Calvillo Manriquez v. Devos: Judge Sallie Kim holds U.S. Department of Education in contempt for failing to abide by her injunction in the Corinthian Colleges case

 Corinthian Colleges, a for-profit chain of colleges, went bankrupt in 2015 under a shower of fraud accusations. More than 100,000 former students filed claims with the U.S. Department of Education, seeking relief from federal student loans they took out to attend the defunct chain’s schools. 

Corinthian students maintained that they were lured to attend the school by the college chain's job placement rates, which turned out to be inflated. Initially, DOE granted full relief to some claimants.

In 2017, however, DOE unilaterally changed the way it processed these claims and only granted partial relief from student loans under a formula that calculated the income of borrowers who had been enrolled in Corinthian programs. A group of former Corinthian students sued DOE for arbitrarily changing the rules and Judge Sallie Kim certified the lawsuit as a class action.

Judge Sallie Kim issues a preliminary injunction against DOE

While this litigation was ongoing, Judge Kim issued a preliminary injunction against DOE, ordering the agency to “cease all efforts to collect debts from Plaintiffs” (Calvillo Manriquez v. DeVos, p. 538). Corinthian appealed Judge Kim’s preliminary injunction to the Ninth Circuit Court of Appeals, and Judge Kim stayed all proceedings while the appeal was pending.

Later, the student plaintiffs filed a motion asking Judge Kim to lift the stay and enforce her injunction. Judge Kim then ordered DOE to file a report regarding the status of its compliance with her injunctive order.

DOE filed a “Compliance Report,” in September 2019, admitting that it had erroneously sent a notice to 16,034 borrowers that student-loan payments were due. In response to that notice, more than 3,000 borrowers made one or more payments on their student loans.

According to Judge Kim, DOE did not notify any of the borrowers that it had made a mistake and did not issue refunds to borrowers who had made payments in violation of the preliminary injunction. (p.538)

Moreover, in violation of Judge Kim’s injunctive order, DOE “provided adverse reports to credit reporting agencies for 847 Corinthian borrowers and collected on the loans of 1,808 Corinthian borrowers through wage garnishment or offsets from tax refund[s].” (pp. 538-39).

Judge Kim finds DOE in contempt of her preliminary injunction

After hearing the evidence, Judge Kim held DOE in contempt. In her order, the judge wrote:

[T]here is no question that [DOE] violated the preliminary injunction. There is also no question that [DOE’s] violations harmed individual borrowers who were forced to repay loans either through voluntary action or involuntary methods (offset from tax refunds and wage garnishment) and who suffered from the adverse credit reporting. Defendants have not provided evidence that they were unable to comply with the preliminary injunction, and the evidence shows only minimal efforts to comply with the preliminary injunction. The Court therefore finds Defendants in civil contempt. (p. 540)

Judge Kim then fined DOE $100,000.

The Court finds that a monetary sanction of $100,000 paid by [DOE], to a fund held by Plaintiffs’ counsel, is the best method to remedy [DOE’s] wrongful acts. Given that there are over 16,000 borrowers who have suffered damages from [DOE’s] violation of the preliminary injunction and given that there may be some administrative expenses to remedy the harm, the Court finds the amount reasonable. (p. 540)

Conclusion

Calvillo Manriquez v. DeVos is simply one more sign that the U.S. Department of Education holds distressed student debtors in contempt and Judge Kim’s contempt order was certainly appropriate.

Nevertheless, the $100,000 fine that Judge Kim issued against DOE is totally inadequate to get DOE’s attention.  A $100,000 fine is just pocket change to DOE Secretary Betsy DeVos—probably less than the annual maintenance costs on her yacht.  And $100,000 distributed to the 16,000 Corinthian students who were injured by DOE’s conduct amounts to only about eight bucks apiece.

Corinthian Colleges filed for bankruptcy nearly five years ago, and some of the plaintiffs were injured earlier than that. Five years is too long to wait for justice. The Department of Education should be ordered to forgive all student-loan debt acquired by students who attended for-profit colleges that have been found guilty of fraud and deception.  In other words, all the poor souls who attended Corinthian Colleges should have their student loans forgiven in their entirety.

References

Calvillo Manriquez v. DeVos, 411 F. Supp. 3d 535 (N.D. Cal. 2019).

The Seaquest: Betsy DeVos's yacht