Hutchison v. Experian Information Solutions Incorporated et al

MOTION for Summary Judgment

D. Ariz.October 19, 2016

{00055194;1} 1 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 Thomas P. Burke, II Udall Law Firm 2198 E. Camelback Road, Suite 375 Phoenix, AZ 85016 Telephone: (602) 222-4848 Facsimile: (602) 222-4858 E-Mail: tburke@udalllaw.com Attorneys for Defendant EDUCATIONAL CREDIT MANAGEMENT CORPORATION UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA CHRISTOPHER HUTCHISON, Plaintiff, vs. EXPERIAN INFORMATION SOLUTIONS, INC.; EDUCATIONAL CREDIT MANAGEMENT CORPORATION; and MIDLAND FUNDING, LLC, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) CASE NO. 2:15-cv-02351-SPL DEFENDANT EDUCATIONAL CREDIT MANAGEMENT CORPORATION’S MOTION FOR SUMMARY JUDGMENT ) ) Defendant EDUCATIONAL CREDIT MANAGEMENT CORPORATION (“ECMC”) hereby moves for summary judgment as to the Complaint of Plaintiff CHRISTOPHER HUTCHISON (“Plaintiff”). This motion is made pursuant to Rule 56 of the Federal Rules of Civil Procedure, Local Rules 7.2 and 56.1, and the Court’s Rule 16 Case Management Order in this matter (ECF No. 26). There is no genuine dispute as to any material fact, and ECMC is entitled to summary judgment as a matter of law. Plaintiff alleges that ECMC violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). However, ECMC is a “guaranty agency” in the Federal Family Education Loan Program (“FFELP”) under the Higher Education Act of 1965, 20 U.S.C. § 1071, et seq. (“HEA”). As such, ECMC helps to administer the FFELP as a guarantor of federal student loans on behalf of the United States Department of Education (“ED”), including four defaulted student loans Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 1 of 18 {00055194;1} 2 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 obtained by Plaintiff between 1992 and 1997. The FDCPA does not apply to guaranty agencies like ECMC for multiple reasons, including (a) ECMC is not a “debt collector” within the meaning of the FDCPA, (b) ECMC is acting in a fiduciary capacity to the ED, (c) ECMC falls under the “creditor exemption” of the FDCPA, and (d) ECMC’s alleged conduct is exclusively governed by the HEA which lacks a private right of action, and Plaintiff’s lawsuit is therefore an improper attempt to circumvent the HEA. The motion is based on the following memorandum of points and authorities, the accompanying separate statement of undisputed material facts, the supporting declaration of Kerry Klisch and the exhibits attached thereto, all pleadings and papers on file, and upon such other matters as may be presented to the Court at the motion hearing, if any. MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION ECMC is a “guaranty agency” in the Federal Family Education Loan Program (“FFELP”) under the Higher Education Act of 1965, 20 U.S.C. § 1071, et seq. (“HEA”). As such, ECMC helps to administer the FFELP as a guarantor of federal student loans on behalf of the United States Department of Education (“ED”), including four defaulted student loans obtained by Plaintiff between 1992 and 1997. The Code of Federal Regulations sets forth, in great detail, the wide variety of activities a guaranty agency must undertake on a guaranteed student loan. (See e.g. 34 C.F.R. §§ 682.400-682.423.) Among many other things, the guaranty agency must “engage in reasonable and documented collection activities” on loans which have gone into default. (34 C.F.R. § 682.410(b)(6)(i).) Here, Plaintiff defaulted on his student loan debt, and now complains about ECMC’s collection activities, which he alleges violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). (Complaint ¶¶ 23-28, ECF No. 1.) However, as will be described below, the FDCPA does not apply to ECMC, for multiple reasons. ECMC therefore respectfully requests that this motion be granted, and that summary judgment be entered in its favor. Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 2 of 18 {00055194;1} 3 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 II. SUMMARY JUDGMENT STANDARD Summary judgment is appropriate when there is no genuine issue of material fact which would preclude summary judgment as a matter of law. A party seeking summary judgment bears the initial burden of informing the Court of the basis for its motion. On an issue where the moving party has the burden of proof, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. (Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007).) Where the non- moving party has the burden of proof, the moving party can prevail merely by pointing out that there is an absence of evidence to support the non-moving party’s case. (Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).) Once the moving party has satisfied its initial burden, it is entitled to summary judgment if the non-moving party fails to present, by affidavits, depositions, answers to interrogatories, or admissions on file, “specific facts showing that there is a genuine issue for trial.” (Celotex Corp. at 324.) A dispute as to a material fact is “genuine” if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).) In this regard, “[t]he mere existence of a scintilla of evidence in support of the non-moving party’s position is not sufficient.” (Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir.1995).) Factual disputes whose resolution would not affect the outcome of the suit are irrelevant. (Anderson at 248 (1986).) A motion for summary judgment should thus be granted “where the non-moving party fails to offer evidence from which a reasonable [fact finder] could return a [decision] in its favor.” (Triton Energy Corp. at 1220.) III. BACKGROUND/STATEMENT OF FACTS A. The Federal Family Education Loan Program In passing the Higher Education Act of 1965, 20 U.S.C. § 1071, et seq. (“HEA”), Congress established the Federal Family Education Loan Program (“FFELP”). (20 U.S.C. § 1071.) Loans issued under the FFELP include, inter alia, the Federal Stafford Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 3 of 18 {00055194;1} 4 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 Loan Program. (34 C.F.R. § 682.100(a)(1).) The FFELP was formerly known as the Guaranteed Student Loan Program, but was renamed in 1992. (Brannan v. United Student Aid Funds, Inc., 94 F.3d 1260, 1262 n. 1 (9th Cir. 1996).) FFELP student loans are guaranteed by either a state agency or non-profit organization “that has an agreement with the Secretary under which it will administer a loan guaranty program under the Act.” (34 C.F.R. § 682.200(b); see also 20 U.S.C. § 1072(a)(1).) Such state agencies or organizations are referred to as guaranty agencies. Guaranty agencies enter into agreements with the ED that set forth “such administrative and fiscal procedures as may be necessary to protect the United States from the risk of unreasonable loss thereunder, to ensure proper and efficient administration of the loan insurance program, and to assure that due diligence will be exercised in the collection of loans insured under the program . . .” (20 U.S.C. § 1078(c)(2)(A); 34 C.F.R. § 682.404(k).) The Code of Federal Regulations describes the wide variety of activities a guaranty agency must undertake on a FFELP loan. These include, but are not limited to: • Regularly obtain information on the enrollment status of student borrowers or students on whose behalf parents have borrowed. (34 C.F.R. § 682.401(b)(11).) • Relay information to the ED as the ED deems necessary. (34 C.F.R. § 682.401(b)(12).) • Gather information from lenders and accurately complete and submit to the ED a wide variety of reports concerning its loan insurance program. (34 C.F.R. § 682.401(b)(13); 34 C.F.R. § 682.414(b).) • Review, evaluate, and pay the various requests by or for borrowers for discharge and cancellation of their loans on grounds of disability, death, closed school or other grounds authorized by the HEA. (34 C.F.R. § 682.402).) • Provide default aversion assistance to lenders, which are defined as activities “designed to prevent a default by a borrower.” (34 C.F.R. § 682.404(a)(2)(ii).) Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 4 of 18 {00055194;1} 5 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 • Pay claims on certain student loans in bankruptcy to administer the loans during the bankruptcy and to deal with any issues that may arise regarding claims, the bankruptcy plans or adversary proceedings. (34 C.F.R. §§ 682.402(f) & (i).) • Conduct compliance reviews of the lenders and postsecondary schools for whose students the guaranty agency has guaranteed loans in order to determine whether the parties are acting in compliance with FFELP requirements. (34 C.F.R. § 682.410(c).) • Establish a plan to promote access to postsecondary education. (34 C.F.R. § 682.401(d); 20 U.S.C. § 1092e(b)(2).) The due diligence obligation owed by the guaranty agency to the ED further requires that the guaranty agency “engage in reasonable and documented collection activities” on defaulted student loans. (34 C.F.R. § 682.410(b)(6)(i).) This obligation specifically includes a number of actions the guaranty agency must perform, such as a sequence of dunning letters and telephone contacts, reporting the defaulted loan to consumer reporting agencies, federal and state income tax refund offsets, non-judicial administrative wage garnishment, and, where appropriate, collection litigation. (34 C.F.R. § 682.410(b)(6)(ii)-(vii).) The ED is empowered to take remedial actions against a guaranty agency which fails to comply with these requirements. (See e.g. 34 C.F.R. § 682.413(b)(2) and (c)(1).) All payments and earnings arising from a guaranty agency’s guaranty program operations must be deposited into its reserve fund. (34 C.F.R. § 682.410(a).) Significantly, the assets comprising the reserve fund are deemed by law to be “property of the United States” and may only be used to pay guaranty program expenses and contingent liabilities. (20 U.S.C. § 1072(g)(1).) The ED may, under 20 U.S.C. § 1072(g)(1)(A)-(C), order a guaranty agency to cease any expenditure or transfer of reserve fund assets that is determined to be improper, and may direct the guaranty agency to transfer some or all of the assets to the government as may be necessary to support loan program administration. The ED therefore operates with guaranty agencies as fiduciaries with regard to the administration of the funds. Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 5 of 18 {00055194;1} 6 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 In summary of the foregoing, guaranty agencies undertake an enormous amount of responsibilities and are essentially involved in the loans they guarantee from the origination of the loan to the final payoff. B. ECMC is a Guaranty Agency ECMC is a guaranty agency under the HEA. (Undisputed Material Fact (“UMF”) No. 1.) It is a non-profit organization that has an agreement with the Secretary of Education under which it helps to administer the FFELP. (UMF No. 2.) Like every other guaranty agency, ECMC is required to perform the numerous duties set forth in the HEA and Code of Federal Regulations, as discussed above. (UMF No. 3.) ECMC also provides specialized guarantor services to the ED. Among other things, ECMC is required to maintain standby capacity sufficient to ensure that it can assume guarantor responsibility under the FFELP in any state where the current guaranty agency ceases its FFELP operations. Since 2004, ECMC has also been the designated guarantor for ED-held rehabilitated loans. (UMF No. 4.) While collection on defaulted student loans is part of ECMC’s responsibilities, it is a small part, because only a fraction of the loans guaranteed by ECMC go into default. (UMF No. 5.) The principal purpose of ECMC, or any guaranty agency, is not the collection of debts. ECMC does not regularly collect, directly or indirectly, debts owed or due another. The principal purpose of a guaranty agency, including ECMC, is to provide a guarantee of federal student loans and to assist in the administration of the FFELP. (UMF No. 6.) ECMC is performing all of the foregoing duties and responsibilities as a guaranty agency and a fiduciary for the ED. (UMF No. 7.) /// /// Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 6 of 18 {00055194;1} 7 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 C. Plaintiff’s Student Loan Debt The FFELP loans at issue in this case are four federal Stafford loans obtained by Plaintiff between 1992 and 1997, for educational expenses at Arizona State University and the University of Phoenix. (UMF No. 8.) Plaintiff obtained these loans by executing a separate “Application and Promissory Note for a Stafford Loan” on or about October 22, 1992, August 19, 1993 and June 18, 1997, respectively. (UMF No. 9.) The loans were disbursed by the lenders on or about December 21, 1992, December 20, 1993 and September 15, 1997. (UMF No. 10.) The original guaranty agency for Plaintiff’s loans was USA Funds, also known as United Student Aid Funds, Inc. (“USAF”). (UMF No. 11.) Plaintiff first defaulted on his student loan obligation in October 1999. At that time, the lender submitted a default claim to USAF. When USAF was unable to collect the defaulted balance, the ED subrogated Plaintiff’s account, and the ED began collection efforts. Then in 2007, Plaintiff rehabilitated his defaulted student loans. Per ECMC’s agreement with the ED, the guaranty of Plaintiff’s rehabilitated loans was therefore transferred to ECMC on or about September 24, 2007. Accordingly, as of September 24, 2007, ECMC assumed all rights and responsibilities as the designated guaranty agency for Plaintiff’s loans. This included all the duties of the original guaranty agency, not only to Plaintiff, but to the lenders, schools and ED. (UMF No. 12.) On September 2, 2010, Plaintiff again defaulted on the loans. (UMF No. 13.) When Plaintiff’s loans defaulted, ECMC, as the holder and guarantor of the loans, was required to, and did, pay default claims to the lenders on or about September 2, 2010. (UMF No. 14.) Following the default of Plaintiff, ECMC began to perform the collection activities required under the HEA and Code of Federal Regulations. ECMC also reported Plaintiff’s defaulted student loans to the consumer reporting agencies, as required by 34 C.F.R. § 682.410(b)(5). (UMF No. 15.) Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 7 of 18 {00055194;1} 8 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 In late 2015, Plaintiff offered to voluntarily pay an amount less than what was owed in full settlement of his loans. (UMF No. 16.) ECMC accepted Plaintiff’s offer. Plaintiff paid the agreed-upon amount, and ECMC promptly ceased its efforts to collect the loans. (UMF No. 17.) All activity performed by ECMC with regard to Plaintiff’s loans was done in the capacity of a guaranty agency under the FFELP as required by the HEA and Code of Federal Regulations. (UMF No. 18.) On November 19, 2015, Plaintiff filed this lawsuit, alleging that ECMC violated Section 1692e(8) of the FDCPA “by failing to communicate that a disputed debt is disputed. Defendants did this when they failed to properly communicate on Mr. Hutchison’s Equifax and Trans Union credit files that the above listed Errant Trade Lines were disputed.” (UMF No. 19.) IV. ECMC IS NOT SUBJECT TO THE FDCPA BECAUSE IT IS NOT A “DEBT COLLECTOR” Plaintiff’s only cause of action against ECMC is for alleged violation of the FDCPA. (Complaint ¶¶ 23-28, ECF No. 1; UMF No. 19.) The FDCPA was enacted “to eliminate abusive debt collection practices by debt collectors.” (15 U.S.C. § 1692(e), emphasis added.) Thus, ECMC can only be liable under the FDCPA if it is deemed a “debt collector” under the Act. (Rowe v. ECMC, 559 F.3d 1028, 1031 (9th Cir. 2009); Rutz v. ECMC, 2012 WL 78394 at *2 (S.D. Cal. Jan. 9, 2012).) If an entity falls outside the definition of “debt collector,” the requirements of the FDCPA do not apply. (Pelfrey v. ECMC, 71 F.Supp.2d 1161, 1166 (N.D. Ala. 1999) aff’d 208 F.3d 945 (11th Cir. 2000).) A dispositive issue for purposes of this motion is therefore whether ECMC is a “debt collector” under the FDCPA. The FDCPA defines the term “debt collector” as follows: “[A]ny person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 8 of 18 {00055194;1} 9 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another . . .” (15 U.S.C. § 1692a(6).) ECMC does not fall under the FDCPA’s general definition of a debt collector set forth above. ECMC is not a debt collector, it is a guaranty agency under the HEA. (UMF Nos. 1-5.) The principal purpose of ECMC, or any guaranty agency, is not the collection of debts, nor does ECMC regularly collect debts for another. Rather, the principal purpose of a guaranty agency, including ECMC, is to provide a guarantee to the lender and to assist in the administration of the FFELP. (UMF No. 6; see also Pelfrey, 71 F.Supp.2d at 1163.) In another FDCPA case against ECMC, the Court held that because ECMC collects student loans on behalf of itself as guarantor, ECMC stepped in the shoes of the prior guarantor as the new holder. Accordingly, the Court concluded: “. . . ECMC does not fall under the definition of a debt collector with respect to the loan at issue.” (Rowe v. ECMC, 730 F.Supp.2d 1285, 1289 (D. Or. 2010).) The District Court’s decision in Rowe was entered following remand by the Ninth Circuit. The Ninth Circuit had previously held that guaranty agencies collecting on student loan debt are not subject to the FDCPA and recognized that ECMC was a guaranty agency, however, because the Court was analyzing a motion to dismiss, it had to “take at face value the allegation in the complaint” that ECMC had acted solely as a collection agent for another guaranty agency. (Rowe v. ECMC, 559 F.3d 1028, 1035 (9th Cir. 2009).) On remand, when the plaintiff’s inaccurate allegations did not have to be accepted as true, the District Court found that ECMC was not a debt collector as a matter of law. (Rowe v. ECMC, 730 F.Supp.2d 1285, 1289 (D. Or. 2010).) / / / / / / / / / Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 9 of 18 {00055194;1} 10 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 Similarly, in another case involving an FDCPA claim brought by a borrower against his guaranty agency, the District Court for the District of Columbia held: “[T]he FDCPA is inapplicable to [the guaranty agency] as a matter of law because [it] is a guarantee agency and not a debt collector within the meaning of the statute.” (Edler v. Student Loan Marketing Association, 1993 WL 625570 at *2 (D.D.C. Dec. 13, 1993).) The United States District Court for the Southern District of California reached the same conclusion with respect to ECMC specifically: “Because [the plaintiffs] have failed to show that ECMC can be considered a debt collector, plaintiffs’ FDCPA claim fails.” (Rutz v. ECMC, 2012 WL 78394 at *2 (S.D. Cal. Jan. 9, 2012).) ECMC is not a “debt collector” within the meaning of Section 1692a(6) of the FDCPA. Consequently, the FDCPA does not apply to ECMC, and Plaintiff’s FDCPA claim fails as a matter of law. V. ECMC IS NOT SUBJECT TO THE FDCPABECAUSE OF THE “FIDUCIARY” EXCEPTION The FDCPA also outlines a number of exceptions to the generalized definition of “debt collector.” One of these exceptions is the “fiduciary” exclusion under Section 1692a(6)(F)(i), which provides as follows: “The term does not include . . . any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement.” (15 U.S.C. § 1692a(6)(F)(i).) / / / / / / / / / Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 10 of 18 {00055194;1} 11 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 The ED is the ultimate insurer of FFELP loans. Guaranty agencies acting in their fiduciary capacity to the ED therefore fall within the “fiduciary” exception to the FDCPA. In Pelfrey, the Court concluded: “[T]he facts of this case clearly fall within the ‘incidental to a bona fide fiduciary obligation’ exception as provided in 15 U.S.C. § 1692a(6)(F)(i). This court agrees with the reasoning in Davis v. United States Aid Funds, Inc., as quoted above. 20 U.S.C. § 1072(g)(1) provides that, ‘the reserve funds of the guaranty agencies, regardless of who holds or controls the reserves or assets, shall be considered to be the property of the United States . . .’ 20 U.S.C. § 1078(c) and 34 C.F.R. § 682.410 set out an extended list of requirements applicable to guaranty agencies with regard to collection activities; receipt, allocation and accounting for funds; etc. Section 682.410(a)(5) provides that ‘the guaranty agency shall exercise the level of care required of a fiduciary charged with the duty of investing the money of others when it invests the assets of the reserve fund described in paragraph (a)(1) of this section.” (Pelfrey v. ECMC, 71 F.Supp.2d 1161, 1179-1180 (N.D. Ala. 1999).) The Eleventh Circuit affirmed the District Court’s ruling in its entirety: “We affirm the judgment of the district court granting the defendant’s motion for judgment as a matter of law on the ground that the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (1994), does not apply to the defendant, because the defendant is a ‘person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . is incidental to a bona fide fiduciary obligation . Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 11 of 18 {00055194;1} 12 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 . .” 15 U.S.C. § 1692a(6)(F)(i).” (Pelfrey v. ECMC, 208 F.3d 945 (11th Cir. 2000).) The Ninth Circuit has also determined that guaranty agencies collecting on student loan debt are not subject to the FDCPA, and recognized that ECMC is a guaranty agency. (Rowe v. ECMC, 559 F.3d 1028, 1032 (9th Cir. 2009).) But, as discussed above, the Ninth Circuit in Rowe remanded because of the procedural posture of the case, as “for purposes of a motion to dismiss under Rule 12(b)(6), we take at face value the allegation in the complaint.” (Id. at 1035.) On remand, after ECMC filed a summary judgment motion, the District Court found: “[I]t is now undisputed that ECMC is a student loan guaranty agency with a fiduciary duty to the United States Department of Education and is generally exempt from the definition of a debt collector under the FDCPA.” (Rowe, 730 F.Supp.2d at 1289.) In granting ECMC’s motion, the District Court found that ECMC assumed all the fiduciary obligations of the previous guaranty agency, and: “[N]o reasonable trier of fact could conclude that ECMC does not fall under the fiduciary obligation exception to the definition of debt collector under the FDCPA . . . Plaintiff isolates ECMC as a debt collector, but fails to acknowledge ECMC’s broader primary purpose as a fiduciary to the Department of Education.” (Rowe, 730 F.Supp.2d at 1288-1289.) Many other Courts across the country have reached the same conclusion, i.e., that guaranty agencies like ECMC are not debt collectors because they are collecting or attempting to collect debts incident to a bona fide fiduciary obligation. (See e.g. Montgomery v. ECMC, 238 B.R. 806, 810 (D. Minn. 1999) (finding guaranty agency acts incident to a fiduciary obligation when collecting on defaulted student loans); Davis v. United Student Aid Funds, Inc., 45 F.Supp.2d 1104, 1109 (D. Kan. 1998) (guaranty agency’s status was that of a fiduciary, which fit “squarely within the section Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 12 of 18 {00055194;1} 13 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 1692a(6)(F)(i) exemption”); Kirk v. ED Fund, 2007 WL 2226046 at *4 (W.D. Mo. Aug. 1, 2007) (finding student loan creditor falls within the bona fide fiduciary obligation exception); Virgen v. Sallie Mae, 2007 WL 1521553 at *9 (E.D. Cal. May 23, 2007) (finding the fiduciary exception applies); Bennett v. ECMC, et al., 504 F. App’x 872, 878 (11th Cir. 2013) (“[W]e have explicitly held that ECMC is an entity acting incident to a fiduciary relationship with the [Department of Education], and is therefore exempt from the provisions of the FDCPA”); Rutz v. ECMC, 2012 WL 78394 at *3 (S.D. Cal. Jan. 9, 2012) (“Even if ECMC could be considered a debt collector under the Act, the fiduciary exception in § 1692a(6)(F) would preclude liability”).) Most recently, the District Court for the Eastern District of Michigan held: “Every court that has addressed whether a guaranty agency owes a fiduciary obligation to the Department of Education has held that it does.” (Rainey v. ECMC, 2016 WL 1594378 at *3 (E.D. Mich. Apr. 21, 2016), citing Rowe, 559 F.3d at 1034.) In this case, too, ECMC was functioning as a student loan guarantor attempting to collect debts incident to a bona fide fiduciary obligation. All activity performed by ECMC with regard to Plaintiff’s loans was done in the capacity of a guaranty agency under the FFELP and a fiduciary to the ED. (UMF Nos. 1-7.) Consequently, the FDCPA does not apply to ECMC. VI. ECMC IS NOT SUBJECT TO THE FDCPABECAUSE OF THE “CREDITOR” EXCEPTION Separate and independent from the arguments made above, the FDCPA does not apply to a “creditor,” which the FDCPA defines as: “[A]ny person who offers or extends a debt or to whom a debt is owed, but such term does not include any person to the extent that he or she receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.” (15 U.S.C. § 1692a(4).) Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 13 of 18 {00055194;1} 14 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 ECMC held the guarantee of Plaintiff’s student loans when they defaulted, and paid default claims as the designated guaranty agency. (UMF No. 14.) Under the FDCPA, ECMC was therefore a “creditor” seeking to collect its own debt, and not an entity seeking to collect a debt owed to another, as required for the requirements of the Act to apply. Accordingly, the FDCPA is inapplicable to ECMC for this reason as well. As discussed, federal regulations require the guaranty agency play a significant role in the administration of the loan transaction from the beginning through the entire lifespan of the loan. The presence of the guaranty agency is essential for a lender to be willing to fund a loan. Here, when ECMC accepted transfer of the loan guaranty from the ED, ECMC took on all responsibilities associated with the guaranty of the loan. (UMF No. 12.) In other words, ECMC now stands in the shoes of the original guarantor (USAF) for all purposes. (See e.g. Sparrow v. SLM Corp., 2009 WL 77462 at *2 (D. Md. Jan. 7, 2009) (granting motion to dismiss the plaintiff’s FDCPA claim holding student loan creditor is not a debt collector, but rather is a creditor collecting its own debt absent the aid of a third party); National Can Corp. v. United States, 520 F.Supp. 567, 580 (N.D. Ill. 1981), aff’d 687 F.2d 1107 (7th Cir. 1982) (holding that where the guarantor discharges the obligation of a principal debtor, “the law raises an implied promise on the part of the principal to reimburse the guarantor”); Scott v. Norton Hardware Co., 54 F.2d 1047, 1051 (4th Cir. 1932) (holding that guarantors, having been required to make payments under guaranty, became entitled to recover payments as “creditors” of the bank furnishing bond).) Furthermore, the Federal Trade Commission (“FTC”) has stated that guaranty agencies are not subject to the FDCPA’s requirements. The FTC was empowered by Congress to enforce the FDCPA. (15 U.S.C. § 1692l(a).) The FTC has issued an opinion letter stating that the FDCPA does not apply to guaranty agencies seeking to collect upon defaulted student loans: Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 14 of 18 {00055194;1} 15 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 “Next, let me address the question of (a guaranty agency’s) activities in collecting debts in its capacity as a guarantor of student loans. In this capacity [the agency] purchases student loans which are in default status from commercial lending institutions. In purchasing these defaulted obligations, [the agency] legally becomes the owner of the debts. When [the agency] tries to collect these obligations, [it] acts as a creditor collecting its own debt in its own name and is therefore exempt from the definition of debt collector under Section 803(6)(A) of the Act. Therefore, it appears that [the guaranty agency] is not a ‘debt collector’ for purposes of the Act and an investigation for violations of the Act is not warranted.” (FTC Opinion Letter, 1988 WL 1098776 at *1 (September 12, 1988).) The FTC’s conclusion is supported by case law construing the FDCPA. For example, in Games v Cavazos, 737 F.Supp. 1368 (D. Del. 1990), the Court rejected a student loan debtor’s claim that the private nonprofit guaranty agency that guaranteed his student loans violated the FDCPA by sending certain notices to him. The Court held that the FDCPA did not apply, stating: “[T]he sending of these notices by [defendant] and other private guaranty agencies in connection with their administration of the GSL Program1 is simply not the kind of activity Congress intended to regulate . . . [U]nlike a typical debt collector, [a guaranty agency] is involved with Guaranteed Student Loans from the moment the loan is made . . . I am convinced that Congress did not intend the FDCPA to apply to guarantee 1 The FFELP was formerly named the “Guaranteed Student Loan Program” before being renamed in 1992. Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 15 of 18 {00055194;1} 16 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 agencies administering the GSL Program in cooperation with [the ED].” (Games at 1389, footnote added.) Pursuant to the foregoing, ECMC, a student loan guarantor, is a creditor within the meaning of the FDCPA. ECMC owned Plaintiff’s debt which was settled in full in late 2015. (UMF Nos. 14, 16, 17.) ECMC is thus exempt from the FDCPA for this additional reason. VII. PLAINTIFF’S CLAIM IS AN IMPROPER ATTEMPT TO CIRCUMVENT THE LACK OF A PRIVATE RIGHT OF ACTION UNDER THE HEA Plaintiff alleges that ECMC engaged in improper collection activity, by allegedly failing to communicate to the consumer reporting agencies that Plaintiff disputed his student loan debt, which he subsequently paid. (UMF Nos. 16-19.) However, ECMC is required to report defaulted student loans to the consumer reporting agencies. (See e.g. 20 U.S.C. § 1080a; 34 C.F.R. § 682.410(b)(5) and (6)(iii).) To the extent ECMC fell short of its requirements, which ECMC strongly denies, the ED is exclusively empowered to take remedial actions against a guaranty agency which fails to comply with the HEA and FFELP regulations. (See e.g. 34 C.F.R. § 682.413(b)(2) and (c)(1).) The HEA does not permit a private right of action for student loan borrowers. (McCulloch v. PNC Bank, Inc., 298 F.3d 1217, 1221 (11th Cir. 2002).) Plaintiff’s claims against ECMC herein are therefore an improper attempt to circumvent the lack of a private right of action under the HEA. As held by the Eleventh Circuit in McCulloch: “[I]t is important to note at the outset that nearly every court to consider the issue in the last twenty-five years has determined that there is no express or implied private right of action to enforce any of the HEA’s provisions.” (McCulloch at 1221.) The Court further stated: “In enacting the HEA, Congress expressly provided a detailed regulatory scheme which confers on the Secretary of Education the exclusive authority to monitor and enforce the provisions of Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 16 of 18 {00055194;1} 17 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 the HEA. In addition, Congress specifically considered the possibility that lenders may not comply with provisions of the HEA, and established enforcement mechanisms whereby the Secretary of Education can monitor and sanction non-compliance . . . A private right of action would also not be consistent with the enforcement scheme provided by Congress, as it would run counter to Congress’ express purpose of providing the Secretary of Education with exclusive enforcement authority to remedy violations of the HEA.” (McCulloch at 1223-1224.) Similarly, in Cliff v. Payco, 363 F.3d 1113 (11th Cir. 2004), the Court held: “[T]he HEA expressly empowers only the Secretary of Education - not debtors - with the authority to enforce the HEA and rectify HEA violations. 20 U.S.C. §§ 1070(b), 1071, 1082, 1094. It is well-settled that the HEA does not expressly provide debtors with a private right of action.” (Cliff at 1123 (11th Cir. 2004).) Furthermore, “specific requirements of the FFELP and attendant regulations take preference over any general inconsistencies with the FDCPA.” (Pelfrey v. ECMC, 71 F. Supp. 2d 1161, 1180 (N.D. Ala. 1999), aff’d, 208 F.3d 945 (11th Cir. 2000).) Therefore, Plaintiff cannot assert an FDCPA claim in lieu of a purported HEA violation. His claims against ECMC in this lawsuit constitute an improper attempt to assert a private right of action and circumvent the HEA. VIII. CONCLUSION ECMC respectfully requests that this motion be granted. DATED: October 19, 2016 UDALL LAW FIRM By: s/Thomas P. Burke, II Thomas P. Burke, II Attorneys for Defendant EDUCATIONAL CREDIT MANAGEMENT CORPORATION Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 17 of 18 {00055194;1} 18 08338.00 MOTION FOR SUMMARY JUDGMENT CASE NO. 2:15-cv-02351-SPL 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 CERTIFICATE OF SERVICE I hereby certify that on October 19, 2016, a true and correct copy of the foregoing document entitled DEFENDANT EDUCATIONAL CREDIT MANAGEMENT CORPORATION’S MOTION FOR SUMMARY JUDGMENT was filed through the ECF system, which will send notification of such filing to the following e-mail addresses: gary@micreditlawyer.com nik@mcnowick.com tkent@kentlawpc.com jdessaules@dessauleslaw.com gmartin@jonesday.com william@williamfifelaw.com mayers@hinshawlaw.com raoyama@hinshawlaw.com DATED: October 19, 2016 UDALL LAW FIRM By: s/Thomas P. Burke, II Thomas P. Burke Attorneys for Defendant EDUCATIONAL CREDIT MANAGEMENT CORPORATION Case 2:15-cv-02351-SPL Document 51 Filed 10/19/16 Page 18 of 18