
USCA1 Opinion

	




        June 8, 1992            [NOT FOR PUBLICATION]                                 ____________________        No. 92-1140                                     LAMEC, INC.,                                Plaintiff, Appellant,                                          v.                               LAMAR ALEXANDER, ET AL.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO                  [Hon. Juan M. Perez-Gimenez, U.S. District Judge]                                               ___________________                                 ____________________                                        Before                                 Breyer, Chief Judge,                                         ___________                      Aldrich and Coffin, Senior Circuit Judges.                                          _____________________                                 ____________________            A.  J. Amadeo  Murga with  whom Antonio J.  Amadeo Semidey  was on            ____________________            __________________________        brief for appellant.            Maria Hortensia  Rios Gandara, Assistant  United States  Attorney,            _____________________________        with  whom Daniel Lopez Romo,  United States Attorney,  and Stephen M.                   _________________                                __________        Kraut,  Counsel,   Office  of   Student  Financial   Assistance,  U.S.        _____        Department of Education, were on brief for appellees.                                 ____________________                                 ____________________               COFFIN,  Senior Circuit  Judge.   This  appeal concerns  the                        _____________________          efforts of  appellant Lamec, Inc.  (Lamec) to participate  in the          Pell  Grant Program of  Title IV of  the Higher  Education Act of          1965,  20     U.S.C.      1070-1099,   which  provides  financial          assistance for students at qualified schools.  The district court          denied  a  request  for  injunctive  relief  to  protect  Lamec's          participation  in  the program  at  several campuses  of  a trade          school that it recently acquired in Mayaguez, Puerto Rico.               Lamec challenges  adverse rulings  on two causes  of action.          In the first, Lamec seeks a preliminary injunction enjoining  the          United States  Department  of Education  ("the  Secretary")  from          terminating its  eligibility to participate in  Title IV programs          because of allegedly improper  uses of Pell Grant funds  and from          levying a $450,000 fine resulting from such uses.   In the second          cause of action, Lamec seeks a mandatory injunction requiring the          Secretary  to   certify  two  branch  campuses   as  eligible  to          participate in Title IV programs.               After  due  consideration  and  perusal of  the  record,  we          affirm, with a  single exception, the  court's judgments on  both          causes  of  action.   With respect  to  the court's  sub silentio                                                               ____________          ruling  that  appellant  did  not fulfill  the  requirements  for          preliminary  injunctive  relief  against the  imposition  of  the          $450,000 civil penalty, we  simply have no basis for  decision on          this  record and remand to the district  court for hearing and an          articulated determination.               We  begin with  appellant's  first  cause  of action.    The          district  court noted  this  claim in  its  opinion.   But  after          observing that most of the evidence presented at  the preliminary          injunction hearing had  concerned the second cause of action, the          court went  on to discuss  only the  second claim.   The decision          concluded with a blanket denial of the request for relief.               In  the absence of findings  from the court,  we confine our          review  to determining  from the  record  whether it  permits any          result but affirmance.  See In re Rare Coin Galleries of America,                                  ___ _____________________________________          Inc., 862 F.2d  896, 900 (1st Cir. 1988).  More specifically, the          ____          question is whether the  court, on this record, could  have found          that  Lamec   had  demonstrated   a  likelihood  of   success  in          establishing  that  the   Secretary  improperly  terminated   its          eligibility.  We  have no  difficulty in concluding  that such  a          finding would lack support.               The  skeletal  facts are  the following.    After a  year of          negotiations, Puerto Rico Technology and Beauty College (PR Tech)          sold its  Mayaguez campus to Lamec  on June 30, 1987.   Under the          accreditation  policy of  the National  Association of  Trade and          Technical  Schools (NATTS), a private accreditation commission, a          branch campus that is sold as  an independent school must be  re-          accredited  as  a  "free  standing" institution.    Lacking  such          accreditation  at  the  time  of  sale,  Lamec's campus  was  not          eligible for  Title IV  funding programs.    Lamec, however,  had          assumed that its students  would pay their tuition and  fees with          Title IV funds.     Perhaps  in anticipation  of this  problem, a                                         -3-          clause  was inserted into the sales contract requiring PR Tech to          permit  Lamec "to use its federal permits and licenses to collect          all the federal grants of the enrolled students"  pending Lamec's          receipt  of new permits and  licenses.  From  August 1987 through          July 1988, PR Tech used its  own Pell Grant eligibility to obtain          $403,875 in  Title IV funds,  which Lamec used to  pay itself for          the tuition and fees owed by its students.               Although   Lamec  eventually  was   declared  eligible,  the          Secretary in July 1990 sought to terminate its eligibility and to          impose  fines  on both  PR  Tech and  Lamec.   A  hearing  on the          proposed termination was held before an Administrative Law Judge.               The  relevant   legal  standards   are  set  forth   in  two          regulations.  The first, 34 C.F.R.   668.82 (c), states:                An institution's  failure to  administer the  Title IV,               HEA programs, or  to account for the  funds it receives               under those  programs, in  accordance with  the highest               standard of care and diligence required of a fiduciary,               constitutes  grounds  for a  fine,  or  the suspension,               limitation  or termination  of the  eligibility  of the               institution to participate in those programs.               The second, 34  C.F.R.   600.31,  formerly   668.18  (1987),          provides:                    (a)  An  eligible  institution,  or  a  previously               eligible  institution  that  participated  in  any  HEA               program, that  changes ownership resulting in  a change               of control is not considered by the Secretary to be the               same institution . . . .                                       *  *  *                    (c) For  the purposes  of this  part, a  change in               ownership of an institution that results in a change of               control  means   any  action  by  which   a  person  or               corporation  obtains  new  authority  to   control  the                                         -4-               actions of that institution.   That action may include,               but is not limited to --                    (1)  The sale of the institution;               The ALJ found the following:               The terms  of  the  contract [of  sale]  appear  to  be               fulfilled  in  that  the  money passed  from  buyer  to               seller.   The parties  acknowledged to the  Puerto Rico               Department of  Education a change of  ownership.  While               it is true PR Tech continued to double check  to see if               all federal  funds were being managed properly, the day               to  day operation  seems  to have  been transferred  to               Lamec.   The testimony  is clear; the  parties believed               the employees of Mayaguez to be the employees of Lamec.               These  findings would  seem  to have  dictated a  conclusion          that, within the  meaning of   668.18(c), there had been a change          of ownership.  But the ALJ then considered the effect of a Puerto          Rico regulation which, in the absence of a new owner's signing of          certain guarantees,  provided  that  "the  previous  owners  will          continue  guaranteeing  jointly the  commitments  made  as if  no          transfer  of ownership had taken  place."  The  ALJ, ignoring the          "as if"  clause, interpreted  this reservation  of responsibility          under Puerto Rican law  into a negation of transfer  of ownership          under  federal law.   This  is  a clear  lapse in  logic, a  non-          sequitur.   The  Secretary  correctly held,  reversing the  ALJ's          decision, "Clearly,  Lamec  obtained  authority  to  control  the          actions of the Mayaguez school."                We therefore  hold that  on this  record the district  court          could not have found that appellant had demonstrated a likelihood          of success in its effort to overturn the Secretary's holding that          "a  `change of  ownership' did  occur as  a direct  and immediate          result of  the June  30, 1987  transaction."   We  make the  same                                         -5-          determination   as  to   appellant's  effort   to  overturn   the          Secretary's termination of Lamec's  eligibility to participate in          the Title  IV  program.   Given this  record and  the ALJ's  fact          findings, the only possible conclusion is that Lamec violated the          regulations.  As to termination,  there are no specific  limiting          standards,  and nothing  to indicate  an arbitrary  or capricious          decision.*                We find ourselves in quite a different position in reviewing          the assessment of  the $450,000 fine.   In the  first place,  the          Secretary did not direct any specific reasoning to this decision,          noting only  that some eighteen  illegal transfers of  funds were          involved in  the relevant fourteen-month period;  that Lamec bore          some  responsibility for PR Tech's receipt of the Title IV funds;          and that Lamec (as well as PR Tech)  had falsely represented that          the  final sales contract had been executed later than the actual          date, i.e.,  January 29, 1988,  rather than  June 30, 1987.   The          district court, as we have noted, did not address this issue.                                    ____________________        * The Secretary determined  that termination was appropriate based  on        the "change of  ownership" and  the consequent violation  of Title  IV        regulations when PR Tech transferred funds to Lamec.  See  34 C.F.R.                                                                ___        668.4 (1987)  (institution receiving  funds must have  state licensing        and accreditation);  34 C.F.R.   668.11  (1987) (institution receiving        funds   must  enter   participation  agreement   with  Department   of        Education).    See  also 34  C.F.R.     668.86  (1991) (Secretary  may                       ___  ____        terminate eligibility  if institution violates any  provision of Title        IV or any regulation implementing it).          Additionally,   however,   the   Secretary  found   that   the   two        institutions  violated their  fiduciary duties  to act  "in accordance        with the highest standard of  care and diligence" toward the Title  IV        program, see 34  C.F.R.   668.82,  and concluded that their  "acts and                 ___        omissions[]  considered  alone  would  be sufficient  to  justify  the        termination of PR Tech and Lamec."                                           -6-               The authority of  the Secretary to  impose a civil  monetary          penalty  is not  entirely  without limits.    In determining  the          amount of  a  monetary  penalty,  the Secretary  is  required  to          consider "the appropriateness of  the penalty to the size  of the          institution of higher education subject to the determination, and          the gravity of the violation, failure, or misrepresentation . . .          ."  20 U.S.C.   1094 (c)(2)(B)(ii).  The maximum  penalty for any          single  violation is $25,000.  20 U.S.C.    1094(c)(2)(B)(i).  In          this  case  the   Secretary  not  only  chose   the  more  severe          eligibility sanction --  termination, rather  than suspension  --          but also  assessed the uttermost monetary  sanction available for          each  of  the  eighteen fund  transfers.    In  other words,  the          Secretary administered to Lamec the maximum possible fine without          any explanatory comment.               The government appropriately reminds us of our own statement          that "`[a]n agency's choice  of sanction is not to  be overturned          unless the reviewing court determines it is "unwarranted in law .          . . or  without justification in fact  . . .  ."'"  Broad  Street                                                              _____________          Food Market, Inc.  v. United States, 720 F.2d 217,  220 (1st Cir.          _________________     _____________          1983)  (quoting Kulkin v. Bergland,  626 F.2d 181,  184 (1st Cir.                          ______    ________          1980) (quoting Butz v. Glover Livestock Comm'n Co., 411 U.S. 182,                         ____    ___________________________          185-86 (1973))).   Our problem is that while the maximum sanction          is warranted  in law, we  have no  way of telling  whether it  is          justified in fact.                                         -7-               In  saying this,  we  have in  mind  the ALJ's  findings  of          fact.** In discussing whether  PR Tech or Lamec had  violated the          duty of  exercising  "the  highest  standard of  care,"  the  ALJ          concluded:               There is no evidence that the funds  transferred on the               18 occasions in question were misappropriated, misused,               or otherwise  misapplied.  No evidence  is available to               refute  statements from  both PR  Tech and  Lamec which               show the funds being  used for the intended  purpose --               the education of the students at the Mayaguez school.          These conclusions are at  odds with the Secretary's determination          that  Lamec's violations  warranted  the maximum  fine.   Without          explanation  from the  Secretary  or findings  from the  district          court,  we are unable to review whether the assessment was proper          under  the statute.  Accordingly, we must remand for the district          court's  determination on  the  propriety of  such a  substantial          fine.***                We  approach the  district  court's decision  on appellant's          second cause  of  action,  seeking  to compel  the  Secretary  to          certify  Lamec's   two  new   branch  campuses  as   eligible  to          participate  in  Title  IV  programs, with  the  benefit  of both          hearing  and a reasoned  decision.  The history  of the effort to          certify these two branch campuses is one of misadventure at every          turn:  first,  an application form that was confined  to only one                                    ____________________        ** As  we have  noted, these  findings do not  justify the  conclusion        reached by the ALJ on the termination issue.  They nevertheless strike        us as relevant to a determination of an appropriate fine.        *** We were  told at oral argument that the  Secretary had suggested a        remand to enable the  district court to make specific  findings on the        first cause of action.                                         -8-          of  the campuses; then, after the second form had been submitted,          a  discovery that  licenses from  the Puerto  Rico Department  of          Education  had to  be  obtained; then,  several  months later,  a          limited  grant  of  eligibility  to teach  only  cosmetology  and          sewing; a continually frustrating and attenuated effort to obtain          NATTS accreditation for several additional courses; one report of          satisfactory progress forwarded in  Spanish, only to result  in a          request for  a report in  English; then  a request for  an audit,          which  resulted in  unsatisfactory information  confined to  cash          flow; finally, another audit report.  The Secretary received this          last piece of information  on September 5, 1991.  A  month later,          the main campus was terminated, removing the underpinning for any          certification of the two branches.                 Appellant portrays  the above unhappy sequence  of events as          evidencing  either bureaucratic  stupidity  and sluggishness  or,          worse, malevolent scheming.   But the matter has  been thoroughly          considered by the district court.  It was entitled  to credit the          Department of Education  for good  faith efforts and  to lay  the          blame for delay  on appellant.  Although it could  be argued that          certification  should  have occurred  after  the  final piece  of          information  was  provided  on  September  5,  we  note that  the          representations in the final report had to be carefully verified.          We  cannot conclude that the  existence of a  mere possibility of          faster processing, particularly with the impending termination of          the mother institution, gives appellant a likelihood of success.                                          -9-               Accordingly, we  take the following actions:  (1) affirm the          denial   of  Lamec's   request  for   an  injunction   suspending          termination  of its eligibility for Title  IV funding; (2) affirm          denial of its request  for an injunction compelling certification          of  the branch campuses, and  (3) vacate the  judgment denying an          injunction enjoining  assessment of  a civil monetary  penalty in          the  amount  of $450,000,  remanding that  issue to  the district          court for further consideration and an articulated determination.               Affirmed in part, vacated and remanded in part.  No costs.               ______________________________________________                                         -10-
