United States District Court, N.D. Alabama, Southern Division
K. KALLON UNITED STATES DISTRICT JUDGE
Corporation of America, Virginia College, LLC, and New
England College of Business and Finance, LLC (collectively,
“ECA”) assert claims against the United States
Department of Education and Betsy DeVos, in her official
capacity as the Secretary of Education (collectively, the
“DOE”), for declaratory and equitable relief.
Doc. 1. In particular, as part of its efforts to keep
operating its educational institutions, ECA seeks a
declaration that a proposed restructuring plan will not
interfere with its ability to participate in federal
financial aid programs regulated by the DOE. Id. at
¶ 42. In addition, ECA filed an Emergency Motion for the
Appointment of a Receiver and Entry of a Temporary
Restraining Order and Preliminary Injunction. Doc. 2.
Basically, ECA asks this court (1) to enter an order
enjoining certain actions and lawsuits against ECA by its
creditors and (2) to appoint a receiver to take possession of
ECA's assets and execute the restructuring plan. Doc. 1
at ¶¶ 44-50; see also doc. 2. Following an
initial hearing on October 18, 2018, the court entered a
stipulated order that, among other things, gave the DOE an
opportunity to file a formal response to the motion. Doc. 10.
The court also entered a temporary restraining order on
October 19, 2018, staying and enjoining certain actions
against ECA by its creditors to maintain the status quo until
October 29, when the court held a second hearing on ECA's
motion. Doc. 12. Immediately after the second hearing, the
court extended its TRO by seven days, to allow it an
opportunity to consider the parties' arguments. Doc. 38.
As a result, the TRO is set to expire at 5:00 p.m. Central
opposes the motion and argues that the court does not have
jurisdiction to hear this lawsuit. Doc. 19. Specifically, the
DOE argues that there is no evidence before the court that
ECA has submitted its restructuring plan to the DOE or that
the DOE has rejected the plan. As such, the DOE maintains
that there is no case or controversy as required by Article
III for the court to have jurisdiction to hear this case.
After careful consideration of the parties' briefs, docs.
2; 19; 24; 48; 51; 53,  and with the benefit of oral argument,
the court concludes that ECA has not shown the existence of a
case or controversy within the meaning of Article III, §
2 of the United States Constitution. As a result, the court
does not have subject matter jurisdiction over ECA's
claims, and this action is due be dismissed without
FACTUAL AND PROCEDURAL BACKGROUND
operates colleges and career training schools at seventy-four
campuses throughout the United States, including five
campuses in Alabama. Docs. 1 at ¶¶ 3-6; 24-2 at
¶¶ 7, 10. To generate revenue, ECA depends upon
tuition and fees from its students, most of whom receive
federal student loans authorized under Title IV of the Higher
Education Act (“HEA”). Docs. 1 at ¶¶
13-15, 20; 24-2 at ¶¶ 17, 19-20. Thus, ECA's
colleges and schools must remain eligible to participate in
Title IV funding for ECA to maintain its revenue stream.
See doc. 24-2 at ¶¶ 19-20, 35. The DOE
regulates ECA's eligibility for Title IV programs, and
ECA's participation in the programs requires DOE
approval. Docs. 1 at ¶¶ 15-18; 19-1 at ¶¶
5-8; 24-2 at ¶ 19.
enrollment over several years has led to significant revenue
shortfalls for ECA. The shortfalls caused ECA to default on
many of its obligations, including its lease agreements,
leading numerous landlords to institute or threaten eviction
proceedings. See docs. 1 at ¶¶ 14, 20, 26;
24-2 at ¶¶ 20-21, 24-25, 32. ECA contends that it
cannot seek protection by “a traditional bankruptcy
filing” from these lawsuits because, under the HEA, a
bankruptcy filing disqualifies an institution from
participating in Title IV funding programs. Doc. 24-2 at
¶ 34; see also 20 U.S.C. § 1002(a)(4)(A).
its financial difficulties, on September 5, 2018, ECA
informed the DOE that it plans to close twenty-six of its
schools and to teach-out the students currently enrolled at
those schools. Docs. 19-1 at ¶ 14; 24-2 at ¶¶
27-28; see also docs. 1 at ¶ 24; 19-1 at 12-13.
After informing the DOE of its intention to close the
teach-out schools, ECA developed a proposed
“restructuring plan” that would provide financing
to continue its operations in the short term and allow ECA to
sell its remaining schools (the “go-forward
schools”) to a group of lenders. See docs 1 at
¶¶ 21, 33; 24-2 at ¶¶ 22, 30, 36.
According to ECA, the lenders require the appointment of a
receiver as a condition of their financing and purchase of
the go-forward schools. Doc. 24-2 at ¶ 22.
a phone call on October 10, ECA notified a representative of
the DOE that it intended to seek a receivership. Docs. 19-1
at ¶ 18; 24-2 at ¶ 40. Although ECA inquired, the
DOE representative refused to assure ECA that seeking the
appointment of a receiver would not adversely impact
ECA's eligibility to participate in Title IV funding
programs. Doc. 24-2 at ¶ 40. Instead, the individual
informed ECA that it should not assume that the DOE will
accept a receivership over ECA and that “ECA should
proceed at its own risk.” Id. ECA did not
present evidence of further communication with the DOE
regarding its proposed restructuring plan, or that it has
presented its proposed plan to the DOE for consideration.
See docs. 1; 2; 24.
days after the phone call, ECA filed this action against the
DOE seeking a declaration in Count I that its proposed
restructuring plan would not interfere with its ability to
participate in Title IV funding programs and that the
appointment of a receiver would not constitute a change in
control under DOE regulations. In Counts II and III,
respectively, ECA also seeks an order enjoining certain
actions against ECA by its creditors and an order appointing a
receiver “to take possession of ECA's business and
assets to oversee the administration of the closure of the
Teach-Out Schools and to execute the [proposed] restructuring
plan . . . .” Id. at 17-21. These last two
counts seek remedies and are not substantive causes of
courts are courts of limited jurisdiction, and a federal
district court must be satisfied that it can exercise
jurisdiction over a claim before reaching the merits of the
claim. E.g., Morrison v. Allstate Indemnity Co., 228
F.3d 1255, 1260-61 (11th Cir. 2000) (citations omitted).
Therefore, because the DOE contends that the court lacks
jurisdiction to hear this dispute, the court begins, as it
must, with determining whether it has subject matter
jurisdiction over this matter.
Whether a Case or Controversy Exists
party seeking a federal forum, ECA bears the burden of
proving the existence of subject matter jurisdiction. See
Federated Mut. Ins. Co. v. McKinnon Motors, LLC, 329
F.3d 805, 807 (11th Cir. 2003) (citations omitted). To
support its contention that the court has jurisdiction over
its claims, ECA directs the court to § 1082(a)(2) of the
HEA. Docs. 1 at ¶ 10; 24 at 3. This section provides
that the DOE may “sue and be sued . . . in any district
court of the United States, and such district courts shall
have jurisdiction of civil actions arising under this part
without regard to the amount in controversy . . .; but no
attachment, injunction, garnishment, or other similar process
 shall be issued against the [DOE] . . . .” 20 U.S.C.
§ 1082(a)(2); see also Bartels v. Alabama Commercial
Coll., Inc., 54 F.3d 702, 707 (11th Cir. 1995) (finding
that § 1082(a)(2) “provides the federal courts
with an independent jurisdictional grant over cases involving
the [DOE's] administration of the [Guaranteed Student
argues that, regardless of § 1082(a)(2), ECA must still
show the existence of a case or controversy and that it has
standing to pursue its claims against the DOE. Doc. 19 at 6-11.
Absent such a showing, the DOE maintains that the court lacks
subject matter jurisdiction over this dispute. Id.
Indeed, notwithstanding § 1082(a)(2), ECA's claim
for declaratory relief must still satisfy Article III's
case or controversy requirement for the court to exercise
subject matter jurisdiction over the claim. See Susan B.
Anthony List v. Driehaus, 573 U.S. 149, 134 S.Ct. 2334,
2341 (2014) (“Article III of the Constitution limits
the jurisdiction of federal courts to ‘Cases' and
‘Controversies.'”) (quoting U.S Const., Art.
III, § 2); Aetna Life Ins. Co. of Hartford, Conn. v.
Haworth, 300 U.S. 227, ...