In The Matter of UNITED EDUCATION INSTITUTE, Santa Ana, CA
Respondent.

Docket No. 93-59-SP
Student Financial Assistance Proceeding

Respondent

DECISION

LESLIE H. WIESENFELDER, Esq. and
SHERRY A. MASTROSTEFANO, Esq. for
Respondent. DONALD C. PHILIPS, Esq.,
for Student Financial Assistance
Programs of the United States
Department of Education.

Before Paul J. Clerman. Administrative Law Judge:

    In a Final Program Review Determination (FPRD) dated April 8,
1993, respondent, United Education Institute (United) was notified by
the United States Department of Education (ED) that pursuant to
findings made in a Program Review Report (PRR) issued July 9, 1992,
United must repay to ED the amount of $599,872. United was advised
that this sum must be repaid within 45 days after the date of the
FPRD unless, within that time period, United files an appeal to the
FPRD in proper form, in which case an administrative hearing in the
matter would be set before a hearing officer. An appeal was filed by
United's counsel on May 27, 1993, in which a hearing was requested,
and on June 10, 1993, I was designated to be the hearing official in
this matter. My order issued August 13, 1993, set this matter for
hearing, such hearing to consist of the filing by the parties of
briefs and reply briefs, which briefs and replies were filed in due
course.

    United is an educational institution participating since May
1988 in student financial assistance programs authorized under Title
IV of the Higher Education Act of 1965, as amended (Title IV HEA).
The governing regulations, at 34 CFR 600.30, require, among other
things, that such an institution shall notify the Secretary of ED of
any change in the "address of locations other than the main campus at
which it offers educational services." In Section 600.30(c) the
regulations provide that the failure of
an institution to timely notify the Secretary of such a change
"may result in adverse action against it." On brief, counsel
for the Student Financial Assistance Programs (SFAP) on behalf
of ED states that the instant proceeding is an adverse action
against United as contemplated in Section 600.30(c), in that
United failed to inform the Secretary that it was continuing
to offer educational services at a particular location other
than its main campus after United had notified the Secretary
that this particular location had been closed down.

    The material facts in this matter are not in serious
dispute. At the time that United was notified that it was an
eligible institution for Title IV purposes, in May 1988 as
stated, United maintained its main campus at 7311 Van Nuys
Boulevard in Van Nuys, CA (the Van Nuys location). About a
year later United relocated its main campus to a location in
Los Angeles, CA, and in an Institutional Eligibility Notice
dated July 7, 1989, ED's Division of Eligibility and Certification    -



(DEC) acknowledged the change of address and notified United
that
the Secretary had determined that United, at its Los Angeles
location, satisfies the definition of an eligible proprietary
institution of higher education as set forth in Title IV HEA.

    As here pertinent, it appears: (a) that Abdi
Lajevardi, United's Chief Executive Officer, by a document
dated July 17, 1989, certified to the Secretary that:

[T]he school, formerly located at 7311
Van Nuys Blvd., Van Nuys, CA 91405 was closed
on

    - 6/30/89 because of expiration of lease on the

premises. All faculty and staff were
transferred to our new location at 3727 West
6th Street, Los Angeles, CA 90020 on 7/1/89.

(b) that United, according to Lajevardi, "to protect the
interests of current students," continued to maintain the Van
Nuys location so that those students who did not elect to
transfer to the new Los Angeles location could complete their
educational program, and (c) that "because a substantial
number of prospective students and employers in the Van Nuys
area continued to show interest" in United's program at Van
Nuys, United decided to enroll new students in that program.
Thus, according to Lajevardi, the Van Nuys location remained
open as an "auxiliary classroom" location, and new students
enrolled at the Los Angeles campus could attend classes at the
Van Nuys location.

    There is no serious dispute, also, to the fact that on
and between July 1, 1989, and October 14, 1991, the review
period covered by the FPRD, United continued to disburse Title
IV HEA funds to students attending classes at the Van Nuys
location, and on brief United does not dispute, and in fact
does not address, the total amount of those funds disbursed as
calculated by SFAP,

period was not pursued on brief by SFAP, and thus may be
deemed to have been dropped by ED. It is with the other
allegation in the FPRD finding, that is, that the Van Nuys
location was not recognized as an eligible branch by the
Secretary, that United takes issue.

    For an understanding of the matters at issue it is
helpful at this point to place in chronology several of the
events that are deemed to be significant by opposing counsel
on brief. As used below the term ACCET refers to Accrediting
Council for Continuing Education & Training, United's
accrediting agency; CPPVE is California Council for Private
Postsecondary and Vocational Education, United's state
licensing authority; and IE&C is ED's certificate of
institutional eligibility, issued to institutions such as
United pursuant to applications filed by such institutions on
Form E40-34P.

May 5, 1988 IE&C issued by ED to United at Van Nuys location -
June 6, 1988 United executes agreement for program participation at
Van Nuys
April 25, 1989 ACCET advised United that it had notified ED that it



approved the relocation of United's main campus and
the redesignation of the Van Nuys facility as an
auxiliary classroom
April 25, 1989 ED notified United that to maintain eligibility for
the site in Van Nuys it must submit a Form E40-34P to
record its change of address to Los Angeles, and must
file, on school stationery, a change of address
certification
July 7, 1989 ED issued an institutional eligibility notice,
acknowledging United's change of address from Van Nuys
to Los Angeles, and informing United that its facility
at Los Angeles satisfies the definition of an eligible
proprietary institution of education
July 17, 1989 Lajevardi certified that the school in Van Nuys was
closed on June 30, 1989, because of expiration of
lease on the premises, and that all faculty and staff
were transferred to Los Angeles
June 8, 1990 ACCET advised ED, and notified CPPVE, that United
changed its name from United Electronics Institute to
United Education Institute, and that the name change
does not affect United's accreditation, noting in this
regard that United has an auxiliary classroom in Van
Nuys
June 20, 1991 CPPVE notified United at Van Nuys that it approved its
programs
October 4, 1991 ACCET advised United, and notified ED and CPPVE, that
it approves the establishment by United of a branch in
Van Nuys, which is accredited by virtue of the
accreditation of the main campus in Los Angeles
October 11, 1991 United filed Form E40-34P as an update for
additional location in Van Nuys

4


    December 3, 1991    ED issued an IE&C approving the van Nuys facility
        as an eligible certified additional location
of
        United as of October 15, 1991
    December 11, 1991    Lajevardi executed a program participation
        agreement for United at Los Angeles, which
was
        countersigned on behalf of ED on February 6,
1992

May 15, 1992 ED' s program review at United concluded

    To establish that United's facility at Van Nuys during
the review period was not a school at which students were
eligible for disbursements under Title IV HEA, SFAP relies
heavily on Lajevardi's July 17, 1989, certification that the
school was closed. SFAP notes that United, in its August 1992
response to the PRR, recognized that there was a
misunderstanding concerning the eligibility status of the Van
Nuys facility, and that United had explained at that time
that prior to being designated as a branch campus the Van
Nuys location was an auxiliary campus, the status of which
was intended to be "short lived," but that in view of a
continuing interest by students in enrolling there "we
continually maintained the original location as an
operational site." SFAP alleges that the term "auxiliary
classroom" as used by United is a term that is not defined in
applicable statute or regulation.

    SFAP also relies on the fact that United applied in



October 1991 to have the Van Nuys facility certified by ED as
an additional eligible site, SFAP contending in this regard
that if United believed that Van Nuys had not lost its
eligible status United would not have filed an application to
have that status restored. In SFAP's view, as seen, after
Lajevardi certified that Van Nuys was closed and after United
transferred its campus, faculty and staff to Los Angeles, Van
Nuys no longer constituted an eligible facility for Title IV
HEA disbursements. In order to restore eligibility at Van
Nuys, according to SFAP, United would have to follow the same
application procedures that it followed in establishing its
original eligibility, which procedures, SFAP emphasizes,
United actually did follow in October 1991. SFAP notes that
United's former counsel in a letter to ED's DEC in April 1992
inquiring about the eligibility of certain programs, appeared
to recognize the December 3, 1991 IE&C as the source of the
eligibility status at Van Nuys.

    The thrust of United's position in this matter is that at
no time during the entire period involved did the educational
facility at Van Nuys close down, but that, to the contrary,
Van Nuys continued at all times to be accredited by ACCET, to
be approved by CPPVE, to be operated by United, and to be
attended by students and to constitute an educational facility
at which such students properly may be disbursed Title IV HEA
funds. United states that the status of Van Nuys during this
period changed only from main campus to auxiliary classrooms
to branch campus, its present status. United contends that ED
throughout this period was well aware of the continuing accreditation,
licensing approval, and operation of the Van Nuys facility, an
awareness that is documented in this record, according to
United, in letters sent to ED by ACCET. Based on this
awareness on the part of ED, and in light of the fact that ED
did not appear to question Title IV disbursements by United at
Van Nuys at any time during this period, United states that
"no reason existed for submitting an application to [ED] with
respect to the continued operation of Van Nuys."

    United contends that even if it had contemplated filing
an application in order to establish eligibility for the Van
Nuys site, the instructions in the application form then in
use in plain language did not require such a filing. As United
construes it, a separate application was required only for a
nonmain campus location at which a degree program is offered
for which a separate catalog or course description is
published. United points out that such was not the case at Van
Nuys, and it contends that it was governed by the
then-published instructions and not by the later-published
instructions which require that when a program is offered in
its entirety at any location other than the main campus, an
application must be submitted to ED for approval to include
that location in the institution's eligibility status. As
United views it, its initial application for eligibility in
1988 contained all necessary information relative to Van Nuys,
and this information was supplemented when United filed a Form
E40-34P on May 5, 1989, to report the change of address of its
main campus. United acknowledges that it did not in that
application indicate that educational programs were offered at
Van Nuys as well as at the main campus, but alleges that ED
nevertheless had all the information needed to approve
eligibility at the Van Nuys location.



    United is critical of what it regards as SFAP's undue
reliance on the absence of any reference to Van Nuys in
United's May 5, 1989, application, and SFAP's overall reliance
on Lajevardi's July 17, 1989, certification that Van Nuys was
closed. In the latter regard, United notes that the
certification form to be filled out and signed by Lajevardi
was mailed to United on July 10, 1989, and signed on July 17,
1989, but that ED's IE&C, which acknowledged the move to Los
Angeles of United's main campus but failed to list Van Nuys as
an additional location, was issued on July 7, 1989. United
argues that this time frame does not support SFAP's assertion
that by Lajevardi's certification United relinquished
eligibility at Van Nuys.

    United takes particular issue with the regulatory basis
cited by SFAP for its demand that United repay to ED all of
the Title IV HEA funds disbursed during the review period.
SFAP alleged in that regard that "a location loses its
eligibility when it closes," citing in support 34 CFR 600.32,
and noting that this provision was redesignated 34 CFR 600.40
on August 7, 1990.


As seen, SFAP regards it as beyond question that United at its
Van Nuys location lost its eligibility when it closed and the
closure was certified by its Chief Executive Officer. SFAP
concedes that United could properly disburse Title IV HEA
funds to students who were enrolled at Van Nuys on the date
that that facility lost its eligibility, and to students who
enrolled prior to the date that the eligibility of the Van
Nuys facility was restored. As stated on brief by SFAP, "The
liability in this case is based solely on those students whose
entire period of attendance at the Van Nuys Location fell
outside those two dates." Under 34 CFR 600.10(b)(3), according
to SFAP, if an institution such as United seeks to establish
eligibility for a new location, or as in this case for a
location that was closed and thus lost its eligibility, the
institution shall apply for eligibility pursuant to 34 CFR
600.20 which provides for appropriate application to the
Secretary. SFAP contends that United's failure to make timely
application under Section 600.20 was fatal to United's
authority to make Title IV HEA disbursements to those students
whose entire period of attendance at Van Nuys was during the
review period.

    United acknowledges that since March 10, 1993, under
Section 600.40 an institution or a location loses eligibility
when that institution or location closes. United points out,
however, that this regulation became effective long after the
review period ended; that during the review period, as here
pertinent, Section 600.40 provided only that:

An institution loses its eligibility on the date
that

    -    ...    [it] permanently closes    [emphasis added]

United alleges that the earlier version of Section 600.40,
applicable during the review period, clearly applied only to
institutions and not to locations such as Van Nuys, and that
the later version, which does apply to institutions or
locations, cannot retroactively be applied in this case.
United notes that even as to institutions the earlier version
affected only those that permanently close, and that the Van
Nuys facility did not permanently close. United emphasizes



that after the main campus was moved to Los Angeles the Van
Nuys facility was no longer itself an institution but became
a location, and United contends that at no time prior to
March 10, 1993, did ED's regulations "address the manner in
which a location could lose eligibility," and thus that at no
time during the review period was there any regulation in
effect that mandated loss of eligibility at a location such
as Van Nuys because of closure. For this reason, and for the
reason noted below, United alleges that there is no
"regulatory underpinning" for the FPRD or for this action
being brought by ED.

    Addressing the matter of Lajevardi's certification that
Van Nuys had been closed, United states that Lajevardi
completed ED's "fill-in-the-blank style" form as the institution expected
events to proceed at that time. In his affidavit, dated May
25, 1993, and attached to United's brief as it was to United's
appeal and request for hearing, Lajevardi stated that this
form, captioned "Change in Address Certification," in no way
indicated to him that Van Nuys would thereafter be unable to
operate as an auxiliary classroom, as that term was used in a
letter to Lajevardi, dated April 29, 1989, from ACCET, which
was enclosed with Lajevardi's change of address certification
to ED. That letter stated, among other things that:

    [Van Nuys] is now listed as an auxiliary
classroom until students currently
enrolled who did not wish to transfer to
the new site have completed their
instruction... The U.S. Department of
Education has been notified.

Lajevardi noted that ACCET defines "auxiliary classroom" as a
classroom site without administrative personnel which is
operated to facilitate student accessibility to a program
offered by the main campus or branch of the institution, which
description fits the Van Nuys facility, according to
Lajevardi. On brief, United indicated that after the
certification was executed by Lajavardi the institution
"changed its mind and renegotiated its lease.'" United
contends that nothing in the certification form executed by
Lajevardi indicated that once that form was executed United
could not change its mind regarding the Van Nuys site, or that
ED must be updated if the situation at Van Nuys changes, or
that the Van Nuys facility, previously approved and eligible
for Title IV funds, became at once ineligible by virtue of
that form being submitted. United alleges that if ED
interpreted the certification form to have meaning not stated
in that form, or even if ED concluded that Van Nuys was closed
based on the plain language of that form, this is not
sufficient to deprive Van Nuys of its eligibility absent a
controlling Title IV regulation.

    United alleges, finally, that there is absolutely nothing
in this record to indicate or even to suggest that the
institution did anything other than to award Title IV HEA
funds to eligible students enrolled in eligible programs. In
view of this, according to United, the assessment against
respondent of a repayment liability totaling almost $600,000,
a sum representing funds that were unquestionably disbursed by
United to eligible students enrolled in eligible programs, is
entirely unreasonable and should be rejected.



    SFAP, on the other hand, regards this proceeding as a
means for recovering from United "its ill gotten gains," the
almost $600,000 improperly disbursed. SFAP stresses that ED
does not seek to impose harsher remedies that are available,
namely, to terminate United's institutional eligibility, or
even to terminate the restored eligibility at Van Nuys. SFAP
views as

8

_

irrelevant to this proceeding evidence as to the quality of
the education offered by United, evidence and/or statements
found specifically in Lajevardi's affidavit. SFAP moves to
strike from the record such evidence and/or statements and
legal conclusions offered in the affidavit.

    SFAP points out that more than 8,500 institutions
participate in Title IV HEA programs, and SFAP contends that
these institutions, as ED's fiduciaries, are expected to comply
with regulatory requirements in disbursing federal funds to
their students. SFAP alleges that ED has a right to know where
federal money is being spent, and that the courts have
confirmed that it is reasonable for a federal agency that
administers large grant programs to require "punctiliousness"
in money matters by institutional recipients of such grants,
specifically by providing the agency, ED in this instance,
with accurate information. SFAP states that ED has neither the
time nor the resources available to oversee where every Title
IV program dollar provided to eligible institutions goes, that
it must rely on those institutions, its fiduciaries, to award
those funds only to eligible students attending eligible
instruction at eligible locations, and to provide true, timely
and accurate information in that regard to ED. SFAP alleges
that in this instance United as an institution failed to meet
its obligations.

    In particular, SFAP alleges that nowhere in its briefs
does United dispute that, if true to Lajevardi's certification
the Van Nuys facility had been closed on June 30, 1989, United
would have to so notify ED as required under 34 CFR 600. 30:

    (a) An eligible institution shall notify
the Secretary...of any change in the
following information provided in the
institution's eligibility application:

* * * *

(3) The name, number, and address of
locations other than main campus at which
it offers educational services.

SFAP again notes that the Lajevardi certification, construed
according to its plain language, clearly notified ED that Van
Nuys had been closed and its faculty and staff transferred
elsewhere, and SFAP contends that if Van Nuys was not in fact
closed, whether due to an institutional change of mind or for
any other reason, another Section 600.30(a)(3) notification
should have been made to ED. SFAP sees as United's only defense
to its failure to make such notification its belief that such
formal notification was unnecessary because ED had access to
such information in letters from ACCET or otherwise, or that



if ED had chosen to specifically verify the information in
Lajevardi's

9

._
.

certification it would have found that the certification on
behalf of United, ED's fiduciary, was false. SFAP contends
that the acceptance of such a scenario by this tribunal is
unreasonable and should be rejected.

    SFAP alleges, finally, that since this proceeding
results from an appeal brought by United to overturn an
FPRD, under 34 CFR 668.116(d) the burden of proof is upon
United, and that United has not met that burden. As here
pertinent, Section 668.116(d) provides that:

An institution requesting review of the...final
program review determination issued by the
designated-ED official shall have the burden of
proving the following matters, as applicable(1) That
expenditures questioned or disallowed were proper;
(2) That the institution complied with program
requirements.

CONCLUSIONS AND FINDINGS OF THE HEARING OFFICIAL

    I conclude, first, that the document signed by Lajevardi
on July 17, 1989, and transmitted to ED must be reasonably
construed in its own literal terms, that is, as a notification
to ED by United's Chief Executive Officer that the school
formerly located in Van Nuys was closed on June 30, 1989,
because the lease on the premises expired, and that all
faculty and staff were transferred on the following day to Los
Angeles. Contrary to a view expressed on brief by respondent,
it is of no consequence that a portion of the text of that
certification was in a form prepared at ED and the remainder
filled in by Lajevardi; the certification in its entirety was
executed and signed by Lajevardi. The message that is conveyed
in the certification is clear and it is explicit--the school
at Van Nuys was closed. There was no reason for ED to
disregard or to doubt that message. Earlier, on July 7, 1989,
ED's DEC had issued an IE&C in which United's change of
address from Van Nuys to Los Angeles was acknowledged and in
which the institution at Los Angeles and the programs at that
institution were determined by the Secretary to be acceptable
for Title IV HEA purposes. In that IE&C the Van Nuys location
is mentioned only in conjunction with the words "formerly at."
Nothing in the certification by Lajevardi that the school at
Van Nuys was closed offered any reason to believe that the
closing was other than permanent, and it was reasonable for ED
after receiving that certification to consider the school at
Van Nuys to be closed and no longer to constitute a site at
which Title IV HEA funds could properly be disbursed to
students. On its face the message from United to ED gave ED no
reason to regard the closed school as a location that retained
continuing eligibility.

Thereafter, according to United, respondent underwent
an

10




.

institutional change of mind. For reasons previously adverted
to, United decided that the educational process at Van Nuys
would not be terminated but would be continued. It is not
entirely clear whether that process at Van Nuys stopped, however
briefly, and then resumed or whether it never stopped at all;
it is clear, however, that the licensing and accreditation
covering the Van Nuys facility did not cease. It is equally
clear that at no time prior to October 1991 was any formal
notification made by United to ED that the situation at Van
Nuys, so explicitly pictured in Lajevardi's certification, had
undergone change; that the Van Nuys location, far from being
dead, was alive and well; and, that Title IV HEA funds to the
tune of almost $600,000 were disbursed by United during the
review period to students at Van . United chose neither to
comply with its own certification nor to correct, revise or
supplement that certification.

    The thinking at United in the latter regard appears to
have been that formal notification to ED concerning the
changed plans at Van Nuys was unnecessary. The reason offered
for this is that ED must have been aware of the changed
situation because ACCET in several letters to ED made mention
of the fact that accreditation of Van Nuys as an auxiliary
classroom of United continued. In fact, United included copies
of ACCET's letters in its change of address and change of name
notifications to ED. United takes the position that ED had
sufficient notice that Van Nuys continued to exist as a licensed
and accredited location after it ceased to be United's main
campus, and that there was thus no basis for what United terms
ED's "belief" or "misunderstanding" of the situation at Van
Nuys. SFAP sees in the position taken by United the
implication that based on the information to which ED had
access, ED could have checked out the situation at Van Nuys to
verify whether that location continued to exist as a classroom
site.

    Under 34 CFR 600.30(a) it is the institution that must
notify the Secretary of any change in the information provided
in that institution's eligibility application with regard to,
as here pertinent, locations other than the main campus at
which it offers educational services. United complied with
this requirement when it notified ED that the location at Van
Nuys was closed. I find that United failed to comply with this
requirement when it failed to make timely notification to ED
that Van Nuys was not closed, that educational services at Van
Nuys continued to be offered. Such information must come from
the institution; such information coming from a collateral
source, such as ACCET, is not an acceptable substitution and
will not suffice. As noted, ED oversees the disbursement of
many millions of dollars of Title IV HEA funds for student aid
to many hundreds of educational institutions, and ED is
charged under statute with the obligation to ensure that such
funds are expended properly in accordance with statute and
regulations. I find it to be a fact that ED does not possess
the resources to follow each federal student aid dollar to the
ultimate recipient in the first

11

instance, and that ED must rely and is entitled to rely on its
fiduciaries, the recipient institutions such as United, to
award such funds to eligible students attending eligible
instruction at eligible locations, and to apprise ED on a



timely basis of the data relevant thereto. Under Section
600.30(a) that data must come from the institutions, and in
this case it did not.

    On brief United makes much of the fact that regulations
in effect during the review period, in Part 600 under the
caption "Subpart D - Loss of Eligibility," at 34 CFR
600.40(a), addressed the effect of an institution's permanent
closing on the institution's eligibility, but failed to
address the effect of closing a location on that location's
eligibility. It was not until March 1993, as respondent
pointed out, that Section 600.40(a) was amended to address
loss of eligibility by "an institution or location." This is
the basis for the position taken by United that during the
review period and up until the 1993 amendment there was no
authority having the force or effect of law that could serve
as the regulatory underpinning for the loss of eligibility at
a location solely because of the closing of that location.
Stated another way, United contends that the only way that a
location such as Van Nuys could lose its eligibility during
the review period was as a legal consequence required by
statute or regulation. United alleges that no statute or
regulation in effect during the review period imposed such a
legal consequence. Hence, according to United, the location at
Van Nuys could not and did not lose its eligibility whether it
closed or did not close on June 30, 1989.

    --    I find United's reasoning in this regard to be
seriously flawed. On June 30, 1989, the date on which according to the
Lajevardi certification the facility in Van Nuys was closed, Van
Nuys was not a location, it was United's main campus. It was, in
fact, the institution. The basis for the eligibility at Van Nuys
was the IE&C issued in May 1988, which granted eligibility
status
to United at Van Nuys as an institution and not as a location.
The facility at Los Angeles did not become United's main campus,
or the institution, until the later IE&C was issued on July 7,
1989. Thus, as an institution on June 30, 1989, the Van Nuys
facility came within the purview of Section 600.40(a) as it was
then in effect, and the closing of Van Nuys on that date
triggered the loss of its eligibility.

    Assuming, on the other hand, that contrary to Lajevardi's
certification the facility at Van Nuys did not close on June
30, 1989, but instead remained open and in operation as a
location, and that on the following day operations commenced
also at Los Angeles as United's main campus, there would then
ensue a period of about a week during which eligibility issued
to United in May 1988 to authorize operations only at Van Nuys
would be relied on by United to authorize operations at that
site and also at Los Angeles, to be followed on and after July
7, 1989, by a period of

12

. .

two and a half years during which eligibility issued to United
on the latter date to authorize operations only at Los Angeles
would be relied on to authorize operations there and also at
Van Nuys. Such a scenario does not comport with the
eligibility actually issued by ED in May 1988 or in July 1989.
Assuming also, as United alleges, that until March 1993 there
was no regulation in effect that addressed the matter of how



eligibility could be lost at a location, it would have been
possible at any time during the two and half years for
United's operations to be closed down and terminated for
whatever reason at Los Angeles, a site at which eligibility
was specifically authorized in July 1989, and yet to be
continued at Van Nuys, a site at which eligibility was not
authorized until December 1991. This also does not comport
with the eligibility granted to United.

    Based on the evidence of record I conclude and find that
during the review period, as previously identified, United
disbursed to students at Van Nuys Title IV HEA funds in the
total amount of $599,872; that the facility at Van Nuys during
the review period was shown by SFAP not to have been a place
at which such Title IV HEA disbursements were authorized to be
made; that the burden was upon United to show otherwise and
that United failed to do so; and that, accordingly, the said
disbursements made by United were thus improper and contrary
to the requirements of the governing statute and regulations.

    Under the caption "Final Determination" in the FPRD it is
stated that the total amount of Title IV HEA funds disbursed
by United to students at Van Nuys "represents an institutional
liability and must be repaid to the U.S. Department of
Education." On brief SFAP also refers to United's
disbursements as liabilities, liabilities that should be
repaid to ED. In fact, as previously noted, SFAP has
characterized these funds as United's "ill gotten gains," and
the purpose of this proceeding to be to require United to
"disgorge" those gains. SFAP requests that this tribunal
uphold the FPRD, and states that all that ED wants is the
return of these funds. United, on the other hand,
characterizes SFAP's request in this regard as constituting a
proposed penalty that would irreparably harm United as an
educational institution.

    It is appropriate at this point to determine what are the
consequences provided in the regulations for the improper
disbursement of Title IV HEA funds by an institution such as
United in the circumstances hereinbefore described. Part 600
of the governing regulations deals with institutional
eligibility under HEA, and in Subpart B thereof with
procedures for establishing eligibility, in Subpart C with
maintaining eligibility, and in Subpart D, as previously
noted, with loss of eligibility. These are the regulations
cited by the parties as governing in this proceeding, and in
these regulations it is only at 34 CFR 600.30(c) that anything
in the nature of a consequence

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is provided, namely, that the failure of an institution to
timely notify the Secretary of certain changes relating to a
location other than its main campus may result in adverse
action against it, including the loss of its eligibility. As
previously noted, on brief SFAP stated that the instant
proceeding is the adverse action contemplated by Section
600.30(c). Insofar as I have been able to determine or have
been made aware of by the parties, the repayment by the
institution to ED of Title IV HEA funds is not mentioned in
Part 600 as a consequence of the improper and unauthorized
disbursement of such funds by the institution.

    It must be noted, however, that the Title IV HEA funds



disbursed by United during the review period to students at
Van Nuys are described in the FPRD as "Federal Pell Grant
funds." In the regulations at Part 690, captioned PELL GRANT
PROGRAM, under Subpart G--Administration of Grant Payments, at
34 CFR 690.79, captioned "Recovery of overpayments," it is
provided that:

(a)(1) The student is liable for any Pell
Grant overpayment made to him or her.

(2) The institution is liable for any overpayment
if the overpayment occurred because the
institution failed to follow the procedures set
forth in this Part. The institution shall
restore those funds to its Pell Grant account
even if it cannot collect the overpayment from
the student.

The "procedures set forth in this Part," that is, Part 690,
appear to relate to such matters as student status and
eligibility, family contributions, calculation of Pell Grant
awards, methods of disbursement, fiscal controls and fund
accounting, and the maintenance and retention of records.
Nothing in Part 690 appears to relate to the matters at issue
in the instant proceeding, that is, whether the institution's
Title IV HEA disbursements were made during a period of
ineligibility of the institution at the location made, and
what are the consequences provided for such improper
disbursements. I particularly note that within the limited
context of Section 690.79(a)(2), the consequence provided is
not the repayment of the disbursed funds to ED.

    I conclude and find that in the particular facts and
circumstances of this proceeding and in light of the election
made by SFAP on behalf of ED in its adverse action not to seek
the loss by United of its eligibility, there are no specific
consequences that are impelled by the governing regulations
for the improper and unauthorized disbursement by United of
Title IV HEA funds to students at a facility at which, at the
time that the disbursements were made, there was no
authorization for such disbursements. It follows that this
tribunal is not compelled to require United to repay those
disbursed funds to ED. It is clear, however, that United
failed to observe the regulatory

14


requirements, and that a reasonable and appropriate penalty
should be imposed. After reflection, I have concluded that
the imposition of a fine would constitute such a reasonable
and appropriate penalty.

    It is well established that fines are imposed to punish
an offender and to discourage future offenses by that
offender, and also to serve as a warning to other potential
offenders. Fines imposed must be high enough in amount to
effectively serve the purposes of their imposition; too low,
they serve neither as penalty nor warning, and too high they
may become arbitrary and capricious and thus unreasonable.
There should be direct and logical relation between the
amount of the fine and the gravity of the offense for which
it is imposed. As stated in popular parlance, the punishment
must fit the crime.



    The general purpose of federal student financial
assistance legislation and of the regulations promulgated in
connection therewith is to foster and support the national
education process, and the key to efficient and economical
administration by ED of Title IV HEA programs is the full
cooperation with ED of the participating institutions, ED's
fiduciaries. It is through these institutions that massive
federal funds are channeled to further the educational
process, and the responsibility is theirs, under ED's
supervision, to ensure that these funds at all times are
applied only to the education of eligible students in eligible
programs at eligible schools. There is no evidence in this
record that the Title IV HEA funds here in issue were
disbursed other than in furtherance of the educational
process, or that the beneficiaries of those funds were other
than eligible students. The issue was whether those students
during the review period were participating in programs at a
facility which was, during that particular period, an eligible
facility. The record establishes that the Van Nuys facility
prior to the occurrences in June and July 1989 was recognized
as eligible by ED, and that when United made application for
eligibility at Van Nuys in late 1991 that eligibility was
promptly granted. It was only during the review period, as I
have hereinbefore found, that the facility at Van Nuys was
ineligible, and the record strongly suggests that this was
only because United, whether through misunderstanding or
otherwise, failed to make timely application for continued
eligibility at Van Nuys prior to the movement of its main
campus to Los Angeles.

    I do not perceive here ill gotten gains by United in the
gross amount alleged by SFAP. Without minimizing the gravity
of the offense committed, what I perceive is the failure on
the part of United to fully cooperate with ED in
administration of the Title IV HEA program, a failure to fully
cooperate for which United must be fined. The regulations at
34 CFR 668.84(a) provide that:

15

(a) Scope and consequences. The Secretary may impose a
fine of up to $25,000 per violation on an institution
that (1) Violates any provision of Title IV of the
HEA or any regulation or agreement implementing that
title...

Elsewhere in Section 668.84 it is provided that the
institution upon which a fine is to be imposed must be
notified by certified mail of the Secretary's intent to fine,
and as to the alleged violations which are the basis for the
fine, the amount and effective date of the fine, and of that
institution's right to request a hearing thereon. In the
latter regard it appears to me, and I so find, that the
notification requirements of Section 668.84 were adequately
complied with by ED in the FPRD served on United in the
instant case in connection with what to United amounted to the
equivalent of a fine in the amount of $599,872.

    It may be acknowledged that the process of determining the
amount of a fine in any given circumstances is far from being
an exact science. In the circumstances of this case, however, I
am convinced that an adequate guideline is provided in Section
668.84(a); a fine may here be imposed of up to $25,000 per
violation. In the FPRD it is indicated that a sampling of
student aid files at United disclosed that, based on only the
sampling, Federal Pell Grant funds were disbursed during the



review period to at least 34 students at Van Nuys out of the
total amount of $599,872 disbursed during that period to
students enrolled at that location. I find that each improper
and unauthorized disbursement of Title IV HEA funds at Van Nuys
during the period in which that facility was an ineligible
facility constituted a separate violation, in connection with
which a fine of up to $25,000 may be imposed. In the
circumstances considered and discussed in this decision,
however, I conclude and find that adequate and reasonable
punishment and deterrent will be provided by the imposition of
a fine in the total amount of $60,000. United is directed,
accordingly, within 45 days of the date of service of this
decision, using the payment method described in the FPRD, to
pay to ED a fine in the amount of $60,000.

    In light of the foregoing and in the absence of good
cause shown, SFAP's motions to strike are denied in their
entirety.

IT IS SO ORDERED.

By Paul J. Clerman,

Administrative Lay Judge.

at Washington, D.C.

        June 8, 1994         

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