Christian Wellisch v. Pennsylvania Higher Education Assistance Agency et al

Filing 52

AMENDED ORDER GRANTING 9 , 10 DEFENDANTS' MOTIONS TO DISMISS WITH LEAVE TO AMEND. Signed by Judge Beth Labson Freeman on 6/21/2017. (blflc2S, COURT STAFF) (Filed on 6/21/2017)

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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 CHRISTIAN WELLISCH, Plaintiff, 8 v. 9 10 11 Case No. 17-cv-00213-BLF PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, et al., AMENDED ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS WITH LEAVE TO AMEND [Re: ECF 9, 10] United States District Court Northern District of California Defendants. 12 Plaintiff Christian Wellisch brings this suit, which was originally filed in state court, 13 14 against Defendants Pennsylvania Higher Education Assistance Agency (“PHEAA”) and James L. 15 Preston (collectively, “Defendants”), claiming that Defendants failed to comply with the 16 California Military and Veterans Code (“CMVC”) and the Federal Servicemembers Civil Relief 17 Act (“SCRA”). See generally Ex. B to Notice of Removal (“Compl.”), ECF 1-2. Captain 18 Wellisch’s claims arise out of issues related to PHEAA’s servicing of his student loans while he 19 was on active duty as a commissioned officer in the California Army National Guard 20 (“CAARNG”). Id. ¶¶ 8–9, 11. Presently before the Court is Defendants’ motions to dismiss all of the claims against them. 21 22 See generally PHEAA Mot., ECF 9; Preston Mot., ECF 10. Pursuant to Civ. L.R. 7-1(b), the 23 Court finds Defendants’ motions suitable for submission without oral argument and hereby 24 VACATES the hearing scheduled for June 8, 2017. For the reasons stated herein, the Court 25 GRANTS Defendants’ motion to dismiss WITH LEAVE TO AMEND. 26 I. BACKGROUND 27 Wellisch is a Captain in the California Army National Guard, and was called up to active 28 duty overseas on two occasions between 2015 and 2016, the first from February to September of 1 2015, and the second from February to October 2016. Compl. ¶¶ 9, 10. During this time, 2 Wellisch lost his eligibility for Income-Based Repayment (“IBR”) of his student loans. Id. ¶¶ 8, 3 11–15, 17. IBR is an income-driven repayment (“IDR”) plan for federal student loans provided 4 for in the College Cost Reduction and Access Act, pursuant to which monthly payments are 5 calculated based on the borrower’s annual income. See 34 C.F.R. § 682.215; Compl. ¶ 8. 6 Eligibility for IBR requires the existence of partial financial hardship, as defined in 34 C.F.R. § 7 682.215(a)(4). Partial financial hardship must be certified annually. 34 C.F.R. § 682.215(e). A 8 qualifying person obtains substantial reduction in monthly repayment obligations. Wellisch’s student loans were disbursed between August 2010 and September 2012, before 9 he was called to active duty service. Compl. ¶ 8. PHEAA is Plaintiff’s loan servicer, and Preston 11 United States District Court Northern District of California 10 is the President and Chief Executive Officer (“CEO”) of PHEAA. Id. ¶¶ 4, 5. Wellisch alleges 12 that despite concerted efforts to ensure continuation of his IBR payment plan without interruption, 13 PHEAA determined that Wellisch no longer had a partial financial hardship, rendering him 14 ineligible for the IBR plan. Id. ¶17. This determination triggered capitalization of interest on his 15 loans and resulted in increased monthly payment amounts. Id. 16 Wellisch filed this action in Monterey County Superior Court on December 28, 2016, 17 alleging that Defendants failed to comply with the CMVC and SCRA. See generally Compl. 18 Defendants subsequently removed the action to this Court. ECF 1. Wellisch seeks relief from 19 fine or penalty, pursuant to CMVC § 403 and relief from pre-service liability, pursuant to CMVC 20 § 409, and brings claims for unfair business practices under Cal. Bus. & Prof. Code § 17200 et 21 seq., the SCRA, and suppression of fact under Cal. Civ. Code § 1710(3). See generally id. On 22 April 24, 2017, the Court remanded Plaintiff’s MIL 010 Petition to the Monterey County Superior 23 Court and stayed his claim under CMVC § 409.3 pending the result of his equivalent claim in the 24 state court proceeding.1 ECF 40. Defendants now move to dismiss Plaintiff’s claims. 25 II. LEGAL STANDARD “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 26 27 1 28 Because Wellisch’s claim under CMVC § 409.3 is stayed, the Court does not address it in this order. 2 1 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation 2 Force v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 3 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts 4 as true all well-pled factual allegations and construes them in the light most favorable to the 5 plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the 6 Court need not “accept as true allegations that contradict matters properly subject to judicial 7 notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or 8 unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 9 (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 11 United States District Court Northern District of California 10 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 12 Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the 13 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. 14 III. DISCUSSION PHEAA’s Motion to Dismiss 15 A. 16 PHEAA contends that Wellisch’s motion relies on statutory requirements that do not exist 17 or do not apply, and thus, he fails to state a claim for relief pursuant to Rule 12(b)(6). See 18 generally PHEAA Mot. Captain Wellisch opposes PHEAA’s motion. See Opp’n to PHEAA 19 Mot., ECF 12. 20 As a preliminary matter, the Court first addresses an issue raised in Wellisch’s opposition 21 to Preston’s motion to dismiss that was also raised in his prior motion to remand: whether PHEAA 22 may litigate this matter. Opp’n to Preston Mot. 3. Specifically, Captain Wellisch claims that 23 PHEAA was and continues to be legally barred from taking any litigation action as a suspended 24 corporation. Id. The Court rejected this argument in its initial order denying Plaintiff’s motion to 25 remand, and does so here for the same reasons previously enunciated. See ECF 40. Finding that 26 PHEAA can properly litigate this action, the Court next addresses the adequacy of Plaintiff’s 27 allegations under the SCRA, which provides the basis for this Court’s jurisdiction. 28 i. The Servicemembers Civil Relief Act 3 1 Captain Wellisch alleges that Defendants’ failure to provide him with any means by which 2 his requests to invoke a stay of the decision finding him ineligible for IBR violated the SCRA. 3 Compl. ¶¶ 42–43. He further alleges that the increase in his monthly payment amounts and 4 capitalized interest constitute penalties incurred during military service, and his ability to perform 5 was materially affected by such military service, and thus asks the Court to waive all payments 6 and capitalized interest above the otherwise applicable IBR plan payment amounts pursuant to 7 section 3933 of the SCRA. Id. ¶ 44. 8 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 10 purpose by imposing limitations on judicial proceedings that could take place while a member of 11 United States District Court Northern District of California 9 the armed forces is on active duty, including insurance, taxation, loans, contract enforcement, and 12 other civil actions. Id. § 3901 et seq. These limitations are “always to be liberally construed to 13 protect those who have been obliged to drop their own affairs to take up the burdens of the 14 nation.” Boone v. Lightner, 319 U.S. 561, 575 (1943) (granting a stay in state trustee 15 proceedings); see also Le Maistre v. Leffers, 333 U.S. 1, 6 (1948) (overturning a state tax sale by 16 giving a broad construction to the SCRA in light of its “beneficient purpose” and noting that “the 17 Act must be read with an eye friendly to those who dropped their affairs to answer their country's 18 call”); Brewster v. Sun Trust Mortg., Inc., 742 F.3d 876, 878 (9th Cir. 2014). 19 Captain Wellisch invokes two parts of the statute in this case, sections 3932 and 3933. 20 Compl. ¶¶ 40, 44. Section 3932 allows a service member on military duty to move to stay any 21 judicial or administrative proceeding initiated against him or to move to stay the execution of any 22 judgment entered against him. 50 U.S.C. § 3932(a)–(b). Section 3932 applies “to any civil action 23 or proceeding . . . in which the plaintiff or defendant at the time of filing an application under this 24 section (1) is in military service or is within 90 days after termination of or release from military 25 service; and (2) has received notice of the action or proceeding.” Id. § 3932(a). Section 3933 26 provides that when an action is stayed pursuant to section 3932, “a penalty shall not accrue for 27 failure to comply with the terms of the contract during the period of the stay.” Id. § 3933(a). 28 PHEAA argues that neither section applies because its servicing of Wellisch’s loans does 4 1 not constitute a “civil action or proceeding,” and therefore Wellisch cannot state a claim under the 2 SCRA. PHEAA Mot. 8–9. Captain Wellisch contends, however, that PHEAA’s reading of the 3 SCRA is erroneous because the SCRA applies to “any judicial or administrative proceeding 4 commenced in any court or agency in any jurisdiction subject to [the SCRA],” and PHEAA is an 5 administrative agency. Opp’n to PHEAA Mot. 4 (citing and quoting 50 U.S.C. § 3912(b)). 6 Wellisch thus contends that PHEAA’s conduct, which he alleges made it impossible to maintain 7 his IBR plan, gives rise to a claim under the SCRA because it failed in its obligation as an agency 8 to commence, or at least make available, some form of administrative proceedings or other means 9 for service members to realize the statutory protections under the SCRA. Id. at 5. 10 As Wellisch correctly points out, section 3912 of the SCRA provides, “[t]his chapter United States District Court Northern District of California 11 applies to any judicial or administrative proceeding commenced in any court or agency in any 12 jurisdiction subject to this chapter.” Opp’n to PHEAA Mot. 4 (quoting 50 U.S.C. § 3912). 13 Moreover, section 3911 defines “court” as “a court or any administrative agency of the United 14 States or of any State (including any political subdivision of a State)[.]” 50 U.S.C. § 3911(5). 15 While the Court agrees that PHEAA could be subject to the SCRA, as “a statutorily created 16 instrumentality of the Commonwealth of Pennsylvania,” PHEAA Reply 5, ECF 21, Wellisch has 17 failed to allege facts showing that PHEAA initiated, at any point, a “judicial or administrative 18 proceeding” while servicing Wellisch’s loans. Wellisch merely alleges that “[t]he SCRA applies 19 to defendant PHEAA, whether PHEAA is deemed an administrative agency or political 20 subdivision of the Commonwealth of Pennsylvania.” Compl. ¶ 39. Thus, without deciding 21 whether PHEAA is acting as a court or agency when it performs its function as a loan servicer, the 22 Court finds that Wellisch has failed to allege facts supporting that PHEAA was acting in such a 23 capacity. Accordingly, Wellisch has failed to state a claim under the SCRA. 24 Wellisch has failed to state a claim under the SCRA for another reason: The crux of 25 Wellisch’s claim is that PHEAA violated the SCRA by failing to make available any means by 26 which he could exercise his right to a stay. Compl. ¶¶ 41–43. However, Wellisch fails to 27 acknowledge that a stay is required only if the servicemember requests one. 50 U.S.C. § 28 3932(b)(1)–(2). And, Wellisch does not allege that he informed PHEAA of his intention to 5 1 exercise this right or that such an act would be futile. Moreover, Wellisch does not cite any 2 authority to support his contention that PHEAA is required to create an entirely separate procedure 3 by which servicemembers can alert it of their intention to move for a stay. For these reasons, the 4 Court finds that Captain Wellisch has not stated a claim under the SCRA and GRANTS PHEAA’s 5 motion to dismiss WITH LEAVE TO AMEND. 6 7 ii. State Law Claims Captain Wellisch also brings the following claims under state law: relief from fine or 8 penalty, pursuant to CMVC § 403; relief from pre-service liability, pursuant to CMVC § 409; 9 unfair business practices under Cal. Bus. & Prof. Code § 17200 et seq.; and suppression of fact under Cal. Civ. Code § 1710(3). The Court does not address Wellisch’s claim pursuant to CMVC 11 United States District Court Northern District of California 10 § 409 because it is stayed. 12 PHEAA argues that Wellisch does not state a claim under CMVC § 403 because he does 13 not allege that he incurred a “fine or penalty” for “nonperformance.” PHEAA Mot. 3. As to the 14 former, PHEAA contends that Plaintiff’s loss of qualification for the IBR program does not 15 constitute a “fine or penalty.” Id. As to the latter, PHEAA argues that the Complaint does not 16 allege that Plaintiff’s failure to provide PHEAA with the documentation necessary to maintain his 17 qualification in the IBR program constitutes “nonperformance” of his student loan obligations. Id. 18 In reply, Captain Wellisch does not address PHEAA’s argument regarding his failure to plead that 19 any alleged penalty was imposed due to his nonperformance of his loan obligations. Nevertheless, 20 Wellisch counters PHEAA’s argument that the increased payments do not constitute a penalty by 21 contending that “the additional $20,000+ in student loan payments . . . [were not] voluntary 22 donations.” Opp’n to PHEAA Mot. 3. This, however, is not the proper comparison. Further, 23 Plaintiff cites no authority to support his argument that any nonvoluntary payments constitute a 24 fine or penalty. For this reason, the Court finds that Captain Wellisch has failed to sufficiently 25 allege that he incurred a “fine or penalty” for “nonperformance,” and therefore GRANTS 26 PHEAA’s motion to dismiss on this ground. 27 Moreover, as PHEAA correctly asserts, the Court finds Wellisch’s claim for suppression of 28 fact inadequately plead under Rule 9(b), and therefore GRANTS PHEAA’s motion to dismiss this 6 1 claim. For the reasons articulated above, the Court also GRANTS PHEAA’s motion to dismiss 2 3 Wellisch’s claim under the UCL. James Preston’s Motion to Dismiss 4 B. 5 Preston argues that the Complaint is inadequate as to him because it fails to allege why he 6 is personally liable for alleged acts relating to the servicing of Wellisch’s student loans. See 7 generally Preston Mot. Specifically, Preston contends that the Complaint’s only reference to 8 Preston appears in paragraph 5, in which Wellisch alleges that Preston is PHEAA’s President and 9 CEO. Id. at 1. Wellisch opposes Preston’s motion, but does not dispute Preston’s contentions. See Opp’n to Preston Mot. 2, ECF 13. Nevertheless, Wellisch argues that he has alleged that 11 United States District Court Northern District of California 10 “each defendant was the agent of every other Defendant acting within the scope of agency and 12 with the consent of each defendant.” Id.; Compl. ¶ 7. Because the Court’s prior analysis with 13 respect to Wellisch’s claims against PHEAA applies equally to his claims against Preston, the 14 Court also GRANTS Preston’s motion to dismiss WITH LEAVE TO AMEND.2 Moreover, in 15 any amended complaint, Plaintiff must set forth facts regarding Preston’s alleged conduct. 16 IV. ORDER For the foregoing reasons, the Court GRANTS Defendants’ motions to dismiss WITH 17 18 LEAVE TO AMEND. Any amended pleading shall be filed on or before July 14, 2017. Failure 19 to meet the deadline to file an amended complaint or failure to cure the deficiencies identified in 20 this order will result in a dismissal of Plaintiff’s claims with prejudice. IT IS SO ORDERED. 21 22 23 Dated: June 21, 2017 ______________________________________ BETH LABSON FREEMAN United States District Judge 24 25 26 2 27 28 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[.]”). 7

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