Opinion
Civil Action No. 02-2909
March 28, 2003
ORDER AND REASONS
Before this Court is a Motion to Dismiss Pursuant to Rule 12(b)(6) by Defendant Sallie Mae Servicing, L.P. f/k/a Sallie Mae Servicing Corporation ("Sallie Mae"). Having reviewed the pleadings, memoranda and the relevant law, the Court finds that the federal claims must be dismissed. Furthermore, finding no reason to exercise supplemental jurisdiction over the state law claims, the Court shall remand this matter to the Civil District Court for the Parish of Orleans.
PROCEDURAL HISTORY
Jeffrey Brumberger ("Brumberger") obtained certain school loans though his college and medical school education. (Petition, ¶ 1). Brumberger asserts that since graduation he has made regular monthly payments on these loans. (Petition, ¶ 2). He claims that at some point, Sallie Mae was assigned plaintiffs notes and accounts for collection, (Petition, ¶ 4) and that it sent to plaintiff delinquency notices, even though he maintains he was never delinquent. Furthermore, Plaintiff alleges that Sallie Mae applied plaintiffs payments to late fees and other charges that were erroneously assessed against the plaintiff. (Petition, ¶ 6). Plaintiff alleges that he sent written notice several times to Sallie Mae that it had made error. (Petition, ¶ 8).
Plaintiff contends that on August 21, 2002, he sent to Sallie Mae a final payment for the balance due on the loan. (Petition, ¶ 10). Nonetheless, he received notice that Sallie Mae had negotiated his "last payment" and that there was remaining a principal balance due of $3,930.80. He claims that Sallie Mae has not corrected this information, which has resulted in delinquency notices and that incorrect information has been submitted to credit bureaus resulting in his credit rating being damaged. (Petition, ¶ 13, 18) resulting his being denied credit.
On August 20, 2002, Brumberger filed an action in Civil District Court for the Parish of Orleans in Louisiana. In his action, Brumberger alleged that Sallie Mae violated: (1) the Consumer Credit Protection Act, 15 U.S.C. § 1666 ("CCPA"), the Fair Debt Collection Practices Act 15 U.S.C. § 1692, et seq. ("FDCPA"), (2) the Fair Debt Collection Practices Act 15 U.S.C. § 1692, et seq. ("FDCPA"), (3) Louisiana Unfair Trade Practices Act, La. Rev. Stat. 51:1405, and (4) a breach of contract claim.
On September 20, 2002, this case was removed to the United States District Court for the Eastern District of Louisiana based on federal question jurisdiction pursuant to 28 U.S.C. § 1331 based on the CCPA and the FDCPA claims. Subsequently, on October 21, 2002, Sallie Mae filed a Motion to Dismiss Pursuant to Rule 12(b)(6) in which it contends that Brumberger has failed to state a claim upon which relief can be granted.
STANDARD FOR RULE 12(B)(6) MOTION TO DISMISS
Courts routinely view motions to dismiss with disfavor and rarely grant them. Kaiser Aluminum Chem. Sales v. Avondale Shipyards, 677 F.2d 1045, 1050 (5th Cir. 1982). "A motion to dismiss an action for failure to state a claim `admits the facts alleged in the complaint, but challenges plaintiffs right to relief based upon those facts.'" Crowe v. Henry, 43 F.3d 198, 203 (5th Cir. 1995) (quoting Ward v. Hudnell, 366 F.2d 247, 249 (5th Cir. 1966)). "The complaint must be liberally construed in favor of the plaintiff, and all facts pleaded in the complaint must be taken as true." Shipp v. McMahon, 234 F.3d 907, 911 (5th Cir. 2000). As such, "[t]he district court may not dismiss a complaint under rule 12(b)(6) `unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Nonetheless, "legal conclusions," "unsupported conclusions," "unwarranted references," or "sweeping legal conclusions cast in the form of factual allegations" are not required to be accepted as true when considering the sufficiency of the complaint. Tuchman v. DSC Communications Corp., 14 F.3d 1061 (5th Cir. 1994); Wright Miller,Federal Practice Procedure § 1357, at 315-18.
FEDERAL CLAIMS
As noted, Brumberger brought suit pursuant to 15 U.S.C. § 1666 of the CCPA and 15 U.S.C. § 1692 of the FDCPA. In his memorandum in opposition to the motion to dismiss he invoked a third federal statute that raises another possible basis for federal jurisdiction, 15 U.S.C. § 1681s-2 (a)(1)(B). With the previously outlined standards in mind, the Court will now examine the sufficiency of the federal claims.
1. Consumer Credit Protection Act
Brumberger claims that Sallie Mae violated 15 U.S.C. § 1666 by ignoring his requests for correction of billing errors. Section 1666a prohibits a creditor from issuing adverse reports relating to an obligor's failure to pay amounts due to "billing errors" for which a creditor has received written notice from the obligor, pursuant to § 1666a(a). A billing error consists of any of the following:
(1) A reflection on a statement of an extension of credit which was not made to the obligor or, if made, was not in the amount reflected on such statement.
(2) A reflection on a statement of an extension of credit for which the obligor requests additional clarification including documentary evidence thereof
(3) A reflection on a statement of goods or services not accepted by the obligor or his designee or not delivered to the obligor or his designee in accordance with the agreement made at the time of a transaction.
(4) The creditor's failure to reflect properly on a statement a payment made by the obligor or a credit issued to the obligor.
(5) A computation error or similar error of an accounting nature of the creditor on a statement.
(6) Failure to transmit the statement required under section 127(b) of this Act [15 U.S.G.S. 1637(b)] to the last address of the obligor which has been disclosed to the creditor, unless that address was furnished less than twenty days before the end of billing cycle for which the statement is required.
(7) Any other error described in regulations of the Board.
15 U.S.C. § 1666 (b) (2003). It further requires a creditor to report disputed amounts and the resolution of any delinquencies reported as disputed. 15 U.S.C. § 1666a(b)(c) (2003). To trigger the creditor's obligation to reinvestigate and verify the billing, the debtor must give written notice of the specific dispute within sixty days of receipt of the statement. 15 U.S.C. § 1666 (a) (2003). Failure to comply with these requirements subjects a creditor to liability under Section 1640 of the Act.
Section 1666 of the CCPA and its remedies do not apply to Brumberger's student loan. Section 1603 provides that "[t]his subchapter does not apply to . . . loans made, insured, or guaranteed pursuant to a program authorized by Title IV of the Higher Education Act of 1965 ( 20 U.S.C. § 1070 et seq)." 15 U.S.C. § 1603 (7) (2003). Subchapter I of the Consumer Credit Protection Act includes Sections 1601 to 1667f and, therefore, Section 1666 does not apply to programs authorized by the Higher Education Act ("HEA"). Sallie Mae and its subsidiaries are considered such authorized programs since they were established by Congress in 1972 as Government Sponsored Enterprises through the Higher Education Act to serve as a national secondary market for student loans. 20 U.S.C. § 1087-2 (2003). Therefore, Section 1666 does not apply to Brumberger's student loan and his CCPA claim is without merit.
2. Fair Debt Collection Practice Act Claim
The purpose of the FDCPA is to eliminate abusive debt collection practices by providing redress for injuries to those customers that have been subject to such practices. 15 U.S.C. § 1692 (2003). To trigger application of this statute, the funds at issue must constitute a debt, and the challenged activity must be conducted by a party that falls within the statutory definition of debt collector. Id. "Thus, the statutory definitions of both terms play a central role in delineating the scope and reach of the Act." Pelfrey v. Educational Credit Management Corp., 71 F. Supp.2d 1161, 1166 (N.D. Ala. 1999).
Brumberger must satisfy both elements of the FDCPA to be eligible for a remedy under the Act. First, the student loan at issue must constitute a debt under the FDCPA. In 15 U.S.C. § 1692a(5), "[t]he term `debt' means any obligation of a customer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment." "The primary criterion of this definition is that the debt must be for consumer and not commercial purposes. Student loans . . . fall under the FDCPA's definition of `debt.'" Pelfrey, 71 F. Supp.2d at 1166.
Second, the challenged activity must be conducted by a party that falls within the statutory definition of debt collector. Debt collector is defined as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of 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) (2003). The term "debt collector" does not include "[a]ny person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . (iii) concerns a debt which was not in default at the time it was obtained by such person." 15 U.S.C. § 1692a(6)(F) (2003) (emphasis added).
To determine whether a party who would otherwise be a debt collector falls within the ambit of § 1692a(6)(F), it is necessary to define the word "default." The FDCPA does not provide a definition of default. In Skerry v. Mass. Higher Edu. Assistance Corp., 73 F. Supp.2d 47, 51 (D.Mass. 1999), the court held that a non-profit agency that acted as guarantor and assistant on the loans did not provide such assistance while the loans were in default and thus did not qualify as a debt collector under the FDCPA Skerry's loan was sold to Nellie Mae and was serviced by USA Group Services, with ASA as the guarantor. Id. at 49-50. As a result of a dispute over his account balance, Skerry stopped making payments on his loan for over ninety days. Id. at 50. The dispute was eventually settled and Skerry's loan was never defaulted by ASA. Id. at 50.
In deciding whether ASA fit within the exemption of 15 U.S.C. § 1692a(6)(F), the court adopted the definition of default in the Federal Family Education Loan Program (FFELP). Id. at 51. FFELP regulations define default as "[t]he failure of a borrower . . . to make an installment payment when due, or to meet other terms of the promissory note . . . for . . . 180 days for a loan repayable in monthly installments. Id. (citing 34 C.F.R. § 682.200 (b)-(b)(1) (1998)). Under FFELP regulations, `default' is distinct from delinquent, which is defined as `[t]he first day after the due date of the first missed payment which is not later made.'" Id. (citing 34 C.F.R. § 682.411 (b)). The court found that this 180 day definition furthered the legislative intent of FDCPA and that other courts had utilized the FFELP regulation definition of "default" to determine a debt collector under the FDCPA. Id. at 52-53. Applying this definition, the court found that Skerry's loan was not 180 days past due when APA undertook to provide pine-claims assistance. Id. at 54. "The crucial inquiry, for purposes of determining if the (6)(F)(iii) exception applies, is not the general role of the entity within the FFELP framework, e.g. servicer or guarantor, but whether or not the challenged activity concerns a debt which was not in default at the time that it was obtained by the entity." Id. at 55. The court dismissed the FDCPA claim and dismissed the state court claims due to lack of federal question jurisdiction. Id.
There is no allegation that Brumberger was in default at any time during the course of this conduct. Indeed, it is clear that he maintains that he has consistently made the required monthly payments on his student loan. (Pet. for Damages ¶ 2, 5 12; see also Mem. in opp'n to Mot. to Dismiss at pp. 1 2). As such, the facts of this case do not meet the definition of default provided in FFELP regulations, which require the borrower to fail to make a payment or meet other terms of the promissory note for 180 days. Therefore, Sallie Mae is not a debt collector under the FDCPA because it fits within the exemption of 15 U.S.C. § 1692a(6)(F). Brumberger's FDCPA claim is likewise without merit.
3. Fair Credit Reporting Act
Brumberger also claims that Sallie Mae violated 15 U.S.C. § 1681s-2 (a)(1)(B) of the Fair Credit Reporting Act ("FCRA"), without any supporting factual allegations. This claim was not included in the petition; nonetheless, the Court will consider it as it might provide another basis for federal question jurisdiction.
The FCRA prohibits people who furnish information to consumer reporting agencies from providing information that the person knows or consciously avoids knowing is inaccurate, and prohibits the furnishing of information after the person has been notified that the information is inaccurate. See 15 U.S.C. § 1681s-2 (2003). Under FCRA, the duties of furnishers of information to consumer reporting agencies are set forth in 15 U.S.C. § 1681s-2. Id. This provision identifies two general types of obligations owed by furnishers of information. Id. One is their duty "to provide accurate information" to credit reporting agencies, as stated in Section 1681s-2(a). The other is their duty under Section 1681s-2(b), upon receiving notice of consumer disputes from reporting agencies, to investigate the disputes and report the results to consumer reporting agencies. See Fino v. Key Bank of New York, 2001 WL 849700 (W.D.Pa. 2001).
Brumberger alleges that Sallie Mae violated Section 1681s-2(a)(1)(B), which provides that "[a] person shall not furnish information relating to a consumer to any consumer reporting agency if — (i) the person has been notified by the consumer, at the address specified by the person for such notices, that the specific information is inaccurate; and (ii) the information is, in fact, inaccurate." However, the FCRA dictates that these and the other provisions of Section 168ls-2(a) are to be "enforced exclusively . . . by the Federal agencies and officials and [certain] State officials. . . ." 15 U.S.C. § 1681s-2 (d) (2003). Under this provision, the Act "grants the FTC exclusive enforcement power over" Section 1681s-2(a), and `there is no private right of action for a violation of' the Section. Id.: see also Olexy v. Interstate Assurance Co., 113 F. Supp.2d 1045, 1047 (S.D. Miss. 2000); Quigley v. Pennsylvania Higher Educ. Assistance Agency, 2000 WL 1721069, *2 (N.D. Cal. Nov. 8, 2000). Brumberger, therefore, cannot maintain a private right of action under Section 1681s-2(a)(1)(B) and his FCRA claim is likewise without merit.
Pendent State Law Claims and Supplemental Jurisdiction
This Court's finding that plaintiff has no viable claims under federal law deprives this Court of the foundation for its subject matter jurisdiction. Although the several state law counts were properly asserted over which the Court had jurisdiction pursuant 28 U.S.C. § 1367, the Court may decline such supplemental jurisdiction where the court has dismissed all claims over which it has roiginal jurisdiction. 28 U.S.C. § 1367 (c)(3). As this case is in its nascent stages and there apparently has been no discovery, indeed, the matter has not even been set for trial, the Court declines to exercise its supplemental jurisdiction over this matter and will remand this case to the Civil District Court for the Parish of Orleans, State of Louisiana. Accordingly,
IT IS ORDERED that Sallie Mae's Motion to Dismiss is GRANTED with respect to the federal law claims.
IT IS FURTHER ORDERED that pursuant to 18 U.S.C. § 1367 (c), the case is REMANDED to Civil District Court for the Parish of Orleans in Louisiana.