Setlech v. US, No. CV-89-3903 (RR).

• Decision Date: 08 February 1993
• Docket Number: No. CV-89-3903 (RR).
• Citation: 816 F. Supp. 161
• Parties: Linda A. SETLECH, Plaintiff, v. UNITED STATES of America, Internal Revenue Service, United States Department of the Treasury, United States Department of Education, New York State Higher Education and Services Corporation and Columbia University, Defendants.
• Court: U.S. District Court — Eastern District of New York

816 F. Supp. 161

Linda A. SETLECH, Plaintiff, v. UNITED STATES of America, Internal Revenue Service, United States Department of the Treasury, United States Department of Education, New York State Higher Education and Services Corporation and Columbia University, Defendants.

No. CV-89-3903 (RR).

United States District Court, E.D. New York.

February 8, 1993.

Linda A. Setlech, pro se.

Mary Jo White, U.S. Atty., by Warren Ausubel, Asst. U.S. Atty., E.D.N.Y., Brooklyn, NY, for U.S.

MEMORANDUM AND ORDER

RAGGI, District Judge:

For the reasons stated therein, the court hereby adopts in full the Report and Recommendation of Magistrate Judge Zachary W. Carter, dated October 23, 1992 ("Report and Recommendation"), and grants summary judgment in favor of defendants United States of America, Internal Revenue Service, United States Department of the Treasury, and United States Department of Education ("DOE"). The court writes only to address objections to the Report and Recommendation raised by plaintiff, Linda Setlech.

Ms. Setlech argues that her student loans, on which defendant DOE is trying to collect and which underlie her action, are unenforceable because she was mentally incompetent at the time she entered into these transactions. Ms. Setlech, who received a Bachelor of Arts in English Literature from Columbia University in 1977 and has apparently been accepted to graduate teaching programs at both Teachers College of Columbia University and New York University, has not, however, come forward with any evidence regarding her mental or medical condition as required by Federal Rule of Civil Procedure 56(e). For example, she has not submitted any affidavit from a licensed physician, psychiatrist, psychologist, or other potential expert witness attesting to her mental incompetency at the time she signed her loan agreements. Neither has she produced any contemporaneous hospital or other medical reports, nor any adjudication of incompetence. Conclusory statements are not sufficient to raise a genuine issue of material fact as to plaintiff's competency. See Thompson v. Gjivoje, 896 F.2d 716, 720 (2d Cir.1990).

Plaintiff further opposes summary judgment on the grounds that she never received 60-day pre-offset notice from DOE as required by 31 U.S.C. § 3720A (1992 Supp.). In fact, the key issue before the court is whether DOE gave notice "`reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action,'" not whether plaintiff received actual notice. Gerrard v. United States Office of Education, 656 F.Supp. 570, 575 (N.D.Cal.1987) (quoting Mullane v. Central Hanover Bank & Trust, 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950)). The court concurs with Magistrate Judge Carter that pre-offset notice was issued by the New York State Higher Education Services Corporation, acting as agent for DOE, to plaintiff at her last known address and that such notice procedures fulfilled the due process requirements of reasonableness. See Report and Recommendation at 10-13.

Plaintiff's reliance on Gibson v. United States, 761 F.Supp. 685 (C.D.Cal.1991), and Ringer v. Basile, 645 F.Supp. 1517 (D.Colo. 1986), in support of her objection to the notice procedure is misplaced. In Gibson v. United States, the court held that actual notice of a tax deficiency pursuant to 26 U.S.C. § 6212 was required when the IRS failed to send notice to the taxpayer's last known address. 761 F.Supp. at 688-89. In Ringer v. Basile, plaintiff sought to quiet title in property that was subject to a tax delinquency sale. Neither case dealt with a claim of failure to receive actual notice in light of reasonable efforts to give notice.

Finally, Ms. Setlech claims that she is the victim of the government's inequitable and discriminatory policy of collecting monies from student loan defaulters by retaining their tax refunds. Plaintiff does not allege that the government's policy is based upon any classification requiring heightened judicial scrutiny, such as race, gender, religion, or ethnic origin. Consequently, the government's policies must be reviewed under the rational basis test. See City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 440-41, 105 S.Ct. 3249, 3254-55, 87 L.Ed.2d 313 (1985). The court is fully persuaded that the policy of collecting on defaulted student loans by retaining tax refunds has a rational basis and is well within federal authority.

For the reasons stated herein, the defendants' motion of summary judgment is hereby GRANTED.

SO ORDERED.

REPORT AND RECOMMENDATION

ZACHARY W. CARTER, United States Magistrate Judge:

This matter was referred to the undersigned by the Honorable Reena Raggi for a Report and Recommendation on the motion of federal defendants, the United States of America, the Internal Revenue Service (IRS), the United States Department of the Treasury (DOT), and the United States Department of Education (DOE) for summary judgment pursuant to 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 56(b). By separate orders dated July 5, 1990 and October 11, 1990, Judge Raggi dismissed all claims against defendants New York State Higher Education Services Corporation and Columbia University.

FACTS

Based on the pleadings and evidentiary submissions, the following facts are not in genuine dispute. Between 1969 and 1975, plaintiff, while a student at Columbia University, took out five student loans, totalling $5500, from the Banker's Trust Company under the federally Guaranteed Student Loan Program (GSL program). Higher Education Act, 20 U.S.C. §§ 1071 et seq., (1990). Following her graduation from Columbia on May 18, 1977, plaintiff executed a deferment promissory note which permitted her to defer payments on her GSL loans for one year. (Daggett Aff. ¶ 19; Ex. 8). It is undisputed that plaintiff never repaid the loans.

Under the GSL program, the New York State Higher Education Services Corporation (NYSHESC), a guaranty agency, guaranteed the loans that were extended to plaintiff by Banker's Trust, the lender. See Higher Education Act, 20 U.S.C. at § 1085(d) (defining lender) and § 1085(j) (defining guaranty agency). After plaintiff failed to repay her loans, Banker's Trust Company filed a default claim with NYSHESC. NYSHESC paid Banker's Trust honoring the default claim. The DOE then reimbursed NYSHESC in full for plaintiff's defaulted loans pursuant to its reinsurance agreement. (Daggett Aff. ¶ 20, Ex. 9). See Games v. Cavazos, 737 F.Supp. 1368, 1373, 1382 (D.Del.1990) (describing reinsurance provisions under GSL program).

As part of the Deficit Reduction Act of 1984 (the DRA), Congress established a tax refund offset program. The tax offset program permits monies owed on federally insured and unpaid student loans to be deducted from a debtor's federal income tax refund and credited to the DOE. Deficit Reduction Act of 1984, Pub.L. No. 98-369, § 2653, 98 Stat. 494, 1153-56 (1984), amended to continue in effect through 1994, 26 U.S.C. § 6402 and Note (effective and termination dates), 31 U.S.C. § 3720A. Before referring any debt to the IRS, a federal agency owed a past-due legally enforceable debt is required to notify the debtor of the intended referral and to give the individual at least sixty days to present evidence that all or part of the debt is not past due or legally enforceable. 31 U.S.C. § 3720A(b). See Setlech v. United States of America, et al., No. 89 Civ. 3903, Mem. and Order at 3 (E.D.N.Y. filed July 5, 1990) (Raggi, J.). The offset program also requires the DOT to provide post-offset notice to the debtor. 26 U.S.C. § 6402(d)(1)(C).

In 1987, the DOE and NYSHESC entered into an agreement which implemented the offset program authorized by the DRA. (Daggett Aff. ¶ 3). Pursuant to this agreement, NYSHESC compiled a computerized list known as the "pre-offset address tape" that identified debtors' names and social security numbers of all defaulted GSL loans for which the DOE had reimbursed NYSHESC as of August 1987. (Id. at ¶ 4). Plaintiff's defaulted loans were among those that would have appeared on the pre-offset address tape. The tape has since been destroyed. However, by letter dated October 6th, 1987, NYSHESC conditionally assigned to the DOE title to those defaulted loan accounts identified in the pre-offset tape. Plaintiff's loans, identified by name, social security number and amount were included on the computer generated list attached to the October 6th letter. (Daggett Aff. ¶ 9; Ex. 4).

Undisputed is the fact that a "pre-65 day letter" was sent in early October 1987 to the most current address available for each debtor listed on the pre-offset address tape.¹ (Daggett Aff. ¶¶ 5, 11, 13). The pre-65 day letter sent to plaintiff declared NYSHESC's intent to refer the defaulted loan accounts to the IRS which would then apply the debtors' anticipated refund to offset the debt owed to NYSHESC. (Id. at ¶ 5; Ex. 2).

On January 29, 1988, plaintiff, then a California resident, filed her 1987 federal income tax return. A letter was attached to the return that indicated a change of address to a post office box in Peoria, Illinois, effective April 1, 1988. In March of 1988, the IRS sent plaintiff a notice to the Peoria address informing her that the offset had occurred. (Daggett Aff. ¶ 17; Ex. 7). According to plaintiff, until her arrival in Peoria on April 15, 1988, she was not aware that her anticipated refund of $2,473 had been paid to NYSHESC, the guarantee agency, in partial satisfaction of her outstanding student loans. (Pl.'s Reply Mem. at 6-7).

In addition to recoupment of her tax refund, plaintiff seeks damages from each of the federal defendants, the United States of America, the IRS, the DOT, and the DOE for acute emotional and financial injuries caused by defendants' failure to provide her with notice as required by 31 U.S.C. section 3720A. (Pl.'s Reply Mem. at 6-7, 9).

Plaintiff contends that defendants "misled and deceived" her into...