Marlene Blyden v. Navient Corporation et al
Filing
51
MINUTES (IN CHAMBERS) Order GRANTING Defendants' Motions to Dismiss by Judge Jesus G. Bernal re: 21 MOTION to Dismiss Case; 22 MOTION to Dismiss Case; 26 MOTION to Dismiss. Plaintiff may amend with respect to all Defendants except the trusts that never owned her loan. Any amended complaint must be filed no later than August 4, 2015. (See document for specifics.) (iva)
2003-C, SLM Private Credit Student Loan Trust 2004-A, SLM Private Credit Student
Loan Trust 2004-B, SLM Private Credit Student Loan Trust 2005-A, SLM Private Credit
Student Loan Trust 2005-B, SLM Private Credit Student Loan Trust 2006-A, SLM
Private Credit Student Loan Trust 2006-B, and SLM Private Credit Student Loan Trust
2006-C.4
Plaintiff filed her Second Amended Complaint (“SAC”) on February 4, 2015. (Doc.
No. 18.) On March 6, 2015, Defendants’ brought three separate motions to dismiss the
SAC. (Doc. Nos. 21, 22, 26.)
II.
ALLEGATIONS OF THE SAC
Plaintiff entered into a loan contract, which specified the nominal lender as First
National Bank of Sioux Falls (“Sioux Falls National Bank” or “SFNB”). (Doc. No. 18-1
Exs. C, D (respectively, “Loan Application” and “Disclosure Statement”).) The loan was
subsequently assigned to a now-defunct entity, the Student Loan Marketing Association
(“SLMA”). (SAC ¶ 175.) SLMA, through a series of mergers, eventually became
Defendant Navient LLC (now Navient Corp).5 (SAC ¶¶ 45(a), (b).) Defendant NSI
serviced Plaintiff’s loan from its inception. (SAC ¶ 176.) Plaintiff’s loan was either kept
by Navient Corp or securitized and sold to one of the Trust Defendants.6 (SAC ¶ 128.)
From July 1, 2006 to September 30, 2007, Plaintiff was charged interest on her loan
at a rate of 10.25%. (SAC ¶¶ 173, 180, 185, 186.) This is considered usury under
California law, which prohibits charging interest at a rate above 10%. (SAC ¶ 11, 12.)
Sioux Falls National Bank, the nominal lender, is exempt from California usury law
under the National Bank Act, which allows national banks to charge interest under their
home states’ usury laws and preempts application of other states’ usury laws. (SAC ¶ 6.)
However, none of the Defendants in this case are national banks, so they are not exempt
from California usury laws because the National Bank Act does not apply to them. (See
SAC ¶ 9.)
Plaintiff believed the 10.25% interest to be lawful because her loan was made by a
national bank, even though it was subsequently assigned to another entity not covered by
the National Bank Act. (SAC ¶ 192.)
4
The Court will refer to the SLM Private Credit Student Loan Trust defendants
collectively as the “Trust Defendants” and individually by the abbreviations “2003-A
Trust,” “2003-B Trust,” etc.
5
According to the SAC, during the relevant time periods, most of the Navient
Defendants operated under another name or subsequently merged with the entities
actually described in the SAC. Hereafter, to avoid confusion, the Court refers to the
entities by their current names, assuming the SAC’s allegations of mergers to be true.
6
While it appears from the SAC that Plaintiff does not know who owns her loan,
the Trust Defendants disclose in their motion that the 2003-B Trust is the owner. (See
Doc. No. 28 at 7-8 (“SLM Private Credit Student Loan Trust 2003-B . . . is in fact the
statutory trust that owns Plaintiff’s student loan”).)
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On November 28, 2013, a document was made public, which Plaintiff contends
revealed the unlawful nature of the interest. (SAC ¶ 193.) The document was a Loan
Purchase Agreement (“LPA”) between Navient Corp and Sioux Falls National Bank,
under which Navient Corp provided the funding for the loans made by SFNB and then
purchased the loans “at cost” shortly after the loan was disbursed. (SAC ¶¶ 83, 84, 100,
109; Doc. No. 18-1 Ex. A.)
According to Plaintiff, the LPA reveals that Navient Corp was the de facto lender of
Plaintiff’s loan, making the National Bank Act inapplicable. (SAC ¶ 192-95.)
Accordingly, without the National Bank Act’s preemption of California’s usury laws,
Plaintiff cannot be charged more than 10% interest on her loans. Plaintiff wishes to
represent a class of borrowers whose loans were made under this LPA and are now held
by Navient Corp, NCFC, or one of the Trust Defendants.
Defendants brought three motions to dismiss, each asserting multiple grounds for
dismissal, including lack of Article III jurisdiction and failure to state a claim.
III.
THE PARTIES’ FILINGS
The Court is disappointed, to varying degrees, with all parties in this case. What
should have been a straightforward set of legal disputes consumed an undue amount of
the Court’s time, due to (A) Defendants’ unnecessarily convoluted presentation of their
grounds for dismissal; and (B) Plaintiff’s questionable representations of case holdings,
which made it necessary to carefully review, in detail, every case cited by Plaintiff in
order to meaningfully evaluate Plaintiff’s arguments. The Court has done its best to
address the central disputes between the parties, but several issues will need to await
resolution until consideration of Plaintiff’s next amended complaint. If those unresolved
issues are raised again, the Court trusts that the parties will heed the admonishments
below and make a sincere attempt to avoid presenting their disputes in such an unwieldy
fashion.
A.
Defendants’ Motions
Before turning to the significantly more serious issue of Plaintiff’s opposition briefs,
a few prefatory remarks are due the Defendants.7
On March 6, 2015, the Court received a motion to dismiss the SAC filed on behalf of
NSI (“NSI’s MTD”). (Doc. No. 21.) The same day, the Court received a motion to
dismiss the SAC filed on behalf of Defendants NCFC, Navient LLC, Navient Corp, and
NIC (“Navient Affiliates’ MTD”). (Doc. No. 22.) The same day, the Court received a
motion to dismiss the SAC filed on behalf of the Trustee Defendants, the Trust
Defendants, and non-party SLM Private Credit Student Loan Trust 2002-A (“non-party
2002-A”) (“Trusts/Trustees’ MTD”). (Doc. Nos. 26, 28.)
7
Nothing herein should be interpreted to suggest that Defendants have done
anything improper. The Court’s admonitions are directed to “best practices” rather than
“minimal standards.”
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Defendants’ three partially overlapping, cross-referencing motions make it very
difficult for the Court to resolve the disputes between the parties with any judicial
efficiency. Beyond the confusion created by the three sets of similar-though-not-identical
arguments, within the individual briefs arguments are arranged haphazardly and grouped
in ways that conflate underlying legal issues.8 Even after the arguments are disentangled
and clarified, it is difficult to determine which arguments relate to which claims against
which defendants.
NSI’s MTD argues that
1. Plaintiff’s claims are time-barred (NSI’s MTD at 11);
2. Plaintiff lacks Article III standing to seek injunctive relief because there is no
imminent danger of her interest rising above 10% (id. at 20); and
3. Plaintiff fails to state a claim for
a. usury, because NSI only serviced Plaintiff’s loan and therefore never
kept the interest from Plaintiff’s loan (id. at 21-22);
b. unfair competition, because only restitution is available for this claim,
and NSI doesn’t possess the allegedly usurious interest payments (id.
at 23);
c. conversion, because
i. NSI never exercised dominion over Plaintiff’s money (id. at
23);
ii. a generalized claim for money damages is not actionable as
conversion (id. at 24).
Navient Affiliates’ MTD argues that
1. the Court lacks personal jurisdiction over the Navient Affiliates (Navient
Affiliates’ MTD at 6);
2. Plaintiff lacks Article III standing because none of her alleged injuries result
from any action by NCFC (only asserted by NCFC) (id. at 11);
3. Plaintiff fails to state a claim for
a. conversion, because NCFC never exercised dominion over Plaintiff’s
property (only asserted by NCFC) (id. at 12);
8
See, e.g., Navient Affiliates’ MTD at 12 (in a section addressing Article III’s
Case or Controversy requirement, arguing that “an essential element of conversion” is
missing); NSI’s MTD at 19 (arguing that Plaintiff lacks Article III standing because she
was not injured “within the statute of limitations period”); Trusts/Trustees’ MTD at 7
(arguing that Article III’s standing requirement isn’t met because “a usury claim brought
under California law must be brought against the loan owner”).
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b. money had and received, because NIC possesses only a beneficial
interest in the trust holding Plaintiff’s loan and is therefore not a true
owner of the trust’s assets (only asserted by NIC) (id. at 13-14);
c. usury, because there is no “joint enterprise” liability for usury (id. at
15); and
4. Plaintiff fails to state any claim, because
a. a parent company is not generally liable for the actions of its
subsidiaries (only asserted by Navient LLC and Navient Corp) (id. at
12-13);
b. Plaintiff has failed to plead conspiracy with adequate specificity (id.
at 16).
In addition to asserting the arguments above, the Navient Affiliates’ MTD also
incorporates—by reference—pages 11-19 of NSI’s MTD, which assert that Plaintiff’s
claims are time-barred. (See Navient Affiliates’ MTD at 16.)
The Trust and Trustee Defendants’ MTD argues that
1. Plaintiff’s claims are time-barred (Trusts/Trustees’ MTD at 5);
2. Plaintiff lacks Article III standing because
a. Plaintiff does not allege that any of the Trust Defendants owns her
loan (only asserted by non-party 2002-A and all Trust Defendants
except the 2003-B Trust) (id. at 6-8);
b. Trustee Defendants have never received interest on Plaintiff’s loan in
their individual capacities (only asserted by Trustee Defendants) (id.
at 9-10);
3. Plaintiff fails to state a claim for conversion, because
a. Plaintiff’s conversion claim is time-barred (id. at 10);
b. a generalized claim for money damages is not actionable as
conversion (id. at 10);
c. conversion requires exercising dominion over Plaintiff’s property
(only asserted by non-party 2002-A, Trustee Defendants, and all Trust
Defendants except the 2003-B Trust) (id. at 10-11); and
4. Plaintiff’s complaint fails to comply with Federal Rule of Civil Procedure 8
because
a. it does not give Trustee Defendants fair notice of their allegedly
wrongful conduct (only asserted by Trustee Defendants) (id. at 11);
b. it fails to name Trustee Defendants in their proper capacity as trustees
(only asserted by Trustee Defendants) (id. at 12).
In addition to making the arguments above on their own behalf, the Trust
Defendants, the Trustee Defendants, and non-party 2002-A also submitted a “motion” to
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join NSI’s MTD, incorporating by reference “each and every of [NSI’s] filings in Support
of the Motion as though set forth in full.” (Doc. No. 29.)
Having already spent a significant amount of time cross-referencing the various
motions simply to determine what arguments are being advanced by whom, the Court is
left with an even more daunting task: determining the most efficient way to approach this
veritable web of asserted grounds for dismissal.
The Court is aware that each Defendant may have felt compelled to assert every
defense available for fear of waiving arguments. The Court is also aware that Defendants
may have wished to place emphasis on different arguments, making it difficult to jointly
brief all of the relevant issues. However, given the amount of overlap in Defendants’
arguments and—even more significantly—given Defendants’ attempts to join each
other’s motions or incorporate entire sections of each other’s briefs by reference, it is
difficult to believe that Defendants’ interests were in such conflict they could not
coordinate better so as to (A) raise (and argue) each discrete legal issue only once, and
(B) present Defendants’ grounds for dismissal in an order (or in groupings) amenable to
efficient judicial resolution.
As an example, challenges to jurisdiction were raised in every brief, by almost every
party, and were substantively quite similar, and the Court is obligated to assure itself of
its jurisdiction before even considering the parties’ arguments on the merits. Accordingly,
considerations of efficiency would have favored addressing the jurisdictional challenges
in full before either the parties or the Court spent significant time addressing any issues
on the merits. Upon request, the Court could have ordered that the jurisdictional
challenges be briefed and decided before any briefing on the merits. This would have
a) allowed multiple parties with similar jurisdictional challenges to submit a
single brief, even though their merits arguments (made only in the
alternative) might have been too diverse to allow consolidated briefing; and
b) ensured that, if and when the Court ultimately proceeded to arguments on the
merits, it would only be confronted with disputes it has the authority to
resolve.
Certainly, such exceptions to the Court’s normal procedures are not common and the
Court does not wish to encourage parties to routinely request special briefing
accommodations. But given the state of the briefs now before the Court, it appears that a
departure from usual practices would have been the lesser of two evils.
B.
Plaintiff’s Oppositions
Although Defendants’ presentation of arguments leaves much to be desired, it was
not the only cause of the undue expenditure of time and resources necessary to address
the parties’ disputes.
As discussed more fully below, several of the Defendants whose motions consumed
significant time have no place in this action and very clearly should not have been named
as defendants. The section of Plaintiff’s brief addressing these Defendants is replete with
mischaracterizations and misstatements of the relevant case law.
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It appears in many respects as though counsel, instead of attempting to determine the
proper defendants, simply named as many parties as possible and left it to motions
practice to select the proper subset. The Court trusts this is not the case, but the extent to
which counsel exercised meaningful discretion in determining the proper defendants is
not readily apparent.
This implicates ethical as well as practical concerns. In light of these concerns, the
Court finds it prudent to remind counsel for all parties of their ethical and legal
obligations when making representations to this Court.9
Representations to the Court. By presenting to the court
a pleading, written motion, or other paper--whether by
signing, filing, submitting, or later advocating it--an attorney
or unrepresented party certifies that to the best of the
person’s knowledge, information, and belief, formed after an
inquiry reasonable under the circumstances . . . the claims,
defenses, and other legal contentions are warranted by
existing law or by a nonfrivolous argument for extending,
modifying, or reversing existing law or for establishing new
law.
Fed. R. Civ. P. 11(b), (b)(2).
“Rule 11 sets a low bar.” Strom v. United States, 641 F.3d 1051, 1059 (9th Cir.
2011). It does not prohibit “reasonable, albeit unpersuasive, interpretations of the law.”
Premier Commercial Corp. v. FMC Corp., 139 F.R.D. 670, 672 (N.D. Cal. 1991). Rather,
“[a]n argument contained in a motion is frivolous under Rule 11 if it is unreasonable
when viewed from the perspective of a competent attorney admitted to practice before the
district court.” United States v. Stringfellow, 911 F.2d 225, 226 (9th Cir. 1990).
When a complaint is submitted to the Court, the filing represents “counsel’s
certification that the facts [alleged in the complaint] gave rise to a legal right in the
plaintiff[] under existing law or a good faith argument for the extension, modification, or
reversal of existing law.” Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir.
1986) (internal quotations omitted).
A good faith belief in the merit of a legal argument is an
objective condition which a competent attorney attains only
after “reasonable inquiry.” Such inquiry is that amount of
examination into the facts and legal research which is
reasonable under the circumstances of the case. Of course,
the conclusion drawn from the research undertaken must
9
This discussion is not intended to suggest that any of the parties’ filings thus far
actually rises to the level of a violation of these obligations. But the possibility that
counsel, in the heat of zealous advocacy, may have paid them inadequate attention merits
reiterating their importance.
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itself be defensible. Extended research alone will not save a
claim that is without legal or factual merit . . . .
Id.
Thus, while the requirement that attorneys’ positions be supported by nonfrivolous
arguments is not a stringent one, neither is it an empty formality. “Frivolous arguments
and misstatements of law waste not only the parties’ time and resources, but they also
waste the Court’s time and resources.” Premier Commercial Corp., 139 F.R.D. at 674.
IV.
A.
LEGAL STANDARD
Article III Standing
The Court has an independent obligation to assure itself of litigants’ standing under
Article III. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 340 (2006). “Without
jurisdiction the court cannot proceed at all in any cause. Jurisdiction is the power to
declare the law, and when it ceases to exist, the only function remaining to the court is
that of announcing the fact and dismissing the cause.” Steel Co. v. Citizens for a Better
Environment, 523 U.S. 83, 94 (1998).
Furthermore, “standing is not dispensed in gross.” DaimlerChrysler, 547 U.S. at 353
(citing Lewis v. Casey, 518 U.S. 343, 357 (1996)). A plaintiff “must demonstrate standing
for each claim he seeks to press . . . [and] must demonstrate standing separately for each
form of relief sought.” Id. at 352.
The “irreducible constitutional minimum of standing contains three elements,” Lujan
v. Defenders of Wildlife, 504 U.S. 555, 560 (1992):
1. The plaintiff must have suffered an “injury in fact”—an invasion of a legally
protected interest which is (a) concrete and particularized and (b) actual or
imminent, not conjectural or hypothetical.
2. There must be a causal connection between the injury and the conduct
complained of—the injury has to be fairly traceable to the challenged action
of the defendant, and not the result of the independent action of some third
party not before the court.
3. It must be likely, as opposed to merely speculative, that the injury will be
redressed by a favorable decision.
Id. at 560-61.
B.
Rule 12(b)(1)
“Because standing and mootness both pertain to a federal court’s subject-matter
jurisdiction under Article III, they are properly raised in a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(1), not Rule 12(b)(6).” White v. Lee, 227 F.3d
1214, 1242 (9th Cir. 2000).
“A Rule 12(b)(1) jurisdictional attack may be 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. By contrast, in a factual attack, the challenger disputes
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the truth of the allegations that, by themselves, would otherwise invoke federal
jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004)
(internal citations omitted). Defendants here present a facial challenge to the Court’s
jurisdiction.
C.
Rule 12(b)(6)
“The focus of any rule 12(b)(6) dismissal . . . is the complaint.” United States v.
Corinthian Colleges, 655 F.3d 984, 991 (9th Cir. 2011).
Under the pleading requirements of Federal Rule of Civil Procedure 8(a)(2), the
Court must determine whether the Complaint contains “sufficient factual matter” that,
taken as true, “state[s] a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). Pursuant to this analysis, only factual allegations, as opposed
to legal conclusions, are entitled to an assumption of truth. Id. at 678. “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do
not suffice.” Id. If the Complaint does contain such supporting factual allegations, the
Court assumes their veracity and then determines whether they plausibly give rise to an
entitlement to relief. Id. at 679. “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Id. at 678. “The plausibility standard is not akin to a
‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Id.
“In alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). However, “Rule 9(b) requires only
that the circumstances of fraud be stated with particularity; other facts may be plead
generally, or in accordance with Rule 8.” Corinthian Colleges, 655 F.3d at 992.
Finally, because Courts do not assume the correctness of a complaint’s legal
conclusions, a complaint—though replete with facts—should be dismissed if its claims
for relief are premised on an invalid legal theory. Iqbal, 556 U.S. at 678 (“the tenet that a
court must accept as true all of the allegations contained in a complaint is inapplicable to
legal conclusions”); Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011)
(“[D]ismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is
proper if there is a lack of a cognizable legal theory or the absence of sufficient facts
alleged under a cognizable legal theory.”).
V.
A.
DISCUSSION
Trust Defendants
The Court addresses standing first, as it has an independent obligation to assure itself
of its own jurisdiction under Article III. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332,
340 (2006). To satisfy the requirements of Article III, a plaintiff “must demonstrate
standing for each claim he seeks to press . . . [and] must demonstrate standing separately
for each form of relief sought.” Id. at 352.
The Trust Defendants argue that, because the 2003-B Trust is the only trust that ever
owned or received interest on Plaintiff’s loan, Plaintiff has failed to allege any concrete
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injury traceable to the other trusts, which never owned her loan. Thus, they argue,
Plaintiff’s claims against all other Trust Defendants10 must be dismissed. Plaintiff resists
this conclusion by pressing several arguments. As discussed below, none has merit.
1.
Standing Based on an Uncertified Class
Plaintiff appears to recognize she has no individual standing to sue trusts that never
owned her loan, but urges that her intention to represent a class of other potential
plaintiffs changes the analysis. According to Plaintiff, “[t]he Trusts seek to dismiss the
claims of putative class members whose virtually identical notes are held by virtually
identical other named trusts.” (Doc. No. 35 (“Trusts/Trustees Opp’n”) at 8.)
This argument is inapposite, as the claims of putative class members are not before
this Court. Until a class is certified, Plaintiff proceeds in an individual capacity and
asserts claims on behalf of herself only. See Smith v. Bayer Corp., 131 S. Ct. 2368, 2380
(2011) (“[A]ccording to Bayer, . . . he ‘acted in a representative capacity when he sought
class certification.’ ¶ But wishing does not make it so. . . . Federal Rule 23 determines
what is and is not a class action in federal court . . . .”); Standard Fire Ins. Co. v.
Knowles, 133 S. Ct. 1345, 1349 (2013) (“[A] plaintiff who files a proposed class action
cannot legally bind members of the proposed class before the class is certified.”).
Of course, at the class certification stage, the Court would be obliged to verify its
jurisdiction over the claims of putative class members, so that judgment on Plaintiff’s
claims could constitutionally bind class members as well as Plaintiff. See, e.g., In re
Carrier IQ, Inc., No. C-12-MD-2330 EMC, 2015 WL 274054 (N.D. Cal. Jan. 21, 2015)
(finding named plaintiffs’ claims justiciable, but deferring determination of justiciability
of unnamed class members’ claims until class certification).
At this point in the proceedings, the only claims against the Class-Only Trusts are
Plaintiff’s individual claims, which must be justiciable to survive a motion to dismiss.
This approach is consistent with the practice of nearly all district courts to face the issue.
See, e.g., In re Actimmune Mktg. Litig., 614 F. Supp. 2d 1037, 1053-54 (N.D. Cal. 2009)
aff’d, 464 F. App’x 651 (9th Cir. 2011) (focusing its “instant inquiry on the standing
concerns that presently exist for the individual plaintiffs”); In re Frito-Lay N. Am., Inc.
All Natural Litig., No. 12-MD-2413 RRM RLM, 2013 WL 4647512, at *11 (E.D.N.Y.
Aug. 29, 2013) (“[O]nce there is at least one named plaintiff for every named defendant
who can assert a claim directly against that defendant, Article III standing is satisfied and
only then will the inquiry shift to a class action analysis.”); Donohue v. Apple, Inc., 871
F. Supp. 2d 913, 921-22 (N.D. Cal. 2012) (looking to Plaintiff’s Article III standing with
respect to individual claims, but concluding that Plaintiff’s ability to assert class
members’ claims “boil[s] down to questions of whether common issues predominate and
whether plaintiff can adequately represent absent class members, issues that are better
resolved at the class certification stage”); In re Carrier IQ, Inc., No. C-12-MD-2330
EMC, 2015 WL 274054, at *9 (N.D. Cal. Jan. 21, 2015) (“[O]nce threshold standing is
established, the Court has the power to certify the class before addressing the standing of
10
The Court will refer to all Trust Defendants other than the 2003-B Trust
collectively as the “Class-Only Trusts.”
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unnamed class members.”) ; Jepson v. Ticor Title Ins. Co., No. C06-1723 JCC, 2007 WL
2060856, at *2 (W.D. Wash. May 1, 2007) (“[T]he Named Plaintiff in this action alleges
an injury from this very Defendant and merely purports to represent a class of those
similarly injured by this Defendant under analogous laws in other states. Addressing class
certification prior to standing in such circumstances is clearly warranted.”); Garrison v.
Whole Foods Mkt. Grp., Inc., No. 13-CV-05222-VC, 2014 WL 2451290, at *4 (N.D. Cal.
June 2, 2014) (addressing Plaintiff’s standing to pursue individual claims before looking
to commonality with respect to class claims); Kassman v. KPMG LLP, 925 F. Supp. 2d
453, 468-69 (S.D.N.Y. 2013) (“[T]o the extent that Defendant moves to dismiss or strike
the named Plaintiffs’ claims . . . on the ground that they lack standing, that motion is
denied on the merits. To the extent that Defendant . . . attack[s] the standing of potential
class members . . . its motion is denied as premature, because such arguments go to the
propriety of certifying a class under Rule 23 . . . .”); In re Bear Stearns Mortgage PassThrough Certificates Litig., 851 F. Supp. 2d 746, 778 (S.D.N.Y. 2012) (“Once, as here, a
named plaintiff has established that she suffered the same species of injury as the
members of the class, traceable to the same unlawful conduct by a defendant, she has
fulfilled the requirements of constitutional standing. Having satisfied Article III’s
standing criteria, the dissimilarities between the [claims] is an issue appropriately left to
the class certification stage.”) (citing 7AA Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1785.1 (2d ed. 2005) (“Representative parties who have
a direct and substantial interest have standing; the question whether they may be allowed
to present claims on behalf of others who have similar, but not identical, interests
depends not on standing, but on an assessment of typicality and adequacy of
representation.”)); see also Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 423 (6th
Cir. 1998) (“Threshold individual standing is a prerequisite for all actions, including class
actions. A potential class representative must demonstrate individual standing vis-as-vis
[sic] the defendant; he cannot acquire such standing merely by virtue of bringing a class
action. . . . Once his standing has been established, whether a plaintiff will be able to
represent the putative class, including absent class members, depends solely on whether
he is able to meet the additional criteria encompassed in Rule 23 of the Federal Rules of
Civil Procedure.”) (internal citations omitted); cf. Gratz v. Bollinger, 539 U.S. 244, 26263 (2003) (noting that, as long as plaintiff has standing to seek injunctive relief against
the defendant, the proper scope of the injunction against the defendant is potentially a
Rule 23 “adequacy” problem rather than a standing problem). But unlike the justiciability
of Plaintiff’s individual claims, the justiciability of unnamed class members’ claims is not
relevant unless and until those claims are before the Court.
Accordingly, because Plaintiff cannot trace any personal injury to the Class-Only
Trusts, she lacks standing to sue them.
2.
Deferral of Standing Determination
Apparently recognizing that she cannot rely on class members for standing before
class certification, Plaintiff argues in the alternative that the Court should wait and
address standing at the class certification stage. In support of this argument, Plaintiff cites
Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), and Ortiz v. Fibreboard Corp.,
527 U.S. 815 (1999). In both cases, the Supreme Court was asked to determine whether
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proposed settlement classes were proper for certification. Although Article III challenges
were raised in both cases, the Supreme Court addressed the Rule 23 requirements first,
finding them dispositive:
The nub of this case is the certification of the class under
Rule 23[] . . . but before we reach that issue, there are . . .
threshold matters. First, petitioners call the class claims
nonjusticiable under Article III, saying that . . . the “vast
majority” of the “exposure-only” class members [are]
without injury in fact and hence without standing to sue.
Ordinarily, of course, this or any other Article III court must
be sure of its own jurisdiction before getting to the merits.
But the class certification issues are, as they were in
Amchem, “logically antecedent” to Article III concerns and
themselves pertain to statutory standing, which may
properly be treated before Article III standing. Thus the issue
about Rule 23 certification should be treated first, mindful
that the Rule’s requirements must be interpreted in keeping
with Article III constraints.
Fibreboard, 527 U.S. at 830-31 (internal citations omitted).
Plaintiff argues “[t]his is one of those cases where adjudication of class certification
should precede any evaluation of standing because the class certification issue is logically
antecedent to Article III standing.” (Trusts/Trustees Opp’n at 15 (internal quotations
omitted).) According to Plaintiff, certification issues are “logically antecedent” here
because “the standing concerns would not exist but for the class-action certification.” (Id.
(internal quotations omitted).) The reason class certification issues are logically
antecedent “is that if the putative class is certified in this case, Movants’ standing
arguments are necessarily defeated.” (Id.)
This argument fails to recognize the critical feature of Amchem and Fibreboard,
which involved settlement-only classes:
[Defendant] CCR, together with the plaintiffs’ lawyers CCR
had approached, launched this case . . . .
The class action thus instituted was not intended to be
litigated. Rather, within the space of a single day . . . the
settling parties—CCR defendants and the representatives of
the plaintiff class described below—presented to the District
Court a complaint, an answer, a proposed settlement
agreement, and a joint motion for conditional class
certification.
...
A stipulation of settlement accompanied the pleadings; it
proposed to settle, and to preclude nearly all class members
from litigating against CCR companies . . . .
Amchem, 521 U.S. at 601-03 (internal section headings omitted).
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Because the named parties had already reached an agreement to settle, they had no
need of a federal court to effect a binding settlement of their individual claims. That
could be accomplished with a standard contractual waiver, irrespective of the
justiciability of those potential claims.
Therefore, when the parties filed suit in federal court, they were not invoking the
judicial power to effectuate a settlement between themselves—the judicial power is
unnecessary for that—they were asking the court to effectuate a settlement binding across
an entire class of potential litigants. While the parties could settle their individual claims
without the Court’s involvement, the power of the Court was necessary to make the
settlement binding on class members, and the Court could only exercise that power on
claims over which it had jurisdiction. This made the class certification issues “logically
antecedent to the existence of any Article III issues” because, unless the class was
certified, any exercise of the federal judicial power would be wholly unnecessary.
Amchem and Fibreboard are clearly inapplicable to the issue before the Court,
because Plaintiff is invoking the power of this Court irrespective of whether a class is
certified. The issue of standing must be addressed now. See Fed. R. Civ. P. 12(h)(3) (“If
the court determines at any time that it lacks subject-matter jurisdiction, the court must
dismiss the action.”); see also Easter v. American West Financial, 381 F.3d 948 (2004)
(distinguishing Fibreboard and holding that “[t]he district court correctly addressed the
issue of standing before it addressed the issue of class certification”).
3.
Standing Based on a Certified Class
Even if the Court were to defer its standing determination, class certification would
not save Plaintiff’s claims against the Class-Only Trusts. A lack of Article III jurisdiction
cannot be cured through class certification, as the Federal Rules of Civil Procedure “do
not extend or limit the jurisdiction of the district courts.” Fed. R. Civ. P. 82.
It should be beyond dispute that Rule 23 cannot operate to confer jurisdiction where
it would not otherwise exist. See, e.g., Simon v. E. Kentucky Welfare Rights Org., 426
U.S. 26, 40 (1976) (“That a suit may be a class action, however, adds nothing to the
question of standing.”); O’Shea v. Littleton, 414 U.S. 488, 494 (1974) (“[I]f none of the
named plaintiffs purporting to represent a class establishes the requisite of a case or
controversy with the defendants, none may seek relief on behalf of himself or any other
member of the class.”); Warth v. Seldin, 422 U.S. 490, 502 (1975) (“Petitioners must
allege and show that they personally have been injured, not that injury has been suffered
by other, unidentified members of the class to which they belong and which they purport
to represent.”); cf. Lewis v. Casey, 518 U.S. 343, 358 (1996) (“The standing
determination is quite separate from certification of the class.”).
Seeking to escape this conclusion, Plaintiff argues:
In La Mar v. H & B Novelty & Loan Co., 489 F.2d 461,
464-65 (9th Cir. 1973) the Ninth Circuit held that a plaintiff
has standing to sue an “unrelated” group of defendants who
engaged in conduct closely similar to that of the single
defendant, on behalf of all those injured by the defendants
where the class plaintiffs as a group—named and
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unnamed—have suffered “injuries [that] are the result of a
conspiracy or concerted schemes between the defendants at
whose hands the class suffered injury,” [or where] “all
defendants are juridically related in a manner that suggests a
single resolution of the dispute would be expeditious.” Id.
489 F.2d at 466. Both of these exceptions apply here.
(Trusts/Trustees Opp’n at 10.)
It is difficult to believe this characterization of La Mar’s holding was made in good
faith. As an initial matter, the Court in La Mar did not reach the issue of standing, but
disposed of the case instead on Rule 23 grounds:
[F]or the purposes of these appeals, we are prepared to
assume the presence of standing.
Our assumption is not intended to foreclose the issue. . . .
No one contends, of course, that there is no case or
controversy between the defendants who seek . . . to be
dismissed and their customers [unnamed class members].
The issue upon which we turn these cases is whether the
plaintiff . . . can represent such customers under Rule 23.
La Mar, 489 F.2d at 464.
The La Mar Court expressly declined to address standing, but instead assumed
standing for the purpose of determining whether Rule 23 authorized the plaintiffs to
represent their proposed class. Plaintiff’s characterization, implying the Ninth Circuit
actually considered and decided the standing question, is questionable in this regard.
But Plaintiff’s conflation of Rule 23 requirements with Article III standing is not
even the most problematic aspect of Plaintiff’s characterization. More troubling is
Plaintiff’s suggestion that the La Mar holding supports—in any fashion—Plaintiff’s
claims against the Class-Only Trusts. The actual holding of La Mar is set forth very
succinctly in the first paragraph of the opinion:
The common issue of these cases is whether a plaintiff
having a cause of action against a single defendant can
institute a class action against the single defendant and an
unrelated group of defendants who have engaged in conduct
closely similar to that of the single defendant on behalf of all
those injured by all the defendants sought to be included in
the defendant class. We hold that he cannot. Under proper
circumstances, the plaintiff may represent all those suffering
an injury similar to his own inflicted by the defendant
responsible for the plaintiff’s injury, but in our view he
cannot represent those having causes of action against other
defendants against whom the plaintiff has no cause of action
and from whose hands he suffered no injury.
Id. at 462 (emphasis added).
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Plaintiff’s characterization of this holding—“that a plaintiff has standing to sue an
‘unrelated’ group of defendants”—is wholly inaccurate.11 With respect to Plaintiff’s
standing argument, the best that can reasonably be said about La Mar is that it has no
direct bearing on the issue.
If this were the full extent of Ninth Circuit case law on the matter, it might be
possible to conclude that Plaintiff’s standing argument is reasonable, albeit extremely
unpersuasive. But following La Mar, after the Supreme Court subsequently rejected the
practice of “assuming” jurisdiction,12 the same issue came before the Ninth Circuit again,
and this time the Court was squarely faced with the standing question. See Easter v. Am.
W. Fin., 381 F.3d 948 (9th Cir. 2004).
Easter presented claims incredibly similar to the claims in this case. In Easter, the
named Plaintiffs had taken out (allegedly usurious) loans and the lenders “later sold the
loans to various investment trusts . . . which pooled the loans together, securitized the
loans into trusts, and sold interests in the trusts to investors.” Id. at 954. Whether the
loans violated the state’s usury laws depended on whether the nominal lenders were also
the de facto lenders. The plaintiffs asserted claims against multiple trusts on behalf of
themselves and other similarly situated borrowers. Id. at 955. “The Trust Defendants filed
a joint motion to dismiss . . . contending that Borrowers lacked standing to sue any trust
defendant who had not held a named plaintiff’s loan,” and the district court granted the
motion. Id. at 956.
On appeal, the Ninth Circuit first noted that the “district court correctly addressed the
issue of standing before it addressed the issue of class certification.” Id. at 962. The Court
then affirmed the district court’s dismissal for lack of standing:
With respect to those Trust Defendant [sic] that do not
hold a named plaintiff’s note, we affirm the district court’s
ruling that plaintiffs have failed to link their causes of action
with specific actions of the 39 Trust defendants and therefore
lack standing to sue. Constitutional standing requires a
plaintiff to demonstrate: (1) an injury in fact; (2) traceability,
i.e., a causal connection between the injury and the actions
complained of; and (3) redressability.
To satisfy the traceability requirement, a class action
plaintiff must allege a distinct and palpable injury to himself,
11
The rest of the language quoted by Plaintiff actually appears in a short section
of dictum, in which the La Mar Court acknowledged a very narrow potential exception to
its analysis under the typicality and adequacy requirements. Id. at 466.
12
See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94 (1998) (“The Ninth
Circuit has denominated this practice—which it characterizes as ‘assuming’ jurisdiction
for the purpose of deciding the merits—the ‘doctrine of hypothetical jurisdiction.’ ¶ We
decline to endorse such an approach because it carries the courts beyond the bounds of
authorized judicial action and thus offends fundamental principles of separation of
powers.”) (internal citations omitted).
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even if it is an injury shared by a large class of other possible
litigants. Here, no named plaintiff can trace the alleged
injury in fact—payment of usurious interest rates—to all of
the Trust Defendants, but only to the Trust Defendant that
holds or held that plaintiff’s note. As to those trusts which
have never held a named plaintiff’s loan, Borrowers cannot
allege a traceable injury and lack standing.
Id. at 961-62 (internal citations omitted).
Thus, on facts essentially indistinguishable from the present case, the Ninth Circuit
held that plaintiffs lacked standing to sue trusts that never held their loans, irrespective of
their status as potential class representatives.
When filing the opposition to Trust Defendants’ motion to dismiss, Plaintiff’s
counsel was certainly aware of the Easter decision, as it is cited in the opposition itself.
(Trusts/Trustees Opp’n at 15 (“Considering class certification issues first, followed by
any standing issues, is not contrary to the Ninth Circuit’s decision in Easter.”); but see
Easter, 381 F.3d at 962 (Section Heading: “The District Court Properly Considered
Standing Before Class Issues”).) Despite being aware of binding case law that squarely
rejected Plaintiff’s position, counsel argued the position to this Court without attempting
to distinguish Easter or even mentioning its clear rejection of the position.
Ninth Circuit case law clearly and unambiguously forecloses Plaintiff’s arguments
on her standing to sue the Class-Only Trusts. Plaintiff’s assertion of these arguments,
supported only by misstatements and mischaracterizations of law, unnecessarily
consumed both the parties’ and the Court’s time and resources. Going forward, the Court
trusts that all counsel will remain mindful of their duties as participants in the justice
system, duties arising not only from Rule 11 but also from the ethical mandates
governing all members of the bar.
Because Plaintiff lacks standing to assert claims against the Class-Only Trusts, those
claims are dismissed without leave to amend.
B.
Other Defendants
With respect to the remaining Defendants, the Court does not reach a final
determination of Plaintiff’s standing or the viability of Plaintiff’s claims. It is up to
Plaintiff to choose the proper parties to sue, which requires making a good faith
determination of whether there are nonfrivolous arguments to support a claim against
each potential defendant. The role of the Court is to resolve genuine disputes between
parties, not to choose defendants for a prospective plaintiff. Plaintiff’s claims against the
Class-Only Trusts evidence a failure to exercise reasonable discretion in determining
what claims to bring, as no reasonable interpretation of Ninth Circuit law would support
Plaintiff’s standing to assert those claims.
Because it is for Plaintiff to determine, in the first instance, the parties against whom
she holds nonfrivolous claims, the Court declines to perform such preliminary functions
on Plaintiff’s behalf. Rather, the Court dismisses Plaintiff’s claims against the remaining
Defendants with leave to amend. The Court trusts that, given this opportunity, Plaintiff’s
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counsel will determine in good faith which potential claims are supported by
nonfrivolous arguments and will choose the proper Defendants accordingly.
Of course, the arguments necessary to support a claim need not be compelling, nor
even persuasive. As already noted, Plaintiff may rely on “reasonable, albeit unpersuasive,
interpretations of the law.” Premier Commercial Corp. v. FMC Corp., 139 F.R.D. 670,
672 (N.D. Cal. 1991). But this analysis must be undertaken in good faith, not treated as
an empty formality.
VI.
AMENDING THE COMPLAINT
Because the SAC is being dismissed for the reasons stated above, the Court has no
cause to reach Defendants’ other arguments for dismissal. However, in the interest of
efficiency, the Court discusses here several specific deficiencies identified by Defendants,
of which Plaintiff is now on notice and would do well to address when amending the
complaint.
A.
Plaintiff’s Use of the Collective Term “Sallie Mae”
First, Defendants object that Plaintiff’s reference to the collective entity “Sallie Mae”
fails to put them on fair notice of each Defendant’s alleged wrongdoing. (See, e.g., NSI’s
MTD at 4.) Plaintiff defines the collective term “Sallie Mae” as follows:
“Sallie Mae” refers collectively to SLM Corporation
(“SLM Corp.”), and the wholly-owned subsidiaries of SLM
Corp. involved in the activities described below, including
the Student Loan Marketing Association, SLM Education
Credit Finance Corporation, and Sallie Mae, Inc., and their
successors in interest, as identified below, including Navient
Corporation.
(SAC ¶ 1 n.1.)
Of course, there is nothing generally wrong with defining a collective term for the
sake of brevity, as long as no ambiguity or confusion is introduced by the term. However,
Plaintiff’s use of “Sallie Mae” in various contexts does introduce ambiguities, making
confusion quite likely. It appears Plaintiff actually uses the term “Sallie Mae” to refer
variously to different subgroups of one or more Defendants, with the actual referent
varying by context. To cite a few examples:
1. “The LPA [Loan Purchase Agreement] identified and referred to SLMA as
Sallie Mae.” (SAC ¶ 84.)
If Plaintiff’s definition of “Sallie Mae” is applied here, then the LPA
identified and referred to SLMA collectively as SLM Corp. and the whollyowned subsidiaries of SLM Corp. involved in the activities described below,
including the Student Loan Marketing Association, SLM Education Credit
Finance Corporation, and Sallie Mae, Inc., and their successors in interest, as
identified below, including Navient Corporation.
It seems unlikely Plaintiff intended this interpretation. The more likely
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interpretation is that, within the context of the LPA, the term “Sallie Mae”
takes on a different meaning than Plaintiff’s definition. Accordingly, in all
subsequent paragraphs, it is unclear if the controlling definition of “Sallie
Mae” is Plaintiff’s earlier definition or the LPA’s definition.
2. In some paragraphs, context suggests that the term “Sallie Mae” adopts the
LPA’s definition and refers only to SLMA. (See, e.g., SAC ¶ 90 (“[T]he LPA
evinces that Sallie Mae, not Sioux Falls Bank, was the de facto, actual
lender.”) (internal quotations omitted); SAC ¶ 109 (“Sallie Mae purchased the
loans at cost, consistent with it being the de facto, actual lender.”).)
However, even assuming that “Sallie Mae” refers to SLMA in these
paragraphs, ambiguity remains, because earlier in the SAC Plaintiff alleges
that “SLM ECFC became the purchaser of the Private Credit Student Loans
made pursuant to a confidential addendum to the LPA, as of March 31,
2004.” (SAC ¶ 47(a).) Accordingly, in paragraph 90, “Sallie Mae” might refer
only to SLMA or it might refer to SLMA with respect to loans purchased
prior to March 31, 2004, while referring to SLM ECFC with respect to loans
purchased after March 31, 2004.
3. In some paragraphs, “Sallie Mae” seemingly refers either to SLMA or to
Sallie Mae Servicing LLP, or potentially to some combination of the two of
them. (Compare, e.g., ¶ 103 (“Sallie Mae services all of the loans, and
maintains custody of the loan documents.”) with SAC ¶ 176 (“Sallie Mae,
operating as Sallie Mae Servicing LLP and later as Sallie Mae, Inc. has
serviced Plaintiff’s Private Credit Student Loan since inception.”).)
4. In some parts of the SAC, “Sallie Mae” appears to take on different meanings
within a single paragraph. (See, e.g., SAC ¶ 92 (“The LPA provides that
Sallie Mae will originate Sallie Mae-branded Private Credit Student
Loans . . . .”).)
In this context, the first use of “Sallie Mae” appears to refer to SLMA (or
possibly, as discussed above, SLMA and SLM ECFC at various times), while
the second use of “Sallie Mae” appears to refer to the name “Sallie Mae” as a
trademark.
5. In some paragraphs, “Sallie Mae” appears to refer to SLM Corp. (Compare,
e.g., SAC ¶ 174 (“The loan[] was made by Sallie Mae, or its predecessor in
interest, the Student Loan Marketing association . . . .”) with SAC ¶ 45(b)
(“SLM Corp., or its predecessor in interest, the Student Loan Marketing
Association . . . .”).)
6. In some paragraphs, “Sallie Mae” appears to refer to Navient Solutions, Inc.
and its predecessors in interest. (Compare, e.g., SAC ¶ 176 (“Sallie Mae,
operating as Sallie Mae Servicing LLP and later as Sallie Mae, Inc. has
serviced Plaintiff’s Private Credit Student Loan since inception.”) with SAC
¶ 46(a) (“Defendant Navient Solutions, Inc. is the successor entity to Sallie
Mae, Inc.”).)
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7. In some paragraphs, “Sallie Mae” appears to refer to the Navient Defendants,
but not to their predecessors in interest. (See, e.g., SAC ¶ 220 (requesting that
the Court “enjoin Sallie Mae from continuing to violate the Unfair
Competition Law as discussed herein”).)
8. In some paragraphs, “Sallie Mae” could refer to different entities depending
on how the rest of the paragraph is interpreted. (See, e.g., SAC ¶ 189 (“Sallie
Mae charged Plaintiff interest . . . .”).)
“Sallie Mae” here could mean the noteholder of Plaintiff’s loan, in which
case “Sallie Mae” refers to one or more of SLMA, SLM ECFC, SLM Corp,
Navient Corp, and/or one of the Trust Defendants.13
“Sallie Mae” could also mean the servicer of Plaintiff’s loan, who collected
the actual interest on behalf of the noteholder, in which case “Sallie Mae”
refers to one or more of Sallie Mae Servicing LLP; Sallie Mae, Inc.; and/or
NSI.
Because “Sallie Mae” is used throughout the SAC without any consistent meaning, it
is difficult to determine the role of each Defendant with respect to Plaintiff’s loan. It may
be that, under Plaintiff’s interpretation of the governing law, the distinctions between
these entities is irrelevant for establishing liability. However, it is clear from Defendants’
motions that they take a very different view of the law, rendering the specific roles of the
various Navient Defendants highly relevant. Accordingly, should Defendants’
interpretation of the law prove more persuasive, the Court will have to determine its
application to each of the Defendants individually. If the allegations in the operative
complaint do not allow the Court to determine whether each individual Defendant is
potentially liable, the complaint will have to be dismissed.
The Court leaves resolution of this issue to counsel’s discretion, but notes that a
complete restructuring of the complaint is almost certainly unnecessary. It may be
sufficient to simply replace each use of the term “Sallie Mae” with its intended referent,
or alternatively, to add footnotes explaining the intended referent in each instance.
B.
Failure to Name Trustee Defendants in their Proper Capacity
Trustee Defendants object that they have not been named in their capacities as
trustees for the trust holding Plaintiff’s loan. Rather, they have been named in their
individual capacities, without any allegations to support individual liability.
(Trusts/Trustees’ MTD at 12-14.) Plaintiff responds that it is “apparent from the SAC
although not stated expressly [that] Plaintiff sues the BNY Defendants in their
representative capacity.” (Trusts/Trustees MTD at 7.) Because the Court is granting leave
to amend, Plaintiff has the opportunity to address this issue and expressly state the
capacity in which the Trustee Defendants are named as parties.
13
The SAC does not specify the ultimate holder of the note, nor does it specify
the holder of the note at the time the allegedly usurious interest was charged.
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C.
Plaintiff’s Failure to Allege Receipt of Usurious Interest
Multiple Defendants object that the SAC contains no allegations that they ever
received usurious interest on Plaintiff’s loan. (See, e.g., Trusts/Trustees’ MTD at 6, 9;
Navient Affiliates’ MTD at 11, 12, 13.) For some Defendants, this may be due to
Plaintiff’s ambiguous use of the term “Sallie Mae.” For these Defendants, Plaintiff’s
disambiguation of this term should effectively solve the issue.
However, there are some Defendants who may not have actually received any
interest on Plaintiff’s loan in any capacity. For instance, if SLMA acquired Plaintiff’s
loan before SLM ECFC took over SLMA’s role under the LPA, then it is implausible that
SLM ECFC ever held any interest in Plaintiff’s loan or received interest on it. Similarly,
if Plaintiff’s loan was securitized before its interest rate rose above 10%, then it is
implausible that SLMA ever received any usurious interest on Plaintiff’s loan. Because
the Court is granting leave to amend, counsel will have the opportunity to determine
whether Plaintiff has any viable claims against these entities and, if so, to add allegations
supporting the conclusion that they received usurious interest.
Additionally, the SAC alleges that Defendant NIC holds Excess Distribution
Certificates on SLM Private Credit Student Loan Trusts, (SAC ¶ 140), which entitle NIC
to “the balance of funds remaining after payment of trust expenses and distributions to
the noteholders, (SAC ¶ 139). However, the SAC does not allege that any excess
distributions were ever made from the 2003-B Trust, let alone whether such distributions
took place during or following a month when the trust received allegedly usurious
interest from Plaintiff. Without any allegations linking NIC to usurious interest paid by
Plaintiff, there is no plausible claim for relief against NIC. If Plaintiff intends to name
NIC as a Defendant after amending the complaint, Plaintiff should ensure that the newly
amended complaint contains factual allegations sufficient to render her claims against
NIC plausible.14
VII.
SUBSEQUENT MOTIONS TO DISMISS
Because there is likely to be another round of motions to dismiss upon the filing of a
third amended complaint, the Court also takes this opportunity to identify several
unaddressed issues that are likely to arise again. The Court identifies them below so that
both Plaintiff and Defendants can address these open questions in any subsequent
motions.
A.
Liability under State Law vs Article III Standing
At multiple places in Defendants’ briefs, arguments regarding Article III standing are
intermixed with questions of liability under state law. These are two distinct questions.
Cf., e.g., Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 96 (1998)
(distinguishing failure to state a claim from lack of standing, stating: “In Bell, . . . the
14
The Court notes that, before any discovery takes place, Plaintiff may not be in a
position to make such allegations consistent with Rule 11. This is, of course,
understandable. The proper course in that case is to seek leave to amend and add
defendants upon discovering facts adequate to support claims against those defendants.
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District Court had dismissed the case on jurisdictional grounds because it believed that
(what we would now call) a Bivens action would not lie. This Court held that the
nonexistence of a cause of action was no proper basis for a jurisdictional dismissal. Thus,
the uncertainty [in Bell] about ‘whether the plaintiff’s injuries can be redressed’ [was]
simply the uncertainty about whether a cause of action existed—which is precisely what
Bell holds not to be an Article III ‘redressability’ question. It would have been a different
matter if the relief requested by the plaintiffs in Bell (money damages) would not have
remedied their injury in fact, but it of course would.”) (emphasis in original) (citing Bell
v. Hood, 327 U.S. 678 (1946)).
Of course, these questions, though distinct, often carry overlapping considerations.
Cf., e.g., Warth v. Seldin, 422 U.S. 490, 500 (1975) (“Although standing in no way
depends on the merits of the plaintiff’s contention that particular conduct is illegal, it
often turns on the nature and source of the claim asserted. The actual or threatened injury
required by Art. III may exist solely by virtue of statutes creating legal rights, the
invasion of which creates standing.”) (internal citations omitted). But despite this partial
overlap of considerations, the two questions—whether there is “a causal connection
between the injury and the conduct complained of,” Lujan v. Defenders of Wildlife, 504
U.S. 555, 560 (1992), and whether state law imposes liability on a particular defendant
for the conduct complained of—are two separate and independent questions. In any
subsequent motions to dismiss, the parties’ should remain clear on which arguments
speak to Plaintiff’s standing and which arguments speak to liability as a matter of state
law.
B.
Statute of Limitations
The argument that Plaintiff’s claims are time-barred appears to be the only argument
raised by every Defendant in this action, which suggests it is nearly certain to be raised
again with respect to the third amended complaint. However, certain critical questions
remained unaddressed in the parties’ briefing, questions which almost certainly would
have required additional briefing had the Court attempted to decide this issue on the
present papers. The Court identifies these questions below so that they may be addressed
if and when this argument is reasserted against the third amended complaint.15
Defendants contend that the statute of limitations has run on all of Plaintiff’s claims
because the longest limitations period among her claims is four years and Plaintiff last
paid interest above 10% over seven years ago. (NSI’s MTD at 11-12.) In response,
Plaintiff invokes three equitable exceptions to the limitations period: the continuing
violations doctrine, the discovery rule, and the doctrine of fraudulent concealment. (Doc.
No. 33 (“NSI Opp’n”) at 8, 9, 15.)
The limitations period, the period in which a plaintiff
must bring suit or be barred, runs from the moment a claim
15
The Court notes that these questions may have been left unanswered because
there is no governing authority addressing them directly. If that is the case, it would be
helpful for the parties to identify the absence of authority directly on point and to address
how the open question or questions should be approached.
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accrues. Traditionally at common law, a cause of action
accrues when it is complete with all of its elements—those
elements being wrongdoing, harm, and causation. This is the
“last element” accrual rule: ordinarily, the statute of
limitations runs from the occurrence of the last element
essential to the cause of action.
To align the actual application of the limitations defense
more closely with the policy goals animating it, the courts
and the Legislature have over time developed a handful of
equitable exceptions to and modifications of the usual rules
governing limitations periods. These doctrines may alter the
rules governing either the initial accrual of a claim, the
subsequent running of the limitations period, or both. The
most important of these doctrines, the discovery rule, where
applicable, postpones accrual of a cause of action until the
plaintiff discovers, or has reason to discover, the cause of
action. . . . The doctrine of fraudulent concealment tolls the
statute of limitations where a defendant, through deceptive
conduct, has caused a claim to grow stale. The continuing
violation doctrine aggregates a series of wrongs or injuries
for purposes of the statute of limitations, treating the
limitations period as accruing for all of them upon
commission or sufferance of the last of them.
Aryeh v. Canon Bus. Solutions, Inc., 55 Cal. 4th 1185, 1191-92 (2013) (internal
quotations, citations, and alterations omitted).
The discovery rule “postpones accrual of a cause of action until the plaintiff
discovers, or has reason to discover, the cause of action.” Id. A “plaintiff discovers a
cause of action when he at least suspects a factual basis, as opposed to a legal theory, for
its elements, even if he lacks knowledge thereof—when, simply put, he at least suspects
that someone has done something wrong to him.” Norgart v. Upjohn Co., 21 Cal.4th 383,
397-98 (1999) (internal quotations omitted).
Plaintiff argues that, until the Loan Purchase Agreement became public on
November 28, 2013, she had no way of knowing that her de facto lender was not a
national bank and was therefore subject to California usury law. Thus, she argues, she
discovered the cause of action on November 28, 2013, making her claims timely.
Defendants argue that, since the “wrong” alleged is charging interest in excess of 10%,
Plaintiff learned of the wrongs when she paid the interest and therefore discovered the
causes of action as they occurred. (NSI’s MTD at 14-15.) According to Defendants,
Plaintiff’s de facto lender theory is not an essential element of Plaintiff’s cause of action,
but rather an answer to the affirmative defense of preemption.
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The Court notes the following questions, which were not addressed or were
insufficiently addressed in the parties’ briefs:
1. Is Plaintiff’s de facto lender theory necessary to establish her claim for usury
under state law? See, e.g., Cal. Const. art. XV, § 1 (exempting certain bank
loans from California’s usury laws).
2. Is Plaintiff’s de facto lender theory necessary to avoid preemption under the
National Bank Act? See 12 U.S.C. § 85 (addressing the interest a national
bank “may take, receive, reserve, and charge on any loan,” but not addressing
the interest non-national-bank assignees of the loan may charge).
3. Assuming Plaintiff’s de facto lender theory is not necessary under state law,
but is necessary to avoid federal preemption, to what extent do California
Courts take notice of the potential for federal preemption when applying
equitable exceptions to limitations periods? See, e.g., Aryeh 55 Cal. 4th at
1193-94 (“It thus appears the Legislature, by passing a bare-bones limitations
statute and delegating to the judiciary the task of defining the point of accrual
in particular cases, left courts free to determine whether the circumstances in
each case call for application of either the general last element rule of accrual
or any of its equitable exceptions.”); cf. also Garver v. Brace, 47 Cal.App.4th
995, 999 (1996) (“As a general rule, the statute of limitations cannot run
before plaintiff possesses a true cause of action, by which we mean that
events have developed to a point where plaintiff is entitled to a legal remedy,
not merely a symbolic judgment . . . .”) (internal quotations omitted).
4. Were the facts available to Plaintiff before the LPA became public sufficient
to establish Plaintiff’s de facto lender theory as a matter of California state
law? Cf., e.g., Easter v. American West Financial, 381 F.3d 948, 955 (9th Cir.
2004) (noting that, under Washington usury law, “the determinative question
is who bears the risk of the transaction”).
5. Were the facts available to Plaintiff before the LPA became public sufficient
to establish Plaintiff’s de facto lender theory for purposes of overcoming
preemption by the National Bank Act?
Answering these questions clearly will facilitate expeditious resolution of any
disputes that may arise regarding the timeliness of Plaintiff’s claims under the third
amended complaint.
VIII. CONCLUSION
Defendants’ motions to dismiss are granted. Plaintiff may amend with respect to all
Defendants except the trusts that never owned her loan. Any amended complaint must be
filed no later than August 4, 2015.
Page 23 of 23
CIVIL MINUTES
GENERAL
Initials of Deputy Clerk MG/wr
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