IN THE MATTER OF PIKEVILLE BEAUTY COLLEGE,
Docket No. 94-36-ST
Student Financial Assistance Proceeding
Appearances: Ms. Terry Hanner, President, Pikeville Beauty
School, Pikeville, Kentucky for the Respondent
Brooker, Esq., of the Office of General
Counsel, United States Department of Education,
for the Office of Student Financial Assistance
Before: Judge Allan C. Lewis
This is an action initiated by the Office of Student Financial
Assistance Programs of the United States Department of Education
(ED) to terminate the eligibility of Pikeville Beauty School
(Pikeville) to participate in the student financial assistance
programs under Title IV of the Higher Education Act of 1965, as
amended, and to impose a fine in the amount of $99,500.
In In re Bliss College, Dkt. No. 93-15-ST, U.S. Dep't of Education (Sept. 7, 1993), the
Administrative Law Judge
terminated Bliss' participation in the Title IV programs and did
not impose a fine. Subsequently, the Secretary vacated, as moot,
the Initial Decision of the Administrative Law Judge because the
institution had permanently closed its campuses. In re Bliss College, Dkt. No. 93-15-ST, U.S.
Dep't of Education (Feb. 23, 1994). The Secretary held that " 'a case is moot when a
determination is sought on a matter which, when rendered, cannot
have any practical effect on the existing controversy.' Leonhart v. McCormick, 395 F. Supp.
1073, 1077 (1975)." Id., at 1.
The present case is factually similar to Bliss. ED seeks to terminate and fine Pikeville.
According to ED, Pikeville ceased
all operations shortly before the issuance of the notice of
termination and fine on February 2, 1994. The Closed School
Section of the Department of Education notified all affected
sections within the Department that the school has ceased all
activities. The disposition of this case is controlled by Bliss which mandates that this matter be
dismissed with prejudice.
ED argues that Bliss does not control the dismissal because an outcome in this proceeding is
"critical to SFAP's decision
regarding whether to institute an action to suspend or debar Ms.
Hanner, or other individuals affiliated with PBC [Pikeville
Beauty College], under 34 C.F.R. Part 85." ED also adds that the
Kentucky Board of Cosmetology is presently investigating
Pikeville and that, according to ED, it is "relying almost solely
upon the Department's final adjudication in the present action
with respect to Title IV regulatory violations." Lastly, ED
argues that Pikeville, by hastily acting to close its doors,
should not be permitted to avoid monetary sanctions for its
The matters raised by ED are not particularly pertinent. The
present case is pending before the Office of Higher Education
Appeals. The Secretary did not assign this office the decision-
making authority as to whether to pursue a debarment action.
Similarly, the Office of Higher Education Appeals has no
authority regarding the pursuit of any action by the Kentucky
Board of Cosmetology. Hence, the Office of Higher Education
Appeals does not evaluate the facts and law or participate in the
decision-making process regarding the pursuit of these matters.
Moreover, debarment actions within the Department and state
enforcement proceedings have their own procedures for determining
facts and law. 34 C.F.R. § 85.100 et seq.; C:GPA1-105 Nonprocurement Debarment
& Suspension (Sept. 25, 1991). Thus,
the Office of Higher Education Appeals has no function in these
Finally, ED rationalizes that a dismissal of this proceeding
relieves Pikeville of the monetary sanctions for past behavior.
This view misconstrues the reality of the situation. Virtually
all proprietary trade schools are operated as corporations.
Pikeville is no different. The schools, which have been the
subject of termination and fine actions in the past, were thinly
capitalized and their limited assets were encumbered by liens.
Under 11 U.S.C. § 507 of the Bankruptcy Reform Act of 1978, a
fine imposed by the Department is treated as a claim by an
unsecured creditor. See In re Divine, 127 B.R. 625 (Bankr. D. Minn. 1991); In re Standard
Johnson Co., 90 B.R. 41 (Bank. E.D.N.Y. 1988). Therefore, the Department's claim is part of
last group of creditors in line for payment and preceded by the
secured creditors and eight classes of other unsecured creditors.
11 U.S.C. §§ 506 and 507. This effectively moots the collection
of any fine. Hence, the pursuit of a fine in these cases is
tantamount to chasing ghosts and constitutes a waste of the
Accordingly, it is HEREBY ORDERED that the above-captioned
proceeding is dismissed with prejudice.
Allan C. Lewis
Administrative Law Judge
Issued: April 19, 1994
Ms. Terry Hanner, President
Pikeville Beauty College
967 North Mayo Trail
Pikeville, Kentucky 41501
Renee Brooker, Esq.
Office of the General Counsel
U.S. Department of Education
Room 4091, FOB-6
400 Maryland Avenue, S.W.
Washington, D.C. 20202-2110