Adams v. Pa. Higher Educ. Assistance Agency

• Decision Date: 03 June 2016
• Docket Number: No. 15–0524,15–0524
• Citation: 237 W.Va. 312,787 S.E.2d 583
• Parties: Karen Adams, Petitioner/Petitioner Below v. Pennsylvania Higher Education Assistance Agency d/b/a American Education Services, a foreign corporation, Respondent/Defendant Below
• Court: West Virginia Supreme Court

237 W.Va. 312

787 S.E.2d 583

Karen Adams, Petitioner/Petitioner Below

v.Pennsylvania Higher Education Assistance Agency d/b/a American Education Services, a foreign corporation, Respondent/Defendant Below

No. 15–0524

Supreme Court of Appeals of West Virginia.

Submitted: April 27, 2016

Filed: June 3, 2016

John H. Skaggs, Esq., The Calwell Practice, LC, Charleston, West Virginia, Attorney for Petitioner.

Steven L. Thomas, Esq., Charles W. Pace, Jr., Esq., Kay Casto & Chaney PLLC, Charleston, West Virginia, Attorney for Respondent.

WORKMAN

, Justice:

This is an appeal from the February 3, 2015,¹ order of the Circuit Court of Putnam County granting respondent Pennsylvania Higher Education Assistance Agency's (hereinafter “PHEAA”) motion for summary judgment. The circuit court found that PHEAA's debt collection activity is required by the Federal Family Education Loan Program (hereinafter “FFELP”) regulations promulgated pursuant to the Higher Education Act of 1965 (hereinafter “HEA”) and; therefore, petitioner Karen Adams' (hereinafter “petitioner”) West Virginia Consumer Credit and Protection Act (hereinafter “WVCCPA”) claim is preempted by federal law.

Based upon our review of the briefs, legal authorities, appendix record, and upon consideration of arguments of counsel, we find that petitioner's cause of action is, in part, preempted by federal law and that the remainder of her claims do not survive summary judgment. We therefore affirm the circuit court's order awarding summary judgment in favor of PHEAA.

I. FACTS AND PROCEDURAL HISTORY

Petitioner was born and raised in Lakeland, Florida, where she dropped out of school in the 11th grade. She remained in the Florida area until 1992, when she moved to West Virginia. Petitioner is currently receiving social security disability on the basis of severe hypertension

, migraine headaches, and mild mental retardation with marginal illiteracy. In approximately 2007, petitioner began receiving phone calls from a collection agency regarding a guaranteed student loan (“GSL”) procured in her name over twenty years prior on November 9, 1986, from Florida Federal Savings & Loan, Inc. in the amount of $2,500.00 for the purpose of attending PTC Institute in Florida.² Petitioner denied entering into any such loan agreement, executing an application or promissory note bearing her name, or attending college or vocational training.

Notwithstanding her disavowal of the loan, petitioner entered into a “rehabilitation agreement,” wherein she agreed to make nine payments of $86.00/month to remove the “default” status of the loan, which was then owned by the Department of Education as a federally guaranteed Robert T. Stafford Federal Loan. In 2007, the loan was sold in a bundle by the Department of Education to SunTrust Bank, at which time PHEAA became the loan servicer. From June, 2008, to March, 2010, petitioner made twenty-one additional payments on the rehabilitated loan. Petitioner maintains that she entered such rehabilitation agreement because the loan servicers threatened to take her social security if she did not make payments.

In or around June, 2010, petitioner again began to disavow the loan, claiming identity theft with regard to the loan application and promissory note. An investigation was launched by PHEAA during which petitioner submitted handwriting samples which were determined by PHEAA to have “similar characteristics” to the signature on the loan documentation. An investigator for PHEAA scheduled a meeting with petitioner to facilitate the completion of a police report; before the meeting commenced, petitioner asked the investigator what the penalty would be for filing a false report and indicated instead that she would take responsibility for the loan and pay off the balance.³

After the identity theft investigation was closed, in April, 2011, petitioner began to assert that she was entitled to discharge of the loan because she was disabled. Petitioner submitted her social security award decision in aid of a disability discharge of her loan, but failed to produce a signed physician's report of disability, as required. She retained counsel shortly thereafter; however, PHEAA continued its collection efforts including written and telephone contact with petitioner.

Petitioner filed the instant lawsuit seeking a declaratory judgment that the loan and rehabilitation agreement were “ and void”⁴ and damages under the WVCCPA.⁵ After the commencement of this litigation, petitioner received correspondence from Education Credit Management Corp. (hereinafter “ECMC”), the loan guarantor, stating that her loan was eligible for an administrative discharge under the “ability to benefit” regulations,⁶ as long as she had not graduated high school nor obtained a GED. Apparently, in 1995, the Department of Education had rendered a “blanket discharge” of loans for attendance at PTC Institute entered into from January 1, 1986 through June 30, 1990 for systematic violation of the “ability to benefit” regulations. As a result, petitioner executed an application for discharge in which she swore, under penalty of perjury, that she attended PTC Institute from December 30, 1986 to June 16, 1987,⁷ and that federally guaranteed student loan funds were issued to her or for her benefit while attending PTC. Accordingly, her loan was discharged and all payments she made were refunded.

PHEAA moved for summary judgment, presumably arguing that petitioner's claims under the WVCCPA were preempted by the FFELP regulations.⁸ The circuit court agreed, finding that the FFELP regulations “provide a detailed statutory and regulatory governance structure for Federally-insured student loans,” which includes “minimum uniform due diligence requirements for loan collections[.]” Citing 34 Code of Federal Regulations section 682.411(o)

, which states that the FFELP regulations “preempt any State law, including State statutes, regulations, or rules, that would conflict with or hinder satisfaction of the requirements or frustrate the purposes of this section,” the circuit court found that the portions of the WVCCPA upon which petitioner relied were in conflict with and therefore preempted by federal law. Finding further that petitioner had afforded herself of the administrative remedies provided by HEA and FFELP regulations, the circuit court concluded that no further remedy was available to her. This appeal followed.

II. STANDARD OF REVIEW

This Court has held that

[i]n reviewing challenges to the findings and conclusions of the circuit court, we apply a two-prong deferential standard of review. We review the final order and the ultimate disposition under an abuse of discretion standard, and we review the circuit court's underlying factual findings under a clearly erroneous standard. Questions of law are subject to a de novo review.

Syl. Pt. 2, Walker v. W.Va. Ethics Comm'n , 201 W.Va. 108, 492 S.E.2d 167 (1997)

. Moreover, inasmuch as the circuit court granted summary judgment on the basis of preemption, we have further held that “[p]reemption is a question of law reviewed de novo .” Syl. Pt. 1, Morgan v. Ford Motor Co ., 224 W.Va. 62, 680 S.E.2d 77 (2009). With these standards in mind, we proceed to the parties' arguments.

III. DISCUSSION

This case requires the Court to determine whether petitioner's WVCCPA claims are preempted by the regulations promulgated under the FFELP of the HEA. In general, petitioner argues that any federal preemption as to debt collection practices does not apply where the loan was invalid at the outset. In response, PHEAA argues that its collection efforts are federally mandated and that the blanket discharge for petitioner's loan merely made it “dischargeable” upon proper application. PHEAA argues strenuously that petitioner's assertions that she did not apply for or accept the loan have been rendered immaterial in light of her sworn affirmation in the discharge application that she received the funds or they were disbursed for her benefit.

Title IV of the Higher Education Act of 1965 created the Federal Family Education Loan Program, which is codified at 20 U.S.C. §§ 1071

to 1087–4, as amended. This program has been well-summarized as follows:

Pursuant to the FFEL programs, students attending eligible postsecondary schools may borrow money for tuition and expenses from participating lenders, such as banks. These loans are insured by participating “guaranty agencies” which, in turn, are reinsured by the Department of Education. If a student fails to repay a FFEL loan, the lender submits all relevant records to the guaranty agency and requests reimbursement. 20 U.S.C. § 1078(b)

-(c). If the guaranty agency determines that servicing and collection efforts have been properly performed by the lender, it repays the lender for the outstanding balance on the loan. 34 C.F.R. §§ 682.406(a)(1) and (3). The guaranty agency then undertakes collection efforts of its own, 34 C.F.R. § 682.410(b)(4), and, if these are unsuccessful, obtains repayment from the Department of Education. 20 U.S.C. § 1078(c) ; 34 C.F.R. §§ 682.100 and 682.404.

Calise Beauty Sch., Inc. v. Riley , 941 F.Supp. 425, 427 (S.D.N.Y. 1996)

(emphasis added). The purposes of the FFELP are to “(1) enable the Secretary of Education to encourage lenders to make student loans; (2) provide student loans to those students who might not otherwise have access to funds; (3) pay a portion of the interest on student loans; and (4) guarantee lenders against losses.” McCulloch v. PNC Bank, Inc ., 298 F.3d 1217, 1224 (11th Cir. 2002).

Before reaching the issue of the preemption of petitioner's claims, it is important to note that it is well-established that there is no private cause of action under the FFELP regulations. See Labickas v. Arkansas State Univ ., 78 F.3d 333, 334 (8th Cir. 1996)

(“[N]o private right of action is implied under the HEA for student borrowers.”); L'ggrke v. Benkula , 966 F.2d 1346 (10th Cir. 1992) (finding no private right of action for...