PCAs Oppose ED's Motion to Dismiss Case; One Promises a New Protest

On Friday May 11^th thirteen firms notified the U.S. Court of Federal Claims that they intend to oppose the Department of Education’s (ED) motion to dismiss FMS et. al. v. United States as moot (two others said they would not oppose the motion, while five more said they want to remain a party to any continuing proceedings). ED is seeking to end this litigation in light of its cancellation of the contested solicitation for unrestricted private debt collection contractors. One week later, on May 18^th, fifteen companies filed their promised responses to the Government’s motion.

FMS Investment Corp. (FMS), the lead plaintiff in the protest, said it is challenging ED’s decision to cancel the Solicitation at issue and “yank the rug out from under FMS and the other Private Collection Agencies (PCAs) despite years of effort and millions spent pursuing a new contract in response to ED’s Solicitation.”

Here is a list of who filed what response, grouped by their situation in the case (including a link to their response):

Of the 15 responding companies, those that were on the 2009 unrestricted Private Collection Agency (PCA) contract but did not receive a new award in the January 2018 do-over:

ACT – Opposes ED’s motion to dismiss.

CBE Group – Opposes ED’s to motion to dismiss.

ConServe – Opposes ED’s motion to dismiss.

FMS – Opposes ED’s motion dismiss, and requests leave to file an amended complaint.

GC Services – Opposes ED’s motion to dismiss.

Progressive – Opposes ED’s motion to dismiss.

Of the 15 responding companies, those that were on the 2009 unrestricted PCA contract, did not receive a new award, but did receive an ATE in April 2017:

Alltran – Supports ED’s motion to dismiss; asserts that new challenges to cancellation of solicitation should be filed as new protests; and argues that February 26, 2018 preliminary injunction should be lifted.

Pioneer Credit Recovery – Does not oppose ED’s motion as long as they are permitted to remain a party to protests. The company asserts its pending protest is not moot if the cancellation does not proceed.

Of the 15 responding companies, those that were on the 2009 unrestricted PCA contract and also received a new award in January 2018:

Windham – Previously on the other side of this litigation, the company opposes ED’s to motion to dismiss.

Performant Corporation, the other of the two firms that ultimately received an award in January 2018, did not file a response.

Of the 15 responding companies, those that were not previously on a Department of Education contract but submitted a bid in the current contested solicitation:

Automated Collection Services (ACSI) – Notifies the court of its intent to file a new bid protest.

Central Credit – Opposes ED’s motion to dismiss.

Gatestone -  Requests leave to file an amended complaint.

Texas Guaranteed – Opposes ED’s motion to dismiss.

Value Recovery Holding – Opposes ED’s motion to dismiss.

Williams & Fudge – Opposes ED’s motion to dismiss, and requests that the court maintains the preliminary injunction.

The following are highlights representing the various responses:

The argument opposing the motion to dismiss

The general gist of the argument made by those opposing ED’s motion to dismiss the case can be summed up by this excerpt from the FMS:

Apparently as a result of [its] “analysis,” the Government concluded sometime between March 19, 2018, and May 3, 2018, that a “substantial change in the requirements to perform collection and administrative resolution activities on defaulted Federal student loan debts” had occurred, which led it to cancel the Solicitation and terminate for convenience the awards to Windham and Performant. Neither the Government nor ED provided any additional information supporting the cancellation decision.

ED has not had a substantial change in in collection requirements. ED is still directed by Congress under the Debt Collection Improvement Act of 1996 (as amended) and Office of Management and Budget (“OMB”) Circular A-129 to collect on defaulted student loan debt, and it is a public and verifiable fact that the instances of loan defaults continue to rise. The only asserted basis for the cancellation—despite years of effort and millions spent by FMS and the other PCAs—is an as yet-undeveloped master plan to have some unidentified party make some unspecified “outreach” to borrowers who are 90-days delinquent in their loan payments. This future master plan, according to ED, has “substantially” changed ED’s debt collection requirements.  

It hasn’t.  It is patently unreasonable for ED to claim that these unspecified “outreach” efforts alone can so alter the rising tide of student loan defaults as to render the current Solicitation superfluous. In 2015, ED added default and delinquency aversion efforts to the current loan servicing contracts. But given that the default rate continues to rise, these prior efforts obviously have failed; and there is no rational basis to suspect that some additional, as of-yet unplanned and unspecified “outreach” efforts will obviate the services requested by the current Solicitation.”

Alltran’s position is different than the others

Alltran’s position is not surprising. The company supports ED’s motion to dismiss, asserts that new challenges to the proposed cancellation of the Solicitation should be filed as new protests, and suggests that the preliminary injunction from Feb. 26, 2018 should be lifted. As one of the two firms that had received an Award Term Extension (ATE) in April 2017, it is in Alltran’s interests to see its potential competitors have to start over, and to be one of just a few firms left standing with the authorization to receive accounts (assuming the February 2018 preliminary injunction is lifted).

Alltran claims in its response,

“[t]he equities no longer favor an injunction.  The plaintiffs’ original theory of harm in support of the injunction was that they might potentially receive an award under the Solicitation, and that their old accounts might then potentially be transferred to those new contracts.  However, ED has cancelled the Solicitation in its entirety, further severing any connection between ED’s recall of the old accounts and the plaintiffs’ new challenges.  To establish harm now, the plaintiffs would need to demonstrate that (1) they might succeed on challenging the cancellation, (2) they might then succeed in requiring ED to reopen the procurement, (3) they might then receive a new award in that reopened procurement, and (4) ED might then choose in its discretion to transfer their old accounts to that new award.  But each step in that process is entirely speculative, and the plaintiffs cannot meet the exacting standard necessary for a preliminary injunction.”

ACSI says it will file a new bid protest

ACSI seems to be following the Alltran proposal by not opposing the Government’s motion to dismiss the current case, and moving directly to file a new protest next week. It will be interesting to see whether others join in this new case, making ACSI the third firm (following ConServe, and then FMS) to take the lead in this year’s-long ED contract debacle.

The Government has been ordered to file its reply by this Wednesday, May 23. Based on this Judge’s past actions, we can expect a quick opinion following the filings.

Background

For those who need the incredibly short recap…This all started in 2014 when the five-year 2009 contract ended, and new large-firm awards were delayed. Eventually, contracts were awarded in 2016 to seven large companies, down from 17 on the previous contract. This led to dozens of protests by firms that believed the process was flawed and unfair. So began Chapter Two of the matter, with a "re-do" of the solicitation, which resulted in awards to just two large companies. This led to more protests, and finally... nothing. No large company awards at all, as ED cancelled the whole solicitation on May 3, 2018, rescinded the contract awards from the two companies, and filed a motion to dismiss the litigation. And so began Chapter Three, with 13 parties opposing that motion.

For those who want to review all of the details, click here for the full coverage of the Department of Education collection contract on insideARM.