Phillips v. Pa. Higher Ed. Assistance Agency

• Decision Date: 28 May 1980
• Docket Number: Civ. A. No. 78-975.
• Citation: 497 F. Supp. 712
• Parties: Kathleen PHILLIPS, Rebecca McGaffick, Edna Greeley, Donna Mareno and Raymond Mareno, on behalf of themselves and all others similarly situated, Plaintiffs, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, a Public Corporation, Kenneth Reeher, Individually and in his capacity as Executive Director of the Pennsylvania Director of Pennsylvania Higher Education Assistance Agency and Charles H. Russell, Individually and in his capacity as Assistant Deputy Director, Loans, Pennsylvania Higher Education Assistance Agency, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

497 F. Supp. 712

Kathleen PHILLIPS, Rebecca McGaffick, Edna Greeley, Donna Mareno and Raymond Mareno, on behalf of themselves and all others similarly situated, Plaintiffs, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, a Public Corporation, Kenneth Reeher, Individually and in his capacity as Executive Director of the Pennsylvania Director of Pennsylvania Higher Education Assistance Agency and Charles H. Russell, Individually and in his capacity as Assistant Deputy Director, Loans, Pennsylvania Higher Education Assistance Agency, Defendants.

Civ. A. No. 78-975.

United States District Court, W. D. Pennsylvania.

February 21, 1980.

On Motions for Class Certification and Summary May 28, 1980.

Edward A. Olds, James W. Carroll, Jr., Thomas C. Reed, Neighborhood Legal Services Assn., Pittsburgh, Pa., for plaintiffs.

Robert Barton, Harrisburg, Pa., Alvin J. Ludwig, Pittsburgh, Pa., for defendants.

FACTS

TEITELBAUM, District Judge.

Plaintiffs instituted this action seeking permanent injunctive and declaratory relief on a class — wide basis from the conduct of defendants, Pennsylvania Higher Education Assistance Agency (hereinafter PHEAA), Kenneth Reeher, the Executive Director of PHEAA, and Charles Russell, Deputy Director of PHEAA, which includes:

1. use of distant forum process to cause an adjudication of plaintiffs' liability to defendants as a result of plaintiffs' purportedly defaulting on loan obligations guaranteed by PHEAA pursuant to administering an insured student loan program under Title IV B of the Higher Education Resources and Assistance Act of 1965, 20 U.S.C. § 1071, et seq. and 24 P.S. § 5401, et seq.; and 2. the systematic demand for judgment in an amount in excess of the maximum sum PHEAA would be entitled to collect under state law by claiming an entitlement to attorneys' fees. Plaintiffs seek relief from the conduct based upon 42 U.S.C. § 1983, the Higher Education Assistance Act, and request this court to assume pendent jurisdiction of state law claims of plaintiff arising out of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. 73 P.S. § 201-1, et seq.

Plaintiffs have filed a motion for an order certifying two sub-classes of indigent persons residing in Allegheny, Beaver, Butler and Lawrence Counties. One sub-class consists of all persons who have already been sued by PHEAA. The other consists of persons who have incurred a guaranteed student loan obligation, whose obligation has been declared to be in default, but against whom no suit has as yet been filed.

An application to intervene in the action was filed by plaintiffs' counsel on behalf of Donna and Raymond Mareno in January of 1979. Intervenors filed a complaint challenging confession of judgment procedures used to cause entry of judgment on a purported student loan obligation in a distant forum. Intervenors sought permanent injunctive and declaratory relief from PHEAA's conduct on essentially the same legal theories as original plaintiffs. The application to intervene was granted by this Court.

Pending before the Court now is plaintiffs' motion for class certification, plaintiffs' motion for summary judgment, and defendants' motion for summary judgment.

By its enabling legislation, PHEAA is "... a body corporate and politic constituting a public corporation and government instrumentality ..." 24 P.S. § 5101. PHEAA's initial goal was to guarantee loans made for the purpose of securing higher education for persons residing in the Commonwealth of Pennsylvania. PHEAA has subsequently been authorized to provide grants to students for the purpose of securing higher education, to fund certain work study programs for persons pursuing higher education, to award cash grants to private institutions of higher education in the Commonwealth of Pennsylvania, to provide cash grants for children of prisoners of war and war veterans, and other similar purposes. See 24 P.S. § 5101, et seq.; 24 P.S. § 5161, et seq.; 24 P.S. § 5171, et seq.; 24 P.S. § 5181, et seq. This litigation involves the allegedly illegal actions of PHEAA which arise from certain procedures followed by it in its administration of the guaranteed student loan program.

A person requesting a PHEAA guaranteed loan initially obtains an application for that loan from, in most cases, a bank or other lending institution. The student completes certain questions on that application, and then secures certification from the educational institution at which attendance is anticipated. As the application form indicates, the financial aid officer or other responsible official at that school indicates the amount of money which the student reasonably requires to finance his or her education. The application is then returned to the lending institution from which it was originally secured, and an official there indicates the amount of money which it will loan to the student if PHEAA will guarantee the loan. The application is then submitted to the administrative offices of the PHEAA in Harrisburg, where an internal review is undertaken. PHEAA's internal administrative review process is performed entirely in the City of Harrisburg, County of Dauphin. If the PHEAA determines to guarantee the loan, the student borrower, the lending institution, and the educational institution are notified by letter.

PHEAA's guarantee obligates it to purchase the note, by paying to the lending institution the full amount due thereon, if the student borrower defaults on repayment for any reason. After the purchase of that note, PHEAA engages in extensive efforts to induce its debtors to repay their obligation. These efforts include verbal and written contact with the debtor to determine the reasons for default and to encourage the payment of a minimal monthly amount to reduce the principal. If a debtor makes no payment on the PHEAA's guaranteed loan within five and one-half years, PHEAA must institute legal action against that debtor to prevent the debtor from raising the defense that the Statute of Limitations for such a suit has expired. In almost all cases, legal action is commenced in the Court of Common Pleas of Dauphin County, Pennsylvania. PHEAA has chosen to use that forum for several reasons, some of which are its convenience, the cooperation accorded to the agency by the personnel staffing that court, the fact that the transaction or occurrence which gave rise to the agency's cause of action took place in Dauphin County, and the fact that the Dauphin County Court of Common Pleas has determined the venue provisions of the Pennsylvania Rules of Civil Procedure authorize the agency to initiate such action in that court. PHEAA v. Christon, 100 Dauph. 58 (1978), affirmed 42 Pa.Cmwlth. 165, 400 A.2d 1329 (1979); contra PHEAA v. Devore, ___ Pa. Super. ___, 406 A.2d 343 (1979).

The legal action has a very minimal effect, if any, in encouraging repayment. Suit is initiated solely to toll the statute of limitations and if there were no statute of limitations, PHEAA indicates that it would not sue its debtors. If PHEAA were forced to initiate its litigation in the debtor's county of residence, it contends the increase in administrative expenses would be significant although specific evidence of the magnitude of increased expenses has not been presented to this Court.

The manner in which the representative plaintiffs in this case came to the attention of the PHEAA should be briefly discussed. Plaintiff Phillips applied to PHEAA for a guaranteed loan in the amount of $1000 from Pittsburgh National Bank on September 12, 1969, and the loan proceeds were subsequently disbursed by the Bank. Sometime in 1970, plaintiff Phillips submitted another application for a guarantee in the amount of $1500 from the same Bank to attend the same educational institution. That guarantee was approved on September 8, 1970 and the loan proceeds were subsequently disbursed. Her repayment period commenced on March 1, 1972 and on or about April 1, 1972 she executed a promissory note obligating her to repay the amount of $2500 in sixty monthly installments. She made no payments on that note and it was purchased by the PHEAA from the lending institution on September 5, 1972.

Plaintiff McGaffick applied to PHEAA for her guaranteed loan on September 6, 1969 and that guarantee was approved by the agency on January 21, 1970. After her execution of an installment note, plaintiff McGaffick made 16 installment payments thereon for total payments of $505.92, but she defaulted thereafter, so that PHEAA purchased her note on November 5, 1972.

Plaintiff Greeley applied to PHEAA for her guaranteed loan from Dollar Savings Bank on May 14, 1975, to attend the Sawyer School. The guarantee was made on June 4, 1975, and on October 14, 1976, plaintiff Greeley executed another note obligating her to repay her loan in monthly installments. She made no such payments, and the agency purchased the note from the lending institution on April 8, 1977.

Intervenor plaintiff Mareno applied to PHEAA for a guaranteed loan from Union National Bank and guarantees in the amount of $2,650 were approved. Plaintiff Mareno used the loan proceeds to attend California State College, and on September 12, 1968, she executed a note obligating her to repay that loan in monthly installments. She has defaulted in her repayments on that loan, and has written to PHEAA on three occasions explaining that her failure to make payments was because she did not have sufficient funds.

PHEAA initiated legal action against plaintiff Phillips on June 22, 1978 and against plaintiff McGaffick on July 26, 1978. Plaintiff Greeley has not yet been sued. PHEAA initiated legal action against plaintiff Mareno on September 22, 1978 via a confession of judgment. After filing and service of the complaint, PHEAA takes no further legal action against its debtors, but it does continue to engage in collection activity in the form of telephone and written communications with the...