Permanent Subcommittee on
Investigations of the Committee on Governmental Affairs, 10\st
Cong., 2d Sess., S. Hrg. 101-659, Pt. 2, 308-379 (1990)
(describing investigations by the District of Columbia Educational
Licensure Commission, the Department of Education, the Higher
Education Assistance Foundation, and accrediting agencies).

‘

8

Petitioners’ claims against the Secretary, guaranty
agencies, and the lenders rest on state and federal consumer
laws that provide that, when the seller arranges a loan in a
consumer transaction, the consumers’ claims and defenses
against the seller are preserved and can be raised against the
lender or assignees of the loan. A number of states and the
District of Columbia have adopted consumer protection laws
that provide for such preservation of consumer defenses in
order to prevent the use of financing arrangements to
abrogate or “cut-off” consumer claims and defenses. See,
e.g., D.C. CODE § 28-3807-09 (1991); ARIZ. REV. STAT.
ANN. § 44-145 (1994); N. Y. GEN. Bus. Law § 253
(Consol. 1993); MASS. GEN. ANN. Laws ch. 255, § 12F
(1988); Mp. CoDE ANN., Com. LAw. § 12-309 (1993); see
also Uniform Consumer Credit Code, 1974 Act, § 3.405, 7A
U.L.A. 130-31 (1985).

This principle of preserving consumer defenses is also
embodied in the Federal Trade Commission’s rule on the
“Preservation of Consumer Claims and Defenses,” which
requires that, if the seller and lender cooperate in arranging
financing, the loan must include a provision stating that the
it is subject to all claims and defenses that the borrower has
against the seller. See 16 C.F.R. § 433.2 (1994) (“FTC
Holder Rule”); see generally 40 Fed. Reg. 53507-16, 53524-
25 (1975) (discussing rationale for FTC Holder Rule); J.
Fonseca, HANDLING CONSUMER CREDIT CASES, § 2.18-20,
at 69-84 (3d ed. 1986) (discussing FTC Holder Rule and
state laws). Finally, the Department of Education, and its
predecessor, the Office of Education, have stated that the
FTC Holder Rule is applicable to GSLP loans and, if
loanmaking functions are delegated to a school in an
“origination relationship,” 34 C.F.R. § 682.200 (1993), the
school’s failure to deliver the services purchased by the loan

9

provides the student with a defense against the obligation to
repay the lender all or part of the loan.*

CSW failed to appear, and the district court entered a
default judgment finding the school liable for fraud and
breach of contract. The district court, however, rejected
each of petitioners’ arguments that CSW’s misconduct gave
rise to defenses against the lenders, the guaranty agencies
and the Secretary, on the basis that petitioners’ claims were
preempted by federal law or failed to state a claim, or on the
ground that the claims did not survive defendants’ summary
judgment motions. App. at A7-8.

C. The Appellate Court's Ruling.

On appeal, petitioners challenged four aspects of the
district court’s rulings, three of which involved, in part,
issues of state law, and one of which rested entirely on
federal law. First, petitioners challenged the district court’s
ruling that the District of Columbia statutes that preserve
claims and defenses on consumer loans are preempted by

* See App. at A22-23 (quoting Department of Education
Statements that “where there is an origination relationship between
the school and the lender, the student’s claims and defenses as to
the school can be asserted as defenses to the loan contract, whether
rights under the loan contract are being asserted by the lending
bank, the guaranty agency or the Secretary.”); 34 C.F.R.
§ 682.604(f)(2)(iii) (1993) (students should be counselled that they
cannot raise school-related defenses on a loan, “other than a loan
made or originated by the school.”); 55 Fed. Reg. 48327 (1990)
(referring to “longstanding view” that defenses are preserved if
“origination relationship” exists between school and lender);
United States v. Griffin, 707 F.2d 1477, 1480-84 (D.C. Cir. 1983)
(describing 1976 Office of Education bulletin stating that FTC
Holder Rule applies to student loans, and Office of Education
regulations on preservation of student defenses on school
originated loans); App. at AS n.5 (Department of Education has
incorporated FTC Holder Rule Notice in new loan application
forms).

10

federal law. App. at A39-40, A5S4-55. Petitioners also
raised claims based on the FTC Holder Rule in which they
challenged the district court’s ruling that, although the FTC
Holder Rule applies to GSLP loans, the provisions of the
Notice required by the Rule could not be implied into the
notes under state common law principles, App. at A43-48,
and its ruling that neither the District of Columbia statutes,
nor the District of Columbia’s proprietary school regulations,
provided any remedy against enforcement of loans issued in
violation of the Holder Rule. App. at AS5-57, A87-90.
Finally, petitioners challenged the district court’s holding that
the Secretary of Education was entitled to summary judgment
on petitioners’ claim that their defenses were preserved under
the Secretary’s statements on “origination” because the
allegations that CSW originated the loans were not supported
by the evidence. App. at A83-86.

The Court of Appeals only decided the merits of this last
claim. Although the Secretary had never raised the issue in
the district court, the Court of Appeals requested
supplementary briefing on whether the Secretary's statements
concerning “origination” represent a binding “rule”
enforceable by third parties. App. at A1l8-20. The Court of
Appeals concluded that the language and context of
Secretary's statements indicated that the statements were not
intended to create new rights or defenses as a matter of
federal law, particularly because the Department has
indicated that “it preferred continuation of the regime of state
defenses to the promulgation of a uniform federal rule.”
App. at A24.

The Court of Appeals also ruled that Congress had not
displaced state defenses and established a uniform federal
rule by express preemption or implied preemption of the
field, and state law governs the rights of the lenders and
guaranty agencies unless it is in “actual conflict” with federal
law. App. at Al3-15. Moreover, the Court held that the
Secretary's rights to enforce the loans under federal law must
also be determined by reference to state law. Although the

1]

rights and obligations of the Secretary were governed by
federal common law, the content of federal common law in
the federal loan context is determined by the applicable state
standards, absent proof that those standards are in conflict
| with the federal law. App. at A9 n.9 (citing United States v.
) Kimbell Foods, Inc., 440 U.S. 715, 727 (1979)).

) The Court of Appeals ultimately held, however, that it
would not resolve the state law and the federal common law
} issues presented by petitioners’ challenges to the district
court’s rulings on preemption and the FTC Holder Rule.
Although no party had questioned the appropriateness of
declaratory relief in the district court or on appeal, the Court
. of Appeals, without requesting any briefing on the issue,
ruled that the district court acted improperly in addressing
these claims on the merits, and directed that all claims
requiring the resolution of issues of state law be dismissed
without prejudice. App. at A3, A9-A17.

The Court of Appeals maintained that declaratory relief
; was inappropriate because it could not determine which
choice of law rules to apply. Although most, if not all, of
the students signed their loan forms at CSW in the District
of Columbia, one defendant (Crestar Bank) had argued that
petitioners could not rely on District of Columbia law
because the loans were approved by lenders outside the
District of Columbia, or contained choice of law provisions
Stating that the loan should be governed by the law of other
states. In response, petitioners argued that the choice of law
provisions, even if otherwise valid, cannot be used to defeat
the fundamental policies of the forum state that cannot be
waived by agreement, such as the District of Columbia
consumer protection laws at issue here. See RESTATEMENT
(SECOND) OF CONFLICT OF LAWS § 187 (1971)); Munter v.
Lankford, 127 F. Supp. 630, 632-33 (D.D.C. 1955).

The Court of Appeals, however, refused to resolve this
issue on the grounds that “we have no way of knowing what
choice of law rules will obtain.” App. at Al5. The Court

—————— 2& LLL

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12

maintained that choice of law issues are governed by the
choice of law rules of the forum in which a future coercive
action would be brought, and “we can only speculate whether
D.C. law will govern any future coercive suit brought by the
declaratory judgment defendants.” App. at A9. “In light of
this uncertainty,” the Court held that it would not resolve
“whether D.C. law, which may or may not apply in a future
coercive action,” is preempted by federal law, id. at App.
A15, nor decide petitioners’ claims that their defenses are
preserved under the FTC Holder Rule. App. at Al7.

In holding that the district court was required to dismiss
petitioners’ request for declaratory and injunctive relief in
favor of “future coercive action[s] brought by the declaratory
judgment defendants,” App. at Al5, the Court of Appeals
did not examine whether such actions were likely or would
provide an adequate mechanism for resolving petitioners’
defenses. Nor did the court address petitioners’ claims for
injunctive relief “to remove adverse information relating to
these loans from the Plaintiffs’ credit records and restore
eligibility of the Plaintiffs to participate in the GSL program
and Pell Grant Program.” Complaint, Prayer for Relief, 4
4 (JA 308).

The Court of Appeal’s analysis of the declaratory relief
and choice of law issues originated solely with the Court, as
no party had raised such claims, and the parties had no
opportunity to present evidence or legal argument on these
issues before the Court of Appeals made its decision. After
the decision, petitioners filed a motion for rehearing arguing
that the Court of Appeals’ novel analysis of the choice of law
issues violated the rule of Klaxon Co. v. Stentor Electric
Manufacturing Co. , 313 U.S. 487 (1941), and that the denial
of declaratory and injunctive relief in favor of future coercive
actions could not be reconciled with Brillhart v. Excess Ins.
Co., 316 U.S. 491 (1942), particularly where extra-judicial
collection was authorized and there was no assurance that
petitioners would ever be able to obtain a determination of
their defenses in another proceeding. The petition for

13

rehearing was denied, without elaboration, on August 17,
1994. App. at A95.

REASONS FOR GRANTING THE WRIT

The Court of Appeals’ decision severely restricts the
availability of declaratory relief in situations where an action
for a declaratory judgment may be the only way a party can
obtain adjudication of his or her claim. Because this ruling
presents substantial questions concerning the rules of decision
in federal courts, and the ability of federal courts to refuse
to entertain declaratory judgments when there is no adequate
alternative remedy, this Court should grant review.

I. THE DECISION BELOW CONFLICTS WITH THE
DECISIONS OF THIS COURT THAT REQUIRE
FEDERAL COURTS DECIDING QUESTIONS OF
STATE LAW TO APPLY THE CHOICE OF LAW
PRINCIPLES OF THE FORUM IN WHICH THEY
SIT.

This Court should grant review to resolve whether the
canon that federal courts are required to apply the choice of
law rules of the forum in which they sit applies in
declaratory judgment actions or, as the Court below
concluded, the federal courts must look to the choice of law
rules of the forum of future coercive actions. This question
not only affects the applicable rules of decision, but also
affects the scope of the declaratory relief remedy. If, as the
Court below concluded, declaratory judgment actions are
governed by the choice of law rules of the potential future
coercive actions, the availability of declaratory relief will be
severely restricted because federal courts will be required to
dismiss such actions wherever choice of law issues exist and
future coercive actions may be brought in more than one
‘urisdiction.

The central premise of the decision below is that, when
choice of law issues are presented in a declaratory judgment
action, and it is uncertain where a future coercive action by
the defendant will be brought, declaratory relief is

14

unavailable in the federal courts because the court must apply
the choice of law rules of the forum of a future coercive
action and “we have no way of knowing what choice of law
rules will obtain.” App. at AIS. This ruling ignores the
well-established rule of that federal courts must follow the
choice of law rules of the jurisdictions in which they sit.
Klaxon Co. v. Stentor Electric Manufacturing Co. , 313 U.S.
487 (1941). This Court has made clear that this rule applies
even where the federal court disagrees with the wisdom of
the choice of law rules of the local jurisdiction, Day &
Zimmerman, Inc. v. Challoner, 423 U.S. 3, 4-5 (1975), and
where the issue is whether the local choice of law rules
would refuse to give effect to contractual terms because they
are contrary to the public policy of the forum. Griffin v.
McCoach, 313 U.S. 498, 503-04 (1941). No prior case of
this Court supports the Court of Appeals’ assumption that the
Klaxon rule does not apply to declaratory judgment actions.

Moreover, the Court of Appeals’ conclusion that Klaxon
does not apply to declaratory judgment actions frustrates the
very purpose of Klaxon and the Rules of Decision Act, 28
U.S.C. § 1652. Federal courts are required to apply the
choice of law rules of the forum in which they sit because
any other result would “disturb the equal administration of
justice in co-ordinate state and federal courts sitting side by
side.” Klaxon, 313 U.S. at 496 (citing Erie R. Co. v.
Tompkins, 304 U.S. 64, 74-77 (1938)). This rationale is
fully applicable to declaratory judgments. A declaratory
judgment brought in federal court should be governed by the
same legal rules, including choice of law rules, as a parallel
action in local courts seeking the same relief. The decision
below violates this Court’s teaching that federal courts are
“not free to engraft onto [state choice of law rules]
exceptions or modifications,” which deny litigants remedies
that would otherwise be available if the action were brought
in state court. Day & Zimmerman, Inc. v. Challoner, 423
U.S. at 4.

sii

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iia ts Sa ek aa Sa RLF rtd Mi Re nina Acta BN ee i.

15

Indeed, the issue is starkly presented in the context of
this case because of the federal government's removal
authority. As with other GSLP borrowers, the loans of many
of the petitioners in this action have been assigned to the
Secretary of Education. See infra note 9. Thus, even if
these borrowers were to initiate an action for declaratory and
injunctive relief against enforcement of the loans in state
court, the Secretary would be free to remove the action to
federal court. 28 U.S.C. § 1442(a)(1). Under the Court of
Appeals’ decision, however, the federal court would be
required to dismiss the action without ever adjudicating the
merits. Thus, in this context, failing to apply the choice of
law rules of the forum not only results in the federal court
reaching a different result, but it precludes borrowers from
ever obtaining relief that may be authorized by state law.

The Court of Appeals’ conclusion that declaratory relief
must be denied in order to allow the defendant to select the
forum and, thus, the governing choice of law rules, is also
in conflict with the rationale of other decisions of this Court.
In Van Dusen v. Barrack, 376 U.S. 612, 629-40 (1964), this
Court held that, even where a plaintiffs’ action is transferred
to another forum for the convenience of the parties and
witnesses, the choice of law rules of the forum selected by
the plaintiff still govern because plaintiffs should be allowed
“to retain whatever advantages may flow from the state laws
of the forum they have initially selected.” Jd. at 633. The
Court concluded that nothing in the language or policy of the
28 U.S.C. § 1404(a) would “justify its use by defendants to
defeat the advantages accruing to plaintiffs who have chosen
a forum which, although it was inconvenient, was a proper
venue.” Jd. at 634; accord Ferens v. John Deere Co., 494
U.S. 516 (1990) (Van Dusen holding also applies where
plaintiff initiates transfer). In the same way, nothing in the
Declaratory Judgment Act alters the normal rule that
plaintiffs are entitled to the benefit of their chosen forum, or
suggests that federal courts should deny declaratory relief in
order to allow the defendant to chose the forum.

16

Finally, the decision below warrants review because it
substantially restricts the availability of declaratory relief in
the federal courts. If, as the decision below holds, federal
courts must dismiss claims for declaratory relief where
choice of law issues exist and future coercive actions could
be brought in more than one jurisdiction, many actions
historically adjudicated through declaratory judgments could
not be maintained.

For example, the declaratory judgment act is designed to
provide a mechanism for addressing insurance coverage and
other contractual disputes by declaring the rights and
obligations of the parties. See Aetna Life Ins. Co. v.
Haworth, 300 U.S. 227 (1937). Such cases frequently raise
difficult choice of law issues, and involve disputes in which
a coercive action may be brought in any one of a number of
jurisdictions. See, e.g., Whirlpool Corp. v. Ritter, 929 F.2d
1318, 1320-21 (8th Cir. 1991); Eli Lilly and Co. v. Home
Ins. Co., 764 F. 2d 876, 880-81 (D.C. Cir. 1985); Melville
v. American Home Assur. Co. , 584 F.2d 1306, 1310-11 (3d
Cir. 1978). Moreover, federal programs involving loans and
other contractual obligations will generally be governed by
state law principles and, thus, will raise potential choice of
law issues. See, e.g., United States v. Kimbell Foods, Inc. ,
440 U.S. 715, 728-29 (1979) (Small Business Administration
loans generally governed by state law principles unless they
frustrate federal objectives).

Under the decision below, however, the availability of
declaratory judgments for these actions is severely restricted
because the federal court cannot determine which forum’s
law governs the choice of law issues and, thus, it must
dismiss such actions without addressing the merits. Indeed,
the choice of law issues presented in this case are typical of
those that arise in cases concerning contracts involving
parties in different states. The issue of whether contractual
provisions in the loan supplant District of Columbia law
presents an ordinary conflict of law issue to be decided by
the federal court or, if necessary, certified to the local

a le Oe Se ee ee

17

courts. See Clay v. Sun Ins. Office, 363 U.S. 207 (1960);

Eli Lilly and Co. v. Home Ins. Co., 764 F.2d at 884. But if

Klaxon does not apply to declaratory judgment actions, such

issues are indeterminable because it is impossible to ascertain

which choice of law rules govern, and federal courts will be
unable to entertain actions for declaratory relief when such
issues are involved.

Ii. THIS COURT SHOULD REVIEW THE COURT OF
APPEALS’ RULING THAT A FEDERAL COURT IS
REQUIRED TO REFUSE TO ADJUDICATE AN
ACTION FOR DECLARATORY JUDGMENT EVEN
WHERE, AS HERE, DENIAL OF SUCH RELIEF
MAY DENY THE PLAINTIFF ANY FORUM IN
WHICH TO LITIGATE HIS OR HER CLAIM.

This Court should also review the Court of Appeal’s
ruling that a federal court may (indeed, in this case, is
required to) dismiss a plaintiff's action for declaratory relief
in favor of a future coercive action by the defendant -- even
where such an action may be inadequate or may never be
brought. Although the decision below purports to reserve the
resolution of the federal preemption and other legal questions
for “future coercive suit[s] brought by the declaratory
judgment defendants,” App. at A9, borrowers under the
GSLP are subject to penalties before any such actions are
brought and, moreover, defendants may collect on the loans
without bringing a civil action. Consequently, the decision
below does not simply postpone an inevitable adjudication,
but may deny petitioners any opportunity for adjudication of
the merits of their claims that such penalties and collection
actions are unlawful because their loans are subject to valid
defenses.

This holding is inconsistent with this Court’s
jurisprudence concerning when federal courts may dismiss or
abstain in declaratory judgment actions, or other proceedings,
in favor of an alternative proceeding. In Brillhart v. Excess
Ins. Co. of America, 316 U.S. 491, 495 (1942), this Court

18

held that, even where there is another pending state court
action, a plaintiff should not be denied the opportunity to
obtain declaratory relief unless the alternative action is shown
to provide a better mechanism for adjudicating the plaintiffs’
claims. Commentators have likewise maintained that “[i]t is
only where the court believes that more effective relief can
and should be obtained by another procedure . . . that it is
justified in refusing a declaration because of the availability
of another remedy.” E. Borchard, DECLARATORY
JUDGMENTS 2D, 303 (1941).

In other contexts, this Court has also heid that federal
courts should not abstain or dismiss actions in favor of a
concurrent proceeding unless it is shown that the other
proceeding “will be an adequate vehicle for the complete and
prompt resolution of the issues between the parties.” Moses
H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 28 (1983) (improper to stay federal suit seeking arbitration
in deference to parallel state court action); see also Gibson
v. Berryhill, 411 U.S. 564, 577 (1973) (abstention in favor
of state court prosecution “naturally presupposes the
opportunity to raise and have timely decided by a competent
state tribunal the federal issues involved.”); Colorado River
Water Conservation District v. United States, 424 U.S. 800,
817-19 (1976) (federal courts have “virtually unflagging
obligation” to exercise jurisdiction given them and “[o]nly
the clearest justifications will warrant dismissal” in favor of
state court proceedings). Indeed, this Court’s decisions teach
that if there is “any substantial doubt” that the alternative
proceeding is adequate, stay or dismissal of a plaintiff's
federal action in deference to the alternative proceeding is “a
serious abuse of discretion.” Moses H. Cone Mem. Hosp,
460 U.S. at 28.

The decision below is at odds with these principles
because it provides that declaratory relief must be denied to
borrowers in the student loan program even where there is no
other pending action and, indeed, no assurance that there will
ever be an action in which the claims will be adjudicated.

si ata aaa

19

Where Brillhart held that it was improper to deny declaratory
relief in favor of a pending state action unless it was first
determined that action provided an adequate opportunity to
present the claims in the declaratory judgment action, the
decision below provides that declaratory relief must be
denied, despite the absence of any pending action, or even
imminent threat that such an action will be brought. See E.
Borchard, supra at 349 (declaratory action should be
dismissed in favor of an imminent action “only in the
clearest case.”)

Moreover, the decision below mandates the dismissal of
declaratory relief without conducting any inquiry into
whether future coercive actions will be adequate to protect
borrowers’ rights. Because the appropriateness of
declaratory relief was never questioned by the district court
or the parties, the Court of Appeals denied declaratory relief
without any record and without giving the parties any
opportunity to be heard on the likelihood or adequacy of
future coercive actions. Compare Brillhart, 316 U.S. at 495-
97 (issues concerning adequacy of pending state garnishment
action should be remanded to the district court to conduct
appropriate inquiry).

More importantly, for many borrowers in the GSLP, the
prospect of a future coercive action is illusory. Under the
GSLP, lenders do not bring suit to enforce contested loans,
but are fully reimbursed by the guaranty agencies after they
have made demands for payment. 34 C.F.R. § 682.411
(1993). Guaranty agencies are also entitled to reimbursement
from the Secretary without ever filing suit if they determine
that the cost of litigation exceeds the likely recovery, or that
the borrower lacks the means to satisfy a judgment on the
debt. 59 Fed. Reg. 22488 (April 29, 1994) (to be codified
at. 34 C.F.R. § 682.410(b)(6)(vii)(B)). Moreover, the
Secretary and guaranty agencies can, and frequently do,
collect loans through wage garnishment or tax refund
intercepts without ever filing a civil action. See, e.g.,
Games v. Cavazos, 737 F. Supp. 1368, 1370-72 (D. Del.

ee ew

20

1990) (private agency assigned loan to Secretary for
collection through tax intercepts after a series of collection
notices); Thomas v. Bennett, 856 F. 2d 1165, 1166 (8th Cir.
1988) (only collection action was by tax offset nine years
after loan was made); Gerrard v. United States Office of
Education, 656 F. Supp. 570, 571-72 (N.D. Cal. 1987)
(same). Indeed, the Secretary and guaranty agencies have
every incentive to use these less costly, non-judicial
collection methods, particularly where the amounts of
individual loans are relatively modest and the borrower’s
resources are limited.°

Thus, denying declaratory relief effectively forecloses the
opportunity for many borrowers in the GSLP to litigate the
validity of their defenses to the loans. If the Secretary or
guaranty agencies pursue collection through wage
garnishment or tax intercepts, the borrower may request that
they review “the existence, amount, enforceability, or past
due status of the debt.” 34 C.F.R. § 30.33(b)(3)(ii) (1994).
But this procedure is plainly not a substitute for declaratory
relief, or equivalent to the ability to raise defenses in a civil
action to enforce the loan. Apart from the fact that the
review is conducted by the Secretary or the guaranty agency,
the procedure provides no mechanism to compel testimony or
gather evidence, see id. § 30.24-26 (1994), and no means to
litigate the “difficult preemption questions” and other

* Because the propriety of declaratory relief was never
contested below, the record on the extent to which the tax intercept
procedure has been, and is being used, to collect from the
petitioners here was not developed. Nonetheless, the record shows
that by 1992 the Secretary had already taken assignment of loans
to students attending the Culinary School of Washington for the
purpose of intercepting the borrowers’ federal tax refunds. See
Response of Secretary of Education to Plaintiffs’ First
interrogatories, Inter. Nos. 2-4 (May 1i, 1992) (reproduced in
Joint Appendix below at JA 818-820).

21

complex issues that the Court of Appeals declined to
adjudicate. App. at A9.

In addition, if the loan is collected by intercepting tax
refunds, review of the Secretary of the Treasury’s actions is
precluded by statute, 26 U.S.C. § 6402(e), so the only means
to challenge the government’s claim that withholding of the
borrowers’ tax refunds is justified by a “legally enforceable
debt,” 31 U.S.C. § 3720A(a), is through an action for
declaratory or injunctive relief against the Department of
Education or the guaranty agency that claims that the debt is
enforceable. See Thomas v. Bennett, 856 F. 2d at 1167-68;
26 C.F.R. § 301.6402-6(1) (1994). This, however, is
precisely the type of action foreclosed by the decision
below.'°

Furthermore, even if the Secretary and guaranty agencies
never seek to collect the disputed loan through tax intercepts,
wage garnishment, or civil actions, borrowers are subject to
penalties for which they have no redress if declaratory relief
is foreclosed. Lenders and guaranty agencies are required to
report defaulted loans to credit bureaus even if no civil
enforcement action is initiated and, indeed, before any such
action would be initiated. See 34 C.F.R. §§ 682.208(b),
682.410(b)(5) (1993). In addition, any borrower who is in
default on a GSLP loan, even if the debt is disputed, is
barred from receiving any grant, loan, or other financial
assistance under the Higher Education Act of 1965. 20
U.S.C. § 1091(a)(3); 34 C.F.R. § 668.7(a)(7) (1993).

Injunctive or declaratory relief is generally available to
remedy such harms “to prevent one party from continually

‘© The Court of Appeals’ decision does not necessarily
foreclose a borrower from whom funds have already been collected
through administrative garnishment, or other means, from bringing
an action for monetary relief. A borrower, however, should not
be compelled to wait until money is collected on a disputed loan
before he or she can contest its enforceability.

22

accusing the other, to his detriment, without allowing the
other to secure an adjudication of his rights by bringing
suit.” Tempco Elec. Heater Corp. v. Omega Engineering
Inc., 819 F.2d 746, 749 (7th Cir. 1987); accord E.
Borchard, supra, at 304, 349 (declaratory action to
adjudicate defenses should be available to protect the legal
interest of a prospective defendant “in repelling an unjust
claim, and in clearing his right or title”). Under the decision
below, however, declaratory relief is not available to the
millions of borrowers who have participated in the GSLP.
The hypothetical prospect of a future coercive action
provides no » medy since these injuries occur from the time
the borrower refuses to pay the contested loan, and
regardless of whether any coercive action is ever pursued.
Finally, this ruling has important implications beyond this
case for the GSLP and other federal programs where similar
issues arise. The allegations underlying this action are not
isolated; there are numerous reports documenting widespread
fraud and misrepresentation, inadequate training, and other
abuses in the GSLP program.'' The reported cases
concerning student claims, see supra note 6, reflect only a
small fraction of the disputes concerning the effect of such
abuses on the enforceability of student loans. Moreover,
other federal programs present similar issues because federal
law gives agencies the authority to collect on alleged
obligations through tax intercepts, 31 U.S.C. § 3720A, and
“administrative offsets” of funds owed by the government,
id. § 3716, without instituting a civil action. The decision
below raises important questions concerning the availability

'' See, e.g. Abuses in Federal Student Aid Programs, S. Rep.
102-58, 102d Cong., Ist Sess. 11-13 (1991).

23

of declaratory relief to resolve disputes concerning
enforcement of such obligations."
CONCLUSION
This Court should issue a writ of certiorari to review the
decision of the Court of Appeals for the District of Columbia
Circuit in this action.

Respectfully submitted,

Michael E. Tankersley Clare L. McCulla
(Counsel of Record) LEGAL SERVICES OF
Alan B. Morrison NORTHERN VIRGINIA
David C. Vladeck 110 N. Royal Street,

Public Citizen Litigation Group Suite 505
2000 P Street, N.W., Suite 700 Alexandria, VA 22314
Washington, D.C. 20036 (703) 684-5566
(202) 833-3000
Counsel for Petitioners
November 15, 1994

Although it is not clear whether it was determinative of the
outcome of the judgment below, subsidiary to each of the questions
presented here is the question of the standard for appellate review
of a district court’s decision to exercise its discretion to grant or
deny declaratory relief. As the Court of Appeals’ opinion
observes, the circuit courts are divided over this issue: the District
of Columbia and six other circuits have held that the district
court’s decision to exercise its discretion is reviewed de novo, four
circuits hold that such decisions are reviewed only for abuse of
discretion, and two circuits apply an intermediate standard of
review. See App. at A10-12 (citing cases). This Court’s decisions
Suggest, contrary to the decision below, that the question of
whether it is appropriate to defer to an alternative proceeding
should be examined by the district court in the first instance, see
Brillhart, 316 U.S. at 495-97, and that the resolution of this issue
is committed to the district court’s discretion. See Will v. Calvert
Fire Ins. Co., 437 U.S. 655, 664 (1978).

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1230%3A1. Public record. Not legal advice.