Brannan v. United Student Aid Funds, Inc.
| Citation | 94 F.3d 1260 |
| Decision Date | 30 August 1996 |
| Docket Number | No. 93-35555,93-35555 |
| Parties | , 112 Ed. Law Rep. 26, 96 Cal. Daily Op. Serv. 6478 April BRANNAN, Plaintiff-Appellant, v. UNITED STUDENT AID FUNDS, INC., Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Doug S. Gard, Center for NonProfit Legal Services, Inc., Medford, Oregon, for plaintiff-appellant.
K. Patrick Neill and Andrew G. Lewis, Hershner, Hunter, Moulton, Andrews & Neill, Eugene, Oregon, for defendant-appellee.
Appeal from the United States District Court for the District of Oregon, John P. Cooney, Magistrate Judge, Presiding; No. CV-92-06229-JPC.
Before: FLETCHER, D.W. NELSON, and RYMER, Circuit Judges.
Appellant April Brannan seeks damages from appellee United Student Aid Funds, Inc. ("USA Funds"), claiming abusive collection practices in violation of the federal Fair Debt Collection Practices Act of 1977 ("FDCPA"), Pub.L. No. 95-109, 91 Stat. 874, codified as amended at 15 U.S.C. § 1692 et seq., and in violation of the Oregon Unfair Debt Collection Practices Act ("Oregon UDCPA"), Or.Rev.Stat. §§ 646.639, 646.641. The district court granted summary judgment in favor of USA Funds on all claims, holding that USA Funds is exempt from liability under the "government actor" exemption to the FDCPA, 15 U.S.C. § 1692a(6)(C), and that the Higher Education Act ("HEA"), 20 U.S.C. § 1071-99, preempts the Oregon UDCPA. Brannan appeals both these rulings. On appeal, USA Funds raises the affirmative defense of FDCPA preemption of the Oregon UDCPA for the first time. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part and reverse and remand in part.
On June 15, 1988, appellant April Brannan executed a promissory note with the Bank of Horton for a loan of $2,625 under the former Guaranteed Student Loan ("GSL") program 1 established by the HEA. USA Funds, a private guaranty agency 2 subject to the HEA and applicable regulations pursuant to its contracts with the United States Department of Education, guaranteed the loan. The Department of Education, in turn, insured the guaranty agency. After the lender's assignee declared Brannan in default and filed a default claim with USA Funds on May 24, 1991, USA Funds paid the loan in accord with its guarantee commitment 3 and began collection efforts, including mailing collection notices to Brannan and contacting her by telephone.
Brannan filed suit on September 1, 1992, alleging, inter alia, that USA Funds had violated the FDCPA and the Oregon UDCPA by threatening to cause her to lose her job, by communicating with third parties about the debt, and by refusing to communicate about the debt through her attorney. USA Funds counterclaimed on the underlying debt, claiming collection costs and attorney fees under the provisions of the promissory note. 4
The district court granted summary judgment to USA Funds on all counts of Brannan's complaint and on USA Funds' counterclaim. It held that USA Funds is exempt from the FDCPA pursuant to the "government actor" exclusion, 15 U.S.C. § 1692a(6)(C). It also held that the HEA completely preempts the Oregon UDCPA.
A grant of summary judgment is reviewed de novo. Stevens v. Moore Business Forms, Inc., 18 F.3d 1443, 1446 (9th Cir.1994). This case involves statutory construction, which is a question of law that we review de novo. Hellon & Assoc., Inc. v. Phoenix Resort Corp., 958 F.2d 295, 297 (9th Cir.1992). Preemption is also a matter of law subject to de novo review. Galvez v. Kuhn, 933 F.2d 773, 776 (9th Cir.1991).
USA Funds concedes for the purposes of this appeal that it is a "debt collector" under the FDCPA. 15 U.S.C. § 1692a(6). However, USA Funds asserts that Congress did not intend for the FDCPA to apply to GSL guaranty agencies.
We hold that USA Funds is subject to the FDCPA. The FDCPA proscribes abusive collection practices by "any person ... who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." Id. The FDCPA does not provide an exemption for guaranty agencies that acquire a student loan after default in order to pursue its collection. See § 1692 et seq. The Secretary of Education has also explicitly stated that GSL third party collectors and their collection activity "remain subject to the FDCPA." 55 Fed.Reg. 40120, 40121 (1990).
USA Funds contends and the district court held that a GSL guaranty agency is exempt from the FDCPA under § 1692a(6)(C), which exempts "any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties."
Reversing the district court, we hold that USA Funds is not a government actor exempt from the FDCPA under § 1692a(6)(C). "[W]here a statute names the parties which come within its provisions, other unnamed parties are excluded." Foxgord v. Hischemoeller, 820 F.2d 1030, 1034 (9th Cir.), cert. denied, 484 U.S. 986, 108 S.Ct. 503, 98 L.Ed.2d 502 (1987). This exemption applies only to an individual government official or employee who collects debts as part of his government employment responsibilities. USA Funds is a private nonprofit organization with a government contract; it is not a government agency or employee.
USA Funds contends and the district court held that the HEA preempts the application of the Oregon UDCPA. Or.Rev.Stat. § 646.639. We agree. Although the HEA does not preempt all state law governing lenders and guarantors of student loans, it does preempt state law inconsistent with the GSL regulations governing a third-party debt collector's pre-litigation collection activities. See 55 Fed.Reg. at 40121-2.
"The Supremacy Clause of Article VI of the Constitution provides Congress with the power to preempt state law." Independent Energy Producers Ass'n, Inc. v. California Pub. Util. Comm'n, 36 F.3d 848, 853 (9th Cir.1994). Preemption can occur in a number of circumstances, including " 'where the state law stands as an obstacle to the accomplishment and execution of the full objectives of Congress.' " Id. (quoting Louisiana Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 368-69, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986)). " 'Preemption may result not only from action taken by Congress itself; a federal agency acting within the scope of its congressionally delegated authority may pre-empt state regulation.' " Id. (quoting Louisiana Pub. Serv. Comm'n, 476 U.S. at 369, 106 S.Ct. at 1898-99).
The Secretary of Education has promulgated an official interpretation stating that regulations issued under 20 U.S.C. § 1082(a) preempt inconsistent state law governing pre-litigation collection activities by third-party debt collectors. We defer to the specific policy decisions of an administrative agency unless they are arbitrary, capricious or manifestly contrary to statute. United States v. Strong, 79 F.3d 925, 928 (9th Cir.1996) (citation omitted). We "must give substantial deference to an agency's interpretation of its own regulations." Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, ----, 114 S.Ct. 2381, 2386, 129 L.Ed.2d 405 (1994) (citations omitted). Id.
The Secretary concludes that the GSL regulations governing pre-litigation collection activity preempt all inconsistent state law, including case law, statutes and regulations. 55 Fed.Reg. at 40120-21 (citing 20 U.S.C. §§ 1078(c), 1080(a),(b); 34 C.F.R. §§ 682.410(b)(4)(i)-(vi), (xii), 682.411(c)-(h)). According to the Secretary, state law is inconsistent with the GSL regulations when it "would prohibit, restrict, or impose burdens" on pre-litigation collection activity by third parties. Thus, the scope of preemption extends to "any State law that would hinder or prohibit any activity taken by these third parties." Id. at 40121 (emph. added).
The Secretary notes that preemption in this area expressly serves "the congressional intention implemented in these regulations:" that the Secretary establish an effective due diligence standard for collection activity. Id. Subjecting lenders and loan collectors to state law restrictions on pre-litigation collection activity would make GSL loan holders reluctant to exercise due diligence in loan collection. Id. In fact, the Secretary adds, exposure to lawsuits under fifty separate sets of laws and court systems could make lenders reluctant to make new federally-guaranteed student loans. Id.
The Secretary emphasizes that this narrow sphere of preemption has disadvantaged neither the states nor the public interest. The preemption of state law restrictions on pre-litigation collection activity "imposed no added costs on States" and did not infringe on state sovereignty in the conduct of litigation or the enforcement of judgments. Id. The subject of regulation-GSL loan collection-did not intrude into transactions in which the Federal Government had no direct involvement, but was instead "narrowly tailored" to apply to situations in which the federal government alone had already given financial benefits to borrowers and was in a position to incur even greater costs because of default. Id. Moreover, preemption did not leave borrowers without remedy should debt collectors engage in improper loan collection activity; while the GSL regulations preclude liability under inconsistent state law, "significant Federal protection for GSL debtors remains under the...
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