Hestia Education Group, LLC et al v. John King

Northern District of California, cand-4:2015-cv-01463

Order by Magistrate Judge Donna M. Ryu granting in part and denying in part {{28}} Motion for Discovery; denying without prejudice {{42}} Motion for Leave to File a First Amended Complaint and Supplemental Briefing.(dmrlc3, COURT STAFF)

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4 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 HESTIA EDUCATION GROUP, LLC, et 7 al., Case No. 15-cv-01463-DMR ORDER GRANTING IN PART AND 8 Plaintiffs, DENYING IN PART PLAINTIFFS' MOTION FOR DISCOVERY; DENYING 9 v. WITHOUT PREJUDICE PLAINTIFFS' MOTION FOR LEAVE TO FILE A 10 JOHN KING, FIRST AMENDED COMPLAINT AND RELATED SUPPLEMENTAL 11 Defendant.1 BRIEFING 12 Re: Dkt. No. 28, 42 Northern District of California United States District Court 13 Plaintiffs Hestia Education Group, LLC dba Blush School of Makeup ("Blush") and 14 Manhal Mansour filed a motion for discovery in this appeal under the Administrative Procedure 15 Act ("APA"), 5. U.S.C. § 701 et seq. Docket No. 28. The court held a hearing on this matter on 16 November 12, 2015. Upon the court's request, Defendant submitted additional citations to the 17 administrative record. Docket No. 44. For the reasons set forth below, Plaintiffs' motion for discovery is granted in part and denied in part. 18 19 I. BACKGROUND Title IV of the Higher Education Act of 1965 ("HEA"), 20 U.S.C. §§1070 et seq., governs 20 federal student financial aid programs. In order to participate in such a program, a school must 21 execute a contract with the Department of Education (the "Department") known as a program 22 participation agreement. 20 U.S.C. § 1094(a); 34 C.F.R. § 668.14. The Department executes 23 contracts only after reviewing an institution's administrative capability and financial 24 responsibility, determining that an institution satisfies statutory eligibility requirements, and 25 26 1 27 John King, Acting Secretary of the United States Department of Education, has been substituted for Defendant Arne Duncan, Secretary for the United States Department of Education, pursuant to 28 Fed. R. Civ. P. 25(d). 4 1 deciding that the institution is capable of acting as the Department's fiduciary. See 34 C.F.R. §§ 2 6000.20(a); 668.82(a), (b). An institution seeking certification must demonstrate that it qualifies 3 as an eligible institution, and meets the standards for participation and financial responsibility, as 4 set forth in the regulations. 34 C.F.R. § 668.13(a). 5 On January 3, 2014, Blush filed an application with the Department seeking initial 6 certification of eligibility to participate in the Title IV federal student loan and grant program. The 7 Department denied Blush's application in a letter dated February 14, 2014, and affirmed the denial 8 in subsequent letters issued on May 9, 2014, August 11, 2014 and February 15, 2015. The 9 Department denied Blush's application due to its failure to disclose that Mansour had been the owner and president of Elite Progressive School of Cosmetology ("Elite"), an institution which the 10 Department had refused to recertify for participation in Title IV programs due to multiple serious 11 administrative and financial deficiencies. 12 Northern District of California United States District Court Plaintiffs filed this lawsuit in March 2015 seeking review of the Department's denial under 13 the APA. Plaintiffs allege that the denial of Blush's application was arbitrary and capricious, and 14 also resulted in a de facto debarment. 15 Plaintiffs now move for discovery. 16 II. LEGAL STANDARD 17 In cases challenging a final federal agency decision under the APA, judicial review of 18 agency action is usually limited to review of the administrative record. Friends of the Earth v. 19 Hintz, 800 F.2d 822, 828 (9th Cir.1986). The Supreme Court has emphasized that when reviewing 20 administrative decisions, "the focal point for judicial review should be the administrative record 21 already in existence, not some new record made initially in the reviewing court." Florida Power 22 & Light Co. v. Lorion, 470 U.S. 729, 744 (1985). The task of the reviewing court is to review the 23 agency decision based on the record the agency presents to the reviewing court. Id. at 743-44. 24 The APA directs the reviewing court to review "the whole record or those parts of it cited 25 by a party." 5 U.S.C. § 706. Under Ninth Circuit precedent, "[t]he 'whole' administrative record. 26. . consists of all documents and materials directly or indirectly considered by agency decision- 27 makers and includes evidence contrary to the agency's position." Thompson v. U.S. Dep't of 28 2 4 1 Labor, 885 F.2d 551, 555 (9th Cir. 1989) (citation and internal quotation marks omitted) 2 (emphasis removed). "In the absence of clear evidence to the contrary, courts presume that 3 [public officers] have properly discharged their official duties." Citizens to Preserve Overton 4 Park Inc., 401 U.S. 402, 415 (1971). Accordingly, an agency's designation of the administrative 5 record is entitled to a presumption of regularity, and its certification is deemed sufficient to show 6 that the record is complete. McCrary v. Gutierrez, 495 F. Supp. 2d 1038, 1041 (N.D. Cal. 2007) 7 (citations omitted). 8 Because a court's review of an agency decision under the APA is limited to the 9 administrative record, discovery generally is not permitted in such cases. McCrary, 495 F. Supp. 2d at 1041. However, certain rare circumstances may justify permitting discovery or expanding 10 judicial review beyond the administrative record. Animal Def. Council v. Hodel, 840 F.2d 1432, 11 1436 (9th Cir. 1988) amended, 867 F.2d 1244 (9th Cir. 1989). The Ninth Circuit has articulated 12 Northern District of California United States District Court four such exceptions. Courts may permit discovery or review extra-record material only when 13 "(1) it is necessary to determine whether the agency has considered all relevant factors and 14 explained its decision, (2) the agency has relied on documents not in the record, (3) supplementing 15 the record is necessary to explain technical terms or complex subject matter, or (4) plaintiffs make 16 a showing of bad faith." City of Las Vegas, Nev. v. F.A.A., 570 F.3d 1109, 1116 (9th Cir. 2009). 17 "[T]hese exceptions are narrowly construed and applied." Lands Council v. Powell, 395 F.3d 18 1019, 1030 (9th Cir. 2005). 19 III. DISCUSSION 20 Plaintiffs contend that they are entitled to discovery because the designation of the 21 administrative record is incomplete and the decision-making process was materially flawed. As 22 discussed further below, Plaintiff Mansour also argues that discovery should be allowed on his de 23 facto debarment claim. 24 The Department is entitled to a presumption that the administrative record is regular and 25 complete. The party seeking to supplement the record "bears the burden of overcoming this 26 presumption by 'clear evidence.'" Natural Res. Def. Council v. Pritzker, 62 F. Supp. 3d 969, 1023 27 (N.D. Cal. 2014). Plaintiffs must therefore set forth clear evidence that they are entitled to 28 3 4 1 discovery based on at least one of the four recognized exceptions set forth above. Plaintiffs did 2 not frame their arguments to coincide with the legal standards, thus leaving to the court the task of 3 construing Plaintiff's assertions to determine whether they fit within any of the exceptions to the 4 "no discovery" rule. 5 A. Did Plaintiffs Clearly Establish an Exception to the "No Discovery" Rule? 6 Plaintiffs make a number of arguments in support of their bid for discovery. They first 7 argue that the Administrative Record ("AR") is incomplete because the Department omitted 8 certain documents.2 The court construes this as an attempt to fall within the first exception, which 9 permits discovery where it is "necessary to determine whether the agency has considered all 10 relevant factors and explained its decision." Plaintiffs contend that the record should be augmented to include additional documentation 11 of the sale of Elite. The Department found that while under Mansour's ownership, Elite owed the 12 Northern District of California United States District Court Department over $1.6 million dollars due to its failure to comply with applicable Title IV 13 regulations. AR 2-3, 217. Elite did not pay this liability to the Department under Mansour's 14 ownership. Instead, Mansour sold Elite to B&H, which took over Elite's liabilities to the 15 Department as part of the sale. The existing record demonstrates that the Department considered 16 the sale of Elite to B&H, as well as the fact that B&H assumed responsibility for Elite's $1.6 17 million liability to the Department. See, e.g., AR 217. Plaintiffs therefore cannot establish that 18 the record is deficient; they merely assert that additional sales documents would place Elite's prior 19 behavior in a more favorable light by showing that Elite ultimately satisfied the debt to the 20 Department.3 Plaintiffs have not clearly established that the record is inadequate to explain the 21 Department's decision. 22 Plaintiffs next argue that certain pages of Blush's application are missing from the AR, 23 24 2 At the hearing, Defendant agreed to augment the AR with all of the documents that Plaintiffs 25 identified and attached as exhibits to their motion. The court will analyze this issue, even though Defendant's agreement effectively mooted the argument with respect to the specific documents 26 Plaintiffs attached to their motion. 27 3 It can be argued that the sales documents actually support the Department's denial of Blush's 28 application, for they show that B&H, not Mansour or Elite under Mansour's ownership, had the financial resources to pay Elite's $1.6 million liability to the Department. 4 4 1 including a recent National Accrediting Commission of Career Arts & Sciences ("NACCAS") 2 accreditation letter, a recent California Bureau of Private Postsecondary Education ("BPPE") 3 licensing letter issued to Blush, and copies of financial aid policies submitted by Blush with its 4 application.4 None of these documents are connected to the Department's decision to deny 5 Blush's application. As such, Plaintiffs have failed to clearly establish that the absence of these 6 documents from the AR somehow justifies discovery. 7 Plaintiffs also contend that Defendant acted in bad faith, which would satisfy the fourth 8 exception to the rule against discovery in APA cases. In order to invoke the bad faith exception, 9 Plaintiffs must make "a strong showing of bad faith or improper behavior" by the agency. See Animal Def. Council v. Hodel, 840 F.2d 1432, 1437 (9th Cir. 1988). 10 Plaintiffs first assert that the Department did not act in good faith because it only included 11 documents that supported its decision. This is not accurate. The AR contains many documents 12 Northern District of California United States District Court that were submitted by Plaintiffs or were otherwise supportive of Plaintiffs' application. 13 Next, Plaintiffs argue that the Department exhibited bad faith because it made a quick 14 decision to deny Blush's application, then came up with additional reasons for the denial. Blush 15 submitted its application on January 3, 2014. Plaintiffs point to emails5 sent on January 28 and 29, 16 2014 Renee Gullotto to Marla Green which state that "[Ms. Fernandez-Rosario]6 is wanting 17 someone to do a cursory review of the application in order to determine if there are any additional 18 reasons we can deny the application," and "[Ms. Fernandez-Rosario] wants a quick turnaround on 19 an initial/cursory look at the Financials for this school. I'm working on the Denial letter and if 20 there are any issues, we want to use them in the letter." On January 30, 2014, Gullotto sent an 21 email to Green stating that "It doesn't appear there's anything to use as an additional reason for 22 purposes of denial. Would you recommend the approval of their financials otherwise?" Finally, 23 24 4 25 The AR includes an October 29, 2014 BPPE approval letter [AR 208] and an October 15, 2013 NACCAS approval letter [AR 205]. 26 5 Plaintiffs obtained these emails through a Freedom of Information Act request. 27 6 Ms. Fernandez-Rosario is the Division Director for the Department who has authority to "review 28 and approve or deny applications for initial or continuing eligibility of schools to participate in the Title IV programs." Fernandez-Rosario Declaration [Docket No. 32-3] ¶ 2. 5 4 1 Plaintiffs cite to a March 24, 2014 email sent from Jennifer Woodward that states, "I would need 2 to talk this through with the case team to decide whether to let this guy back into the programs. I 3 tend to think that we should never do so." See Pls.' Motion at 13-14. 4 These emails do not constitute clear evidence of bad faith. The fact that the Department 5 made a decision on Plaintiffs' application within a month of its submission is not, by itself, 6 indicative of improper motive. Nothing in the email exchange is inconsistent with the 7 Department's proffered reason for denial. Having made the decision to deny Plaintiffs' 8 application, the decision makers did not act inappropriately in conducting a review to determine if 9 there were additional deficiencies to set forth in the denial letter. The subsequent emails indicate that members of the review team were, in fact, open to considering the possibility of approving the 10 application, even if they had concerns about Mansour's past record. In sum, Plaintiffs have not 11 presented clear evidence that Defendant acted in bad faith. 12 Northern District of California United States District Court Finally, Plaintiffs generally assert that they are entitled to discovery because "it is not 13 possible to identify what information [the Department] actually considered" and "there is reason to 14 believe that the Department failed to consider available relevant information." Pls.' Motion at 6. 15 The court construes this as an argument under the first exception, discussed above, as well as the 16 second exception, which permits discovery if Plaintiffs clearly establish that the agency has relied 17 on documents that are not in the record. 18 As a general matter, Plaintiff's assertion is contradicted by the AR itself, which 19 demonstrates that the Department sent multiple letters to Plaintiffs explaining the reasons for 20 denial, each of which was supported by citations to record evidence. The Department's initial 21 denial was based on Mansour's failure to disclose his prior ownership of Elite. AR 2-3. That 22 letter discusses Elite's troubled history with the Department, and notes that Mansour's failure to 23 disclose his prior ownership constituted a material omission "inconsistent with the fiduciary 24 standard of conduct." AR 3. The Department attached over one hundred pages of supporting 25 documents to its decision letter. AR 5-115. Plaintiffs were given an opportunity to respond and 26 submit evidence disputing the finding. AR 4. The Department's subsequent letters responded to 27 arguments raised by Plaintiffs, and provided citations to the record evidence on which the 28 6 4 1 Department relied. AR 176-191, 197, 214-222. 2 However, Defendant's own opposition papers put a wrinkle in an otherwise 3 straightforward analysis. Defendant submitted the declarations of Donna Wittman and Martina 4 Fernandez-Rosario in support of its opposition to Plaintiffs' motion for discovery, in order to 5 "provide further background on the decision-making process." Deft.'s Opposition [Docket No. 6 32] at 4. The Wittman Declaration [Docket No. 32-2] discusses the details of a 2007 compliance 7 review conducted on Elite. The Fernandez-Rosario Declaration [Docket No. 32-3] discusses both 8 the 2007 compliance review of Elite and the review of Blush's 2014 application for initial 9 certification. Defendant relies on McCrary v. Gutierrez, 495 F. Supp. 2d 1038 (N.D. Cal. 2007) for the 10 proposition that courts can properly consider declarations to counter efforts to expand 11 administrative records through supplemental documents and discovery. In McCrary, the plaintiff 12 Northern District of California United States District Court claimed that the National Marine Fisheries Service ("NMFS") had conducted then concealed a 13 peer review of his petition for reconsideration of the agency's listing of Coho salmon under the 14 Endangered Species Act. 495 F. Supp. 2d at 1042. In opposing plaintiff's attempts to augment 15 the AR, NMFS provided a sworn declaration that no such peer review had been conducted nor was 16 it required by NMFS policy. Id. The district court relied on the declaration for the limited 17 purpose of determining that the peer review had not occurred. The court then denied plaintiff's 18 request to augment the administrative record. Id. 19 By contrast, in this case, Defendant proffered the Wittman and Fernandez-Rosario 20 declarations for the much broader purpose of "provid[ing] further background on the decision- 21 making process." This prompted Plaintiffs to file declarations from Manhal Mansour, Barry 22 Glasser, and Cristina Grimm7 challenging statements made in the Wittman and Fernandez-Rosario 23 declarations. Docket Nos. 33-1, 2, 3. Plaintiffs argue that Defendant's declarations amount to an 24 impermissible attempt to supplement the AR. According to Plaintiffs, the Department's effort to 25 further explain its decision-making process proves that the Department relied on information not 26 currently contained in the record. 27 28 7 Grimm is Mansour's wife. 7 4 1 The Fernandez-Rosario declaration refers to the "Elite scheme," a term not found in the 2 AR. Fernandez-Rosario Decl. ¶ 9. Plaintiffs argue that the use of the specific phrase "Elite 3 scheme" shows that the Department relied on information that is not included in the AR in making 4 its decision. This technical argument is unavailing, for the AR is replete with information about 5 the underlying problems with Elite's management of Title IV funds, even if no one referred to it as 6 the "Elite scheme." See Elite Final Program Review Determination, AR 27-108. The 2008 Elite 7 Final Program Review found numerous severe Title IV violations: Elite (1) disbursed more than 8 $2.2 million in Title IV funds to Elite students enrolled at an unaccredited, ineligible campus; (2) 9 failed to properly and timely pay tuition refunds and credit balances; (3) failed to properly verify required financial aid data; (4) failed to maintain required documentation; and (5) used Title IV 10 funds for non-program purposes without student authorization. AR 31-35, 40-44. In total, Elite 11 owed the Department more than $1.6 million dollars in liabilities for failure to comply with Title 12 Northern District of California United States District Court IV and HEA statutes and regulations. AR 215-18. Fernandez-Rosario's short-hand reference to 13 this history of mismanagement as the "Elite scheme" does not demonstrate that the Department 14 relied on extra-record evidence. 15 Fernandez-Rosario also states that while she was initially inclined to overlook the omission 16 of Mansour's prior ownership of Elite, her review of the history of Elite, Mansour's and Grimm's 17 complicity in the Elite scheme overwhelmed that initial inclination. Fernandez-Rosario Decl. ¶ 9. 18 Plaintiffs argue that Fernandez-Rosario's statement, filed in opposition to Plaintiff's motion, is the 19 first indication that the Department considered Grimm and her involvement in the "Elite scheme" 20 in reaching its decision to deny Blush's application. The court requested that the Department 21 provide citations to the AR to demonstrate the Department considered Grimm's "complicity in the 22 Elite scheme" in reaching its decision to deny Blush's application. Docket Nos. 43. None of the 23 Department's proffered record citations mention that Grimm was involved in the mismanagement 24 of funds at Elite. Docket No. 44. The Department's citations focus on the mismanagement of 25 funds at Elite without identifying Grimm's involvement [AR 40-42, 217], note the Department's 26 concern regarding Grimm's position to exercise control over the management of Blush [AR 197], 27 and state that the Department would review Blush's application under another person's ownership 28 8 4 1 upon submission of such an application [AR 220]. While the Wittman declaration spells out 2 Grimm's alleged involvement in management of funds at Elite, none of this information appears in 3 the AR. 4 The court finds that Wittman's recounting of her interactions with Grimm during the Elite 5 review, and Fernandez-Rosario's consideration of Grimm's involvement in Elite clearly 6 demonstrate that the Department relied on extra-record information in reaching its decision to 7 deny Blush's application. Plaintiffs have thus satisfied the second exception to the "no discovery" 8 rule on these narrow grounds. 9 The Department is ordered to supplement the AR with the materials it relied on in denying Blush's application regarding Grimm's involvement in Elite's failure to comply with applicable 10 Title IV, HEA statutes and regulations. Plaintiffs may propound one interrogatory and one 11 document request on this issue. Plaintiffs may also conduct one-hour depositions of Fernandez- 12 Northern District of California United States District Court Rosario and Wittman, which shall be restricted to this topic. The court otherwise denies Plaintiffs' 13 motion for discovery under the APA. 14 B. De Facto Debarment 15 Plaintiff Mansour argues that he is entitled to discovery regarding his claim for de facto 16 debarment. 8 17 1. Legal Standard for Debarment 18 Debarment is the exclusion of persons who are not presently responsible from doing 19 business with the government to ensure the integrity of federal programs. 2 C.F.R. § 180.125; 2 20 C.F.R. § 180.925; 2 C.F.R. § 3485.12.9 Debarment is also governed by Executive Order 12549, 21 which mandates that debarment of a participant in a program by one agency shall have 22 government-wide effect. Exec. Order No. 12549; 51 Fed. Reg. 6370 (3 CFR 1986 Comp., p. 189). 23 In order to participate as a fiduciary in the administration of the Title IV programs, an 24 25 8 While the Plaintiffs' pleadings are drafted as bringing a de facto debarment claim on behalf of 26 both Mansour and Blush, at the hearing Plaintiffs clarified that the de facto debarment claim is only brought on behalf of Mansour. 27 9 2 C.F.R. § 3485.12 is the Department of Education's regulation adopting the Office of 28 Management and Budget's guidance in subparts A through I of 2 C.F.R. § 180, which includes the definition of debarment. 9 4 1 institution must at all times act with the competency and integrity necessary to qualify as a 2 fiduciary. 34 C.F.R. § 668.82(a). When a person has been debarred by the Department, they are 3 restricted from participating in covered transactions not only with the Department of Education, 4 but with any other federal agency. 2 C.F.R. § 180.130. Similarly, the debarment of a Title IV, 5 HEA participant by another agency under Executive Order 12549 makes the party ineligible to 6 participate in Title IV, HEA transactions for the duration of the debarment. 2 C.F.R. § 7 3485.612(a); 34 C.F.R. § 668.82(f)(1). 8 The Department has specific debarment procedures, which include notice, hearing, and an 9 opportunity for appeal. 2 C.F.R. § 3485.611(b); 34 C.F.R. § 668.1, et seq.; 34 C.F.R. § 682.1, et 10 seq. A plaintiff can plead a claim for de facto debarment if plaintiff has effectively been debarred 11 from doing business with the government without the benefit of procedural protections. Redondo- 12 Borges v. U.S. Dep't of Hous. & Urban Dev., 421 F.3d 1, 8 (1st Cir. 2005). A plaintiff trying to Northern District of California United States District Court 13 establish a de facto debarment claim faces a high standard. Mitchell Eng'g v. City & Cty. of San 14 Francisco, No. C 08-04022 SI, 2009 WL 440486, at *3 (N.D. Cal. Feb. 23, 2009). Limited 15 discovery may be appropriate to allow a plaintiff to prove a de facto debarment claim. See Nat'l 16 Career Coll., Inc. v. Spellings, No. CV 07-00075 HG-LEK, 2007 WL 9362682, at *4 (D. Haw. 17 Aug. 3, 2007) (permitting limited discovery in de facto debarment case). 18 2. Analysis 19 Mansour alleges that the denial of Blush's Title IV application amounts to a de facto 20 debarment, because the terms of the Department's denial effectively bar him from transacting with 21 the Department without having afforded him the protections of the debarment process. Mansour 22 hinges his de facto debarment claim on language in the February 20, 2015 final denial letter which 23 states "[t]here exists no 'set of controls or conditions' that can address the Department's concerns 24 here, where you, the owner, and therefore the institution over which you exercise substantial 25 control, has not demonstrated that it can be trusted to act as the Department's fiduciary." AR 214. 26 Mansour argues that this language demonstrates that the Department effectively has debarred him 27 from participating in Title IV programs as the owner of an eligible institution. He contends that he 28 should be allowed discovery to determine whether the Department's actions amounted to a de 10 4 1 facto debarment against him. 2 In response, the Department first points to language from the same letter indicating that the 3 Department would reconsider its denial of Blush's application under some other person's 4 ownership. AR 220. While relevant to a debarment claim if brought by Blush, this argument does 5 not counteract Mansour's claim. 6 More broadly, the Department argues that Mansour's theory of de facto debarment has 7 been rejected by the Ninth Circuit in National Career College, Inc. v. Spellings, 371 Fed. Appx. 8 794, 796 (9th Cir. Mar. 22, 2010).10 In National Career College, as in this case, plaintiffs 9 challenged the Department's denial of an application for eligibility to participate in federally 10 funded student aid programs under the HEA. Allen Mirzaei purchased 49% of National Career 11 College, Inc., doing business as Hawaii Business College ("HBC"). At that time, the Department 12 approved HBC's continued participation in Title IV federal financial aid programs. Mirzaei's Northern District of California United States District Court 13 subsequent purchase of the remaining 51% of HBC triggered a change in control, requiring HBC's 14 reapplication under Title IV. The Department denied HBC's request for reapplication, citing 15 Mirzaei's previous breach of fiduciary duty when he owned another college. HBC contended that 16 the rejection of its application amounted to a de facto debarment without due process. 17 The Ninth Circuit held that the denial of HBC's application for recertification did not 18 constitute a de facto debarment. Id. The court explained that when a party is debarred, that party 19 cannot seek to enter into any contract with any federal agency. Id. The Ninth Circuit concluded 20 that because HBC had not been barred from entering into other contracts with the Department or 21 with other federal agencies, the single incident of the denial of HBC's application to participate in 22 Title IV financial aid funding was insufficient to prove a de facto debarment. Id. (citing Redondo- 23 Borges v. U.S. Dep't. of Housing and Urban Devel., 421 F.3d 1, 8-9 (1st Cir. 2005)). 24 Here, Mansour cannot sustain a de facto debarment claim because Blush has been 25 approved to participate in other federal programs with Mansour as its president. In July 2013, 26 Blush received approval from the Department of Homeland Security to provide education to non- 27 10 28 Although unpublished and thus non-precedential, (see Ninth Circuit Rule 36-3(a)), this court properly may consider the Ninth Circuit's reasoning. 11 4 1 immigrant foreign students and report on those students' status to the agency. AR 211-12, 213. 2 The Department of Veterans Affairs also approved Blush to train eligible veterans and dependents 3 under the GI Bill and Dependents Education Assistance Program.11 As recently as April 8, 2014, 4 (which is after the Department's February 12, 2014 initial denial of Blush's application for Title 5 IV certification), Blush passed its compliance survey conducted by the California State Approving 6 Agency for Veterans Education ("CSAAVE"). AR 209-10. CSAAVE works with the U.S. 7 Department of Veterans Affairs to evaluate and monitor education and training programs. 12 8 Mansour cannot claim that he has been debarred, since the record clearly shows that he has not 9 been barred from transactions with other federal agencies. 10 At the hearing, Mansour attempted to distinguish National Career College by relying on 11 Myers & Myers, Inc. v. U. S. Postal Serv., 527 F.2d 1252, 1258 (2d Cir. 1975) for the proposition 12 that a debarment claim could be based on denial of access to a particular subset of special Northern District of California United States District Court 13 contracts or preferred status. Mansour argues that National Career College failed to properly 14 recognize the teaching from Myers that "a 'sanction' taken against [a party] for claimed 15 irregularities... is far different than that of simply denying an application for a contract." Id. at 16 1258-59. Myers is readily distinguishable. Reviewing an order granting a motion to dismiss, the 17 Second Circuit construed the complaint in the light most favorable to plaintiffs, and found that 18 plaintiffs' allegations constituted a claim that they were denied renewal of a postal service 19 transportation contract as a result of debarment action without the procedural safeguards of notice 20 and a hearing. Id. at 1260. The court noted that the Postal Service's General Counsel had 21 characterized the agency's denial as a debarment. Id. at 1258, 1260. The court remanded to the 22 trial court to determine whether the Postal Service's action constituted a debarment or something 23 less. Id. 24 11 25 The approval letter from the Department of Veterans Affairs in the AR is not dated. AR 211-12. 12 26 CSAAVE operates under contract with the U.S. Department of Veterans Affairs. Under the authority of federal law, CSAAVE operates as part of the government of the State of California to 27 approve or disapprove veterans' education and training programs, prevent abuses, and promote quality in veterans' education by evaluating and monitoring education and training programs. 28 Section 21.4253 of Title 38 of the Code of Federal Regulations. 12 4 1 In the present case, Mansour's de facto debarment claim is based on a single denial to 2 participate in Title IV financial aid funding, and there is record evidence indicating that he has not 3 been subject to debarment by other federal agencies. Therefore, the court finds that under the 4 standard for de facto debarment articulated by the Ninth Circuit in National Career College, 5 Mansour has not adequately stated a claim for de facto debarment that would entitle him to 6 discovery. 7 IV. PLAINTIFFS' MOTION FOR LEAVE TO FILE AN AMENDED COMPLAINT 8 On December 15, 2015, Plaintiffs filed a motion for leave to file a First Amended 9 Complaint and to file supplemental briefing to address how the new allegations in the proposed 10 First Amended Complaint are relevant to Plaintiffs' motion for discovery. Docket No. 42. 11 Plaintiff did not provide notice of a hearing date and time, as required by Civil L.R. 7-2. 12 In light of this order, which likely impacts Plaintiffs' proposed amendments, Docket No. Northern District of California United States District Court 13 42 is denied without prejudice. The parties shall meet and confer regarding Plaintiffs' First 14 Amended Complaint. If the parties are unable to agree, Plaintiffs shall file a regularly noticed 15 motion for leave to file an amended complaint within 30 days of this order. 16 Plaintiffs' request to file supplemental briefing related to the First Amended Complaint is 17 denied. 18 V. CONCLUSION 19 In APA cases, the Department's certification of the Administrative Record is granted a 20 presumption of regularity. For the most part, Plaintiffs failed to meet their burden of establishing 21 by clear evidence that they are entitled to discovery. However, Defendant has put forth evidence 22 indicating that it relied on extra-record material related to its consideration of Grimm's 23 involvement with Elite in denying Plaintiffs' application. Therefore, Defendant is ordered to 24 supplement the Administrative Record with the materials it considered regarding Grimm's 25 involvement with Elite in denying Blush's application. Plaintiff is entitled to limited discovery, as 26 outlined above, on this discrete issue. Mansour has not established his right to discovery on his de 27 facto debarment claim. For these reasons, Plaintiffs' motion for discovery is granted in part and denied in part. 28 13 4 1 Plaintiffs' request to file a first amended complaint is denied without prejudice. 2 Plaintiffs' request to file supplemental briefing is denied. 3 IT IS SO ORDERED. 4 Dated: January 29, 2016 ______________________________________ 5 Donna M. Ryu United States Magistrate Judge 6 7 8 9 10 11 12 Northern District of California United States District Court 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14