Russo v. Navient Solutions, LLC, Case No. 2:16-cv-00316

CourtUnited States District Courts. 2nd Circuit. District of Vermont
Writing for the CourtChristina Reiss, District Judge United States District Court
Decision Date23 March 2018
PartiesKAYLA RUSSO, Plaintiff, v. NAVIENT SOLUTIONS, LLC, SLM PRIVATE CREDIT STUDENT LOAN TRUST 2006-A, SLM PRIVATE EDUCATION STUDENT LOAN TRUST 2010-C, SLM PRIVATE EDUCATION STUDENT LOAN TRUST 2011-A SLM PRIVATE EDUCATION STUDENT LOAN TRUST 2011-B, and NAVIENT PRIVATE EDUCATION LOAN TRUST 2015-A, Defendants.
Docket NumberCase No. 2:16-cv-00316

KAYLA RUSSO, Plaintiff,
v.
NAVIENT SOLUTIONS, LLC, SLM PRIVATE CREDIT STUDENT LOAN TRUST 2006-A,
SLM PRIVATE EDUCATION STUDENT LOAN TRUST 2010-C,
SLM PRIVATE EDUCATION STUDENT LOAN TRUST 2011-A
SLM PRIVATE EDUCATION STUDENT LOAN TRUST 2011-B,
and NAVIENT PRIVATE EDUCATION LOAN TRUST 2015-A, Defendants.

Case No. 2:16-cv-00316

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF VERMONT

March 23, 2018


OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S SECOND AMENDED COMPLAINT AND GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO STRIKE DOCUMENTS ATTACHED TO DEFENDANTS' MOTION TO DISMISS
(Docs.
44 & 45)

Plaintiff Kayla Russo brings this action against Defendants Navient Solutions, LLC ("Navient"), SLM Private Credit Student Loan Trust 2006-A, SLM Private Education Student Loan Trust 2010-C, SLM Private Education Student Loan Trust 2011-A, SLM Private Education Student Loan Trust 2011-B, and Navient Private Education Loan Trust 2015-A (the "Loan Trust Defendants") (collectively, the "Defendants"). She alleges four state law claims arising from the origination and repayment of student loans in her name: (1) negligence, (2) violations of the Vermont Consumer Protection Act ("VCPA"), 9 V.S.A. § 2453, (3) negligent misrepresentation, and (4) invasion of privacy.

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Pending before the court is Defendants' motion to dismiss the Second Amended Complaint for failure to state a claim upon which relief can be granted. (Doc. 44.) Plaintiff opposes dismissal. Plaintiff also moves to strike documents attached to Defendants' motion to dismiss, which Defendants oppose. (Doc. 45.) On December 1, 2017, the court took the pending motions under advisement.

Eric J. Morgan, Esq. and Harry R. Ryan III, Esq. represent Plaintiff. David J. Martin, Esq. and Jerome F. O'Neill, Esq. represent Defendants.

I. Procedural Background.

On October 14, 2016, Plaintiff filed a Complaint in Vermont Superior Court, Civil Division against Defendant Navient, which then removed the case to this court on November 30, 2016. After the court granted leave to amend the Complaint, Plaintiff named the Loan Trust Defendants as defendants in this action. On April 21, 2017, Defendants moved to dismiss the First Amended Complaint for failure to state a claim upon which relief can be granted. Plaintiff opposed dismissal and filed a second motion for leave to amend on June 9, 2017. Defendants opposed granting leave to amend, filing their response on July 24, 2017. In an Order issued on September 21, 2017, the court (Murtha, J., presiding) granted Plaintiff's second motion to amend the Complaint and denied Defendants' motion to dismiss as moot. Plaintiff filed the Second Amended Complaint that same day.

II. The Allegations of the Second Amended Complaint.

Plaintiff is a resident of Vermont. Defendant Navient is a corporation with its principal place of business in Reston, Virginia and is a subsidiary of a Delaware corporation, Navient Corporation. Plaintiff does not allege a state of incorporation or principal place of business for the Loan Trust Defendants.

Plaintiff claims that Defendant Navient is engaged in the business of creating asset-backed securities for resale to investors and created the Loan Trust Defendants as "part of a scheme . . . to make subprime loans and securitize subprime loans from underqualified borrowers." (Doc. 38 at 2, ¶ 11.) She alleges that the Loan Trust Defendants "claim to be and are the owners and holders of certain notes evidencing

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student loans made to Plaintiff." Id. at 2, ¶ 3. According to Plaintiff, the Loan Trust Defendants have no employees and Defendant Navient was the servicer, agent, and manager for them, creating them as financial vehicles for bundling and securitizing private student loans.

To facilitate the application for student loans, Defendant Navient offers professional services to borrowers through its website. Plaintiff alleges that it negligently provides these professional services by allowing the extension of "subprime loans without reasonable oversight . . . to unqualified borrowers, including Plaintiff." Id. at 3, ¶ 17. Plaintiff further alleges that the "practice of subprime lending" was part of a "business strategy to the detriment of Plaintiff, who was a subprime borrower[,]" id. at 3, ¶ 18, whereby Defendant Navient would "knowingly or negligently approve[] loans to individuals, including Plaintiff, who did not have the ability to repay" them. Id. at 3, ¶ 19. In doing so, Defendant Navient "ignor[ed] its obligation to the subprime borrower" as part of its business strategy. Id. at 3, ¶ 20. Plaintiff claims that Defendant Navient knew or should have known that Plaintiff would not have qualified for a conventional loan.

Plaintiff alleges that in 2005, 2006, 2008, and 2009, an applicant identified as Kathryn Blank completed four student loan applications on Defendant Navient's website using Plaintiff's identifying information and indicating that Plaintiff was the borrower.1 Plaintiff claims that she did not apply for the 2006, 2008, and 2009 loans, however, her allegations do not address whether she applied for the 2005 loan. Defendant Navient purportedly did not "appropriately verify[]" whether Plaintiff was the applicant when processing and approving the 2006, 2008, and 2009 loan applications, id. at 5, ¶ 42, consistent with its "history of allowing unidentified third parties, through its website, to apply for loans in the name of the student without appropriately ensuring that the student was the actual loan applicant[.]" (Doc. 38 at 5, ¶ 43.) For the 2006, 2008, and 2009 loan

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applications, Plaintiff alleges that had Defendant Navient conducted "any due diligence[] [it] would have known" that the current outstanding loan balances provided in the application were incorrect. Id. at 4, ¶ 29; see also id at 4, ¶¶ 33, 37. Instead, in each instance, Defendant Navient approved the loan application, extended the requested amount in credit, and bundled the loan "into a Loan Trust selected by [Defendant] Navient." Id. at 4, ¶ 30.2

Plaintiff makes no claim that she did not receive the disbursement of the loan funds, or at least accept the benefit of them, and makes no claim that she was the victim of identity theft or the fraudulent practices of Kathryn Blank. Rather, she alleges that "[a]fter graduating from college[,] [she] became aware of the extent of the Navient loans and tried to repay the loans as best she could." Id. at 5, ¶ 45.3 Despite her employment as a teacher and "multiple second jobs," Plaintiff "had no possibility of keeping current" on her student loans with Defendant Navient. Id. at 5, ¶ 46.

Defendant Navient provides counseling services to assist borrowers in the repayment of their loans through direct communication with the borrower. It informs borrowers that it provides such services through its website, which encourages them to contact Defendant Navient for guidance and assistance. After it became "apparent that Plaintiff had no possibility of keeping current on the Navient loans, [Defendant] Navient counseled Plaintiff and advised [her to] place all of the Navient loans in forbearance so

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that Plaintiff and [Defendant] Navient could work together on a repayment plan." (Doc. 38 at 6, ¶ 49.) Plaintiff claims that she "justifiably relied on this advice." Id.

In early August 2014, Plaintiff requested that Defendant Navient allow her to pay under their "Income Based Repayment plan." Id. at 6, ¶ 50. In response, Defendant Navient advised Plaintiff that forbearance was her best option while it reviewed the loans. Plaintiff alleges she relied on this advice and, on August 19, 2014, submitted a written request to Defendant Navient, again seeking to participate in Navient's Income Based Repayment Plan. In response, Defendant Navient allegedly counseled Plaintiff that forbearance was still her best option and that it needed more time to consider her request for income based repayment. Plaintiff relied on this advice which she claims was "false and misleading." Id. at 6, ¶ 52.

On August 25, 2014, Defendant Navient informed Plaintiff that her loans were in forbearance until October 17, 2014 and instructed her to contact customer service for additional assistance once the forbearance period ended. This letter "did not offer or explain any other options for Plaintiff or inform Plaintiff that an income driven repayment plan was not available to Plaintiff." Id. at 6, ¶ 53. Plaintiff claims that this advice was "false[,] . . . misleading and not in [her] best interest[,]" id., and part of a strategy to "keep the loans in forbearance to Plaintiff's detriment and to [Defendant] Navient's benefit." Id. at 7, ¶ 55. She avers that Defendant Navient never explained to her that forbearance would result in the accumulation of unpaid interest on the loans which would be added to the outstanding principal amount due and that consecutive forbearances would exacerbate these detrimental consequences.

On September 2, 2014, Plaintiff wrote Defendant Navient again requesting that she be allowed to participate in the Income Based Repayment Plan. On September 9, 2014, Defendant Navient wrote to Plaintiff and informed her, allegedly for the first time, that it would not offer Plaintiff the Income Based Repayment Plan for her loans. Plaintiff asserts that this information directly contradicted Defendant Navient's prior representations to her when it allegedly steered her into forbearance.

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On September 16, 2014, Plaintiff called Defendant Navient's customer service, as allegedly directed by the Navient September 9, 2014 letter. Defendant Navient advised Plaintiff to enter into another forbearance period. On December 15, 2014, Defendant Navient telephoned Plaintiff, informing her that she did not qualify for a lower payment option, and recommended that she enroll in its interest only repayment plan. In counseling Plaintiff, Defendant Navient purportedly...

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