Consumer Fin. Prot. Bureau v. Nat'l Collegiate Master Student Loan Tr.
| Decision Date | 26 March 2021 |
| Docket Number | C.A. No. 17-1323 (MN) |
| Parties | CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, v. THE NATIONAL COLLEGIATE MASTER STUDENT LOAN TRUST et al., Defendants. |
| Court | U.S. District Court — District of Delaware |
Gabriel S.H. Hopkins, Jane M.E. Peterson, Stephen C. Jacques, CONSUMER FINANCIAL PROTECTION BUREAU, Washington, DC. Attorneys for Plaintiff.
Kurt M. Heyman and Melissa N. Donimirski, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, DE; Erik W. Haas, Peter W. Tomlinson, Joshua Kipnees, George A. LoBiondo, Jared Buszin, Devon Hercher, and Peter Shakro, PATTERSON BELKNAP WEBB & TYLER LLP, New York, NY. Attorneys for Intervenor Ambac Assurance Corporation.
Stacey A. Scrivani, STEVENS & LEE, P.C., Wilmington, DE; Nicholas H. Pennington, STEVENS & LEE, P.C., King of Prussia, PA; . Attorneys for Intervenor The Pennsylvania Higher Education Assistance Agency.
Stephen B. Brauerman, Jason C. Jowers, and Elizabeth A. Powers, BAYARD, P.A., Wilmington, DE. Attorneys for Intervenor Wilmington Trust Company.
Daniel A. O'Brien, VENABLE LLP, Wilmington, DE; Allyson B. Baker, Meredith L. Boylan, Sameer P. Sheikh, and Tiffany C. Williams, VENABLE LLP, Washington, DC. Attorneys for Transworld Systems Inc.
March 26, 2021
Wilmington, Delaware
In September 2017, Plaintiff Consumer Financial Protection Bureau ("the Bureau") filed a complaint against fifteen Delaware statutory trusts referred to collectively as The National Collegiate Student Loan Trusts ("the Trusts" or "Defendants") for violations of the Consumer Financial Protection Act 12 U.S.C. § 5536(a)(1)(B). (D.I. 1). For several years, the Trusts were without representation in this action, but as of February 10, 2021, all Trusts are represented. (See D.I. 80; D.I. 347, D.I. 350). Several entities that either provide services on behalf of the Trusts or have a financial interest connected to the student loans held by the Trusts have intervened in this action. (D.I. 96).
Currently pending before the Court are two motions filed by a subset of those intervenors, specifically a motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure filed by Intervenor Transworld Systems, Inc. ("TSI") (D.I. 242) and a motion to dismiss pursuant to Rules 12(b)(1) and 12(b)(6) filed by Intervenors Ambac Assurance Corporation, Pennsylvania Higher Education Assistance Agency, and Wilmington Trust Company (collectively, "Ambac," and with TSI, "Movants") (D.I. 300).1 Also pending before the Court is the Bureau's application for entry of default pursuant to Rule 55(a), which Ambac, Wilmington Trust and the Trusts opposed. (D.I. 295; D.I. 296; D.I. 307). The Trusts have also joined the motions to dismiss and oppose entry of default. (D.I. 354). For the following reasons, TSI's motion to dismiss is denied,Ambac's motion to dismiss is granted, and the Bureau's request for entry of default is denied as moot.
As set forth in the Court's earlier opinions, the Trusts were created between 2001 and 2007 pursuant to the Delaware Statutory Trust Act, 12 Del. Code § 3801, et. seq., to acquire private student loans, collect payments from borrowers, and distribute gains to the holders of notes. Consumer Fin. Prot. Bureau v. Nat'l Collegiate Master Student Trust, No. 17-cv-1323 (MN), 2020 WL 2915759, at *1 (D. Del. May 31, 2020); Consumer Fin. Prot. Bureau v. Nat'l Collegiate Master Student Trust, No. 17-cv-1323 (MN), 2018 WL 5095666, at *1 (D. Del. Oct. 19, 2018); The Trusts have no employees or internal management and rely on certain trust-related agreements to provide their operating structure. The basic purpose of each Trust is to acquire a pool of student loans, issue notes secured by the pools of student loans, and provide for the servicing and collection of those student loans. (D.I. 1 ¶ 10).
On September 4, 2014, the Bureau issued a civil investigative demand ("CID") to each of the Trusts for information concerning collections lawsuits brought against borrowers based on defaulted student loans. (D.I. 301 at 3). On May 9, 2016, the Bureau sent a Notice and Opportunity to Respond and Advise ("NORA") to the Trusts stating that the Bureau was considering initiating enforcement proceedings against the Trusts based on the collections lawsuits.2 (Id.). A few weeks later, the Bureau received a NORA response from the McCarter & English firm ("McCarter") purporting to represent the Trusts. (Id.). Thereafter, McCarter and the Bureau negotiated a Proposed Consent Judgment to resolve the Bureau's investigation of the Trusts. (Id.).
On September 18, 2017, the Bureau filed this enforcement action against the Trusts along with a Motion to Approve the Proposed Consent Judgment. (D.I. 1; D.I. 3). After limited discovery, on May 31, 2020, the Court denied the Motion to Approve the Proposed Consent Judgment, concluding that McCarter was not authorized to execute the Proposed Consent Judgment. (D.I. 272). As a result, the Bureau has had to proceed with litigating this case along a more typical route.
On June 29, 2020, the United States Supreme Court issued its opinion in Seila Law holding that the Bureau's structure - i.e., leadership by a single director that could be removed by the President only for inefficiency, neglect, or malfeasance, and not at will - violated the Constitution's separation of powers. Seila Law LLC v. Consumer Financial Protection Bureau, 140 S.Ct. 2183, 2197 (June 29, 2020). Ambac relies on Seila Law to argue that the complaint should be dismissed. (D.I. 301 at 10).
"If the court determines . . . it lacks subject-matter jurisdiction, the court must dismiss the action." Fed. R. Civ. P. 12(h)(3). Motions brought under Rule 12(b)(1) for lack of subject matter jurisdiction may present either a facial or factual challenge to the court's jurisdiction. Lincoln Ben. Life Co. v. AEI Life, LLC, 800 F.3d 99, 105 (3d Cir. 2015) (citations omitted). A challenge is facial when a motion to dismiss is filed prior to an answer and thereby asserts that the complaint, on its face, is jurisdictionally deficient. Cardio-Med. Assocs., Ltd. v. Crozer-Chester Med. Ctr., 721 F.2d 68, 75 (3d Cir. 1983). In reviewing a facial challenge under Rule 12(b)(1), the standards relevant to Rule 12(b)(6) apply. Lincoln, 800 F.3d at 105 () (quoting Gould Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000)). The party asserting that federal jurisdiction exists has the burden of establishing subject matter jurisdiction. Id. (citing DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 n.3 (2006)).
"To survive a motion to dismiss, a civil plaintiff must allege facts that 'raise a right to relief above the speculative level on the assumption that the allegations in the complaint are true (even if doubtful in fact).'" Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Dismissal under Rule 12(b)(6) is appropriate if a complaint does not 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 (2009) (quoting Twombly, 550 U.S. at 570); see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. The factual allegations do not have to be detailed, but they must provide more than labels, conclusions, or a "formulaic recitation" of the claim elements. Twombly, 550 U.S. at 555-56. The Court is not obligated to accept as true "bald assertions" or "unsupported conclusions and unwarranted inferences." Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997); Schuylkill Energy Res., Inc. v. Pa. Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997). Instead, "[t]he complaint must state enough facts to raise a reasonable expectation that discovery will reveal evidence of [each] necessary element" of a plaintiff's claim. Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008) (internal quotation marks omitted). The court must accept all well-pleaded factual allegations in the complaint as true and draw all reasonableinferences in favor of the plaintiff. In re Rockefeller Ctr. Prop., Inc. Sec. Litig., 311 F.3d 198, 215 (3d Cir. 2002). The court's review is limited to the allegations in the complaint, exhibits attached to the complaint, and documents incorporated by reference. Procter & Gamble Co. v. Nabisco Brands, Inc., 697 F. Supp. 1360, 1362 (D. Del. 1988).
Movants have asserted multiple grounds for dismissal, but the Court need only address two: (i) whether the Court has subject matter jurisdiction to decide this case; and (ii) whether the Bureau has the enforcement authority to prosecute this case.
Movants ask the Court to dismiss this action under Rule 12(b)(1) because the Trusts are not "covered persons" as required by the Consumer Financial Protection Act of 2010 ("CFPA"). (D.I. 243 at 4; D.I. 301 at 16). The complaint asserts five claims based on 12 U.S.C. §§ 5531 and 5536(a)(1)(B). (D.I. 1 ¶¶ 62-93). Section 5536(a)(1)(B) makes it unlawful "for any covered person or service provider to engage in any unfair, deceptive, or abusive act or practice." Section 5531 gives the Bureau authority to "prevent a covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice." Thus, the CFPA requires that the defendant be either a "service provider" or "covered person." The Bureau is proceeding on the theory that the...
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