Opinion
CV156057921S
05-18-2016
University of New Haven v. Samary Agosto
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE MOTION FOR DEFAULT JUDGMENT #113
Brian T. Fischer, J.
INTRODUCTION
This case concerns the attempts of an the plaintiff, University of New Haven, to collect from the defendant, Samary Agosto, a debt arising from an outstanding Federal Perkins loan. To date, the defendant has not filed an appearance in this action. On December 15, 2015, the plaintiff filed a motion for default pursuant to Practice Book § 17-23 (#106), which was granted by the court, Fischer, J., in an order dated December 23, 2015 (#106.10). The court's order did not include an award of collection fees, as had been requested by the plaintiff. On January 12, 2016, the plaintiff filed a motion to reargue/reconsider the court's order (#108), which was granted.
The plaintiff also filed a second motion for default (#113). In the attached affidavit of debt, the plaintiff seeks to collect a total of $9, 062.18, which includes the loan principal of $5, 500.00; collection fees of $2, 231.09; attorney fees of $825; interest of $376.69; and late charges of $29.40. At the April 11, 2016 short calendar, the plaintiff argued that when an institution seeks to collect an outstanding Perkins loan through litigation, federal law mandates the addition of collection fees and attorney fees as part of the award.
DISCUSSION
The issue before the court is what discretion it has, if any, in awarding collection costs and attorney fees arising from debt collection efforts on an outstanding Perkins loan. In general, the collection of an outstanding Perkins loan is subject to Title 20 of the United States Code, section 1091a, which provides in relevant part: " Notwithstanding any provision of State law to the contrary . . . a borrower who has defaulted on a loan made under this subchapter and part C of subchapter I of chapter 34 of title 42 shall be required to pay, in addition to other charges specified in this subchapter and part C of subchapter I of chapter 34 of title 42 reasonable collection costs . . ." (Emphasis added.) 20 U.S.C. § 1091a(b)(1).
The determination and assessment of reasonable collection costs, in turn, is set by 34 C.F.R. § 674.45(e), which provides that " (1) Subject to § 674.47(d), the institution shall assess against the borrower all reasonable costs incurred by the institution with regard to a loan obligation. (2) The institution shall determine the amount of collection costs that shall be charged to the borrower for actions required under this section . . . based on either i) Actual costs incurred for these actions with regard to the individual borrower's loan; or (ii) Average costs incurred for similar actions taken to collect loans in similar stages of delinquency. (3) For loans placed with a collection firm on or after July 1, 2008, reasonable collection costs charged to the borrower may not exceed . . . (iii) For collection efforts resulting from litigation, 40 percent of the amount of principal, interest, and late charges collected plus court costs."
The plain language of the controlling statute and regulations indicates that the institution is obligated to assess " reasonable collection costs" on the debtor, and that the debtor is obligated to pay them. The question, however, remains: how to define and calculate " reasonable collection costs." " Because the statute leaves the terms 'reasonable collection costs' undefined, the Court must defer to the Department of Education's interpretation of the term, if reasonable." United States v. Vilus, 419 F.Supp.2d 293, 297 (E.D.N.Y. 2005) (fee arrangement under § 674.45 not unreasonable). " Where, as here, the agency's interpretations are found in 'formal adjudications and interpretations promulgated by an agency pursuant to notice-and-comment rulemaking, ' they are generally accorded Chevron deference. Kruse v. Wells Fargo Home Mortg., Inc., 383 F.3d 49, 59 (2d Cir. 2004)." United States v. Vilus, supra, 419 F.Supp.2d 299.
When the controlling regulations were promulgated in 1987, the Secretary provided a thorough explanation of the underlying intent. According to the Secretary's commentary: " The determination of what constitutes a 'reasonable' collection cost is also governed by Federal law; based on the factors addressed in these statutes and regulations, the Secretary believes that this determination must be made on the basis of what is reasonable from the perspective of the holder of the federally financed student loan obligation; if the cost is reasonably incurred by the holder, the full amount of that cost is a 'reasonable collection cost' within the meaning of section 484A(b) and recoverable from the debtor. Under this norm, the Secretary considers the full amount of contingent fees charged the institution to be reasonable collection costs for several reasons.
" First, the Secretary has determined, based on the Department's experience with its own debts and its experience with debt collection in the Perkins program, that the protection of the substantial Federal investment in the institution's student loan receivables warrants the use of commercial debt collection contractors, which provide added staff and expertise that many institutions lack to handle more difficult accounts. This resource is generally available only under a contingent fee contract; therefore, contingent fee costs are reasonable collection costs because they must be incurred to implement the Department's determination that collection firm services are necessary to protect the Fund.
" Second, the contingent fee agreements reached by Federal agencies are the result of competitive selection process, as Congress directed; the resulting fee charges are thus reasonable when measured by the standard set by Congress. The Secretary therefore considers the full amount of a contingent fee resulting from a bona fide attempt by the institution to secure competitive rates for these services, by formal bidding procedures or other appropriate measures, to be a 'reasonable' collection cost, as that term is used in section 484A(b).
" Third, the Secretary considers contingent fees incurred in the manner described here to be 'reasonable' collection costs in light of the stage of delinquency and place in the collection process of loans on which they are incurred. These regulations direct institutions to work defaulted accounts through the billing cycle before engaging the more costly services of a collection firm. The debtor is given a reasonable opportunity to resolve the debt with the institution before the cost of the contingent fee is imposed, and the added cost of contingent fee liability is incurred by the institution only after less expensive means of collection have proven unsuccessful.
" For these reasons, the Secretary concludes that regardless of any contrary provision of State law, Federal law authorizes institutions to charge debtors the full amount of reasonably-negotiated contingent fees charged to collect loans; moreover, to the extent that a debt collector seeks to recover these charges on behalf of the institution, this Federal preemption necessarily extends to its actions as agent of the institution with regard to these loans." Perkins Loan Program, 52 Fed. Reg. 45552-53 (November 30, 1987).
There is no Connecticut authority that discusses a court's discretion in determining " reasonable collection costs" with respect to an outstanding Perkins loan. In other jurisdictions, courts have afforded substantial weight to the Secretary's comments, and thus, also to an institution's calculation of " reasonable collection costs." " The determination of what constitutes 'reasonable collection costs' under the statute, according to the commentary, has become a matter of Federal law, and the full amount of any negotiated contingent fee charged to an educational institution by a collection firm is deemed to be 'reasonable, ' such fee being viewed both as necessary to collect the loan and as likely to have been established through procedures designed to assure competitive rates." Trustees of Tufts College v. Ramsdell, 554 N.E.2d 34, 36, 28 Mass.App.Ct. 584, review denied, 556 N.E.2d 1037, 407 Mass. 1104 (1990).
Importantly, attorneys fees are considered to be a component of those costs. United States v. Vilus, supra, 419 F.Supp.2d 297. As indicated by the Code of Federal Regulations, " [t]he term 'collection procedures, ' as used in this subpart, includes that series of more intensive efforts, including litigation as described in § 674.46, to recover amounts owed from defaulted borrowers . . ." 34 C.F.R. § 674.45(a). In turn, litigation costs include " attorneys fees, court costs, and other related costs, to the extent permitted under applicable law . . ." 34 C.F.R. § 674.46(b)(1). Moreover, multiple jurisdictions have held that the determination of attorneys fees is subject to state law. Trustees of Tufts College v. Ramsdell, supra, 554 N.E.2d 36 (federal law does not preempt state law relating to amounts of attorneys fees); Franklin College v. Turner, 844 N.E.2d 99, 105 (Ind.App. 2006) (same). Therefore, as a component of the calculation of " reasonable collection costs, " a trial court has discretion to determine a reasonable attorneys fee under applicable state law, which in Connecticut is rule 1.5(a) of the Rules of Professional Conduct. See Schoonmaker v. Lawrence Brunoli, Inc., 265 Conn. 210, 259, 828 A.2d 64 (2003).
As indicated by the Secretary of Education's commentary, the court's discretion to adjust a request for " reasonable collection costs" is very limited. A borrower is required to pay " reasonable collection costs" under 20 U.S.C. § 1091a. Those costs are determined " on the basis of what is reasonable from the perspective of the holder of the federally financed student loan obligation, " 52 Fed.Reg. 45552. Therefore, assuming that the plaintiff's requested award, inclusive of attorneys fees, is within the regulatory limit of 40%, then the court has discretion to award less than the requested amount only if there is some evidence indicating that the costs are unreasonable from the perspective of the debt holder.
CONCLUSION
In the instant matter, the plaintiff's " reasonable collection costs, " including attorneys fees, are subject to the 40% limit set forth by 34 C.F.R. § 674.45(e)(3)(iii), which, as applied to the total of the outstanding principal, interest, and late charges, is $2, 362.44. Any further adjustment of that total is subject to the conditions established by the foregoing authorities.
Therefore, the court grants collection costs in the amount of $2, 362.44 to the plaintiff which includes interest, late charges and attorneys fees.