Darrisaw v. Pa. Higher Educ. Assistance Agency, No. 17-12113

Decision Date07 February 2020
Docket NumberNo. 17-12113
Citation949 F.3d 1302
Parties Hope D. DARRISAW, Plaintiff-Appellant, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY (PHEAA), Defendant-Appellee.
CourtU.S. Court of Appeals — Eleventh Circuit

Thomas Dietrich Hill, Kellogg Hansen Todd Figel & Frederick, PLLC, Washington, DC, for Plaintiff-Appellant.

Derin Bronson Dickerson, Joshua Lamar Harris, David Andrew Hatchett, Tejas S. Patel, Kyle G.A. Wallace, Alston & Bird, LLP, Atlanta, GA, for Defendant-Appellee.

Before WILLIAM PRYOR, MARTIN, and KATSAS,* Circuit Judges.

WILLIAM PRYOR, Circuit Judge:

This appeal presents the question whether a guaranty agency for federal student loans qualifies as a "debt collector" under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692a(6), when it mistakenly attempts to collect a nonexistent student-loan debt. Hope Darrisaw, a student-loan borrower, sued the Pennsylvania Higher Education Assistance Agency under the Act after it tried to collect a debt she never incurred. The district court dismissed her complaint on the ground that the Agency, which guarantees federal student loans for the Secretary of Education, is not a "debt collector" under the Act; it concluded that the Agency fell within an exception for persons who collect debts "incidental to a bona fide fiduciary obligation." Id. § 1692a(6)(F)(i). We agree that the Agency falls within this exception, so we affirm.

I. BACKGROUND

Because this appeal is from the dismissal of a complaint, we accept the allegations of the complaint as true. See Am. Dental Ass’n v. Cigna Corp. , 605 F.3d 1283, 1288 (11th Cir. 2010). We recount the facts as alleged in the complaint. And we construe them in the light most favorable to the plaintiff. See id.

Hope Darrisaw obtained student loans to attend college. In July 2014, her loan servicer, Nelnet, placed the loans in deferment because Darrisaw was "enrolled in school at least half-time." Nelnet scheduled the deferment to last from July 2014 until December 2016, during which time no payments would be due.

In April 2016, Darrisaw received a letter from the Pennsylvania Higher Education Assistance Agency stating that the Agency had "paid a default claim on your student loan(s) identified below" and was "now the legal owner of your loan(s)." The letter identified four loans and informed Darrisaw that because of her default she was "required to pay [her] loan(s) in full immediately" to the Agency. Darrisaw had not obtained those four loans and believed the letter was sent "in error," so she did not initially respond to the letter.

The following month, May 2016, the Agency sent Darrisaw a second letter. That letter warned Darrisaw that her defaulted loan was "now a federal debt" and would be "subject to collection efforts" if she failed to remit payment in the amount of $18,812.83. Concerned, Darrisaw called the Agency at "the number listed on the Federal Student Aid website" because she "did not trust the information in the letters." She planned to "inquire about the debt" and "correct the error." But the representative Darrisaw called denied that she had an outstanding debt with the Agency and terminated the call because the Agency’s "records did not contain any reference to" Darrisaw.

Darrisaw received a third letter from the Agency in June 2016. This letter stated that the Agency would begin garnishing Darrisaw’s wages to collect her defaulted student loans unless she established a repayment plan by the following month. Because the Agency had denied the existence of the debt over the telephone, Darrisaw believed the collection letters were part of "a fake debt collection scam," so she continued to ignore them.

In July 2016, the Agency sent a garnishment order to Darrisaw’s employer directing it to deduct and remit to the Agency 15 percent of her disposable pay. The Agency sent a second letter in September 2016 notifying Darrisaw’s employer that it had not received any garnishment payments and explaining that the Agency could take legal action if the employer failed to comply with the garnishment order. Darrisaw’s employer began garnishing her wages shortly after receiving the second letter.

Darrisaw filed a pro se complaint against the Agency for alleged violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. She also brought claims under the Federal Trade Commission Act, 15 U.S.C. § 45, and against James Preston, the President and CEO of the Agency. The district court dismissed those claims after screening Darrisaw’s complaint, 28 U.S.C. § 1915(e)(2)(B), and Darrisaw does not appeal those dismissals.

Darrisaw alleges that the debts the Agency sought to collect were "assigned to [her] in error, either on the part of the lender, the [Department of Education], or the [Agency]." She alleges that she "does not owe the debt" the Agency sought to collect and that the Agency "abdicated its responsibilities ... to maintain procedures reasonably adapted to avoid such an error." She also asserts that the Agency made "false or misleading representations," was "negligen[t]," and "fail[ed] to validate the debt." And she accuses the Agency of engaging in "fraudulent" business practices.

The Agency moved to dismiss Darrisaw’s claim under the Fair Debt Collection Practices Act. See Fed. R. Civ. P. 12(b)(6). The Agency argued it was not a "debt collector" under the Act. As a federal guaranty agency, the Agency argued it fell within an exception to the Act’s definition of "debt collector" for persons "collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity ... is incidental to a bona fide fiduciary obligation." 15 U.S.C. § 1692a(6)(F)(i). The district court granted the Agency’s motion to dismiss.

II. STANDARD OF REVIEW

We review de novo the dismissal of a complaint. Culverhouse v. Paulson & Co. , 813 F.3d 991, 993 (11th Cir. 2016). We construe the allegations of a pro se complaint liberally, in the light most favorable to the plaintiff. Dixon v. Hodges , 887 F.3d 1235, 1237 (11th Cir. 2018).

III. DISCUSSION

Congress enacted the Higher Education Act of 1965 "[t]o strengthen the educational resources of our colleges and universities and to provide financial assistance for students in postsecondary and higher education." Higher Education Act of 1965, Pub. L. No. 89-329, 79 Stat. 1219, 1219; see also Cliff v. Payco Gen. Am. Credits, Inc. , 363 F.3d 1113, 1122 (11th Cir. 2004). Title IV of the Act empowers "the Secretary of Education to administer several federal student loan and grant programs, including the Federal Family Education Loan Program." Cliff , 363 F.3d at 1122 ; see also 20 U.S.C. § 1071 et seq. Under the programs, "lenders make guaranteed loans under favorable terms to students and their parents, and these loans are guaranteed by guaranty agencies and ultimately by the federal government." Cliff , 363 F.3d at 1122 ; see also 34 C.F.R. § 682.100.

Guaranty agencies are either states or nonprofit organizations that agree with the Secretary to administer a loan-guarantee program under the Higher Education Act. 20 U.S.C. § 1078(b)(1) ; 34 C.F.R. § 682.200(b). Under the agreements, these agencies guarantee private lenders against loss when a borrower defaults on a federal student loan. 34 C.F.R. § 682.100(b)(1). If a borrower defaults, the guaranty agency pays the default claim to the lender and is reimbursed by the Secretary. Id. ; 20 U.S.C. § 1078(c)(1)(A). The guaranty agency must then attempt to collect the unpaid loan from the borrower on behalf of the Secretary. 34 C.F.R. § 682.410(b)(6)(i) ; see 20 U.S.C. § 1078(c)(2)(A), (c)(6). The guaranty agency returns most of any payments it collects to the Secretary but may keep a percentage of the payments for use in its operating fund. 20 U.S.C. §§ 1078(c)(2)(D), (c)(6), 1072b(c)(5).

Because guaranty agencies must recover and safeguard money that belongs to the federal government, federal law regulates their relationships with the Secretary. The Higher Education Act requires the agreements between guaranty agencies and the Secretary to establish procedures "to protect the United States from the risk of unreasonable loss" and "to assure that due diligence will be exercised in the collection of loans insured under the program." Id. § 1078(c)(2)(A). The implementing regulations describe the relationship between a guaranty agency and the Secretary as that of a fiduciary. 34 C.F.R. § 682.419(a) ("The guaranty agency must exercise the level of care required of a fiduciary charged with the duty of protecting, investing, and administering the money of others.").

We must decide whether the Agency acted as a "debt collector" when it attempted to collect student-loan debts from Darrisaw that she never incurred. 15 U.S.C. § 1692a(6). The Act excludes from its definition of "debt collector" "any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity ... is incidental to a bona fide fiduciary obligation." Id. § 1692a(6)(F)(i). The Agency argues that it falls within this exclusion because it sought to collect the debts from Darrisaw pursuant to its fiduciary obligation to the Secretary. Although Darrisaw agrees that guaranty agencies act "incidental to a bona fide fiduciary obligation" when they attempt to collect valid debts for the Secretary, she argues they do not fall within the exclusion when they attempt to collect nonexistent debts. We agree with the Agency.

We have held that a guaranty agency acts "incidental to a bona fide fiduciary obligation" when it attempts to collect a debt from a borrower who defaulted on a federal student loan. Pelfrey v. Educ. Credit Mgmt. Corp. , 208 F.3d 945, 945 (11th Cir. 2000) (internal quotation marks omitted). In Pelfrey , we affirmed a judgment in favor of a guaranty agency "on the ground that the [Act] does not apply to the [guaranty agency]" because the agency fell within the exception for fiduciaries....

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