Hoffman v. Transworld Sys.
| Decision Date | 26 January 2023 |
| Docket Number | C18-1132 TSZ |
| Parties | ESTHER HOFFMAN, et al., Plaintiffs, v. TRANSWORLD SYSTEMS INCORPORATED, et al., Defendants. |
| Court | U.S. District Court — Western District of Washington |
THIS MATTER comes before the Court on a motion for class certification, docket no. 232, filed by plaintiffs Esther Hoffman, Sarah Douglass, Anthony Kim, Il Kim, and Daria Kim (collectively “Plaintiffs”), and motions for summary judgment filed by defendants Transworld Systems Incorporated (“TSI”), docket no. 377, and National Collegiate Student Loan Trusts 2004-2, 2005-2 2005-3, 2006-1, 2006-3, and 2007-4 () docket no. 369. Also before the Court is the deferred portion of a motion for summary judgment filed by defendants Patenaude and Felix, A.P.C. (“P&F”) and Matthew Cheung, docket no. 284.[1] Having reviewed all papers filed in support of, and in opposition to, the motions, and having concluded that oral argument is unnecessary, the Court enters the following Order.[2]
Between 2004 and 2007, the NCSLTs were formed for the purpose of offering student loan asset-backed securities; Cognition Financial Corporation (“Cognition”), formerly known as the First Marblehead Corporation (“FMC”), acted as the structuring agent for the NCSLTs. Meyer Decl. at ¶¶ 1, 3 (docket no. 371).[3] Prior to the NCSLTs' formation, FMC entered into agreements with multiple banks such as Bank of America, N.A. (“Bank of America”) and Bank One, N.A. (“Bank One”), now known as JP Morgan Chase Bank, N.A. (“JP Morgan Chase”), to provide loan origination services for private student loans guaranteed by The Education Resources Institute, Inc. (“TERI”). Id. at ¶ 3; Saylor Report at ¶¶ 14-15, Ex. C to Casamento Decl. (docket no. 370-3). TERI processed the student loans at origination, ensured the loans were disbursed to borrowers, and initially maintained loan records and documents created during the origination process (the “origination records”). Luke Decl. at ¶ 7 (docket no. 373). FMC entered into a servicing agreement with the Pennsylvania Higher Education Assistance Agency (“PHEAA”) to service the student loans before securitization.[4] Meyer Decl. at ¶ 3.
Following disbursement, TERI transferred the loans' origination records to PHEAA. Luke Decl. at ¶ 8.
The NCSLTs acquired student loans through the following process. See Meyer Decl. at ¶ 4. First, pursuant to Note Purchase Agreements (or Loan Purchase Agreements) and Pool Supplements, originating banks pooled and sold student loans to a depositor, National Collegiate Funding LLC (“NCF”), FMC's wholly-owned subsidiary. Saylor Report at ¶ 15; Meyer Decl. at ¶ 4. Second, NCF sold the pooled student loans to the purchasing NCSLTs in accordance with applicable Deposit and Sale Agreements. Saylor Report at ¶ 15; Meyer Decl. at ¶ 4. Upon completion of the sales, PHEAA entered into agreements with the relevant NCSLTs to continue working as their pre-default loan servicer. Wilbert Decl. at ¶ 9 (docket no. 372).
For loans in default, PHEAA transferred accounts to defendant TSI, the NCSLTs' post-default subservicer. See Luke Decl. at ¶ 12. Pursuant to a default servicing agreement, Ex. A to Richards Decl. (docket no. 88-1), TSI serves as a records custodian for the NCSLTs with respect to the loans that TSI services.[5] Id. As the post-default subservicer, TSI may refer loans in default to law firms for collection litigation on behalf of the relevant NCSLTs. In this case, TSI placed Plaintiffs' loans with defendant law firm P&F for collection. Luke Decl. at ¶ 19; Cheung Decl. at ¶¶ 2-4 (docket no. 286). Defendant Cheung is the Managing Attorney of P&F's Washington State office. Cheung Decl. at ¶ 1.
On September 18, 2017, TSI entered into an administrative Consent Order with the Consumer Financial Protection Bureau (“CFPB”). See Consent Order, In re Transworld Systems Inc., No. 2017-CFPB-0018, Ex. A to Second Amended Class Complaint (“SAC”) (docket no. 61). P&F and Cheung claim that they did not learn of the CFPB's investigation into TSI until sometime after the agency published the Consent Order on September 18, 2017. Cheung Decl. at ¶ 12. The CFPB determined that between November 1, 2014, and April 25, 2016, law firms hired by TSI, such as P&F, initiated on behalf of the NCSLTs 37,689 debt collection lawsuits across the United States. Consent Order at ¶ 15. The Consent Order found that, in support of many of these lawsuits, TSI provided law firms with executed and notarized affidavits that falsely claimed personal knowledge of education loan records and consumers' debt. Id. at ¶¶ 18-24. The CFPB also found that some of the law firms retained by TSI initiated lawsuits against borrowers despite lacking a “complete chain of assignment” necessary to prove that the NCSLTs owned the subject loans. Id. at ¶ 26. Except as to facts necessary to establish the CFPB's jurisdiction over the matter, TSI did not admit or deny any of facts set forth in the Consent Order's findings of fact or conclusions of law. Id. at ¶ 2.
Pursuant to the Consent Order, TSI agreed to identify any lawsuits filed between November 1, 2014, and September 18, 2017, that are missing the documentation necessary to prove the NCSLTs' ownership of a subject loan. See id. at ¶ 45. As a result, P&F closed a small number of accounts and returned them to TSI. Patenaude Decl. at ¶ 7 (docket no. 285). Defendants contend, however, that the loans at issue in this case were not affected by the Consent Order because the NCSLTs possess the complete chain of assignment necessary to establish ownership of Plaintiffs' loans.
In July 2004, plaintiff Esther Hoffman obtained a $6,000 student loan from Bank of America. See Ex. B-1 to Luke Decl. (docket no. 375-1); Wilbert Decl. at ¶ 22. On August 4, 2004, PHEAA began servicing Hoffman's loan. Wilbert Decl. at ¶ 21. Pursuant to a Pool Supplement effective October 28, 2004, Hoffman's student loan was purportedly sold to NCF, and then sold to NCSLT 2004-2, pursuant to a Deposit and Sale Agreement effective the same day. Wilbert Decl. at ¶ 23; Meyer Decl. at ¶¶ 4, 9; Luke Decl. at ¶ 13; Ex. D-1 to Luke Decl. (docket no. 375-4 at 3). PHEAA serviced Hoffman's loan from August 4, 2004, to October 3, 2011, when it transferred the loan to NCSLT 2004-2's default subservicer (TSI's predecessor NCO) after Hoffman failed to make payments on the loan. Wilbert Decl. at ¶ 25; Luke Decl. at ¶ 12.
On November 6, 2013, TSI referred Hoffman's loan to P&F for collection. Cheung Decl. at ¶ 15. On January 16, 2014, Hoffman commenced a payment plan with P&F and made multiple payments on her student loan between February 7, 2014, and February 2, 2016. Id. at ¶¶ 19-21. On June 8, 2016, after Hoffman stopped making payments in accordance with her payment plan, P&F filed a lawsuit against her in a matter captioned NCSLT 2004-2 v. Hoffman, Snohomish County Superior Court Case No. 16-2-15162-31. Id. at ¶ 23; Ex. 2 to Rosenberg Decl. (docket no. 16-1).[6] On August 25, 2016, NCSLT 2004-2 moved for default judgment against Hoffman after she did not appear in the action or otherwise defend. Cheung Decl. at ¶ 25; Ex. 6 to Rosenberg Decl. (docket no. 16-1). In support of the motion for default judgment, Cheung filed with the court an “Affidavit and Verification of Account” of TSI employee Dudley Turner to establish NCSLT 2004-2's ownership of Hoffman's student loan. Cheung Decl. at ¶ 25; Ex. 4 to Rosenberg Decl. (docket no. 16-1). The Snohomish County Superior Court entered judgment against Hoffman the same day, Cheung Decl. at ¶ 26; Ex. 7 to Rosenberg Decl. (docket no. 16-1), and Hoffman has never moved to set aside the judgment, Cheung Decl. at ¶ 28. All events occurring in Hoffman's underlying lawsuit were completed by August 30, 2016. Id. at ¶ 29.
In December 2005 and April 2006, plaintiff Sarah Douglass acquired two student loans from Bank of America, one for $2,000 and the other for $2,500. See Ex. B-2 to Luke Decl. (docket no. 375-1); Wilbert Decl. at ¶¶ 29, 31. PHEAA began servicing Douglass's loans on December 21, 2005, and April 20, 2006, respectively. Wilbert Decl. at ¶¶ 28, 30. Douglass's Bank of America student loans were allegedly included in a pool of loans NCSLT 2006-3 acquired on September 28, 2006. Wilbert Decl. at ¶ 32; Meyer Decl. at ¶¶ 4, 9; Luke Decl. at ¶ 13; Ex. D-5 to Luke Decl. (docket no. 375-4 at 24). PHEAA serviced Douglass's first loan from December 21, 2005, to December 2, 2013, and her second loan from April 20, 2006, to December 2, 2013, Wilbert Decl. at ¶¶ 34-35, at which time it transferred both loans to TSI's predecessor following Douglass's non-payment, id. at ¶ 36; Luke Decl. at ¶ 12.
On December 5, 2015, TSI referred Douglass's loans to P&F for collection. Cheung Decl. at ¶ 31. Following multiple unsuccessful attempts to contact Douglass, P&F filed two lawsuits against her on April 24, 2017, in matters captioned NCSLT 20063 v. Douglass, King County Superior Court Case No. 17-2-10605-4, and NCSLT 2006-3 v. Douglass, King County Superior Court Case No. 17-2-10604-6. Id. at ¶¶ 33-37; see, e.g., Ex. 10 to Rosenberg Decl. (docket no. 16-1). After Douglass did not appear in the two lawsuits or otherwise defend, NCSLT 2006-3 moved for default judgment against her. Cheung Decl. at ¶ 38; see, e.g., Ex. 12 to Rosenberg Decl. (docket no. 16-2). In support of the motions, Cheung submitted affidavits of TSI employee Brian Jackson to establish that NCSLT 2006-3 owned Douglass's loans. Cheung Decl. at ¶ 38; see, e.g., Ex. 13 to Rosenberg Decl. (docket no. 16-2).
On April 25, 2017, the King County Superior Court entered judgment...
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