Lima v. U.S. Dep't of Educ.

• Decision Date: 13 January 2020
• Docket Number: No. 17-16299,17-16299
• Citation: 947 F.3d 1122
• Parties: Charles Stephan LIMA, Plaintiff-Appellant, v. UNITED STATES DEPARTMENT OF EDUCATION, Defendant, and Educational Credit Management Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

947 F.3d 1122

Charles Stephan LIMA, Plaintiff-Appellant,

v.UNITED STATES DEPARTMENT OF EDUCATION, Defendant,andEducational Credit Management Corporation, Defendant-Appellee.

No. 17-16299

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 22, 2019, Honolulu, Hawaii

Filed December 18, 2019

Decided January 13, 2020

Amani S. Floyd (argued) and George C. Harris, Morrison & Foerster LLP, San Francisco, California, for Plaintiff-Appellant.

Troy A. Gunderman (argued), ECMC Shared Services Comp., LLC, Minneapolis, Minnesota; Theodore D. C. Young, Cades Schutte LLP, Honolulu, Hawaii; for Defendant-Appellee.

Before: Susan P. Graber, Milan D. Smith, Jr., and Paul J. Watford, Circuit Judges.

ORDER

GRABER, Circuit Judge:

The opinion filed on December 18, 2019, and published at 944 F.3d 1172 (9th Cir. 2019), is amended by the opinion filed concurrently with this order.

With these amendments, Appellant’s petition for rehearing is DENIED. No further petitions for panel rehearing or rehearing en banc may be filed.

Defendant Education Management Credit Corporation caused an offset against Plaintiff Charles Lima’s Social Security benefits, to recover on a judgment obtained after Plaintiff defaulted on his student loans. Plaintiff filed a civil action alleging, among other things, violations of the Fair Debt Collection Practices Act and the Fifth Amendment’s Due Process Clause. The district court granted summary judgment to Defendant. We affirm.

BACKGROUND

A. Statutory Framework

The Higher Education Act of 1965 ("Act") established the Federal Family Education Loan Program ("Loan Program"), which the Department of Education ("DOE") administers. Rowe v. Educ. Credit Mgmt. Corp. , 559 F.3d 1028, 1030 (9th Cir. 2009). Under the Act, lenders provide loans to students or their parents to help finance higher education. Typically, those loans are guaranteed by guaranty agencies, which are "[s]tate or private nonprofit organization[s]" that have agreements with the Secretary of Education to administer the Loan Program. 34 C.F.R. §§ 682.200, 682.401(a). Those agencies, in turn, receive guarantees from the United States. Guaranty agencies, therefore, operate as intermediaries between the student-loan lender and the United States. Rowe , 559 F.3d at 1030.

If a borrower defaults on a student loan, the lender must try to obtain repayment from the borrower. If the lender is unsuccessful, it can file a claim with the guaranty agency and be repaid the outstanding balance of the loan. In that situation, the guaranty agency is assigned the loan from the lender. The guaranty agency, in turn, is repaid by the DOE in exchange for undertaking "due diligence" activities to attempt to collect the debt from the borrower. Id. Those "due diligence" activities include "locating the defaulting borrower, offsetting federal and state tax refunds ..., initiating administrative garnishment proceedings ..., and filing suit against the borrower." Id. (citing 34 C.F.R. § 682.410(b)(6)(i)–(iv) ).

B. Factual Background

Plaintiff obtained three student loans, totaling $8,500, in the 1970s. The New York State Higher Education Services Corporation ("New York Corporation") acted as guarantor for those loans under the Act. Plaintiff defaulted on the loans in 1980. In 1991, New York Corporation obtained a judgment against Plaintiff for approximately $14,000, representing both principal and interest.

Defendant is a nonprofit guaranty agency under the Act. In 2008, the DOE and Defendant agreed that Defendant would take assignment of certain Loan Program accounts in which judgments had been obtained by other guaranty agencies.

Pursuant to that agreement, New York Corporation assigned its judgment against Plaintiff to Defendant in 2009.¹ Through that assignment, Defendant assumed all right, title, and interest in the judgment, and Defendant became obligated to satisfy any guaranty responsibilities remaining on the underlying debt. In August 2009, Defendant notified Plaintiff, by mail, that the DOE held a claim against him, which it intended to collect by having the United States Department of the Treasury ("Treasury") offset "all payment streams authorized by law," including his Social Security benefits. Plaintiff did not respond.

In August 2012, Treasury began offsetting Plaintiff’s Social Security benefits by about $200 per month. Plaintiff then contacted Defendant and asserted that he did not receive the 2009 letter and that the debt already had been satisfied. Between August 2012 and June 2015, Treasury garnished approximately $6,900 from Plaintiff’s Social Security benefits.

In 2015, Plaintiff filed this action against Defendant.² As relevant here, Plaintiff claimed violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 ; the Fifth Amendment’s Due Process Clause; and state law. The district court granted summary judgment to Defendant on all federal claims. The court held that Defendant is not subject to the FDCPA because Defendant is not a "debt collector." The court then held that Defendant is not subject to the Due Process Clause because Defendant is not a state actor. Finally, the district court declined to exercise supplemental jurisdiction over the state-law claims. Plaintiff timely appealed.

STANDARDS OF REVIEW

We review de novo the district court’s grant of summary judgment, and we may affirm on any ground supported by the record. Chemehuevi Indian Tribe v. Newsom , 919 F.3d 1148, 1150–51 (9th Cir. 2019). We review for abuse of discretion the district court’s decision to decline supplemental jurisdiction. Oliver v. Ralphs Grocery Co. , 654 F.3d 903, 911 (9th Cir. 2011).

DISCUSSION

A. Fair Debt Collection Practices Act³

The FDCPA "authorizes private civil actions against debt collectors who engage in certain prohibited practices." Rotkiske v. Klemm , ––– U.S. ––––, ––––, 140 S.Ct. 355, 357, 205 L.Ed.2d 291 (2019). Plaintiff seeks statutory damages under § 1692k(a) of the FDCPA. To obtain damages, Plaintiff first must establish that Defendant is a "debt collector." As relevant here, the FDCPA defines a "debt collector" as "any person ... who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. § 1692a(6). Defendant asserts that it is not a debt collector under that definition. Defendant also argues that, even if it meets that statutory definition, it is not a debt collector because it fulfills the criteria of the fiduciary exception, § 1692a(6)(F).

We hold that Defendant "regularly collects or attempts to collect" debts "asserted to be owed or due another." Nonetheless, we affirm the district court’s grant of summary judgment because Defendant’s collection activities were "incidental to a bona fide fiduciary obligation." 15 U.S.C. § 1692a(6)(F)(i).

1. Defendant "regularly" attempts to collect debts "owed" to another.

In Henson v. Santander Consumer USA Inc. , ––– U.S. ––––, 137 S. Ct. 1718, 198 L.Ed.2d 177 (2017), the Supreme Court held that a defendant who purchased a defaulted loan and sought to collect the debt was not a "debt collector." The Court explained that, when applying the "regularly collects" definition of "debt collector," "[a]ll that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’ " Id. at 1721. Because the Henson defendant "purchased defaulted debt for its own account," the Court held that the defendant was not a "debt collector." Id. at 1724 (emphasis added).

Whether a lender in Defendant’s position is seeking to collect a debt for its "own account" is a question of first impression in our circuit. To answer that question, Henson requires us to focus on who ultimately would receive the payments on the debt being collected. See, e.g. , Infante v. Law Office of Joseph Onwuteaka, P.C. , 735 F. App'x 839, 842–43 (5th Cir. 2018) (per curiam) (unpublished) (holding that, because a limited liability corporation has a distinct legal identity, a lawyer who was collecting debt on behalf of an LLC that he owned was a debt collector);⁴ Bank of N.Y. Mellon Tr. Co. N.A. v. Henderson , 862 F.3d 29, 34 (D.C. Cir. 2017) (holding that a bank was not a debt collector because the debt was owed to the bank).

Here, Plaintiff’s debt is owed, or asserted to be owed, to the United States. The monies obtained from Plaintiff’s Social Security benefits through Treasury offset belong to the Treasury, not to Defendant. Instead, the money moves between federal agencies, and Defendant is notified of the transfers only for record-keeping purposes. And, even if Plaintiff had paid the debt, or part of it, the money would constitute property of the United States and would end up in an account owned and controlled by the United States. 20 U.S.C. § 1072(g)(1) ; 34 C.F.R. § 682.410(a)(1). Though Defendant possesses all right, title, and interest in the judgment against Plaintiff, Defendant was not collecting a debt for its "own account." Instead, Defendant was collecting a debt for the United States.

The record evidences that Defendant "regularly" attempts to collect debts owed, or asserted to be owed, to the United States. Under the applicable agreement, Defendant was obligated to receive accounts like Plaintiff’s for a one-year period, and Defendant received a long list of such accounts. See Garrett v. Derbes , 110 F.3d 317, 318 (5th Cir. 1997) (per curiam) (holding that "a person who, during a single nine-month period, attempts to collect debts owed another by 639 different individuals ‘regularly’ attempts to collect debts owed another, and thus is a ‘debt collector’ under § 1692a(6)").

2. Defendant’s collection activity is incidental to a bona fide fiduciary obligation.

The FDCPA exempts from the definition of debt collector "any person collecting or attempting to collect any debt ... owed or due another to the extent such activity ... is incidental to a bona fide fiduciary obligation ." 15 U.S.C. §...