799 F.3d 633 (7th Cir. 2015), 14-1806, Bible v. United Student Aid Funds, Inc.
|Citation:||799 F.3d 633|
|Opinion Judge:||Hamilton, Circuit Judge.|
|Party Name:||BRYANA BIBLE, Individually and on Behalf of the Proposed Class, Plaintiff-Appellant, v. UNITED STUDENT AID FUNDS, INC., Defendant-Appellee|
|Attorney:||For BRYANA BIBLE, individually and on behalf of the proposed class, Plaintiff - Appellant: E. Michelle Drake, Attorney, Anna P. Prakash, Attorney, Nichols Kaster, Pllp, Minneapolis, MN. For United Student Aid Funds, Inc., Defendant - Appellee: Arnold Bradley Fagg, Attorney, Morgan, Lewis & Bockiu...|
|Judge Panel:||Before FLAUM, MANION, and HAMILTON, Circuit Judges. FLAUM, Circuit Judge, concurring in part and concurring in the judgment. MANION, Circuit Judge, concurring in part and dissenting in part. Flaum, Circuit Judge, Manion, Circuit Judge,|
|Case Date:||August 18, 2015|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Bible defaulted on a loan under the Federal Family Education Loan Program, but entered into a rehabilitation agreement. She remains current on her reduced payments, but a guaranty agency assessed $4,500 in collection costs. Bible’s loan terms were governed by a Stafford Loan Master Promissory Note (MPN), approved by the Department of Education, incorporating the Higher Education Act, and... (see full summary)
Argued: October 2, 2014.
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Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 13-CV-00575-TWP-TAB -- Tanya Walton Pratt, Judge.
Plaintiff Bryana Bible obtained a student loan under the Federal Family Education Loan Program. She defaulted in 2012 but promptly agreed to enter into a rehabilitation agreement that required her to make a series of reduced monthly payments. She timely made all of the payments that were required of her under this agreement, and she remains current on her loan payments. Although Bible complied with her obligations under the repayment agreement, a guaranty agency assessed over $4,500 in collection costs against her.
The terms of Bible's loan were governed by a form document known as a Federal Stafford Loan Master Promissory Note (MPN). This form has been approved by the U.S. Department of Education and is used in connection with many student loans across the country. The MPN incorporates the Higher Education Act and its associated regulations. In pertinent part, the MPN provides that Bible must pay " reasonable collection fees and costs, plus court costs and attorney fees" if she defaults on her loan. As we will see, " reasonable collection fees and costs" are defined by regulations issued by the Secretary of Education under the authority expressly conferred by the Higher Education Act. The MPN provided that Bible would owe only those collection costs that are permitted by the Higher Education Act and its regulations.
Bible sued the guaranty agency (defendant United Student Aid Funds, Inc.) alleging breach of contract and a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Her breach of contract theory is that the MPN incorporated federal regulations that prohibit the guaranty agency from assessing collection costs against her because she timely entered into an alternative repayment agreement and complied with that agreement. Her RICO claim alleges that the guaranty agency, in association with a debt collector and a loan service provider, committed mail fraud in violation of 18 U.S.C. § 1341 and wire fraud in violation of 18 U.S.C. § 1343 when it assessed collection costs of more than $4,500 against her despite its representations that her " current collection cost balance" and " current other charges" were zero and that these costs would be " reduced" once she completed the rehabilitation process.
The district court granted the guaranty agency's motion to dismiss Bible's first amended class action complaint (we call this the " amended complaint" ) under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief. The district court held that both claims were
" preempted" by the Higher Education Act. It reasoned that both claims depend on alleged violations of the Act and should not be permitted because the Act does not provide a private right of action. The district court held in the alternative that the amended complaint failed to state a claim that is plausible on its face. It concluded that the breach of contract claim failed because both the MPN and the Higher Education Act expressly permit imposing collection costs against borrowers who default on their loans. The district court also concluded that the RICO claim failed because Bible's amended complaint " has not shown participation in a scheme to defraud; commission of an act with intent to defraud; or the use of mails or interstate wires in furtherance of a fraudulent scheme." Bible v. United Student Aid Funds, Inc., No. 1:13-CV-00575-TWP-TAB, 2014 WL 1048807, at *10 (S.D. Ind. Mar. 14, 2014).
We reverse. Neither of Bible's claims is preempted by the Higher Education Act. Bible's state law breach of contract claim is not preempted because it does not conflict with federal law. The contract at issue simply incorporates applicable federal regulations as the standard for compliance. Accordingly, the duty imposed by the state law is precisely congruent with the federal requirements. A state law claim that does not seek to vary the requirements of federal law does not conflict with federal law.
We apply the Secretary of the Education's interpretation of the applicable statutes and regulations, which is consistent with Bible's. (The Secretary accepted our invitation to file an amicus brief addressing the question.) The Secretary interprets the regulations to provide that a guaranty agency may not impose collection costs on a borrower who is in default for the first time but who has timely entered into and complied with an alternative repayment agreement. Nor is Bible's RICO claim preempted. RICO is a federal statute and thus is not preempted by another federal statute, and we see no conflict between RICO and the Higher Education Act. On the merits, both the breach of contract and RICO claims satisfy the plausibility standard under Rule 12(b)(6).
I. Factual and Procedural Background
We review de novo a district court's decision to grant a motion to dismiss under Rule 12(b)(6). E.g., CEnergy-Glenmore Wind Farm No. 1, LLC v. Town of Glenmore, 769 F.3d 485, 487 (7th Cir. 2014). We accept as true all factual allegations in the amended complaint and draw all permissible inferences in Bible's favor. E.g., Fortres Grand Corp. v. Warner Bros. Entertainment Inc., 763 F.3d 696, 700 (7th Cir. 2014). To avoid dismissal under Rule 12(b)(6), Bible's amended complaint " must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. " Plausibility" is not a synonym for " probability" in this context, but it asks for " more than a sheer possibility that a defendant has acted unlawfully.'" Olson v. Champaign County, 784 F.3d 1093, 1099 (7th Cir. 2015), quoting Iqbal, 556 U.S. at 678.
In deciding a Rule 12(b)(6) motion, the court may consider documents attached to a complaint, such as contract documents, without converting the motion
into one for summary judgment. See Fed.R.Civ.P. 10(c). Bible attached the following documents to her amended complaint: (1) the promissory note or MPN, (2) an April 12, 2012 letter to Bible from General Revenue Corp. (GRC), which we call the " default letter," (3) an application for loan rehabilitation sent by GRC on April 27, 2012, which we call the " rehabilitation agreement," (4) a copy of Bible's payment history with the defendant guaranty agency United Student Aid Funds, Inc., and (5) a copy of a contract between USA Funds and Sallie Mae Corp.1
A. The Higher Education Act and Regulatory Background
Congress enacted the Higher Education Act of 1965 (HEA or the Act), now codified as amended at 20 U.S.C. § 1001 et seq., " to keep the college door open to all students of ability, regardless of socioeconomic background." Rowe v. Educational Credit Management Corp., 559 F.3d 1028, 1030 (9th Cir. 2009) (citation and internal quotation marks omitted); see also 20 U.S.C. § 1070(a) (identifying purpose of the statute). Among other things, the Act created the Federal Family Education Loan Program (FFELP), " a system of loan guarantees meant to encourage lenders to loan money to students and their parents on favorable terms." Chae v. SLM Corp., 593 F.3d 936, 938-39 (9th Cir. 2010) (footnote omitted). The Secretary of Education administers the FFELP and has issued regulations to carry out the program.
In general, the FFELP regulates three layers of student loan transactions: (1) between lenders and borrowers, (2) between borrowers and guaranty agencies, and (3) between guaranty agencies and the Department of Education. See Chae, 593 F.3d at 939. Under the program, lenders use their own funds to make loans to students attending post-secondary institutions. These loans are guaranteed by guaranty agencies and reinsured by the federal government. See 20 U.S.C. § 1078(a)-(c). Because of the reinsurance commitment, the federal government serves as the ultimate guarantor on each loan.
This lawsuit deals primarily with the second layer of transactions--the relationship between a student borrower who has defaulted for the first time and her guaranty agency. When a borrower defaults on a loan and the lender is unable to recover the amount despite due diligence, the lender notifies the guaranty agency of
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