Christian Wellisch v. Pennsylvania Higher Education Assistance Agency et al

Filing 43

ORDER GRANTING 9 , 10 DEFENDANTS' MOTIONS TO DISMISS WITH LEAVE TO AMEND. Signed by Judge Beth Labson Freeman on 6/2/2017. (blflc2S, COURT STAFF) (Filed on 6/2/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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CHRISTIAN WELLISCH,
Plaintiff,

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v.

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Case No. 17-cv-00213-BLF

PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY, et al.,

ORDER GRANTING DEFENDANTS'
MOTIONS TO DISMISS WITH LEAVE
TO AMEND
[Re: ECF 9, 10]

United States District Court
Northern District of California

Defendants.
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Plaintiff Christian Wellisch brings this suit, which was originally filed in state court,

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against Defendants Pennsylvania Higher Education Assistance Agency (“PHEAA”) and James L.

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Preston (collectively, “Defendants”), claiming that Defendants failed to comply with the

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California Military and Veterans Code (“CMVC”) and the Federal Servicemembers Civil Relief

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Act (“SCRA”). See generally Ex. B to Notice of Removal (“Compl.”), ECF 1-2. Captain

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Wellisch’s claims arise out of issues related to PHEAA’s servicing of his student loans while he

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was on active duty as a commissioned officer in the California Army National Guard

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(“CAARNG”). Id. ¶¶ 8–9, 11.
Presently before the Court is Defendants’ motions to dismiss all of the claims against them.

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See generally PHEAA Mot., ECF 9; Preston Mot., ECF 10. Pursuant to Civ. L.R. 7-1(b), the

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Court finds Defendants’ motions suitable for submission without oral argument and hereby

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VACATES the hearing scheduled for June 8, 2017. For the reasons stated herein, the Court

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GRANTS Defendants’ motion to dismiss WITH LEAVE TO AMEND.

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I.

BACKGROUND

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Wellisch is a Captain in the California Army National Guard, and was called up to active

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duty overseas on two occasions between 2015 and 2016, the first from February to September of

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2015, and the second from February to October 2016. Compl. ¶¶ 9, 10. During this time,

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Wellisch lost his eligibility for Income-Based Repayment (“IBR”) of his student loans. Id. ¶¶ 8,

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11–15, 17. IBR is an income-driven repayment (“IDR”) plan for federal student loans provided

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for in the College Cost Reduction and Access Act, pursuant to which monthly payments are

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calculated based on the borrower’s annual income. See 34 C.F.R. § 682.215; Compl. ¶ 8.

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Eligibility for IBR requires the existence of partial financial hardship, as defined in 34 C.F.R. §

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682.215(a)(4). Partial financial hardship must be certified annually. 34 C.F.R. § 682.215(e). A

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qualifying person obtains substantial reduction in monthly repayment obligations.
Wellisch’s student loans were disbursed between August 2010 and September 2012, before

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he was called to active duty service. Compl. ¶ 8. PHEAA is Plaintiff’s loan servicer, and Preston

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United States District Court
Northern District of California

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is the President and Chief Executive Officer (“CEO”) of PHEAA. Id. ¶¶ 4, 5. Wellisch alleges

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that despite concerted efforts to ensure continuation of his IBR payment plan without interruption,

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PHEAA determined that Wellisch no longer had a partial financial hardship, rendering him

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ineligible for the IBR plan. Id. ¶17. This determination triggered capitalization of interest on his

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loans and resulted in increased monthly payment amounts. Id.

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Wellisch filed this action in Monterey County Superior Court on December 28, 2016,

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alleging that Defendants failed to comply with the CMVC and SCRA. See generally Compl.

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Defendants subsequently removed the action to this Court. ECF 1. Wellisch seeks relief from

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fine or penalty, pursuant to CMVC § 403 and relief from pre-service liability, pursuant to CMVC

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§ 409, and brings claims for unfair business practices under Cal. Bus. & Prof. Code § 17200 et

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seq., the SCRA, and suppression of fact under Cal. Civ. Code § 1710(3). See generally id. On

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April 24, 2017, the Court remanded Plaintiff’s MIL 010 Petition to the Monterey County Superior

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Court and stayed his claim under CMVC § 409.3 pending the result of his equivalent claim in the

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state court proceeding.1 ECF 40. Defendants now move to dismiss Plaintiff’s claims.

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II.

LEGAL STANDARD
“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a

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Because Wellisch’s claim under CMVC § 409.3 is stayed, the Court does not address it in this
order.
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claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation

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Force v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d

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729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts

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as true all well-pled factual allegations and construes them in the light most favorable to the

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plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the

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Court need not “accept as true allegations that contradict matters properly subject to judicial

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notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or

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unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008)

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(internal quotation marks and citations omitted). While a complaint need not contain detailed
factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to

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United States District Court
Northern District of California

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relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.

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Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the

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court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

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III.

DISCUSSION
PHEAA’s Motion to Dismiss

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A.

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PHEAA contends that Wellisch’s motion relies on statutory requirements that do not exist

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or do not apply, and thus, he fails to state a claim for relief pursuant to Rule 12(b)(6). See

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generally PHEAA Mot. Captain Wellisch opposes PHEAA’s motion. See Opp’n to PHEAA

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Mot., ECF 12.

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As a preliminary matter, the Court first addresses an issue raised in Wellisch’s opposition

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to Preston’s motion to dismiss that was also raised in his prior motion to remand: whether PHEAA

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may litigate this matter. Opp’n to Preston Mot. 3. Specifically, Captain Wellisch claims that

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PHEAA was and continues to be legally barred from taking any litigation action as a suspended

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corporation. Id. The Court rejected this argument in its initial order denying Plaintiff’s motion to

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remand, and does so here for the same reasons previously enunciated. See ECF 40. Finding that

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PHEAA can properly litigate this action, the Court next addresses the adequacy of Plaintiff’s

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allegations under the SCRA, which provides the basis for this Court’s jurisdiction.

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i.

The Servicemembers Civil Relief Act
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Captain Wellisch alleges that Defendants’ failure to provide him with any means by which

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his requests to invoke a stay of the decision finding him ineligible for IBR violated the SCRA.

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Compl. ¶¶ 42–43. He further alleges that the increase in his monthly payment amounts and

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capitalized interest constitute penalties incurred during military service, and his ability to perform

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was materially affected by such military service, and thus asks the Court to waive all payments

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and capitalized interest above the otherwise applicable IBR plan payment amounts pursuant to

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section 3933 of the SCRA. Id. ¶ 44.

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The Servicemembers Civil Relief Act was passed “to enable [servicemembers] to devote
their entire energy to the defense needs of the Nation.” 50 U.S.C. § 3902(1). It accomplishes this

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purpose by imposing limitations on judicial proceedings that could take place while a member of

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United States District Court
Northern District of California

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the armed forces is on active duty, including insurance, taxation, loans, contract enforcement, and

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other civil actions. Id. § 3901 et seq. These limitations are “always to be liberally construed to

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protect those who have been obliged to drop their own affairs to take up the burdens of the

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nation.” Boone v. Lightner, 319 U.S. 561, 575 (1943) (granting a stay in state trustee

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proceedings); see also Le Maistre v. Leffers, 333 U.S. 1, 6 (1948) (overturning a state tax sale by

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giving a broad construction to the SCRA in light of its “beneficient purpose” and noting that “the

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Act must be read with an eye friendly to those who dropped their affairs to answer their country's

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call”); Brewster v. Sun Trust Mortg., Inc., 742 F.3d 876, 878 (9th Cir. 2014).

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Captain Wellisch invokes two parts of the statute in this case, sections 3932 and 3933.

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Compl. ¶¶ 40, 44. Section 3932 allows a service member on military duty to move to stay any

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judicial or administrative proceeding initiated against him or to move to stay the execution of any

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judgment entered against him. 50 U.S.C. § 3932(a)–(b). Section 3932 applies “to any civil action

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or proceeding . . . in which the plaintiff or defendant at the time of filing an application under this

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section (1) is in military service or is within 90 days after termination of or release from military

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service; and (2) has received notice of the action or proceeding.” Id. § 3932(a). Section 3933

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provides that when an action is stayed pursuant to section 3932, “a penalty shall not accrue for

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failure to comply with the terms of the contract during the period of the stay.” Id. § 3933(a).

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PHEAA argues that neither section applies because its servicing of Wellisch’s loans does
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not constitute a “civil action or proceeding,” and therefore Wellisch cannot state a claim under the

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SCRA. PHEAA Mot. 8–9. Captain Wellisch contends, however, that PHEAA’s reading of the

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SCRA is erroneous because the SCRA applies to “any judicial or administrative proceeding

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commenced in any court or agency in any jurisdiction subject to [the SCRA],” and PHEAA is an

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administrative agency. Opp’n to PHEAA Mot. 4 (citing and quoting 50 U.S.C. § 3912(b)).

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Wellisch thus contends that PHEAA’s conduct, which he alleges made it impossible to maintain

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his IBR plan, gives rise to a claim under the SCRA because it failed in its obligation as an agency

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to commence, or at least make available, some form of administrative proceedings or other means

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for service members to realize the statutory protections under the SCRA. Id. at 5.

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While the Court agrees that PHEAA is subject to the SCRA, Wellisch has failed to state a

United States District Court
Northern District of California

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claim for relief based on the facts alleged. As Wellisch correctly points out, section 3912 of the

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SCRA provides, “[t]his chapter applies to any judicial or administrative proceeding commenced in

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any court or agency in any jurisdiction subject to this chapter.” Opp’n to PHEAA Mot. 4 (quoting

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50 U.S.C. § 3912). Moreover, section 3911 defines “court” as “a court or any administrative

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agency of the United States or of any State (including any political subdivision of a State)[.]” 50

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U.S.C. § 3911(5). What PHEAA fails to acknowledge is that “it is a statutorily created

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instrumentality of the Commonwealth of Pennsylvania.” PHEAA Reply 5, ECF 21. As such,

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PHEAA plainly falls under section 3911’s definition of a “court.”

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The crux of Wellisch’s claim is that PHEAA violated the SCRA by failing to make

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available any means by which he could exercise his right to a stay. Compl. ¶¶ 41–43. However,

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Wellisch fails to acknowledge that a stay is required only if the servicemember requests one. 50

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U.S.C. § 3932(b)(1)–(2). And, Wellisch does not allege that he informed PHEAA of his intention

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to exercise this right or that such an act would be futile. Moreover, Wellisch does not cite any

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authority to support his contention that PHEAA is required to create an entirely separate procedure

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by which servicemembers can alert it of their intention to move for a stay. For these reasons, the

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Court finds that Captain Wellisch has not stated a claim under the SCRA and GRANTS PHEAA’s

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motion to dismiss WITH LEAVE TO AMEND.

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ii.

State Law Claims
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Captain Wellisch also brings the following claims under state law: relief from fine or

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penalty, pursuant to CMVC § 403; relief from pre-service liability, pursuant to CMVC § 409;

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unfair business practices under Cal. Bus. & Prof. Code § 17200 et seq.; and suppression of fact

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under Cal. Civ. Code § 1710(3). The Court does not address Wellisch’s claim pursuant to CMVC

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§ 409 because it is stayed.

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PHEAA argues that Wellisch does not state a claim under CMVC § 403 because he does

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not allege that he incurred a “fine or penalty” for “nonperformance.” PHEAA Mot. 3. As to the

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former, PHEAA contends that Plaintiff’s loss of qualification for the IBR program does not

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constitute a “fine or penalty.” Id. As to the latter, PHEAA argues that the Complaint does not
allege that Plaintiff’s failure to provide PHEAA with the documentation necessary to maintain his

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United States District Court
Northern District of California

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qualification in the IBR program constitutes “nonperformance” of his student loan obligations. Id.

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In reply, Captain Wellisch does not address PHEAA’s argument regarding his failure to plead that

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any alleged penalty was imposed due to his nonperformance of his loan obligations. Nevertheless,

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Wellisch counters PHEAA’s argument that the increased payments do not constitute a penalty by

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contending that “the additional $20,000+ in student loan payments . . . [were not] voluntary

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donations.” Opp’n to PHEAA Mot. 3. This, however, is not the proper comparison. Further,

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Plaintiff cites no authority to support his argument that any nonvoluntary payments constitute a

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fine or penalty. For this reason, the Court finds that Captain Wellisch has failed to sufficiently

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allege that he incurred a “fine or penalty” for “nonperformance,” and therefore GRANTS

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PHEAA’s motion to dismiss on this ground.

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Moreover, as PHEAA correctly asserts, the Court finds Wellisch’s claim for suppression of

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fact inadequately plead under Rule 9(b), and therefore GRANTS PHEAA’s motion to dismiss this

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claim.

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For the reasons articulated above, the Court also GRANTS PHEAA’s motion to dismiss
Wellisch’s claim under the UCL.
James Preston’s Motion to Dismiss

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B.

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Preston argues that the Complaint is inadequate as to him because it fails to allege why he

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is personally liable for alleged acts relating to the servicing of Wellisch’s student loans. See
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generally Preston Mot. Specifically, Preston contends that the Complaint’s only reference to

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Preston appears in paragraph 5, in which Wellisch alleges that Preston is PHEAA’s President and

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CEO. Id. at 1. Wellisch opposes Preston’s motion, but does not dispute Preston’s contentions.

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See Opp’n to Preston Mot. 2, ECF 13. Nevertheless, Wellisch argues that he has alleged that

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“each defendant was the agent of every other Defendant acting within the scope of agency and

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with the consent of each defendant.” Id.; Compl. ¶ 7. Because the Court’s prior analysis with

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respect to Wellisch’s claims against PHEAA applies equally to his claims against Preston, the

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Court also GRANTS Preston’s motion to dismiss WITH LEAVE TO AMEND.2 Moreover, in

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any amended complaint, Plaintiff must set forth facts regarding Preston’s alleged conduct.

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IV.

For the foregoing reasons, the Court GRANTS Defendants’ motions to dismiss WITH

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United States District Court
Northern District of California

ORDER

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LEAVE TO AMEND. Any amended pleading shall be filed on or before July 14, 2017. Failure

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to meet the deadline to file an amended complaint or failure to cure the deficiencies identified in

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this order will result in a dismissal of Plaintiff’s claims with prejudice.
IT IS SO ORDERED.

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Dated: June 2, 2017
______________________________________
BETH LABSON FREEMAN
United States District Judge

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Because it appears that the parties are in agreement that Preston’s presence as a defendant may
not be necessary or desirable to either party, the Court urges the parties to meet and confer to
determine whether Preston should remain a defendant in this action. See generally Preston Mot.;
Opp’n to Preston Mot. 2 (“[I]t may be possible to dismiss claims against Defendant Preston[.]”).
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