The Contempt Finding and Sanctions Against Secretary DeVos and the Department of Education, by Nicholas R. Parrillo

by Guest Blogger — Thursday, Oct. 31, 2019

In Calvillo Manriquez v. DeVos, a class action lawsuit against the Department of Education and Secretary Betsy DeVos for unlawful collection of student loans, U.S. Magistrate Judge Sallie Kim on October 24 issued an order finding the defendants in civil contempt, and ordering them to pay $100,000 in sanctions, for enaging in collection activities in violation of a preliminary injunction.

In a previous article, I’ve examined how the federal courts handle federal agencies’ failures to comply with court orders — especially with complex orders that require the agency to expend resources and reorganize its business — with a particular focus on the judiciary’s ultimate (though rarely used) weapon: contempt.  There are a fair number of examples of federal judges issuing findings that federal agencies and their top officials are in contempt.  But what about the sanctions (fines or imprisonment) that we conventionally think of as giving teeth to those findings?  Some federal judges clearly believe they have the power to use sanctions against agencies and officials and have tried to use them, but as a practical matter, the higher courts nearly always block any significant fine or any threat of imprisonment before it kicks in (nearly always on case-specific grounds, so as not to pronounce on more general questions of whether such sanctions are legally available against the federal government).  Indeed, many contempt findings have no sanction attached whatever.  Yet contempt is nonetheless quite efficacious in getting high officials’ attention and inducing them to invest the necessary political capital and organizatonal resources in achieving compliance, mainly because even a sanctionless contempt finding has a shaming effect on officials and threatens their reputations.

Complying with the court’s order in Calvillo Manriquez implicates the Department of Education’s oversight of the many private loan servicers who act on its behalf.  Improving such oversight is easier if the agency’s top leadership makes it a priority.  One can easily imagine a contempt finding (even without sanctions) causing the leadership of an agency to prioritize court-ordered reforms, given that agency leaders generally tend to expend effort to mitigate bad publicity.  The contempt finding of October 24 was certainly bad press for the Department and its leader: headlines coupling the name “DeVos” and “contempt” appeared in the Washington Post, New York Times, Fox News, and elsewhere.

Yet the court’s order didn’t involve just the finding and the consequent bad publicity.  There was also a sanction, consisting of a $100,000 fine.  What is more, there are no indications yet that the government plans to challenge the finding or the sanction.  The government’s brief on the contempt issue reads as pretty non-confrontational compared with governmental briefing I’ve seen in many other contempt-related disputes.[1]  The government has admitted its noncompliance and recognized that it amounted to “gross negligence” (p. 6), which the agency defendants “regret deeply” (p. 7).  The brief appears to oppose a contempt finding in asserting that the agency has now come into “substantial compliance” though admittedly not “full compliance” (pp. 4, 12), but the brief doesn’t emphasize that opposition; on the contrary, it says at one point that “civil contempt would be the apporpriate vehicle through which to address the Department’s noncompliance with the Court’s preliminary injunction” (p. 5), and it states that the agency “does not oppose the imposition of” at least certain types of “sanctions” (p. 7).[2]  Perhaps most important, the brief doesn’t make any categorical arguments that contempt fines are legally barred by sovereign immunity — an argument DOJ has made in several cases stretching back 30 years when it wants to play hardball (see my article, pp. 713-17).  The press reports the Department saying it is “disappointed” in Judge Kim’s contempt finding, but doesn’t say anything about a plan to seek review in a higher court, nor does the docket as of this writing (midday October 30).

So it seems the sanction of $100,000 may well stick.  If it does, what is the sanction’s significance, from the perspective of administrative law?

The first thing to note is what this sanction is not.  It is not a coercive civil contempt fine aimed at forcing the agency defendants to comply in the future.  The obligation to pay $100,000 is absolute; it isn’t conditional on some future failure to comply — that is, it cannot be purged.  Admittedly, the plaintiffs had asked for a fine that was conditional and coercive in format, but the amount they sought was only $500 per day (p. 13-14),[3] a negligible stream of payments compared to the Department’s $68 billion annual budget and to DeVos’s personal wealth.  It doesn’t approach the schedules of coercive fines that district judges in past cases who really wanted to break the will of a recalcitrant agency have tried to impose (only to be headed off by a reviewing court); those fines were on the order of 4% of the defendant agency’s daily budget and threatened real fiscal disruption (see my article pp. 718-21, 729-35).  I’d interpret the plaintiffs’ request for $500 per day as an effort to get the court to underscore the symbolic and shaming aspect of the contempt finding (or perhaps to implicitly threaten higher fines in the future), not as an effort to try to use the sanction as an immediate incentive in itself.

Rather than coercive, the $100,000 fine that Judge Kim actually imposed appears to be what’s called a compensatory civil contempt fine.  Such a fine aims to compensate plaintiffs for harm they have suffered as a result of the defendant’s noncompliance with the court’s order.  Judge Kim’s order indicates this: “The Court finds that a monetary sanction of $100,000, paid by Defendants, to a fund held by Plaintiffs’ counsel, is the best method to remedy Defendants’ wrongful acts.  Given that there are over 16,000 borrowers [i.e., plaintiff class members] who have suffered damages from defendants’ 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. 6).

The court’s use of a compensatory fine in this context is interesting.  Assuming the fine sticks, it’ll be — as far as I can tell — the largest compensatory contempt fine (indeed the largest contempt fine of any kind) actually incurred by a federal government defendant and not later invalidated by another court.  In the broad survey that I conducted for my article, no fine incurred and not invalidated was more than $7,000 in 2019 dollars (see p. 713, n. 103; p. 763, nn. 470-71).  Fiscally speaking, these previous fines were all mere pinpricks to the agency.[4]

But is the $100,000 fine in this case also just a pinprick, really?  Probably yes, if we simply compare it to the Department’s $68 billion annual budget.  Still, perhaps the $100,000 should be viewed as innovative if it provides meaningful relief to a large number of people for a widespread federal governmental injury — something no prior contempt fine has done.  But does this sanction provide meaningful relief to a lot of people?  The collection activities that violated the order included 16,000 notices and resulted in wrongful voluntary payments from over 3,000 people, garnishment or tax refund offsets against over 1,800 people, and adverse credit reporting for over 800 people (see the court’s order at pp. 3-4).  How far does $100,000 go in redressing these harms?  The court’s order doesn’t give any specific calculations underlying the $100,000 figure.  Bear in mind that, before the fine was even imposed, the government’s brief said it was already refunding numerous payments wrongfully collected (see p. 4).  Yet class members may have suffered consequential damages that simple refunds will not redress.  The plaintiffs’ brief suggests this (e.g., that class members may have been forced to borrow at high interest rates to make ends meet), but it also cautions that the class “cannot yet adequately petition the Court for the appropriate compensatory relief,” since counsel haven’t yet gathered enough information about what class members have suffered (p. 15).  Perhaps the court feels certain that the consequential harms plus administrative expenses (to plaintiffs’ counsel or the Department) entailed by documenting and redressing those harms will amount to at least $100,000.  The court’s order says it “contemplates that some portion of the fund will be used for administrative expenses” (p. 6).

As noted earlier, there’s no indication yet that the government will challenge the fine in a higher court.  One can imagine why it might be reluctant: the optics seem unfavorable to the agency, given that it has already admitted gross negligence, and $100,000 isn’t much in a $68 billion budget.  Still, DOJ over the past 30 years has repeatedly (though not invariably) challenged contempt fines against agencies as barred by sovereign immunity.  It could do so again here (yes, DOJ didn’t raise the issue before Judge Kim, but sovereign immunity is jurisdictional).  Plaintiffs may counter by invoking the waiver in 5 U.S.C. § 702 of agencies’ sovereign immunity to any suit “seeking relief other than money damages” — and further argue that contempt fines are not “money damages.”  That’s a pretty strong argument for coercive civil contempt fines or criminal contempt fines, but it’s a weaker argument for compensatory civil contempt fines like the one here, since a compensatory fine is very similar, functionally, to damages.  When DOJ has raised sovereign immunity to contempt fines in past cases, higher courts have usually avoided the question by finding some case-specific ground to make the fine go away.  Only the Eighth Circuit has addressed the question head on; it found that compensatory fines were barred, but the opinion is questionable because the panel strangely ignored the § 702 argument.  Coleman v. Espy, 986 F.2d 1184 (8th Cir. 1993); see also my article, p. 715.  Another way for plaintiffs to counter the sovereign immunity argument is to note that the fine is against the “defendants,” that is, not only against the Department but against the Secretary herself, who enjoys no sovereign immunity, even if the Department indemnifies her.  But personally fining an agency head for misbehavior of the agency may raise prudential problems that block the maneuver (see my article, pp. 758-61).

Anyway, that’s a taste of some of the more sweeping arguments available if the government decides to fight this, which it may not.  Stay tuned.

 

Nicholas R. Parrillo is Professor of Law at Yale. 

[1] The case’s docket number is 17-cv-7210 in the U.S. District Court for the Northern District of California.  The government’s brief on contempt is Document #125, filed on Oct. 15.

[2] To be sure, the sanctions the Department thought appropriate were not in the nature of fines or imprisonment, but instead tighter requirements on the Department in terms of monitoring, quality assurance, etc. (pp. 7-13).

[3] The plaintiffs’ brief on contempt is Document #126 in the docket, filed on Oct. 21.

[4] Some of these fines were officially levied against individual officials, but those officials were likely indemnified by the agency.  See my article, pp. 758-64.  When an agency pays a fine against itself, or indemnifies an official, the money comes from agency appropriations, not the Judgment Fund.  See id., pp. 735-39.

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