Murungi v. Texas Guaranteed

• Decision Date: 02 July 2009
• Docket Number: Civil Action No. 09-3109.
• Citation: 646 F.Supp.2d 804
• Parties: James H. MURUNGI v. TEXAS GUARANTEED Sallie Mae.
• Court: U.S. District Court — Eastern District of Louisiana

646 F.Supp.2d 804

James H. MURUNGI v. TEXAS GUARANTEED Sallie Mae.

Civil Action No. 09-3109.

United States District Court, E.D. Louisiana.

July 2, 2009.

COPYRIGHT MATERIAL OMITTED

James H. Murungi, Mandeville, LA, pro se.

Barry H. Grodsky, Elliot Ross Buckley, Jr., Middleberg, Riddle & Gianna, New Orleans, LA, for Defendants.

ORDER

SARAH S. VANCE, District Judge.

Before the Court is Sallie Mae's Motion to Dismiss pursuant to 12(b)(6), 12(b)(5), 9(b) and/or, Alternatively, Motion for a More Definite Statement pursuant to Rule 12(e), (R. Doc. 10), and Texas Guaranteed's Motion to Dismiss pursuant to Rule 12(b)(6) and Rule 9(b) and/or, Alternatively, Motion for a More Definite Statement pursuant to Rule 12(e), (R. Doc. 23). Defendants's motions are GRANTED in part and DENIED in part for the following reasons.

I. Background

Murungi filed a reconventional demand against Sallie Mae and Texas Guaranteed in state court for alleged predatory lending practices, including wage garnishment. (See R. Doc. 1-3.) Defendants removed the action to the Eastern District of Louisiana on 20 March 2009. (R. Doc. 1.)

Murungi alleges that through "corrupt and illegal transactions defendants removed plaintiff's [student] loans from deferment status to default status." (R. Doc. 1-3.) Once in default, Murungi claims that defendants's agents: called his place of employment everyday and disrupted his employer's work flow, discussed his debt with third party co-workers, used false and deceptive methods in order to gain access to his workplace for the sole purpose of harassing and embarrassing him, left threatening and harassing messages on his voice mail every morning at night and on weekends, and spread falsehoods, thereby damaging his professional and personal reputation. (Id.) Murungi has brought federal claims under the Higher Education Act and its implementing regulations and the Federal Debt Collection Practices Act, as well as state law claims for fraud, defamation and intentional infliction of emotional distress (IIED).

Defendants have moved to dismiss all of Murungi's claims. Both defendants argue that the Higher Education Act does not create a private cause of action and that it preempts Murungi's state law claims. In addition, defendants argue that Murungi has not pleaded fraud with particularity, and they challenge the sufficiency of Murungi's complaint more generally under Federal Rule of Civil Procedure 12(e). Finally, Sallie Mae argues that it is not a debt collector under the Federal Debt Collection Practices Act and moves to dismiss for insufficient service of process.

II. Legal Standard

To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead enough facts "to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim is facially plausible when the plaintiff pleads facts that allow the court to "draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949. A court must accept all well-pleaded facts as true and must draw all reasonable inferences in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 232-233 (5th Cir.2009); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir.1996).

III. Analysis

i. Timeliness

The Court briefly addresses the timeliness of Sallie Mae's motion. Murungi argues that Sallie Mae's motion is time-barred because it was filed more than twenty days after this case was removed from state court. Rule 12(b) motions must be filed before responsive pleadings. See Rule 12(b). This means that a 12(b) motion will ordinarily be filed within twenty days. See Rule 12(a)(1)(A)(I). In this case, however, the Court granted Sallie Mae a twenty-day extension to respond to Murungi's complaint. (R. Doc. 9.) Sallie Mae timely filed its 12(b)(6) Motion within that time and before filing its answer.

ii. No Private Cause of Action under the HEA

Defendants first argue that the HEA does not create a private cause of action. The Court recently denied Murungi's Motion for Preliminary Injunction because the HEA does not create rights enforceable by private litigants. (See R. Doc. 26); See also, e.g., Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995); Cliff v. Payco General American Credits, Inc., 363 F.3d 1113, 1123 (11th Cir.2004); St. Mary of the Plains College v. Higher Educ. Loan Program, 724 F.Supp. 803, 806 (D.Kan.1989). The Court incorporates its previous analysis here and grants defendants's motions to dismiss Murungi's HEA claims.

iii. Preemption

Sallie Mae and Texas Guaranteed next argue that Murungi's state law claims for defamation, fraud and intentional infliction of emotional distress are preempted by the Higher Education Act and its implementing regulations. When addressing a preemption claim, the Court assumes that the state's police powers are not superseded by federal law unless preemption is the clear and manifest purpose of Congress. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947). Congress can preempt state law in three ways. Perry v. Mercedes Benz of N. Am., Inc., 957 F.2d 1257, 1261 (5th Cir.1992) (citing Guerra, 479 U.S. at 280-81, 107 S.Ct. 683). Congress can do so expressly. Id. Further, Congress can preempt state law by enacting a comprehensive federal regulatory scheme that leaves no room for supplementary state regulation. Id. Finally, Congress preempts state law to the extent it actually conflicts with federal law. Id. A conflict occurs when compliance with both federal and state law is impossible or when the state law is an obstacle to the accomplishment of the objectives of Congress. Id.

Neither the HEA nor its related regulations expressly preempt state laws on fraud, IIED or defamation. Further, courts have concluded that the HEA does not occupy the field of higher education loans and loan repayment. Coll. Loan Corp. v. SLM Corp., 396 F.3d 588, 596 (4th Cir.2005); Cliff v. Payco Gen. Am. Credits, Inc., 363 F.3d 1113, 1125-26 (11th Cir. 2004); Armstrong v. Accrediting Council for Continuing Educ. and Training, Inc., 168 F.3d 1362, 1369 (D.C.Cir.1999); Keams v. Tempe Tech. Inst., Inc., 39 F.3d 222, 225 (9th Cir.1994). The Court is left to consider only whether Murungi's state law claims actually conflict with the HEA.

Sallie Mae and Texas Guaranteed argue that federal regulations governing "[l]ender due diligence in collecting guaranty agency loans," 34 C.F.R. § 682.411, preempt Murungi's claims. Section 682.411 sets forth the steps lenders must take when a debtor becomes delinquent on a federally backed loan. For example, after a borrower misses a payment, the lender must send at least one notice or collection letter within 15 days to notify the borrower of the delinquency and to urge the borrower to make payments. 34 C.F.R. § 682.411(c). If the borrower remains delinquent for 16-180 days, the lender must send four collection letters to the borrower and make four diligent efforts to contact the borrower by telephone. 34 C.F.R. § 682.411(d)(1). Between 181-270 days delinquency, the lender must "engage in efforts to urge the borrower to make the required payments on the loan." 34 C.F.R. § 682.411(e). After the 241st day of delinquency the lender must send a final demand letter and allow at least 30 days for the borrower to respond before filing a default claim. 34 C.F.R. § 682.411(f). The regulation states that its provisions "[p]reempt any State law, including State statutes, regulations, or rules, that would conflict with or hinder satisfaction of the requirements or frustrate the purposes of this section." Id. at § 682.411(o)(1).

In a Statement of Interpretation, the Secretary of Education clarified the preemptive scope of these regulations:

These provisions comprehensively regulate the pre-litigation informal collection activity on GSL obligations, by specifically requiring holders to complete a sequence of collection contacts with debtors. These provisions therefore preempt state law that would prohibit, restrict, or impose burdens on the completion of the sequence of contacts .... Moreover, because holders of GSLP loans commonly engage servicers and collection agencies to perform these dunning activities, this preemption includes any state law that would hinder or prohibit any activity taken by these third parties to complete these required steps.

55 Fed.Reg. 40120-01. The Secretary of Education stressed, however, that the preemptive effect of the regulations extends "no farther than is reasonably necessary to achieve an effective minimum standard of collection action." Id.

In Brannan v. United Student Aid Funds, Inc., the Ninth Circuit read 34 C.F.R. § 682.411 and the Secretary's Notice of Interpretation expansively to preempt an Oregon unfair debt collection statute. 94 F.3d 1260 (9th Cir.1996). The court held that the HEA and its regulations preempt "any state law that would hinder or prohibit any activity taken by third-party debt collectors prior to litigation." Id. at 1266 (emphasis in original)(quotations and citations omitted); See also Seals v. Nat'l Student Loan Prog., No. 5:02, 2004 WL 3314948 (N.D.W.Va. Aug. 16, 2004). "Because the Oregon [statute] consist[ed] of nothing but prohibitions, restrictions and burdens on collection activity," the court found the statute preempted. Brannan, 94 F.3d at 1266.

Other courts have declined to find preemption in HEA cases. See Coll. Loan Corp. v. SLM Corp., 396 F.3d 588, 596 (4th Cir.2005); Cliff, 363 F.3d at 1125 (State law not preempted); Armstrong v. Accrediting Council for Continuing Educ. and Training, Inc., 168 F.3d 1362, 1369 (D.C.Cir.1999) (same); Keams v. Tempe Tech. Inst., Inc., 39 F.3d 222, 225 (9th Cir.1994) (same). In Cliff v. Payco General American Credits, Inc., for example, the...