Thursday, May 12, 2016
Second Circuit Restores Class Certification Claim For Former Students Of Failed Vocational School Chain
The Second Circuit recently reversed the dismissal of a class action lawsuit by former students of a chain of cosmetology schools, even though the Department of Education (DOE) had discharged the student loans of the named plaintiffs, because the issue was likely to reoccur with other plaintiffs in the class. The Second Circuit held in Salazar v. King, Sec. of Education, No. 15-832 (2nd Cir. May 12, 2016), that the suit was not moot under an exception for “inherently transitory” class action claims that related back to the complaint's filing. Plaintiffs had alleged in the suit that the beauty school chain, Wilfred American Educational Corporation, fraudulently certified students' eligibility for federal student loans by telling the government that students without a GED or high school diploma had an “ability to benefit” from the program, which the Education Department required to certify eligibility for federal student loans. Wilfred did this by certifying that its students had passed an approved ATB test when they had not. Wilfred, which got nearly 90% of its revenue from student loan payments, eventually closed, leaving many of its attendees without the ability to complete their training. The U.S. government nevertheless required Wilfred students to repay their federal student loans for some years afterwards, some through tax refund seizures and wage garnishments. The Wilfred plaintiffs were never told that their student loans could be discharged by the Education Department if the school falsely certified their eligibility. The Second Circuit reversed the district court's finding that the DOE's actions were unreviewable under the agency discretion doctrine. The opinion is available here.