Bannister v. United States Treasury Dep't

• Decision Date: 28 September 2021
• Docket Number: 1:20-cv-04458 (MKV)
• Parties: SARAH BANNISTER, LABARRON TATE, BRANDON HOOD, Plaintiffs, v. UNITED STATES TREASURY DEPARTMENT, JANET YELLEN, in her official capacity as the Secretary of the Treasury, MICHAEL J. HSU, in his official capacity as the acting Comptroller of the Currency, Defendants.
• Court: U.S. District Court — Southern District of New York

SARAH BANNISTER, LABARRON TATE, BRANDON HOOD, Plaintiffs,
v.
UNITED STATES TREASURY DEPARTMENT, JANET YELLEN, in her official capacity as the Secretary of the Treasury, MICHAEL J. HSU, in his official capacity as the acting Comptroller of the Currency, Defendants.

No. 1:20-cv-04458 (MKV)

United States District Court, S.D. New York

September 28, 2021

OPINION AND ORDER GRANTING MOTION TO DISMISS

MARY KAY VYSKOCIL, UNITED STATES DISTRICT JUDGE

This Matter comes before the Court on the motion of the Defendant United States Treasury Department, Defendant Janet Yellen, in her official capacity as the Secretary of the Treasury, and Defendant Michael J. Hsu, in his official capacity as the acting Comptroller of the Currency^[1] (collectively, Defendants), to dismiss the First Amended Complaint (FAC [ECF No. 5]) filed by Plaintiffs Sarah Bannister, LaBarron Tate, and Brandon Hood (collectively, Plaintiffs). [ECF No. 19]. For the reasons discussed below the Motion to Dismiss is granted in full.

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BACKGROUND^[2]

Plaintiffs allege that they received private student loans from the Student Loan Marketing Association (Sallie Mae).^[3] (FAC ¶¶ 2-4). LaBarron Tate took out her loan on July 3, 2002; Brandon Hood, on October 10, 2002; and Sarah Bannister, on August 9, 2005. (FAC ¶¶ 56-58). Sallie Mae was created “to facilitate the secondary market” for loans issued under the “Guaranteed Loan Program . . . and the National Direct Student Loan [Program].” (FAC ¶¶ 10, 14). Sallie Mae was privatized over a period of time between 1996 and 2004, and Treasury created the Office of Sallie Mae Oversight to “ensure that Federal funds [we]re not subsidizing non-[Family Federal Education Loan (FFEL)] guaranty activity.”^[4] (FAC ¶¶ 29-30). In 1996, Congress split Sallie Mae into a public entity, called SLMA, that holds all federal property and assets, and a private entity, called SLM Corp., which would be used to conduct new commercial activity. (FAC ¶ 29). From that point forward, “if any loans were made or facilitated by SLM, they could not be funded with proceeds from debt issued by the [government services entity (GSE)] nor sold to the GSE.” (FAC ¶ 32).

“Congress and Treasury permitted Sallie Mae to facilitate the origination of private loans and to purchase loans on the secondary market, but Sallie Mae was not permitted to originate private loans.” (FAC ¶ 40). Plaintiffs allege that eventually, Treasury “began to suspect that

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Sallie Mae was . . . blurring these lines.” (FAC ¶ 41). They allege that Treasury became aware that “SLMA . . . was originating private loans through its back-office servicing agreements under which SLMA would process and disburse the loans.” (FAC ¶ 42). “Sallie Mae was thus using federal funds to originate private student loans in express violation of its fiduciary duties, Titles 12 and 20, and numerous provisions of Title 18.” (FAC ¶ 46).

Treasury did nothing to prevent Sallie Mae from originating their loans because, in the view of the Treasury, it had “weak enforcement tools” and there was “a lack of general consensus on how to use them.” (FAC ¶ 49). Treasury “failed to act because government officials were unable to ‘reach consensus' on the precise meaning of the law.” (FAC ¶ 52).

With respect to the Office of the Comptroller of the Currency (OCC), Plaintiffs allege that, on May 29, 2020, it “issued a final rule identified as ‘Docket ID OCC-2019-0027, Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred' ([‘]Final Rule').” (FAC ¶ 85). “The Final Rule states, in part, that, ‘Transferred loans. Interest on a loan that is permissible under 12 U.S.C. § 85 shall not be affected by the sale, assignment, or other transfer of the loan.'” (FAC ¶ 86). The rule clarified that “when a national bank or savings association . . . sells, assigns, or otherwise transfers a loan, interest permissible before the transfer continues to be permissible after the transfer.” See Office of the Comptroller of the Currency, Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred, 2020 WL 2836957, 85 Fed. Reg. 33, 530, 33, 530 (June 2, 2020) (hereinafter, Final Rule). This rule “reaffirm[ed] the longstanding understanding that a bank may transfer a loan without affecting the permissible interest term.” Id.

The Final Rule does not “address which entity is the true lender when a bank transfers a loan to a third party.” Final Rule, 85 Fed. Reg. at 33, 534. To address that issue, on July 2020,

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the OCC proposed a new regulation to determine which entity is the “true lender” when a national bank or Federal savings association makes a loan in the context of a partnership between a bank and a third party. Under this proposed rule, “a bank makes a loan if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan.” National Banks and Federal Savings Associations as Lenders, 85 Fed. Reg. 44, 223 (proposed July 22, 2020) (hereinafter, True Lender Rule).

Plaintiffs filed their Complaint in June 2020, [ECF No. 1], and their First Amended Complaint one week later, (FAC). Their claimed injuries are that: “Navient has represented to Plaintiffs that these debts are valid and are entitled to all or many of the benefits that Congress gave to lenders originating and holding Title IV Loans but not eligible for any of the federal protections and benefits, ” (FAC ¶ 60); “[u]nder color of federal authority, this government's agent has taken Bannister's, Hood's, and LaBarron's property to satisfy illegal and void debts, ” (FAC ¶ 62); and that “[w]hile working as the government's agent, Sallie Mae lent money to Tate, Bannister and Hood and represented that these loans were funded with federal dollars or otherwise funded by the government, ” (FAC ¶ 55).

Plaintiffs first seek a declaratory judgment that “the United States Congress never authorized public funds to be used for the origination of Tate's or Bannister's Loans and that these Loans were not insured or guaranteed under Part B nor made under Part E nor Part D of Title 20, nor otherwise made, insured, guaranteed or in any way funded nor authorized by the United States Treasury.” (FAC ¶¶ 55-66). Plaintiffs also seek relief under the Administrative Procedure Act (APA), in the form of an order compelling the Treasury to enjoin Sallie Mae from originating private loans. (FAC ¶¶ 67-93).

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LEGAL STANDARDS

To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible on its face “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. “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (alterations, internal quotation marks, and citations omitted).

ANALYSIS

I. Plaintiffs Lack Article III Standing To Assert Their Claim

Defendants' first argument is that Plaintiffs lack Article III standing to assert their claim. Defendants assert that: (1) Plaintiffs have not sufficiently alleged that any injury they suffered was traceable to the Treasury's alleged decision not to prevent Sallie Mae from originating Plaintiffs' loans or the OCC's promulgation of the Final Rule; and (2) that Plaintiffs have failed to sufficiently allege that their alleged injury would be redressed by a favorable decision. (Def. Memorandum in Support of Mot. To Dismiss (Def. Mot.) [ECF No. 20], at 7). The Court agrees with Defendants.

Article III of the U.S. Constitution requires an “actual case or controversy” between the parties to a suit in order for a federal court to entertain the action. See City of Los Angeles v. Lyons, 461 U.S. 95, 101 (1983). One of the underlying principles of Article III standing

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requirements is that they “prevent the judicial process from being used to usurp the powers of the political branches.” Clapper v. Amnesty Int'l, 568 U.S. 398, 408 (2013). “[S]tanding is a federal jurisdictional question ‘determining the power of the court to entertain the suit.'” Carver v. City of New York, 621 F.3d 221, 225 (2d Cir.2010) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). “[S]tanding consists of three elements': the individual initiating the suit ‘must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.'” Dhinsa v. Krueger, 917 F.3d 70, 77 (2d Cir. 2019) (quoting Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016)). The party seeking to invoke federal jurisdiction bears the burden of establishing each of these elements. Spokeo, 136 S.Ct. at 1547. Defendants' motion focuses on the later two requirements.^[5]

A. The Alleged Unlawful Conduct In The Complaint Is Not Traceable to Defendants

“The traceability requirement for Article III standing means that the plaintiff must ‘demonstrate a causal nexus between the defendant's conduct and the injury.'” Chevron Corp. v. Donziger, 833 F.3d 74, 121 (2d Cir. 2016) (citation omitted). “[T]he injury has to be “fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992) (quoting Simon v. E. Kentucky Welfare Rts. Org., 426 U.S. 26, 41-42 (1976)).

Plaintiffs have not sufficiently alleged that their injuries are traceable to the actions of...