IN THE MATTER OF CAREERCOM Docket No. 94-159-SP
COLLEGE OF BUSINESS, Student Financial
Respondent. Assistance Proceeding
Z. Finley, Esq., Office of the General Counsel, for the Office of
Student Financial Assistance Programs, United States Department of
Before: Judge Richard F. O'Hair
CareerCom College of Business (CareerCom) participates in the
various student financial
assistance programs authorized under Title IV of the Higher Education Act of 1965, as amended
(HEA). 20 U.S.C. § 1070 et seq. and 42 U.S.C. § 2751 et seq.
These programs are administered
by the Office of Student Financial Assistance Programs (SFAP), U.S. Department of Education
On July 26, 1994, SFAP issued a
Final Program Review Determination (FPRD) for CareerCom. The findings in the FPRD are
based on the program review report for the 1990-91
and 1991-92 award years. CareerCom filed a request for review on September 12, 1994.
Both parties have filed
submissions to this tribunal in response to the Order Governing Proceedings.
SFAP contends that CareerCom must refund to ED and to lenders
all Title IV funds
disbursed by the school during the 1990-91, 1991-92, and 1992-93 award years on the bases that
1) CareerCom did not respond to the FPRD, and 2) the institution failed to provide to ED a
closeout audit after the school closed in February 1993. Additionally, SFAP argues that
CareerCom's bankruptcy proceeding currently pending before the U.S. Bankruptcy Court for the
Middle District of Pennsylvania does not affect SFAP's right to establish a liability against
CareerCom for its alleged violations of the Title IV statutes and regulations.
In its response, CareerCom admits that it failed to submit a closeout audit, but asserts that the FPRD violates the automatic stay provisions of 11 U.S.C. § 362(a) that became effective when the school filed for bankruptcy. Furthermore, CareerCom claims that because the school
has closed, this proceeding is moot under the Secretary's holding in In the Matter of Bliss
College, Dkt. No. 93-15-ST, U.S. Dep't of Educ. (Decision of the Secretary ) (Feb. 23,
When CareerCom closed in February 1993, it failed to submit a
closeout audit. In In the Matter of National Broadcasting School, Dkt. No. 94-98-SP,
U.S. Dep't of Educ. (Dec. 12, 1994) (citing In the Matter of Macomb Community
College, Dkt. No. 91-80-SP, U.S. Dep't of Educ. (May 5, 1993)), I held that when an
institution that participates in the Title IV programs
fails to submit a closeout audit after it closes, it becomes liable for all Title IV funds disbursed
since the last audit. The FPRD in National Broadcasting School, as in the present case,
also alleged that the school had not responded to the program review. In both cases, however,
school's failure to submit the closeout audit required by 34 C.F.R. § 668.26See footnote 1
was sufficient to establish the liability. As a result, CareerCom is liable for all Title IV
funds disbursed during the
1990-91, 1991-92, and 1992-93 award years.
Despite CareerCom's assertions to the contrary, this proceeding is
not barred by the
automatic stay provisions of 11 U.S.C. § 362(a). In In the Matter of MTA School,
Dkt. No. 92- 92-SP, U.S. Dep't of Educ. (June 30, 1994), I held that 11 U.S.C. § 362(b)(4)
exemption from the automatic stay for governmental units that are attempting to enforce their
police or regulatory powers. I also discussed Board of Governors of the Federal Reserve
System v. MCorp Financial, Inc., 502 U.S. 32 (1991), wherein the Supreme Court refused to
apply the automatic stay provisions to ongoing, nonfinal, administrative proceedings by the
Governors that were initiated to determine whether the defendant corporation had violated
specific statutory and regulatory provisions. Finally, I noted that prior decisions of this tribunal,
relying on § 362(b)(4), had held that the automatic stay provision does not apply to ED's
to determine whether an educational institution is financially liable for purported violations of
the statutes and regulations governing the Title IV programs. See In the Matter of First
School for Careers, Dkt. No. 89-60-S, U.S. Dep't of Educ. (Jan. 29, 1990). As a result, I
concluded that ED was exempt from the automatic stay under § 362(b)(4) and thus was
free to pursue
administrative proceedings in furtherance of its police and regulatory powers to determine
whether the institution had violated statutory and regulatory provisions governing the proper
administration of Title IV programs. MTA at 2-3.
That analysis is equally applicable to the instant case. I note,
however, that § 362 was
amended in 1990, subsequent to the decision in First School for Careers, by the addition
§ 362(b)(16), which carves out a specific exemption from the automatic stay provision for actions by ED regarding the eligibility of the debtor to participate in programs authorized under the HEA, otherwise referred to as termination actions. It can be argued that since Congress specifically exempted termination actions, the fact that audit and program review actions were not addressed in the 1990 amendment implies that they are subject to the automatic stay provisions. Nonetheless, the better argument supports the proposition that audit and program review actions were always exempt from the automatic stay provisions. In support of this interpretation, I note, first, that the Supreme Court's refusal in MCorp Financial to apply the automatic stay to certain administrative proceedings was rendered after the 1990 amendment.
Moreover, subsequent decisions by other federal courts have carefully analyzed the difference
between actions by federal administrative agencies to enforce their police or regulatory powers,
including actions to determine the liabilities associated with regulatory violations, which are
exempt, and actions by those agencies to enforce a money judgment, which are not exempt.
The bankruptcy court in In re Western States Drywall, Inc. v.
Diversified Turnkey Construction Co., 150 B.R. 774 (Bankr. D. Idaho 1993), held that the
automatic stay did not preclude the Department of Labor, through administrative proceedings,
from determining the
debtor's liabilities for back wages. The court cautioned, however, that the automatic stay would
preclude issuance of an order to enforce any resulting monetary judgment. The court cited
Eddleman v. U.S. Dep't of Labor, 923 F.2d 782 (10th Cir. 1991) and In re Quinta
Contractors, Inc., 34 B.R. 129 (Bankr. M.D. Pa. 1983) in support of the following
Section 362(b)(5) exempts from the automatic stay the enforcement
obtained by a governmental unit in enforcement of the governmental unit's police or
regulatory power, with the sole exception of enforcement of a monetary judgment. The
Ninth Circuit has held the entry of a money judgment by a governmental unit is not
prohibited by this provision.
Western States Drywall at 775-776. The court, citing N.L.R.B. v. Continental Hagen
Corp., 932 F.2d 828, 834 (9th Cir. 1991), went on to distinguish between an agency's right to
enter a money
judgment, which is not barred by the automatic stay, and the agency's ability to seek to enforce
that money judgment, which is barred by the automatic stay. As a result, the court
concluded that the Department of Labor was free in its administrative proceedings to determine
liabilities for back wages, but that it could not seek enforcement of that order except through the
Based upon these precedents, I find that ED is free in these
administrative proceedings to
determine CareerCom's liabilities for its failure to respond to the program review and its failure
to submit a closeout audit. If, however, ED seeks to enforce any liabilities that may arise as a
result of final agency action, it will be limited by the authorities cited above.
I also disagree with CareerCom's assertion that this proceeding is
moot. In its request for
review dated September 12, 1994, CareerCom cited the Secretary's decision in In the Matter
of Bliss College, Dkt. No. 93-15-ST, U.S. Dep't of Educ. (Decision of the Secretary) (Feb.
23, 1994), for the proposition that once a school has closed, SFAP may no longer pursue
administrative remedies against that school. Subsequent to CareerCom's request for review,
however, the Secretary substantially narrowed the scope of Bliss. In In the Matter of
Fischer Technical Institute, Dkt. No. 92-141-ST, U.S. Dep't of Educ. (Decision of the
Secretary) (Jan. 27, 1995), the Secretary described his decision in Bliss as narrow and
based on very specific factual circumstances, stating that "I very obviously did not intend for the
Bliss decision to stand for the proposition that any time a school closes, pending actions against
it become moot."
Fischer at 2. Therefore, the fact that CareerCom closed in February 1993 does not render
this administrative proceeding moot.
I find CareerCom's other arguments similarly unpersuasive.
CareerCom cites United Talmudical Academy, ACN 02-35327/28, 02-41164/65, and
02-51000/01, U.S. Dep't of Educ. (1987), for the proposition that recordkeeping violations by a
school cannot give rise to
liabilities. That decision, which was rendered by the now defunct Education Appeal Board, has
been superseded by more recent decisions, such as National Broadcasting School and
Macomb Community College, discussed above. CareerCom's arguments that SFAP
cannot recover all Title IV funds disbursed on the basis that such recovery can occur only in a
proceeding under 34
C.F.R. Part 668, Subpart G, and that ED has effectively promulgated a regulation without notice
and comment by calling it a policy, were squarely rejected in In the Matter of Phillips
College of Atlanta, Dkt. No. 91-96-SA, U.S. Dep't of Educ. (Feb. 28, 1994), at 13-14.
For these reasons, I affirm the FPRD.
ORDERED, that CareerCom is liable to the U.S. Department of
Education for all Pell
Grant, Supplemental Educational Opportunity Grant (SEOG), College Work-Study (CWS), and
Perkins loan funds disbursed by the institution during the 1990-91, 1991-92, and 1992-93 award
years, totaling $3,485,616. It is further ORDERED, that CareerCom is liable to the current
holders of Federal Stafford and SLS/PLUS loans in the amount of $5,218,601 disbursed during
Judge Richard F. O'Hair
Issued: May 4, 1995
S E R V I C E
A copy of the attached initial decision was sent by CERTIFIED MAIL, RETURN RECEIPT
REQUESTED to the following:
Jonathon C. Glass, Esq.
Dow, Lohnes & Albertson
1255 Twenty-Third St., N.W.
Washington, D.C. 20037
Steven Z. Finley, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110