Linsley v. FMS Inv. Corp., CIVIL ACTION NO. 3:11cv961(VLB)

• Decision Date: 17 April 2012
• Docket Number: CIVIL ACTION NO. 3:11cv961(VLB)
• Court: U.S. District Court — District of Connecticut
• Parties: KENNETH LINSLEY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF, v. FMS INVESTMENT CORP. DEFENDANT.

KENNETH LINSLEY, INDIVIDUALLY AND ON BEHALF OF

ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,

v.FMS INVESTMENT CORP. DEFENDANT.

CIVIL ACTION NO. 3:11cv961(VLB)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

Dated: April 17, 2012

MEMORANDUM OF DECISION GRANTING DEFENDANT'S MOTION TO DISMISS

PLAINTIFF'S CUTPA CLAIMS [DKT. #16].

Before the Court is Defendant FMS Investment Corp's ("FMS") motion to dismiss Plaintiff's Kenneth Linsley's ("Linsley") claim for violation of the Connecticut Unfair Trade Practices Act ("CUTPA"), Conn. Gen. Stat. §§ 42-110, et seq pursuant to Fed. R. Civ. P. 12(b)(1). Defendant argues that Plaintiff's CUTPA claim is preempted by the Higher Education Act or in the alternative that Plaintiff has failed to plausibly allege ascertainable loss as required under CUTPA. For the reasons stated hereafter, Defendant's motion to dismiss Plaintiff's CUTPA claim is granted.

Background and Alleged Facts

On June 15, 2011, Plaintiff filed the instant class action lawsuit against FMS alleging violations of CUTPA and the Federal Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§1692 et seq. [Dkt. #1, Compl.]. On March 3, 2012, Plaintiff moved to amend/ correct the complaint. [Dkt. #31]. On March 5, 2012, the Court denied Plaintiff's motion to amend/correct the complaint without prejudice torefiling indicating how the proposed amended complaint differed from the operative complaint and demonstrating that the Defendant would not be prejudiced by the proposed amendment. See [Dkt.#32]. To date, Plaintiff has not renewed his motion to amend/ correct the complaint and thus such right is waived.

The following facts are taken from Plaintiff's complaint. Defendant FMS is a Maryland Corporation headquartered in Illinois and engaged in the collection of consumer debts. [Dkt. #1, Compl. at ¶3]. Linsley was a debtor with federal student loans that were placed into default status. [Id. at ¶6]. Linsley's loan was assigned to FMS for collection purposes. [Id. at ¶7].

Linsley alleges that FMS sent him a letter misrepresenting the options to cure his loan default under the Income Contingent Repayment Program (ICRP). He alleges that FMS sent him a letter stating that he had two options to cure the default. The first was rehabilitation and the second was consolidation. He alleges that the letter falsely stated that in order to rehabilitate the loan he had to "[m]ake 9 consecutive agreed upon monthly payments to qualify." [Id. at ¶9]. Linsley further alleges that the letter falsely stated that to consolidate his loans he had to "make 6 - consecutive monthly payments." [Id. at ¶10].

Linsely alleges that the FMS violated both the FDCPA and CUTPA by "falsely representing the law governing the amount of time in which the required nine payments for rehabilitation were to be made" and "falsely representing the law governing the number of payments required for consolidation and therepayment options available to avoid having to pay any required payments for consolidation." [Id. at ¶¶ 28-29, 32].

Linsley alleges that under 20 U.S.C. §1078-6, 34 C.F.R. §685.212(f),¹ and 34 C.F.R. § 682.405(b)(1)(ii), a debtor must make nine payments within ten consecutive months to rehabilitate a loan that rather than the nine months stated in the letter. [Id. at ¶ 11]. Linsley further alleges that under 34 C.F.R. §§ 685.220(d)(1)(ii)(C), 682.201(d)(1)(i)(A)(3), 685.102(b), 682.200(b) consolidation is allowed if "satisfactory repayment arrangements have been made" and satisfactory repayment has been defined as "the making of three consecutive, voluntary, on-time- full monthly payments on a defaulted loan" rather than four payments. [Id. at ¶ 12]. Lastly, Linsley alleges that 34 C.F.R. §§ 685.220(d)(1)(ii)(D), 682.201(d)(1)(i)(A)(3) allow for consolidation without any qualifying payments if the borrow agrees to repay a loan under an ICRP, an Income Sensitive Repayment Plan (ISRP), or an Income Based Repayment Plan (IBR) depending on the loan type. [Id. at ¶ 13].

Legal Standard

The standards of review for a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction and under 12(b)(6) for failure to state a claim are "substantively identical." Lerner v. Fleet Bank, N.A., 318 F.3d 113, 128 (2d. Cir. 2003). However, on a motion to dismiss under Rule 12(b)(1), the party invoking the Court's jurisdiction bears the burden of proof to demonstrate that subjectmatter jurisdiction exists, whereas the movant bears the burden of proof on a motion to dismiss under Rule 12(b)(6). Id. In deciding both types of motions, the Court "must accept all factual allegations in the complaint as true, and draw inferences from those allegations in the light most favorable to the plaintiff." In re AIG Advisor Group Sec. Litig., 309 Fed. App'x. 495, 497 (2d Cir. 2009). "To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal quotation marks omitted). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The Court's review on a motion to dismiss pursuant to Rule 12(b)(6) is generally limited to "the facts as asserted within the four corners of the complaint, the documents attached to the complaint as exhibits, and any documents incorporated in the complaint by reference." McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007).

Analysis

i. Plaintiff's CUTPA claims are expressly preempted by the Higher Education Act

Defendant argues that Plaintiff's CUTPA claim is expressly preempted by the Higher Education Act of 1965, 20 U.S.C. §§1001-115 ("HEA"). "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 post-secondary and higher education.'" NcNamee, Lochner, Titus & Williams, P.C. v. Higher Educ. Assistance Foundation, 50 F.3d 120, 121 (2d Cir.1995) (citing Pub.L. No. 89-329, 79 Stat. 1219). The Second Circuit has noted that the "attempted accomplishment of these purposes has resulted in a complicated set of statutes and regulations." Id. "'Title IV of the Higher Education Act governs federally-funded student financial aid programs for college and post-secondary vocational training. 20 U.S.C. § (s)1070 et seq' ... 'the purpose of these programs is to make available and subsidize student loans from private lenders with repayment insured by the government.'" Brooks v. Salle Mae, Inc., No.FSTCV096002530S, 2011 WL 6989888, at *4 (Conn. Super. Ct. Dec. 20, 2011) (quoting Coalition of New York State Career Schools, Inc. v. Riley, 129 F.3d 276, 277 (2d Cir. 1997; Chauffeur's Training School, Inc. v. Spellings, 478 F.3d 117, 120 (2d Cir. 2007)). "'The Secretary of the Department of Education is authorized to prescribe such regulations as may be necessary to carry out the purposes" of the Federal Family Education Loan Programs." Id. (quoting 20 U.S.C. §1082(a)(1)). Linsley essentially alleges that FMS's letter violated CUTPA by falsely representing the HEA's requirements for loan consolidation and rehabilitation.

"The doctrine of federal preemption is rooted in the Supremacy Clause of the United States Constitution, which provides that 'the Laws of the United States ... shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.'" Pacific Capital Bank, N.A. v. Connecticut, 542 F.3d 341, 351 (2d Cir. 2009) (quoting U.S. Const. art. VI. cl.2). "Federal preemption of a state statute can be express or implied, and generally occurs: [1] where Congress has expressly preempted state law, [2] where Congress has legislated socomprehensively that federal law occupies an entire field of regulation and leaves no room for state law, or [3] where federal law conflicts with state law." SPGGC, LLC v. Blumenthal, 505 F.3d 183, 188 (2d Cir. 2007) (internal quotation marks and citation omitted). "The key to the preemption inquiry is the intent of Congress … Congress may manifest its intent to preempt state or local law explicitly, through the express language of a federal statute, or implicitly, through the scope, structure, and purpose of the federal law." New York SMSA Ltd. Partnership v. Town of Clarkstown, 612 F.3d 97, 104 (2d Cir. 2010) (internal citations omitted).

Where "a statute contains an express preemption clause, the task of statutory construction must in the first instance focus on the plain wording of the clause, which necessarily contains the best evidence of Congress' pre-emptive intent." In re September 11 Property Damage Litig., 650 F.3d 145, 151 (2d Cir. 2011). The Second Circuit has further explained that "[w]here the language of the statute plainly indicates that Congress intended preemption, '[w]e must give effect to th[e] plain language unless there is good reason to believe Congress intended the language to have some more restrictive meaning.' If the text of the statute is ambiguous, either as to Congress's intent to preempt at all or as to the extent of an intended preemption, the meaning of the statute may be gleaned from its context and from the statutory scheme as a whole, or by resort to the normal canons of construction and legislative history." In re WTC Disaster Site, 414 F.3d 352, 372 (2d Cir. 2005) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983)).

The HEA expressly preempts "the operation of state usury laws, statutes of limitations, limitations on recovering the costs of debt collection, infancy defenses to contract liability, wage garnishment limitations, and [of particular relevance to the matter at hand] disclosure requirements." Chae v. SLM Corp., 593 F.3d 936, 942...