notice of filing of notice of removal

Cal. Super. - 1st Dist.August 14, 2020

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF FILING OF NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 John C. Grugan (PA 83148) gruganj@ballardspahr.com Thomas F. Burke (PA 320311) burket@ballardspahr.com BALLARD SPAHR LLP 1735 Market St., 51st Floor Philadelphia, PA 19103-7599 Telephone: (215) 864-8500 Facsimile: (215) 864-8999 Marcos D. Sasso (SBN 228905) sassom@ballardspahr.com BALLARD SPAHR LLP 2029 Century Park East, Suite 800 Los Angeles, CA 90067-2909 Telephone: 424.204.4400 Facsimile: 424.204.4350 Attorneys for Defendant Pennsylvania Higher Education Assistance Agency SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN FRANCISCO In the Matter of: THE PEOPLE OF THE STATE OF CALIFORNIA, by and through the Commissioner of Business Oversight Plaintiff, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, d/b/a Fedloan Defendant. : : : : : : : : : : : : : : CASE NO. CGC-20-584011 NOTICE OF FILING OF NOTICE OF REMOVAL ELECTRONICALLY F I L E D Superior Court of California, County of San Francisco 05/08/2020 Clerk of the Court BY: EDNALEEN ALEGRE Deputy Clerk 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 NOTICE OF FILING OF NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 PLEASE TAKE NOTICE that on this 8th day of May, 2020, defendant Pennsylvania Higher Education Assistance Agency filed a Notice of Removal in the United States District Court for the Northern District of California thereby removing this action under 28 U.S.C. § 1442. A true and correct copy of the filed Notice of Removal (without exhibits) is attached hereto as Exhibit A. In accordance with 28 U.S.C. § 1446(d), the filing of this Notice of Removal “shall effect the removal and the State court shall proceed no further . . . .” Further, this Removal is made with full reservation of all rights of Petitioner for Removal and copies of the Notice of Removal are hereby served upon you herewith. DATED: May 8, 2020 Respectfully submitted, /s/ Marcos D. Sasso John C. Grugan (PA 83148) Thomas F. Burke (PA 320311) BALLARD SPAHR LLP 1735 Market St., 51st Floor Philadelphia, PA 19103-7599 Telephone: (215) 864-8500 Facsimile: (215) 864-8999 gruganj@ballardspahr.com burket@ballardspahr.com Marcos D. Sasso (SBN 228905) BALLARD SPAHR LLP 2029 Century Park East, Suite 800 Los Angeles, CA 90067-2909 Telephone: 424.204.4400 Facsimile: 424.204.4350 sassom@ballardspahr.com Attorneys for Defendant Pennsylvania Higher Education Assistance Agency EXHIBIT A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 John C. Grugan (PA 83148) gruganj@ballardspahr.com pro hac vice forthcoming Thomas F. Burke (PA 320311) burket@ballardspahr.com pro hac vice forthcoming BALLARD SPAHR LLP 1735 Market St., 51st Floor Philadelphia, PA 19103-7599 Telephone: (215) 864-8500 Facsimile: (215) 864-8999 Marcos D. Sasso (SBN 228905) sassom@ballardspahr.com BALLARD SPAHR LLP 2029 Century Park East, Suite 800 Los Angeles, CA 90067-2909 Telephone: (424) 204-4400 Facsimile: (424) 204-4350 Attorneys for Defendant Pennsylvania Higher Education Assistance Agency UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA THE PEOPLE OF THE STATE OF CALIFORNIA, by and through the Commissioner of Business Oversight Plaintiff, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, d/b/a Fedloan Defendant. : : : : : : : : : : : : : CASE NO. 3:20-cv-3150 NOTICE OF REMOVAL Case 3:20-cv-03150 Document 1 Filed 05/08/20 Page 1 of 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 Removal is based upon 28 U.S.C. § 1442 and is proper for these reasons: I. BACKGROUND 1. On April 1, 2020, Plaintiff the People of the State of California, by and through the Commissioner of the California Department of Business Oversight (DBO), commenced this action by filing a complaint in the Superior Court of the State of California for the County of San Francisco against Defendant Pennsylvania Higher Education Assistance Agency (PHEAA). A true and correct copy of the Complaint, served on PHEAA on April 9, 2020, is attached hereto as Exhibit A. 2. PHEAA is a student loan servicer. Relevant here, PHEAA services student loans issued by the federal government under the William D. Ford Direct Loan Program, 20 U.S.C. § 1087a et seq. (the Direct Loan Program). Compl. ¶ 20. PHEAA services these loans pursuant to a contract with and at the direction of the U.S. Department of Education (the Department). See Servicing Contract, attached hereto as Exhibit B; Compl. ¶¶ 18, 20. 3. PHEAA also administers a number of related programs at the direction of the Department, including the Teacher Education Assistance for College and Higher Education Grant Program (TEACH). See Compl. ¶ 18. Under the TEACH Program, the federal government provides eligible students with up to $4,000 in grants per academic year for undergraduate, post- baccalaureate, and graduate programs. Id. ¶¶ 4, 14. TEACH Grant recipients must comply with certain requirements, including annually certifying that they are employed in a qualifying position. See id. ¶¶ 4, 14-16. If a TEACH Grant recipient fails to comply with these requirements, their grants are converted into federal Direct Loans that must be paid back with interest. Id. ¶ 15. 4. On December 12, 2019, the DBO sent PHEAA a letter demanding, pursuant to the California Student Loan Servicing Act (California Financial Code § 28100 et seq.), that PHEAA produce certain “information, documents and complaints surrounding the TEACH Grant program.” See id. ¶¶ 38, 46, Attachment A. As the basis for its authority to demand production of such documents, the DBO relied exclusively on provisions of the California Student Loan Servicing Act, including California Financial Code §§ 28108(a) and 28152(a). See id. ¶ 37. Case 3:20-cv-03150 Document 1 Filed 05/08/20 Page 2 of 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 5. On February 6, 2020, PHEAA responded that it could not comply with the DBO’s demand because PHEAA’s contract with the Department expressly prohibits such disclosures, and because the Department has instructed PHEAA that any such disclosure would violate its contract as well as the Privacy Act. See id. ¶ 46, Attachment B; Dec. 27, 2017 Notice from U.S. Department of Education Office of Federal Student Aid (FSA Notice), attached hereto as Exhibit C. On April 10, 2020, the DBO informed PHEAA that it “may take action” based on PHEAA’s failure to produce the federal records, including imposition of a fine of $100 per day under the California Student Loan Servicing Act, Cal. Fin. Code § 28154. See Apr. 10, 2020 Ltr. from M. Alvarez to J. Guise, attached hereto as Exhibit D. 6. On February 13, 2020, the DBO requested the TEACH Grant records from the Department directly, citing the “law enforcement exception” to the Privacy Act under 5 U.S.C. § 552a(b)(7). In a response dated April 24, 2020, the Department reaffirmed its position that “states may not regulate the implementation of federal programs such as the TEACH grant program . . . by federal loan servicers,” and that “the Department cannot release or authorize PHEAA to release to you any Privacy Act-protected information under the law enforcement exception of the Privacy Act.” Apr. 24, 2020 Ltr. from A. Sierra to W. Horsey, attached hereto as Exhibit E. 7. The DBO now seeks the following relief: (1) an injunction compelling PHEAA to comply with the California Student Loan Servicing Act and produce the requested records; (2) a declaration that the federal Higher Education Act does not preempt the California Student Loan Servicing Act; and (3) an award of financial penalties against PHEAA under the California Student Loan Servicing Act, Cal. Fin. Code § 28172. Compl. ¶¶ 21, 47, 52-53. II. BASES FOR REMOVAL JURISDICTION 8. This Court has removal jurisdiction over this matter under 28 U.S.C. § 1442(a)(1), which provides for removal of any “civil action . . . against or directed to . . . any officer (or any person acting under that officer) of the United States or of any agency thereof, in an official or individual capacity, for or relating to any act under color of such office . . . .” Removal under § 1442(a)(1), also known as federal officer removal, is available to a federal contractor when it Case 3:20-cv-03150 Document 1 Filed 05/08/20 Page 3 of 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 can demonstrate that: (1) it is a “person” within the meaning of the statute; (2) the plaintiff’s claims are based upon its conduct “acting under” the United States, its agencies, or its officers; (3) the plaintiff’s claims against it are “for, or relating to” any act under color of federal office; and (4) it raises a “colorable federal defense” to the plaintiff’s claims. See Goncalves v. Rady Children’s Hosp. San Diego, 865 F.3d 1237, 1243-44 (9th Cir. 2017); 28 U.S.C. § 1442(a)(1); see also Mesa v. California, 489 U.S. 121, 124-36 (1989). PHEAA satisfies these requirements, which the court must “broadly construe[]” in favor of a federal forum. Nationwide Inv’rs v. Miller, 793 F.2d 1044, 1045 (9th Cir. 1986) (collecting cases). 9. PHEAA meets the first prong of federal officer removal-personhood within the meaning of 28 U.S.C. § 1442(a)(1)-because it is a public corporation and government instrumentality. See 24 P.S. § 5101; Goncalves, 865 F.3d at 144 (“The courts of appeals have uniformly held that corporations are ‘person[s]’ under § 1442(a)(1).” (alteration in original)). 10. PHEAA also meets the second, “acting under” prong, which the court must “liberally construe[]” in favor of a federal forum. Watson v. Philip Morris Cos., 551 U.S. 142, 147 (2007) (quoting Colorado v. Symes, 286 U.S. 510, 517 (1932)). PHEAA, as one of the Department’s third-party loan servicers, services Direct Loans and administers the TEACH Program. See generally Servicing Contract, Ex. B; Compl. ¶¶ 17-18, 20. The Complaint alleges that PHEAA is in possession of the relevant records and information only because of PHEAA’s contractual work for the Department. See Compl. ¶¶ 19-27, 36-41. Federal district courts have consistently found an entitlement to removal for similarly situated federal student loan servicers (including PHEAA itself). See, e.g., Holston v. PHEAA, No. 19-cv-01211, 2019 U.S. Dist. LEXIS 168372, at *5 (D.N.J. Sep. 30, 2019) (exercising removal jurisdiction under § 1442(a)(1)); Cobb v. Gc Servs., No. 16-cv-3764, 2016 U.S. Dist. LEXIS 168928, at *10 (S.D. W. Va. Dec. 7, 2016) (denying remand after federal student loan servicer’s removal under § 1442(a)(1)); Smith v. Collection Techs., Inc., No. 15-cv-6816, 2016 U.S. Dist. LEXIS 36845, at *6-16 (S.D. W.Va. March 22, 2016) (same); Snuffer v. Great Lakes Education Loan Services, Inc., No. 14-cv-25899, Dkt. No. 16 (S.D. W.Va. March 19, 2015) (same). Case 3:20-cv-03150 Document 1 Filed 05/08/20 Page 4 of 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 11. For the same reasons, PHEAA meets the third-“relating to”-prong. PHEAA administers the TEACH Program pursuant to a federal contract and on the Department’s behalf. PHEAA’s ability to disclose information regarding the TEACH Program is narrowly constrained by federal regulations, the Department’s interpretation of those regulations, and PHEAA’s contract with the Department. See FSA Notice, Ex. C. Thus, the DBO’s efforts to require PHEAA to produce federal documentation owned by the Department undoubtedly “relates to” PHEAA’s work for the Department. 12. Finally, PHEAA satisfies the fourth prong-a colorable federal defense-because its conflict preemption and intergovernmental immunity defenses raise “a Federal question or a claim to a Federal right . . . .” Mesa, 489 U.S. at 127 (quotation marks omitted). 13. The DBO’s claims, which are premised on the validity of the DBO’s authority to regulate student loan servicers under the California Student Loan Servicing Act, are barred under the doctrine of conflict preemption. Two recent federal court opinions have established that state loan servicing laws that purport to regulate federal student loan servicers (such as PHEAA) squarely conflict with the Department’s statutory authority under 20 U.S.C. § 1087f to contract with student loan servicers of its choosing. See generally PHEAA v. Perez, No. 18-cv-1114, 2020 U.S. Dist. LEXIS 76090, at *21-22 (D. Conn. Apr. 30, 2020) (applying conflict preemption to Connecticut student loan servicer licensing statute where Connecticut Department of Banking sought to compel production of federal records from PHEAA); SLSA v. District of Columbia, 351 F. Supp. 3d 26, 61-65 (D.D.C. 2018) (applying conflict preemption to District of Columbia student loan servicer licensing statute as applied to servicers of Department-owned loans, including Direct Loans). Further, the Ninth Circuit has recognized preemption as a colorable federal defense supporting removal under § 1442. See Stirling v. Minasian, No. 18-cv-55834, 2020 U.S. App. LEXIS 11014, at *15 (9th Cir. Apr. 8, 2020). 14. PHEAA also raises the colorable federal defense of intergovernmental immunity, under which the Supremacy Clause precludes the DBO from attempting to directly regulate the federal government through regulation of a federal contractor. See North Dakota v. United States, Case 3:20-cv-03150 Document 1 Filed 05/08/20 Page 5 of 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 495 U.S. 423, 435 (1990) (“A state regulation is invalid . . . if it regulates the United States directly or discriminates against the Federal Government or those with whom it deals.”). Here, the DBO’s attempt to sanction a federal contractor for noncompliance with a request for federal documents would constitute improper regulation of the federal government itself. As a defense arising under the Supremacy Clause, intergovernmental immunity is a colorable federal defense supporting removal under § 1442. See Stirling, 2020 U.S. App. LEXIS 11014, at *15 (holding that defense predicated on Supremacy Clause satisfied requirements of federal officer removal). 15. Moreover, at the time of removal, a defendant need only show that it has a “colorable” federal defense, not that the “defense is in fact meritorious.” Leite v. Crane Co., 749 F.3d 1117, 1124 (9th Cir. 2014). PHEAA’s defenses meet this bar. See generally Perez, 2020 U.S. Dist. LEXIS 76090, at *21-22 (applying conflict preemption to Connecticut student loan servicer licensing statute where Connecticut Department of Banking sought to compel production of federal records from PHEAA); SLSA, 351 F. Supp. 3d at 61-65 (applying conflict preemption to portions of District of Columbia student loan servicer licensing statute pertaining to federal Direct Loans); Boeing Co. v. Movassaghi, 768 F.3d 832, 839 (9th Cir. 2014) (applying intergovernmental immunity to private contractor where state law would have impeded the performance of a federal function). 16. PHEAA therefore satisfies each requirement for federal officer removal under 28 U.S.C. § 1442(a)(1). III. VENUE 17. Under 28 U.S.C. § 1446(a), the U.S. District Court for the Northern District of California is the proper venue for removal because it embraces the place where this action is pending in the Superior Court of California for the County of San Francisco. IV. ALL PROCEDURAL REQUIREMENTS FOR REMOVAL HAVE BEEN SATISFIED 18. PHEAA was served with the Complaint on April 9, 2020. Accordingly, this Notice is timely because it has been filed within the thirty-day period prescribed by 28 U.S.C. § 1446(b). Case 3:20-cv-03150 Document 1 Filed 05/08/20 Page 6 of 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 19. PHEAA has not answered or otherwise responded to the Complaint. 20. The documents attached hereto as Exhibit A constitute all of the process, pleadings, and orders received by PHEAA to date. 21. Written notice of the filing of this notice of removal is being forwarded to the DBO, as well as to the Clerk of Court for the Superior Court of California for the County of San Francisco, pursuant to 28 U.S.C. § 1446(d). A true and correct copy of the Notice of Filing of Notice of Removal (without exhibits) is attached hereto as Exhibit F. 22. By filing this notice of removal, PHEAA does not waive any defense that may be available to it, including, but not limited to, the right to contest in personam jurisdiction, incomplete process, improper service of process, and/or improper venue, in this Court or in the court from which this action has been removed. 23. Based upon the foregoing, this Court has jurisdiction under 28 U.S.C. § 1442, and this matter may be removed to this Court under 28 U.S.C. § 1446. WHEREFORE, defendant PHEAA hereby gives notice that the above-captioned action is removed to the U.S. District Court for the Northern District of California. DATED: May 8, 2020 Respectfully submitted, /s/ Marcos D. Sasso John C. Grugan (PA 83148) pro hac vice forthcoming Thomas F. Burke (PA 320311) pro hac vice forthcoming BALLARD SPAHR LLP 1735 Market St., 51st Floor Philadelphia, PA 19103-7599 Telephone: (215) 864-8500 Facsimile: (215) 864-8999 gruganj@ballardspahr.com burket@ballardspahr.com Marcos D. Sasso (SBN 228905) BALLARD SPAHR LLP 2029 Century Park East, Suite 800 Los Angeles, CA 90067-2909 Telephone: (424) 204-4400 Facsimile: (424) 204-4350 sassom@ballardspahr.com Case 3:20-cv-03150 Document 1 Filed 05/08/20 Page 7 of 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 NOTICE OF REMOVAL B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 Attorneys for Defendant Pennsylvania Higher Education Assistance Agency Case 3:20-cv-03150 Document 1 Filed 05/08/20 Page 8 of 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE B al la rd S p ah r L L P 2 02 9 C en tu ry P ar k E as t, S ui te 8 00 L o s A ng el es , C al if o rn ia 9 00 6 7 -2 90 9 PROOF OF SERVICE I am a resident of the State of California, over the age of eighteen years, and not a party to the within action. My business address is BALLARD SPAHR LLP, 2029 Century Park East, Suite 800, Los Angeles, CA 90067-2909. On May 8, 2020, I served the within documents: NOTICE OF FILING OF NOTICE OF REMOVAL  BY FAX: by transmitting via facsimile the document(s) listed above to the fax number(s) set forth below on this date before 5:00 p.m.  BY HAND: by personally delivering the document(s) listed above to the person(s) at the address(es) set forth below.  BY MAIL: by placing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, in the United States mail at Los Angeles, California addressed as set forth below.  BY E-MAIL: by attaching an electronic copy of the document(s) listed above to the e-mail address listed below.  BY OVERNIGHT MAIL: by causing document(s) to be picked up by an overnight delivery service company for delivery to the addressee(s) on the next business day.  BY PERSONAL DELIVERY: by causing personal delivery by First Legal Network of the document(s) listed above to the person(s) at the address(es) set forth below. Mary Ann Smith Deputy Commissioner Department of Business Oversight One Sansome Street, Suite 600 San Francisco, California 94104-4448 Telephone: (415) 972-8547 Facsimile: (415) 972-8550 Attorneys for Plaintiff The People of the State of California I am readily familiar with the firm’s practice of collection and processing correspondence for mailing. Under that practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on May 8, 2020, at Los Angeles, California. Shari L. Green