Thursday, March 16, 2023
NATIONWIDE IS ON OUR SIDE: LESSONS FROM THE STUDENT DEBT INJUNCTION
Sidney W. DeLong
In Nebraska v Biden, several states sued the Biden Administration to enjoin the Secretary of Education from implementation of the impending student debt “forgiveness” program under the under the Higher Education Relief Opportunities for Students Act (HEROES Act). The grounds were that that it was unauthorized by the Act and unconstitutional.
Plaintiffs sought a nation-wide preliminary injunction blocking implementation of the plan in a Texas district court, which denied relief on jurisdictional grounds, finding that the plaintiffs lacked standing to sue. In the linked opinion, the Eighth Circuit Court of Appeals unanimously reversed and granted an “injunction pending appeal.” The opinion has several features of interest relating to so-called “nationwide preliminary injunctions.”
Last month, the Supreme Court heard oral argument on the standing issue. The Circuit Court held that the state of Missouri had standing to sue because a Missouri governmental agency, the Missouri Higher Education Loan Authority (“MOHELA”), obtained revenue as a result of “servicing” student debt, i.e. collecting loan payments.
The Supreme Court will probably rule in a way that renders the Eighth Circuit’s holdings on the injunction issues moot. But the reasoning that court used is of interest on the matter of nationwide preliminary injunctions.
“It is alleged MOHELA obtains revenue from the accounts it services, and the total revenue MOHELA recovers will decrease if a substantial portion of its accounts are no longer active under the Secretary’s plan.” The Circuit Court held that such harm to MOHELA would irreparably harm the state of Missouri, either directly if MOHELA is part of the state for these purposes or indirectly because of its potential effect on state revenues.
The concept of injury here seems questionable. Who is injured when the government “forgives” a federally guaranteed student loan? Because of the guarantee, lenders and their assignees will be fully paid by the government (the taxpayers) in accordance with the loan guaranty program. Insofar as MOHELA is an assignee of student loans, it will be paid in full.
What about collection agencies whose income comes from the fees they obtain in servicing student loans? Presumably, if the loans are forgiven and the debts are repaid by the government and not by individual payments, there would be no further need to “service” the loans. As was acknowledged in the Supreme Court argument, this loss of fees would give collection agencies enough of an interest to have standing to sue. But since when does a collection agent have a legally enforceable right to the continuation of a debt it services? It seems unlikely that the contract be the creditor and the collection agent gives the agent such a right. Only if the “collection agent” is actually an assignee of the debt, which is not alleged in this lawsuit, then the assignor’s cancellation of the debt would certainly violate the assignee’s rights. But settlement did not affect the holders of the debt because the federal guarantee assures against any loss.
Even if a collection agent had a legally protectable interest in the servicing fees from a debt, violation of that interest would not cause an irreparable injury, giving the agent a general power to enjoin the settlement. An award of money damages would completely compensate for such financial loss. For the same reason, a damages award would compensate any entities, such as the state of Missouri, who derive benefits from the collection of those fees.
There is nothing irreparable about the threatened loss.
The sliding scale test for a preliminary injunction.
Ever since the decision in Winter v Natural Resources Defense Counsel, Inc., 555 U.S. 7 (2008), the Circuits have split on the correct test to apply in ruling on a preliminary injunction. The Winter majority propounded a four-part test in which each element must be established. Justice Ginsburg in dissent argued that courts could continue to use a “sliding scale” test, in which a strong showing of risk of harm might outweigh a weaker showing of likelihood of success on the merits. In the years following Winter, circuits have split over which test to use.
The Circuit court applied a version of the sliding scale test, finding that a federal preliminary injunction is warranted: “where the movant has raised a substantial question and the equities are otherwise strongly in his favor, the showing of success on the merits can be less.”
But Nebraska seems to be a case like Winter, in which the party seeking the preliminary injunction has a strong case on the merits (given the Supreme Court’s likely resolution of the loan forgiveness validity question) but a weak case on irreparable harm (speculative losses of servicing fees).
Nationwide Injunctions. In a nationwide injunction, a court orders the U.S. government defendant to abate a national program even though the claim at issue is brought on behalf of only a few plaintiffs. But for a court to issue a nationwide injunction upon a showing of only localized harm violates a fundamental equitable principle of injunctive relief: An injunction order must be narrowly tailored to address only the specific irreparable injuries that the plaintiffs have demonstrated will result to them and the injunction must be justified by the balancing of the particular equities of the parties in the case. See generally, Laycock and Hansen, Modern American Remedies (5th Ed.) Absent a class action, an individual plaintiff should rarely or never be entitled to enjoin a governmental defendant’s actions relating to other parties.
Despite these criticisms, and rather like the storied bumblebee that scientists proved was incapable of flight, the nationwide injunction is now a fact of life and has become the go-to strategy of both the Team Blue (e.g., in actions to enjoin Trump’s immigration policies) and Team Red (in the actions to enjoin the Affordable Health Care Act).
That is not to say that nationwide injunctions are not problematic from a practical basis. Because any district court can issue a nationwide injunction, forum shopping is an essential litigation strategy. Progressives typically file in New York hoping for an Obama judge; Conservatives typically file in Texas hoping for a Federalist Society judge. And the chance always remains that different district courts will issue conflicting temporary restraining orders or preliminary injunctions against an agency, making it impossible to comply with them all.
Although such a suggestion is fraught, perhaps the Court should consider issuing a rule that all actions seeking to enjoin a federal agency must be temporarily transferred to a single forum, e.g., a court sitting in the District of Columbia. They could be retransferred after disposition to the court where filed.
The Circuit Court held that a nationwide injunction was appropriate in Nebraska v Biden because the plaintiff obtained loans from around the nation and because it would have been unfeasible to tailor the order to block forgiveness of the specific loans as to which the plaintiff needed relief. The opinion states that “MOHELA is purportedly one of the largest nonprofit student loan secondary markets in America. It services accounts nationwide and had $168.1 billion in student loan assets serviced as of June 30, 2022.”
Nebraska thus adds another factor to be considered in issuing a nationwide injunctions, which is that they are warranted when the plaintiff’s claims are so numerous and geographically widespread that it is unfeasible to disentangle them from the government’s other activities. This factor certainly seems to distinguish Nebraska v Biden from the immigration cases where the orders could be limited to the plaintiffs.
Of course, as the Legal Realists will point out, the resolution of this case will not turn on the law of injunctions or of nationwide injunctions but upon the Supreme Court’s view of the legality of the debt forgiveness order, a question about which there seems to be little dramatic uncertainty.
 While the court appears to have granted the preliminary injunction, the exact effect of the ruling is unclear: (“We GRANT the Emergency Motion for Injunction Pending Appeal. The injunction will remain in effect until further order of this court or the Supreme Court of the United States.”) It is unclear to this author whether this is a stay pending the Circuit Court resolution of the preliminary injunction appeal or an injunction pending resolution of an eventual appeal on the merits of the substantive claim.)