Morgan v. Markerdowne Corp., Civ. No. 96-1910(DRD).

CourtUnited States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
Writing for the CourtDebevoise
Citation976 F.Supp. 301
PartiesBarbara MORGAN, on behalf of herself and all others similarly situated, Plaintiff, v. MARKERDOWNE CORPORATION, Computer Learning Center, Valerie Dorras, Graeme Dorras, Chemical Bank, Citibank (New York State), Doe Banks One, Two, Three and Four, New Jersey Higher Education Assistance Authority, Defendants. and CITIBANK (New York State), Third Party Plaintiff, v. ILLINOIS STUDENT ASSISTANCE COMMISSION, American Student Assistance, United Student Aid Funds and XYZ Co., John Doe Corp. (being fictitious entities) and Richard W. Riley, Secretary of the Department of Education, Third Party Defendants, NEW JERSEY HIGHER EDUCATION ASSISTANCE AUTHORITY v. Barbara MORGAN.
Decision Date05 September 1997
Docket NumberCiv. No. 96-1910(DRD).
976 F.Supp. 301
Barbara MORGAN, on behalf of herself and all others similarly situated, Plaintiff,
v.
MARKERDOWNE CORPORATION, Computer Learning Center, Valerie Dorras, Graeme Dorras, Chemical Bank, Citibank (New York State), Doe Banks One, Two, Three and Four, New Jersey Higher Education Assistance Authority, Defendants.
and
CITIBANK (New York State), Third Party Plaintiff,
v.
ILLINOIS STUDENT ASSISTANCE COMMISSION, American Student Assistance, United Student Aid Funds and XYZ Co., John Doe Corp. (being fictitious entities) and Richard W. Riley, Secretary of the Department of Education, Third Party Defendants,
NEW JERSEY HIGHER EDUCATION ASSISTANCE AUTHORITY
v.
Barbara MORGAN.
Civ. No. 96-1910(DRD).
United States District Court, D. New Jersey.
September 5, 1997.

Page 302

COPYRIGHT MATERIAL OMITTED

Page 303

COPYRIGHT MATERIAL OMITTED

Page 304

Madeline L. Houston, Melissa J. Totaro, Paterson, NJ, for Plaintiff.

David L. Menzel, Cuyler Burk, Parsippany, NJ, for Defendant Citibank.

Ronald J. Shaffer, Frank G. Murphy, Fox, Rothschild, O'Brien & Frankel, NJ, for Defendants United Student Aid Funds, Inc. and Illinois Student Assistance Commission.

Frank W. Hunger, Assistant Attorney General, Faith S. Hochberg, United States Attorney, J. Christopher Kohn, Robert M. Hollis, John G. Interrante, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington, DC, for Defendant Secretary of United States Department of Education.

Marguerite M. Schaffer, Shain, Schaffer & Rafanello, Bernardsville, NJ, for Defendant Chemical Bank.

Scott G. Sproviero, Sinisi, Van Dam & Sproviero, NJ, for Defendants Markerdowne Corporation, Computer Learning Center, Valerie Doras and Graeme Doras.

Mark E. Shure, Kevin T. Keating, Keating & Shure, Ltd., Chicago, IL, for Defendant American Student Assistance.

David Powers, Deputy Attorney General, Department of Law & Public Safety, Richard J. Hughes, Trenton, NJ, for Defendant New Jersey Higher Education Assistance Authority.

Philip Elberg, Medvin & Elberg, NJ, Michael Tankersley, Washington, DC, for Public Citizen Litigation Group, Amicus Curiae.

DEBEVOISE, Senior District Judge.


Plaintiff, Barbara Morgan, instituted this class action against defendants Computer Learning Center and two of its principals, Markerdowne Corporation, Chemical Bank, Citibank, certain state and private Guaranty Agencies1 and the Secretary of the United States Department of Education.

Page 305

Plaintiff's claims are set forth in a Second Amended Complaint to which there is attached and incorporated by reference an Amended Complaint. The two documents will be referred to herein as the "Complaint."

The Complaint alleges that Computer Learning Center ("CLC") and its two principals, Valerie Dorras and Graeme Dorras, induced plaintiff through false representations to enroll in CLC's computer training program and to take out a Guaranteed Student Loan and a Federal Supplemental Loan to finance her attendance. CLC dealt with plaintiff concerning the loans and provided all the paper work which it transmitted to Chemical Bank ("Chemical"). Chemical extended the loans. The New Jersey Higher Education Assistance Authority ("NJHEAA") guaranteed both loans. It is alleged that both Chemical and NJHEAA were aware that of the 1,460 loans which Chemical extended to CLC students, 38% were in default, and as a result Chemical and NJHEAA had constructive and/or actual notice that CLC and its agents were engaged in fraudulent and/or unconscionable practices.

The Complaint alleges that the other defendant banks and guarantor agencies, including Illinois Student Assistance Commission ("ISAC"), American Student Assistance ("ASA") and United Student Aid Funds ("USAF"), made loans and extended guarantees under similar circumstances and thus had similar notice of the alleged fraudulent and/or unconscionable activities.

The Complaint alleges that the lending banks and the guarantor agencies by continuing to lend to CLC students or by continuing to guaranty such loans furthered the fraudulent and unconscionable practices engaged in by CLC and its agents and are subject to all claims which student borrowers have against CLC, Markerdowne Corp. and their agents. This liability is predicated upon: 1) the Federal Trade Commission ("FTC") "Holder Rule," 16 C.F.R. § 433, 2) the fact that the loans were "originated" within the meaning of 34 C.F.R. § 682.200; 3) the fact that the notes were non-negotiable instruments and 4) New Jersey's common law of agency and pertaining to "close connections."

The Complaint alleges that pursuant to the Higher Education Act, 20 U.S.C. § 1082, the Secretary of the United States Department of Education (the "Secretary") had the duty and authority to oversee the loan program involved in the case. By virtue of this duty and authority the Secretary had actual and/or constructive notice that CLC and its agents engaged in fraudulent and/or unconscionable practices, and therefore, like the lending agencies and guarantors is subject to all claims plaintiff has against CLC, Markerdowne Corp., and their agents.

Count One charges that CLC, Valerie Dorras and Graeme Dorras made false representations to prospective students to induce them to enroll in the CLC program. She seeks relief on behalf of herself and others similarly situated against CLC, Valerie and Graeme Dorras, Chemical and Citibank consisting of treble damages and attorneys' fees pursuant to N.J.S.A. 56:8-19 and against NJHEAA declaring that no further payments are due and owing on any loan in issue.

Count Two repeats the fraud charges contained in Count One and seeks actual and punitive damages against CLC and Valerie Dorras and Graeme Dorras, actual damages against Chemical and Citibank and against NJHEAA a declaration that no further payments are due and owing on any loan in issue.

Count Three in addition to repeating the prior allegations of the Complaint charges that the price charged by CLC under its contract with plaintiff and class members was unconscionably high within the meaning of N.J.S.A. 56:8-19. Plaintiff seeks against CLC, Valerie and Graeme Dorras, Chemical and Citibank treble damages and attorney's fees pursuant to N.J.S.A. 56:8-19 and against NJHEAA declaratory relief.

Count Four realleges the fraud allegations made against CLC and Valerie Dorras and

Page 306

Graeme Dorras in Count One and seeks against the guarantor defendants treble damages and attorneys' fees pursuant to N.J.S.A. 56:8-19, and to the extent that such entities enjoy sovereign immunity, a declaration that no further payments are due and owing on the student loans in issue. Similar declaratory relief is sought against the Secretary.

In Count Five, the Complaint realleges the misrepresentation and fraud allegations made against CLC and Valerie and Graeme Dorras in Count Two and seeks against the guarantor defendants actual damages and as against the Secretary declaratory relief as set forth above.

In Count Six, the Complaint realleges the allegations of Count Three, that the price charged by CLC under its contracts with students was unreasonably high, and sought against the guarantor defendants treble damages and attorneys' fees pursuant to N.J.S.A. 56:8-19. As against the Secretary, Count Six seeks the declaratory relief referred to above.

Defendants Chemical, Citibank, ASA, USAF and ISAC move to dismiss the Complaint for failure to state a cause of action, pursuant to Fed.R.Civ.P. 12(b)(6), or in the alternative, for summary judgment, pursuant to Fed.R.Civ.P. 56.2 For the reasons set forth below, the defendants' motions will be granted in part and denied in part.

PROCEDURAL HISTORY

NJHEAA filed an action on March 15, 1993 in the Superior Court of New Jersey against plaintiff to collect on a student loan. Plaintiff filed an answer pro se on April 6, 1993.

On June 30, 1993, a complaint was filed in the Superior Court on plaintiff's behalf against the school, CLC, the principals of the school, and Chemical, the bank that provided her student loans.

After conducting limited discovery, plaintiff moved to amend her Complaint to add as defendants Citibank and several "John Doe" banks, which also provided guaranteed student loans to students who attended CLC. Further, plaintiff sought to certify as a class all persons who attended CLC during the six and one half years preceding the filing of the amended Complaint.

On February 1, 1996, the court conditionally certified a class consisting of "all persons who graduated from defendant Computer Learning Center on March 30, 1995 or within six and one half years prior to said date, or who otherwise stopped attending or withdrew from defendant Computer Learning Center on March 30, 1995 or within six years prior thereto." Defendants Chemical, Citibank, CLC and NJHEAA sought leave from the Appellate Division to appeal the order. The Appellate Division denied all applications.

Citibank filed a Third Party Complaint in the state court against guarantor agencies ASA, USAF, ISAC and the Secretary. On April 22, 1996, plaintiff filed a Second Amended Complaint naming the third party defendants as direct defendants.

The Secretary removed this action to this court. All third party claims and cross claims were stayed pending determination of motions to dismiss plaintiff's Second Amended Complaint.

The Secretary's motion was granted and the Complaint as to him was dismissed. This opinion disposes of the remaining motions.

SPECIFIC ALLEGATIONS OF THE COMPLAINT

In the fall of 1990, plaintiff, an unemployed mother of three children, executed an enrollment contract to attend CLC, a post-secondary vocational school located in Paramus, New Jersey. She claims that she, and every other student who attended CLC from approximately September 1988 to March 1996, were defrauded by agents and representatives of CLC into enrolling at the school. Plaintiff contends that CLC misrepresented the benefits of a CLC...

To continue reading

Request your trial
15 practice notes
  • Cliff v. Payco General American Credits, Inc., No. 02-12462.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • March 25, 2004
    ...(noting that "the HEA does not preempt all state law governing lenders and guarantors of student loans"); Morgan v. Markerdowne Corp., 976 F.Supp. 301, 318 (D.N.J.1997) (listing cases and noting that "the vast majority of courts that have addressed the issue" have concluded that "the HEA ne......
  • South Camden Citizens in Action v. New Jersey Department of Environmental Protection, Civil Action No. 01-702 (D. N.J. 5/10/2001), Civil Action No. 01-702
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • May 10, 2001
    ...298 (5th Cir. 2000) (applying Chrysler to determine whether EEOC regulation had "force and effect of law"); Morgan v. Markerdowne Corp., 976 F. Supp. 301, 313 (D.N.J. 1997) (Debevoise, J.)(applying Chrysler to determine that regulations promulgated by the Department of Education, pursuant t......
  • South Camden Citizens v. N.J. Dept. of Env. Prot., No. CIV. A. 01-702.
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • May 10, 2001
    ...298 (5th Cir.2000) (applying Chrysler to determine whether EEOC regulation had "force and effect of law"); Morgan v. Markerdowne Corp., 976 F.Supp. 301, 313 (D.N.J.1997) (Debevoise, J.)(applying Chrysler to determine that regulations promulgated by the Department of Education, pursuant to H......
  • Hoffman v. Educ. Credit Mgmt. Corp. (In re Hoffman), Case No. 13-29577 HRT
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado
    • September 7, 2016
    ...guaranteed by state agencies and are subsidized by the United States Department of Education. See generally Morgan v. Markerdown Corp ., 976 F.Supp. 301, 308–09 (D.N.J.1997). “Eligible institutions” are defined in 20 U.S.C. § 1085(a).Pageus at *3.In this case, Debtor admits he applied for b......
  • Request a trial to view additional results
15 cases
  • Cliff v. Payco General American Credits, Inc., No. 02-12462.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • March 25, 2004
    ...(noting that "the HEA does not preempt all state law governing lenders and guarantors of student loans"); Morgan v. Markerdowne Corp., 976 F.Supp. 301, 318 (D.N.J.1997) (listing cases and noting that "the vast majority of courts that have addressed the issue" have concluded that "the HEA ne......
  • South Camden Citizens in Action v. New Jersey Department of Environmental Protection, Civil Action No. 01-702 (D. N.J. 5/10/2001), Civil Action No. 01-702
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • May 10, 2001
    ...298 (5th Cir. 2000) (applying Chrysler to determine whether EEOC regulation had "force and effect of law"); Morgan v. Markerdowne Corp., 976 F. Supp. 301, 313 (D.N.J. 1997) (Debevoise, J.)(applying Chrysler to determine that regulations promulgated by the Department of Education, pursuant t......
  • South Camden Citizens v. N.J. Dept. of Env. Prot., No. CIV. A. 01-702.
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • May 10, 2001
    ...298 (5th Cir.2000) (applying Chrysler to determine whether EEOC regulation had "force and effect of law"); Morgan v. Markerdowne Corp., 976 F.Supp. 301, 313 (D.N.J.1997) (Debevoise, J.)(applying Chrysler to determine that regulations promulgated by the Department of Education, pursuant to H......
  • Hoffman v. Educ. Credit Mgmt. Corp. (In re Hoffman), Case No. 13-29577 HRT
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado
    • September 7, 2016
    ...guaranteed by state agencies and are subsidized by the United States Department of Education. See generally Morgan v. Markerdown Corp ., 976 F.Supp. 301, 308–09 (D.N.J.1997). “Eligible institutions” are defined in 20 U.S.C. § 1085(a).Pageus at *3.In this case, Debtor admits he applied for b......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT