Winebarger v. Pa. Higher Educ. Assistance Agency

• Decision Date: 21 August 2019
• Docket Number: Case No. CV 19-1503-JFW(RAOx)
• Citation: 411 F.Supp.3d 1070
• Parties: Lisa WINEBARGER v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, et al.
• Court: U.S. District Court — Central District of California

411 F.Supp.3d 1070

Lisa WINEBARGER

v.PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, et al.

Case No. CV 19-1503-JFW(RAOx)

United States District Court, C.D. California.

Filed August 21, 2019

Thomas D. Warren, Janine Felicia Cohen, Pierce Bainbridge Beck Price and Hecht LLP, Los Angeles, CA, Jonathan A. Sorkowitz, Pierce Bainbridge Beck Price and Hecht LLP, New York, NY, for Lisa Winebarger.

Mark Samuel Kokanovich, Ballard Spahr LLP, Phoenix, AZ, John C. Grugan, Thomas F. Burke, Ballard Spahr LLP, Philadelphia, PA, Jonathan Charles Sandler, Brownstein Hyatt Farber Schreck LLP, Los Angeles, CA, for Pennsylvania Higher Education Assistance Agency, et al.

PROCEEDINGS (IN CHAMBERS): ORDER GRANTING DEFENDANT NELNET SERVICING, LLC AND NELNET, INC.'S MOTION TO DISMISS AND STRIKE FIRST AMENDED COMPLAINT PURSUANT TO F.R.C.P. 12(b)(1), 12(b)(6), AND 12(f)(2) [filed 7/3/19; Docket No. 54]; and

ORDER GRANTING DEFENDANT PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY'S MOTION TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT PURSUANT TO FEDERAL RULES 12(b)(1) AND 12(b)(6) [filed 7/12/19; Docket No. 60]

HONORABLE JOHN F. WALTER, UNITED STATES DISTRICT JUDGE

On July 3, 2019, Defendants Nelnet Servicing, LLC and Nelnet, Inc. (collectively, "NelNet") filed a Motion to Dismiss and Strike First Amended Complaint Pursuant to F.R.C.P. 12(b)(1), 12(b)(6), and 12(F)(2) ("Motion to Dismiss"). On July 15, 2019, Plaintiff Lisa Winebarger ("Winebarger") filed her Opposition. On July 22, 2019, NelNet filed a Reply. On July 12, 2019, Defendant Pennsylvania Higher Education Assistance Agency ("PHEAA") filed a Motion to Dismiss Plaintiff's First Amended Complaint Pursuant to Federal Rules 12(b)(1) and 12(b)(6) ("Motion to Dismiss"). On July 22, 2019, Plaintiffs Winebarger, Jenise Overmier ("Overmier"), and Peter Gannon ("Gannon") (collectively, "Plaintiffs") filed their Opposition. On July 29, 2019, PHEAA filed a Reply. Pursuant to Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7-15, the Court found these matters appropriate for submission on the papers without oral argument. The matters were, therefore, removed from the Court's August 12, 2019 hearing calendar and the parties were given advance notice. After considering the moving, opposing, and reply papers, and the arguments therein, the Court rules as follows:

I. Factual and Procedural Background

A. Factual Background

1. The HEA and the Direct Loan Program

Under the Higher Education Act ("HEA"), the United States Department of Education ("DOE") has the authority to issue a variety of federal loans and grants to student borrowers. See 20 U.S.C. §§ 1071 – 1099c. In the 1990s, the federal government began originating loans under the William D. Ford Direct Loan Program ("Direct Loan Program"). See 20 U.S.C. §§ 1087a – 1087j ; see also First Amended Complaint ("FAC"), ¶ 46. Congress directed DOE to enter into contracts for "servicing" these loans and "such other aspects of the direct student loan program as the Secretary determines are necessary." 20 U.S.C. § 1087f(a), (b)(2), and (4). Every aspect of the Direct Loan Program is highly regulated by DOE, including administration of loan repayment ( 34 C.F.R. §§ 682.209 and 685.208 ), income-based repayment plans ( 34 C.F.R. §§ 682.215 and 685.209 ), deferments and forbearances ( 34 C.F.R. §§ 682.210 – 211 and 685.204 – 205 ), and "a carefully crafted disclosure regime specifying what information must be provided [to student loan borrowers]" ( 83 Fed. Reg. at 10621 ). DOE has plenary authority to limit, suspend, or terminate the activities of a federal student loan servicer that violates its legal obligations or its contract with DOE. 34 C.F.R. § 682.700(a).

2. The PSLF Program

The Public Service Loan Forgiveness Program ("PSLF") was created by Congress in 2007 and provides a conditional opportunity for student borrowers to seek forgiveness of their student loan balance. See 20 U.S.C. § 1087e(m) ; 34 C.F.R. § 685.219 ; see also FAC, ¶¶ 48–60. Under the PSLF, the federal government will forgive any balance due on qualifying Direct Loans after: (a) 120 on-time payments; (b) made under a qualifying repayment plan; (c) while the borrower is working full-time; (d) for a qualifying public-service employer. 34 C.F.R. § 685.219. Qualifying repayment plans include, among others, Income-Driven Repayment ("IDR") plans. FAC, ¶ 61.

3. The Loan Servicing Agreement Between DOE and PHEAA

In 2009, after a competitive process, PHEAA was selected by DOE to service federal loans and grants nationally. Under DOE's contract with PHEAA (the "Servicing Contract"), PHEAA services loans issued under the Direct Loan Program. In 2012, DOE awarded PHEAA an exclusive contract to administer the PSLF Program. FAC, ¶ 40. DOE monitors PHEAA's performance under the Servicing Contract through annual audits, program compliance reviews, and quarterly monitoring reviews of PHEAA's loan servicing practices. PHEAA is responsible for resolving all deficiencies identified during those audits and implementing corrective action plans as necessary.

4. Plaintiffs' Federal Student Loans and Qualifying Payment History

Plaintiffs are borrowers who have obtained their loans under the Direct Loan program. FAC, ¶¶ 13, 24, and 30. Plaintiffs' Direct Loans are governed by standardized Master Promissory Notes ("MPNs") that they entered into with DOE when they obtained their loans. FAC, ¶ 49 and Exhibits ("Exh.") 2-9. The MPNs were developed by DOE pursuant to instructions from Congress. See 20 U.S.C. §§ 1082(m)(1)(D), 1087e(a)(1). PHEAA is not a party to the MPNs between Plaintiffs and DOE.

Winebarger has been enrolled in a PSLF-eligible IDR plan for her Direct Loans since April 2013. FAC, ¶ 19. Overmier has been enrolled in a PSLF-eligible IDR plan for her Direct Loans since December 2014. FAC, ¶ 30. Gannon has been enrolled in a PSLF-eligible IDR plan for his Direct Loans since October 2015. FAC, ¶ 119.

Under the terms of PSLF, borrowers can only make one qualifying payment per month. As a result, each of the Plaintiffs are many years away from reaching the 120 qualifying payment threshold for PSLF eligibility. As of February 2019, Winebarger was at least 61 months away from making 120 qualifying payments.¹ FAC, ¶ 115. As of April 2019, Overmier was at least 71 months away from making 120 qualifying payments.² FAC, ¶ 134. As of October 2018, Gannon was at least 84 months away from making 120 qualifying payments.³ FAC, ¶ 121. Thus, the earliest any Plaintiff will be eligible for loan forgiveness is late 2023.

As the loan servicer for Plaintiffs' Direct Loans, PHEAA provides a monthly tally of each Plaintiff's qualifying payments. FAC, ¶¶ 111, 112, 118, and 127. Plaintiffs allege that these tallies are incorrect because they fail to account for all of their qualifying payments. FAC, ¶¶ 115, 121, and 127. For example, Overmier alleges that she made 49 qualifying payments compared to PHEAA's tally of 45 (of the 120 required payments). FAC, ¶ 134. Winebarger indicates that although her qualifying payment tally was previously incorrect, it now reflects the correct number of qualifying payments. FAC, ¶¶ 114 and 116.

Plaintiffs allege that PHEAA's tallies have caused them harm because they have "been unable to make rational and informed decisions as to whether and when to consider private sector (i.e. , non-PSLF eligible) employment." FAC, ¶¶ 163, 169, 177, 185, 194, 199, and 204. However, Plaintiffs also allege that because of their loan interest accruals to date, they do "not realistically have the freedom to look beyond employment at PSLF-eligible covered employers until their loan is forgiven." FAC, ¶¶ 116 and 135. Plaintiffs also allege that they "will be required to make more student loan payments than they otherwise would have to make because they have not been credited with the full amount of qualifying payments that they have made." See, e.g. , FAC, ¶¶ 124, 134, 163, and 169.

B. Procedural Background

On February 28, 2019, Winebarger filed a Complaint against PHEAA and NelNet, Inc. On June 7, 2019, Plaintiffs filed the First Amended Complaint that added Overmier and Gannon as plaintiffs and NelNet Servicing, LLC as a defendant. The First Amended Complaint alleges the following: (1) Plaintiffs allege a negligence claim against PHEAA and Winebarger alleges a negligence claim against NelNet; (2) Plaintiffs allege a breach of fiduciary duty claim against PHEAA and Winebarger alleges a breach of fiduciary duty claim against NelNet; (3) Plaintiffs allege a breach of contract claim against PHEAA and Winebarger alleges a breach of contract claim against NelNet; (4) Plaintiffs allege a breach of implied-in-fact contract claim against PHEAA and Winebarger alleges a breach of implied-in-fact contract claim against NelNet; (5) Plaintiffs allege a violation of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691e, claim against PHEAA; (6) Winebarger alleges an unfair and deceptive acts and practices violation the California Unfair Competition Law, California Business & Professions Code § 17200 ("UCL"), claim against PHEAA and NelNet; and (7) Overmier and Gannon allege an unfair and deceptive acts and practices violating the District of Columbia Consumer Protection Procedures Act, D.C. Code § 28-3905(k) ("CPPA"), against PHEAA.

II. Legal Standard

A. Rule 12(b)(1)

The party mounting a Rule 12(b)(1) challenge to the Court's jurisdiction may do so either on the face of the pleadings or by presenting extrinsic evidence for the Court's consideration. See White v. Lee , 227 F.3d 1214, 1242 (9th Cir. 2000) (" Rule 12(b)(1) jurisdictional attacks can be either facial or factual"). "In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction." Safe Air for Everyone v. Meyer , 373 F.3d 1035, 1039 (9th Cir. 2004). In ruling on a Rule 12(b)(1) motion attacking the complaint on its face, the Court accepts the allegations of the...