Pennsylvania v. Navient Corp.

• Decision Date: 17 December 2018
• Docket Number: 3:17-CV-1814
• Citation: 354 F.Supp.3d 529
• Parties: Commonwealth of PENNSYLVANIA, Plaintiff, v. NAVIENT CORPORATION, et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

354 F.Supp.3d 529

Commonwealth of PENNSYLVANIA, Plaintiff,
v.
NAVIENT CORPORATION, et al., Defendants.

3:17-CV-1814

United States District Court, M.D. Pennsylvania.

Filed December 17, 2018

354 F.Supp.3d 533

Jesse F. Harvey, Jill T. Ambrose, Pennsylvania Office of Attorney General, Nicholas F. Smyth, Office of Attorney General, Commonwealth of Pennsylvania, Pittsburgh, PA, John M. Abel, PA Office of Attorney General Bureau of Consumer Protection, Harrisburg, PA, for Plaintiff.

Michael Kilgarriff, Pro Hac Vice, Andrew Pruitt, Jennifer Levy, Michael D. Shumsky, Patrick Brown, Kirkland & Ellis LLP, Washington, DC, Daniel T. Brier, Donna A. Walsh, Myers Brier & Kelly, LLP, Scranton, PA, for Defendants.

MEMORANDUM OPINION

Robert D. Mariani, United States District Judge

I. INTRODUCTION AND PROCEDURAL HISTORY

Through this lawsuit, the Commonwealth of Pennsylvania (the "Plaintiff" or "Commonwealth") seeks to hold Navient Corporation and Navient Solutions, LLC, (collectively, "Defendants" or "Navient") liable for conduct that has allegedly harmed student loan borrowers in Pennsylvania, as well as student loan borrowers nationwide. Specifically, the Commonwealth contends that Navient has committed a variety of unfair, deceptive, and abusive practices in connection with the origination and servicing of student loans in violation of the Consumer Financial Protection Act ("CFPA"), 12 U.S.C. § 5536, and the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("CPL"), 73 Pa Stat. and Cons. Stat. Ann. § 201-1, et seq. (Doc. 1). The Commonwealth's case is similar to a parallel action before the Court involving the Consumer Financial Protection Bureau ("CFPB") and Navient, CFPB v. Navient Corp. , No. 17-cv-101 (M.D. Pa. filed Jan. 18, 2017) (hereinafter, the "CFPB-Navient matter"), and references to the Court's previous ruling on Navient's Motion to Dismiss the CFPB's Complaint are made in the body of this Opinion. Mem. Op., CFPB v. Navient Corp. , No. 17-cv-101, 2017 WL 3380530 (M.D. Pa. filed Aug. 4, 2017), ECF No. 57.

The Commonwealth filed its Complaint on October 5, 2017. (Id. ) On December 5, 2017, Navient filed a Motion to Dismiss the Commonwealth's Complaint Under Rule

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12(b)(6) for failure to state a claim upon which relief can be granted (the "Motion"). (Doc. 16). Navient submitted its Memorandum of Law in Support of its Motion to Dismiss on December 22, 2017 (Navient's "Brief in Support"). (Doc. 24). The Commonwealth responded on February 2, 2018 with its Memorandum of Law in Support of its Opposition to Navient's Motion to Dismiss (the Commonwealth's "Opposition"). (Doc. 25). Navient submitted a reply brief in response to the Commonwealth's Opposition on March 5, 2018 (Navient's "Reply").¹ (Doc. 26).

Since fully briefing the Motion, the parties have submitted several Notices of Supplemental Authority to the Court pursuant to Local Rule 7.36. On March 13, 2018, Navient filed a Notice of Supplemental Authority informing the Court of published notice from the Department of Education ("ED") on ED's position on " Federal Preemption and State Regulation of [ED]'s Federal Student Loan Programs and Federal Student Loan Servicers," 83 Fed. Reg. 10619 (Mar. 12, 2018). (Doc. 27). The Commonwealth followed by filing Notices of Supplemental Authority on June 28, 2018 (Doc. 33) and July 12, 2018 (Doc. 34), informing the Court of recent court decisions in the Middle District of Florida, Daniel v. Navient Sols., LLC , 328 F.Supp.3d 1319 (M.D. Fla. 2018), and the Circuit Court of Cook County, Illinois, People v. Navient Corp. , No. 17 CH 761 (Ill. Cir. Ct. July 10, 2018), involving disputes regarding Navient's student loan-related practices. Most recently, Navient filed a Notice of Supplemental Authority on September 25, 2018 informing the Court of a recent court decision in the Northern District of Florida, Lawson-Ross v. Great Lakes Higher Educ. Corp. , No. 1:17-CV-253, 2018 WL 5621872 (N.D. Fla. Sept. 20, 2018), involving claims against a federal student loan servicer.

The Motion is ripe for decision. For the reasons stated below, the Court will deny Navient's Motion to Dismiss in its entirety.

II. FACTUAL ALLEGATIONS

A. BACKGROUND

The Commonwealth's Complaint (Doc. 1) alleges the following facts which, for the purposes of resolving Navient's Motion, the Court takes as true:

Defendants were or currently are in the business of originating, marketing, servicing, and collecting federal and private student loans. (Id. ¶ 2). "Defendants Navient Corporation and Navient Solutions, LLC have two corporate predecessors: a parent company (SLM Corporation) and a subsidiary (Sallie Mae, Inc.)." (Id. ¶ 19). "In April 2014, Defendants Navient Corporation and Navient Solutions, LLC assumed the liabilities of their predecessors, SLM Corporation and Sallie Mae, Inc." (Id. ¶ 21). Defendant Navient Corporation shares corporate officers with Defendant Navient Solutions, LLC, and controls and directs the hiring of employees at Navient Solutions, LLC, which is a subsidiary of Navient Corporation. (Id. ¶¶ 22-23). Defendant "Navient Corporation often makes no meaningful distinction between Navient Corporation and its subsidiaries," and "consented to, has knowledge of, has materially participated in, and/or has controlled the activities of Navient Solutions, LLC with respect to the conduct alleged in [the] Complaint." (Id. ¶¶ 24-25).

The conduct alleged in the Complaint involves Navient's origination and servicing of federal and private student loans, some of which occurred at Navient's corporate

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predecessors before the transfer of corporate liabilities in 2014. (Id. ¶¶ 4, 45-172). Federal student loans offer features distinct from other loan products, most notably, the availability of repayment options that are tied to the borrower's income. (Id. ¶ 28). "Until approximately 1994, federal student loans were originated and funded by private lenders such as Defendants, and guaranty agencies insured those funds, which were reinsured by the government pursuant to the Federal Family Education Loan Program (FFELP)." (Id. ¶ 30). Starting in 1994, the federal government also began lending directly to borrowers through the Direct Loan Program, and ceased the FFELP program in 2010. (Id. ¶¶ 31-32). Whether a federal student loan was originated through the FFELP or Direct Loan Program, the servicing of federal student loans is handled by private entities like Navient. (Id. 33). "Federal student loan servicers handle a multitude of issues for borrowers, including: collecting payments, providing repayment options to borrowers, facilitating the loan's payoff, and collecting on delinquent loans." (Id. ¶ 35).

Unlike federal student loans, private student loans are not guaranteed by the government and are issued "based on the lender's assessment of the borrower's creditworthiness/likelihood of repaying the loan." (Id. ¶ 39). They are often more expensive than federal student loans, with higher interest rates, and often require cosigners who are "equally responsible for the payments on the loan." (Id. ¶¶ 40-41). They do not offer standard repayment plan options, such as the income-driven repayment options provided by federal student loans, which can prevent borrowers from defaulting on their loans and suffering serious financial consequences. (Id. ¶¶ 42-43).

B. NAVIENT'S LOAN ORIGINATION-RELATED CONDUCT

"As far back as the year 2004," Navient's corporate predecessors "originated both FFELP and private student loans nationwide, including in Pennsylvania." (Doc. 1 ¶ 45). The lending landscape for student loan originators has changed over the years: until about 2007, when federal regulations changed, many schools "maintained a list of ‘preferred lenders’ to provide guidance to students who had to choose between the different lenders offering federal and private student loans." (Id. ¶¶ 49-50). Preferred lenders "typically received in aggregate up to 90% of the loans taken out by the institution's students and their parents, giving the preferred lender exclusive or near-exclusive access to a school's population of borrowers." (Id. ¶ 52). Navient "sought to establish [itself] at the top of preferred lending lists in order to obtain" this exclusive access, and created custom packages of loans to market to schools to obtain their business. (Id. ¶¶ 52-53). "These packages consisted of a variety of loan products including: FFELP loans; private loans for borrowers who qualified for [Navient's] standard private student loan products (prime loans); and private loans for borrowers who were ineligible for [Navient's] standard private student loan products (subprime loans)." (Id. ¶ 54). Both schools and Navient had a motivation to include private loans as part of a package deal, because more students could obtain financing to attend school and because it meant Navient could obtain a greater volume of FFELP loans, which were a larger part of the market and were lower risk for Navient due to a 100% federal government guarantee. (Id. ¶¶ 55-56). In general, private student loans were also more lucrative for Navient, because of their higher...