Parola v. Citibank (South Dakota) NA
Filing
40
ORDER granting 27 Motion to Dismiss. See attached memorandum of decision. The Court dismisses all of Plaintiff's claims. The Clerk is therefore directed to close the case. Signed by Judge Vanessa L. Bryant on 9/10/2012. (Fernandez, Melissa)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
JULIE PAROLA
PLAINTIFF,
v.
CITIBANK (SOUTH DAKOTA) N.A
DEFENDANT.
:
:
: CIVIL ACTION NO. 3:11cv1017(VLB)
:
: SEPTEMBER 10, 2012
:
:
:
MEMORANDUM OF DECISION GRANTING DEFENDANT’S [DKT. #27] MOTION TO
DISMISS
The Defendant Citibank (South Dakota) N.A. (“Citibank”) has moved to
dismiss the Plaintiff Julie Parola’s (“Parola”) amended complaint pursuant to Fed.
R. Civ. P. 12(b)(6) for failure to state a claim for which relief can be granted. In the
amended complaint, Parola asserts state law causes of action for breach of
contract, fraud, violations of Connecticut’s Creditor Collection Practices Act
(“CCPA”), Conn. Gen. Stat. §§36a-645 et. Seq., and violations of Connecticut’s
Unfair Trade Practices Act (“CUTPA”) Conn. Gen. Stat. §42-110b, et. Seq. For the
foregoing reasons, the Court GRANTS Defendant’s motion to dismiss.
Factual Allegations
The following facts are alleged in Plaintiff’s amended complaint, unless
otherwise stated. Citibank was the originator and holder of Plaintiff’s federal
student loans administered under the Federal Family Education Loan Program
(“FFEL”). [Dkt. #19, Amended Compl., ¶3]. Plaintiff executed a Master
Promissory Note (“MPN”) for her FFEL loans which incorporates the Higher
1
Education Act (“HEA”), 20 U.S.C. §1070 et seq. and applicable Department of
Education regulations. Id. at ¶4.
In June of 2009, Parola contacted Citibank to apply for Income Based
Repayment (“IBR”) which is a repayment program for federal student loans as
described in 34 C.F.R. §685.221. Id. at ¶5. Citibank suggested that she wait to
apply for IBR because “a number of her loans were in a six-month grace period
because of her recent graduation from law school.” Id. at ¶6. Citibank suggested
that Parola use an Economic Hardship Deferment (“EHD”) “because being a
recent graduate working only part-time and studying for the bar, Plaintiff’s
income was limited and she was unable to make the required minimum monthly
payment.” Id. Parola “followed Citibank’s suggestion” that she use EHD for any
federal loans held by Citibank in repayment status. Id. at ¶7.
In December of 2009, when the grace period for Parola’s law school loans
was about to expire, she applied for IBR. Id. at ¶8. Citibank, in a letter dated
January 11, 2010, denied Parola IBR stating that “‘[a] portion of your account is
presently on an Economic Hardship deferment until 6/19/2010. Please reapply
after your deferment has ended.” Id. at ¶9. Parola alleges that she “had the right
to cancel her EHD at anytime, however, Citibank failed to consider Plaintiff’s IBR
application in December 2009 as an implied request to terminate her June 2009,
EHD, thereby resulting in an erroneous denial of IBR.” Id. at ¶10.
Parola was unable to make the “required payment under the standard
repayment option” and so she “applied for EHD for her law school loans”
2
because IBR was denied Id. at ¶11. Citibank in a letter dated February 23, 2010,
denied Parola’s application for EHD “stating her monthly income was too great.
Citibank instead granted a Debt Burden forbearance” for Parola’s law school
loans. Id. at ¶12. In another letter dated February 23, 2010, Citibank denied
Plaintiff IBR stating that “your account is presently on a Debt Burden forbearance
until December 2, 2010. Please reapply after your deferment has ended.” Id. at
¶13.
Parola alleges that 34 C.F.R. 682.210 states that EHD terminates “when the
conditions that qualified the borrower for EHD changes in such a way that the
borrower no longer qualifies for EHD.” Id. at ¶14. Citibank was aware that she no
longer qualified for EHD before denying her IBR application in February 2010. Id.
at ¶15. Parola alleges that Citibank should have terminated her EHD from June
of 2009 in February of 2010 to allow her to take advantage of the IBR program. Id.
at ¶16.
Parola applied for IBR again in June of 2010 when her EHD ended which
was denied because a portion of her account was in forbearance. Id. at ¶¶18-19.
In December 2010, the forbearance of Parola’s law school loans expired.
Id. at ¶20. Parola further alleges that she knew “it was futile to request IBR and
anxious to break the catch-22 created by Citibank, began making payments for
her law school loans in January of 2011, paying the amount required under a
normal, non-IBR repayment plan.” Id. at ¶21. Parola alleges that as a result of
Citibank’s refusal to grant IBR in June 2001, she was forced to use one of her
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three years of EHD. Id. at ¶22. Parola alleges that Citibank’s “denial of IBR was
purposeful and malicious, designed to increase the loan balance with direct
negative consequences to the Plaintiff.” Id. at ¶24.
Citibank sent Parola a letter on February 23, 2010 stating that her
entitlement to deferment or forbearance takes priority over IBR. Id. at ¶25. She
further alleges that this statement is an “erroneous policy statement that is not
based on any statute or regulation.” Id. at ¶26. Parola contends that “forcing the
Plaintiff into EHD and Debt Burden forbearance results in the accrued interest
being capitalized which ultimately results in the loan accruing interest at a greater
rate than it would have had IBR been granted when requested.” Id. at ¶27. Parola
alleges that the “erroneous denial of IBR” also harmed her by delaying the 25
year time limit of the IBR program. Id. at ¶28.
Parola consolidated her federal student loans with the William D. Ford
Direct Loan Program in February 2011. Id. at ¶30. She alleges that Citibank
received her payments for her private loan in March and April of 2011, but
erroneously applied it to her federal loans. Id. at ¶¶31-32. Parola contacted
Citibank about the mistake but was told that it was her responsibility to contact
the Department of Education (“DOE”) to have the money returned to Citibank. Id.
at ¶33. Parola then contacted the DOE but was told that it was Citibank who had
to contact the DOE. Id. Parola contacted Citibank after speaking with the DOE
and that Citibank refused to contact the DOE. Id. at ¶35.
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Parola informed Citibank that she had retained counsel, and supplied
Citibank with counsel’s name, phone number and address. Id. at ¶37. Parola
alleges that “despite knowing that Plaintiff was represented by counsel,
[Citibank] continued to contact Plaintiff directly.” Id. at ¶38. Citibank sent her no
less than three letters stating “you recently informed us that you have retained an
attorney to handle your account. Unfortunately, the information that you
provided was incomplete and/or insufficient to reach your attorney or the
attorney advised us that they have not been retained to handle this account.” Id.
at ¶39. Parola supplied her counsel’s contact information “each and every time
she spoke with Citibank over the course of 5 months.” Id. at ¶40.
Parola alleges that Citibank breached the contract with her by failing to
service her FFEL loans in compliance with the HEA and other applicable DOE
regulations “through its refusal to grant IBR when requested in June of 2009 and
December of 2009.” Id. at ¶45.
Parola next alleges that Citibank committed fraud “by its conduct in
December 2009 through February 2010” by denying her “IBR stating that IBR
could not be granted while Plaintiff’s account contained loans in EHD.” Id. at
¶¶50, 51. Parola asserts that Citibank knew or should have known that EHD
should have been terminated in accordance with 34 C.F.R. §685-210(a)(6)(i)
sometime between December 2009 and February 2010. Id. at ¶52. As Citibank
falsely told Plaintiff she could not have IBR, Plaintiff, on reliance on Citibank’s
statements, placed her law school loans in a Debt Burden forbearance.” Id. at
¶52. Parola alleges the she was harmed by these false statement because as a
5
result of the Debt Burden forbearance, interest accrued that was capitalized
thereby making her loan grow faster than it would have had it been placed in the
IBR program. Id. at ¶54.
Parola claims that Citibank committed five CCPA violations. First, Citibank
allegedly violated Conn. Agencies Reg. §36a-647-4(a)(2) by contacting her
repeatedly when it knew that she was represented by counsel and had valid
contact information for said counsel. Id. at ¶60. Second, Citibank violated Conn.
Agencies Reg. §36a-647-5(5) by continuing to engage Plaintiff in conversation
when it knew that she was represented by counsel. Id. Third, Citibank violated
Conn. Agencies Reg. §36a-647-5(14) by refusing to investigate an ongoing
dispute. Id.
Fourth, Citibank violated Conn. Agencies Reg. §36a-647-6(2)(A) “by
falsely representing the character, amount, and legal status of the debt when
claiming Plaintiff had missed two payments on her private student loan.” Id.
Lastly, Citibank violated Conn. Agencies Reg. §36a-647-6(11) by falsely stating
that it was Plaintiff’s responsibility to contact the DOE to get the money back that
Citibank wrongfully sent to the DOE and by refusing to contact the DOE directly
to get the money back. Id.
Lastly, Parola alleges that Citibank violated CUTPA for its “breach of
contract, fraud, violation of the CCPA, and by denying IBR for erroneous policy
reasons not based on any statute or regulation governing the Family Federal
Education Loan Program.” Id. at ¶63. Parola alleges that Citibank’s acts were
“contrary to public policy, and were unfair, immoral, unethical, oppressive and
unscrupulous and such as to cause substantial injury to consumers.” Id. at ¶64.
6
Parola asserts that she “sustained an ascertainable loss as a result of Citibank’s
acts. Specifically, Plaintiff’s loan balance is based on interest that never should
have accrued or been capitalized, Plaintiff is two years behind in qualify [sic] for
her 25 year discharge, Plaintiff was forced to make payments that were above her
means in order to maintain her good credit, such payments being substantially
greater than they would have been under the IBR program, and Plaintiff suffers
credit damage as a result of Citibank improperly forwarding the payment for her
private student loan to the [DOE] and refusing to do anything to correct the
problem.” Id. at ¶65.
Legal Standard
“‘To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is plausible on its face.’”
Sarmiento v. U.S., 678 F.3d 147 (2d Cir. 2012)(quoting Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)). While Rule 8 does not require detailed factual allegations, “[a]
pleading that offers ‘labels and conclusions’ or ‘formulaic recitation of the
elements of a cause of action will not do.’ Nor does a complaint suffice if it
tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556
U.S. at 678 (citations and internal quotations omitted). “Where a complaint
pleads facts that are ‘merely consistent with’ a defendant's liability, it ‘stops short
of the line between possibility and plausibility of ‘entitlement to relief.’ ” Id.
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
7
the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. (internal citations omitted).
In considering a motion to dismiss for failure to state a claim, the Court should
follow a “two-pronged approach” to evaluate the sufficiency of the complaint. Hayden v.
Paterson, 594 F.3d 150, 161 (2d Cir. 2010). “A court ‘can choose to begin by identifying
pleadings that, because they are no more than conclusions, are not entitled to the
assumption of truth.’” Id. (quoting Iqbal, 129 S.Ct. at 1949-50). “At the second step, a
court should determine whether the ‘well-pleaded factual allegations,’ assumed to be
true, ‘plausibly give rise to an entitlement to relief.’” Id. (quoting Iqbal, 556 U.S. 679).
“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.” Iqbal, 556 U.S. at 678
(internal quotations omitted).
Analysis
i.
Breach of Contract
Citibank argues that Parola’s breach of contract claim is essentially an
impermissible claim for violation of the HEA. [Dkt. #28, mem. in support of its
motion to dismiss, p. 6]. Citibank argues that Parola cannot maintain a claim for
violation of the HEA as it is well settled that there is no private cause of action
under the HEA. Id. Indeed, the Second Circuit recently held that the “HEA does
not provide student borrowers a private right of action to enforce its provisions.”
Sanon v. Dep’t of Higher Ed., 453 Fed. Appx. 28, 29 (2d Cir. 2011) (citing Josey v.
Sallie Mae, Inc., No.09Civ.4403(AJP), 2009 WL 2518643, at *5 & n.8 (S.D.N.Y. Aug.
17, 2009)).
8
Parola concedes that there is no private right of action under the HEA but
argues that she should be permitted to maintain her breach of contract claim on
the basis that HEA compliance was a term of her contract with Citibank. [Dkt.
#30, mem. in opp. to motion to dismiss, p. 7]. Although not apparent from the
pleadings set forth in the amended complaint, Plaintiff argues that Citibank
agreed to comply with the HEA and the regulations controlling IBR in the MPN.
Id. at 11. Therefore Parola argues that when Citibank allegedly failed to comply
with the regulations regarding IBR, it breached its obligations under the MPN. 1
“Congress directs the DOE to issue common application forms and
promissory notes to be used by FFELP participants. These common forms
include a free application form, master promissory note, and common loan
deferment form. The purpose of the common forms is to standardize the terms
and formatting to help applicants understand their loan obligations.” Chae v.
SLM Corp, 593 F.3d 936, 940 (9th Cir. 2010) (citing 20 U.S.C. §§ 1082(m)(1)-(4)).
The Borrower’s Rights and Responsibilities section of the MPN which Parola
1
It is well established that a plaintiff “may not amend [his] complaint through [his]
opposition.” Rodriguez v. Goetz, 09-cv-3728, 2010 WL 451032, at *1 n. 1 (S.D.N.Y.
Feb. 1, 2010) (declining to consider factual allegations raised in opposition to
motion to dismiss); Space, Inc. v. Simowitz, 08-cv-2854, 2008 WL 2676359, at *4
(S.D.N.YY. July 8, 2008) (declining to consider “new factual allegations that are
not contained in the Complaint.”). Here Parola’s allegations raised in her
opposition to the motion to dismiss regarding Citibank’s alleged breach of the
terms of the MPN are not clearly alleged in the amended complaint. Parola’s
pleadings therefore likely fail Federal Rule of Civil Procedure 8’s requirement that
a pleading must state the “factual allegations that are sufficient to give fair notice
of what the claim is and the ground upon which it rests.” Andersen News, L.L.C.
v. Am. Media, Inc., 680 F.3d 162, 168 (2d Cir. 2010) (internal quotation marks,
citations, and alternations omitted). However, the Court will consider Parola’s
allegations as the Defendant has briefed the issue and it would be futile to allow
her leave to amend her complaint to specifically assert this claim.
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executed on July 21, 2005 states in relevant part: “Governing law – loans
disbursed under this Master Promissory Note (“MPN”) are subject to the Higher
Education Act of 1965 as amended (20 U.S.C. 1070 et seq.) and applicable U.S.
Department of Education regulations (collectively referred to as the “Act”). Note:
Any change to the Act applies to the terms of any loan(s) disbursed on or after
the effective date of the change.” [Dkt. #27, Ex. B].
Parola argues that this provision in the MPN obligates Citibank to comply
with the IBR regulations and that Citibank’s failure to grant her IBR when she
requested it in June and December of 2009 constitutes a breach of contract.
Parola relies on two cases to support her breach of contract theory. However,
both of these cases are inapposite. First, Parola argues that in Brooks v. Sallie
Mae, Inc., No.3:09-cv-1547(SRU), 2009 WL 4038467 (D. Conn. Nov. 19, 2009), the
court held that a state unfair practices act claim was not “undone” by the HEA’s
lack of a private right of action. Parola contends that this holding is equally
applicable to a breach of contract claim. [Dkt. #30, p. 7]. However, as Citibank
points out the Brooks court did not hold that the CUTPA claim was not “undone”
by the HEA’s lack of private right of action.
In Brooks, the plaintiff filed a state superior court action alleging violation
of CUTPA based on the defendant’s non-compliance with the HEA. The
defendant removed the action from state court and moved to dismiss on the
ground that there is no private right of action under the HEA. The Brooks court
solely examined whether the defendant had carried its burden to establish
federal-question jurisdiction in light of the fact that plaintiff’s complaint raised a
10
single Connecticut state law question. The Brooks court concluded that the HEA
did not “confer exclusive jurisdiction on federal courts to resolve disputes
concerning administration of student loans” and therefore found that the
defendant failed to carry its burden to establish federal jurisdiction as the “mere
presence of a federal law defense does not give rise to federal jurisdiction.” 2009
WL 4038467, at *2. The Brooks court then remanded the action back to the
Connecticut superior court. Consequently, the Brooks court did not consider
whether the plaintiff could maintain a cause of action under CUTPA for a violation
of the HEA.
Second, Parola points to the Fourth Circuit’s decision in College Loan
Corp. v. SLM Corp., 396 F.3d 588 (4th Cir. 2005) in which the court held that the
plaintiff could maintain a breach of contract claim based upon violations of the
HEA. In College Loan, a student loan consolidated lender sued its loan servicers
and competitor for breach of contract and tortious interference. There the
plaintiff and defendant entered into a master loan agreement in which the
defendant certified that its consolidation loan servicing shall comply in all
respects with the HEA. 396 F.3d at 592. The Fourth Circuit concluded that as
parties to the master loan agreement, both defendant and plaintiff “expressly
agreed to comply with the HEA. In that context, Sallie Mae's argument that
enforcement of the Agreement's terms is preempted by the HEA boils down to a
contention that it was free to enter into a contract that invoked a federal standard
as the indicator of compliance, then to proceed to breach its duties thereunder
11
and to shield its breach by pleading preemption. In this case at least, federal
supremacy does not mandate such a result.” Id. at 598 (emphasis in the original).
However the facts of College Loan are distinguishable from the instant
case. Unlike the master loan agreement in College Loan which was negotiated at
arms-length by both parties, the MPN is a document drafted by the DOE and its
use is mandated by statute. Neither Citibank nor Parola negotiated or drafted the
MPN and therefore neither party expressly agreed to comply with the HEA as was
the case in College Loan. Additionally in College Loan, the parties expressly
invoked the federal standard as an indicator of non-compliance by covenanting
that the defendant shall comply in all respects with the HEA. In the instant case,
Citibank was the lender in a federal student loan program which mandated the
use of the MPN. Citibank and Parola did not negotiate the MPN and Citibank did
not covenant to comply with the HEA. Consequently Parola is only entitled to the
remedies for breach of the MPN created by the HEA. As noted above the HEA
does not create a private right of action, but instead “permits the Secretary of
Education to discharge a loan guaranteed by the Department of Education.”
Nehorai v. U.S. Dep’t of Educ. Direct Loan, No.08-cv-920, 2008 WL 1767072, at *1
(E.D.N.Y. Apr. 14, 2008); see also Labickas v. Arkansas State Univ., 78 F.3d 333,
334 (8th Cir. 1996) (concluding that the HEA reserves all enforcement activity to
the Secretary of Education) (citing 20 U.S.C. §§ 1070(b), 1082(a)(2), 1082(h)).
Contrary to Parola’s contention, the MPN’s HEA provision only authorizes the
Secretary of Education to pursue an enforcement action for non-compliance.
12
Thus Parola’s recourse is to seek remedial action by the Department of
Education.
Citibank aptly argues that the reasoning of the Maryland Court of Appeals
on a similar issue underscores this conclusion. In Wells Fargo Home Mortgage,
Inc. v. Neal, 398 Md. 705 (2007), a residential mortgagor brought claims for breach
of contact alleging that the mortgage servicer failed to comply with United States
Housing and Urban Development’s (“HUD”) loss mitigation regulations before
initiating foreclosure proceedings. The plaintiff argued that despite the fact that
there was no private right of action under HUD, it could rely on a reference to the
HUD regulations in a deed of trust to support a state law breach of contract claim.
The Wells Fargo court considered and distinguished the Fourth Circuit’s decision
in College Loan holding that even though Wells Fargo voluntarily choose to
participate as a lender in the FHA mortgage insurance program, it did not assent
to comply with HUD regulations. 398 Md. at 716. The Wells Fargo court reasoned
that “the lynchpin of the College Loan Corp. court’s analysis was that the
contractual term binding the parties privately to an otherwise statutory standard
of conduct was the product of a negotiation yielding a freely-entered contract. In
the matter before us, Wells Fargo did not participate in negotiations for or
drafting of the deed of trust to which it became assignee.” Id. at 718. The Wells
Fargo court further reasoned that HUD’s enforcement scheme which provides for
a civil money penalty to be levied by the Secretary of HUD “comports with the
notions that the regulations enacted pursuant to the NHA were intended to
govern the relationship between the mortgagee and the government rather than,
13
as Neal would have it, the mortgagee and the mortgagor.” Id. at 719. This Court
agrees that the MPN like the deed of trust in Wells Fargo was not the product of a
negotiation yielding a freely-entered contract and that the regulations and
enforcement scheme enacted pursuant to the HEA were intended to govern the
relationship between the lender and the government rather than the borrower and
the lender. The Court therefore finds that Parola has failed to state a breach of
contract claim that is plausible as the provision of the MPN Parola relies is not a
covenant for compliance by the lender, nor is the MPN the product of a
negotiation yielding a freely-entered contract as was the case in College Loan.
Assuming arguendo that Parola could maintain a breach of contract claim
on the basis of the MPN, Parola has also failed to plead sufficient factual matter
to state a claim to relief that is plausible on its face. Parola alleges that Citibank
breached the MPN when it denied her IBR request in June of 2009. However
Parola alleges that in June of 2009 she contacted Citibank about applying for IBR
and Citibank suggested that she wait until after the 6-month grace period on her
loans expired and instead apply for an EHD. [Dkt. #19, Amended Compl., ¶6].
Parola alleges that she “followed Citibank’s suggestion” that she use EHD for her
federal loans held by Citibank. Id. at ¶7. Citibank cannot be liable for a breach of
contract where Parola admittedly did not pursue her application for IBR in June of
2009 and instead voluntarily followed Citibank’s suggestion that she apply for
EHD. Further, Parola cites no facts, MPN provision or law which would impose
upon Citibank the duty to take it upon itself to review Parola’s loan, evaluate her
eligibility for various borrower classifications and advise her of her options,
14
much less the most beneficial option as Parola alleges Citibank failed to do.
Therefore, Parola has not plausibly alleged that Citibank breach the MPN by
refusing to grant her IBR in June of 2009.
Parola also alleges that Citibank breached the MPN when it denied her IBR
request in December of 2009 on the basis that a portion of her account was on
EHD. Id. at ¶¶8-10. Parola alleges that she “had the right to cancel her EHD at
anytime, however, Citibank failed to consider Plaintiff’s IBR application in
December 2009 as an implied request to terminate her June 2009, EHD, thereby
resulting in an erroneous denial of IBR.” Id. at ¶10. However since Parola
admittedly never made a request to terminate her EHD, she has failed to plausibly
allege that Citibank had a duty to act as her advisor and failed to plausibly allege
that Citibank breached the MPN when it failed to do something that she
admittedly never asked it to do. Parola has therefore failed to plead sufficient
factual content to allow the Court to draw the reasonable inference that Citibank
breached its obligations under the MPN.
Lastly, the Court notes that Parola’s loans could not be subject to the IBR
program as the IBR program came into existence years after her loans were
disbursed in 2005. See In re Stevenson, 463 B.R. 586, 592 n.5 (Bkrtcy. D. Mass.
2011) (“The IBR became available under the Ford Program as of July 1, 2009”).
The MPN expressly provides that “[a]ny change to the Act applies to the terms of
any loan(s) disbursed on or after the effective date of the change.” [Dkt. #27, Ex.
B]. Consequently, pursuant to the express terms of the MPN, the change to the
Act establishing the IBR program did not apply to loans such as Parola’s
15
disbursed prior to the effective date of that change in 2009. For all these reasons,
the Court dismisses Parola’s breach of contract claim.
ii.
Fraud
Citibank argues that Parola has failed to plead her claim of fraud with
particularity as required by Federal Rule of Civil Procedure 9(b). Parola has
alleged that Citibank committed fraud when it denied her IBR application “stating
that IBR could not be granted while Plaintiff’s account contained loans in EHD.”
[Dkt. #19, Amended Compl., ¶51]. Parola further alleges that Citibank knew or
should have known that EHD should have been terminated in accordance with 34
C.F.R. §685-210(a)(6)(i) sometime between December 2009 and February 2010. Id.
at ¶52. Citibank argues that Plaintiff failed to identify who made these allegedly
false statements and when these statements were made. Parola argues that she
met Rule 9(b)’s requirements because she relies on the letter Citibank sent dated
January 11, 2010 in which they denied her IBR application on the basis of her
ongoing EHD as the basis for her fraud claim. Citibank further argues that Parola
has failed to set forth a single allegation that this alleged statement was false or
that it knew such statement was false.
“The essential elements of an action in common law fraud ... are that: (1) a
false representation was made as a statement of fact; (2) it was untrue and known
to be untrue by the party making it; (3) it was made to induce the other party to
act upon it; and (4) the other party did so act upon that false representation to his
injury ... Under a fraud claim of this type, the party to whom the false
16
representation was made claims to have relied on that representation and to have
suffered harm as a result of the reliance ... In contrast to a negligent
representation, [a] fraudulent representation ... is one that is knowingly untrue, or
made without belief in its truth, or recklessly made and for the purpose of
inducing action upon it ... This is so because fraudulent misrepresentation is an
intentional tort.” Sturm v. Harb Development, LLC, 298 Conn. 124, 142 (2010)
(internal quotation marks and citations omitted).
“To plead with particularity in accordance with Rule 9(b), the complaint
must: (1) specify the statements alleged to be fraudulent, (2) identify the speaker,
(3) state where and when the statements were made, and (4) explain why the
statements were fraudulent.” Gabrielle v. Law Office of Martha Croog, No.3:10cv-1798(WWE), 2012 WL 460264, at *4 (D. Conn. Feb. 9, 2012) (citing Rombach v.
Chang, 355 F.3d 164, 170 (2d Cir. 2004)). “Rule 9(b) provides that ‘[m]alice, intent,
knowledge and other conditions of a person's mind may be alleged generally.’
However, to safeguard a defendant's reputation from unsubstantiated charges of
wrongdoing or a strike suit, the Second Circuit has instructed that plaintiffs must
allege facts that give rise to a strong inference of fraudulent intent.’” Id. (quoting
Shields v. Citytrust Bancorp., Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)). “The ‘strong
inference of fraud’ may be established by either alleging facts to show that a
defendant had both motive and opportunity to commit fraud, or facts that
constitute strong circumstantial evidence of conscious misbehavior or
recklessness.” Id. (citing James F. Canning Agency v. Nationwide Ins. Co. of
America, No.3:09-cv-1413(MRK), 2010 WL 2698292 at *2 (D. Conn. Mar. 10, 2010)).
17
The “purpose of Rule 9(b)’s specificity requirement is to provide the defendant
with fair notice of a plaintiff’s claim and adequate information to frame a
response.” United States ex rel. Tiesinga v. Dianon Sys., Inc., 231 F.R.D. 122, 123
(D.Conn. 2005)(quotation marks and citation omitted).
The Court agrees that Parola has failed to allege sufficient factual matter to
state a claim to relief for fraud that is plausible on its face. First, Parola had failed
to allege facts demonstrating that Citibank’s statement that her IBR application
was denied because a portion of her account was on EHD was false. As
discussed above, Parola has alleged that Citibank should have treated her IBR
application in December 2009 as an implied request to terminate her June 2009
EHD. [Dkt. #19, Amended Compl., ¶10]. Consequently, Citibank’s statement that
a portion of her account was on EHD could not be false as Parola had admittedly
not requested that Citibank terminate her EHD. Parola argues that this statement
is false because Citibank was required by 34 C.F.R. § 693.210(a)(6) to terminate
her EHD “upon learning that Plaintiff no longer qualified for EHD.” [Dkt. #30,
Mem. in Opp. to Motion to dismiss, p. 14]. However, Parola has failed to allege
any facts with particularity that Citibank knew or should have known pursuant to
HEA regulations that she no longer qualified for EHD. Parola has only
conclusorily cited to the IBR regulation to support her allegation of Citibank’s
knowledge. In addition, Parola has also conclusorily alleged that Citibank’s
“denial of IBR was purposeful and malicious” and therefore she has failed to
plead with particularity any facts that give rise to a strong inference of fraudulent
intent as required under Rule 9(b). [Dkt. #19, Amended Compl., ¶24]. Parola has
18
therefore failed to plead sufficient factual content to allow the Court to draw the
reasonable inference that Citibank committed fraud when it denied her IBR
application in January 2010. For these reasons, the Court dismisses Parola’s
fraud claim.
iii.
CCPA Violations
Citibank argues that Parola has failed to plausibly allege that Citibank’s
conduct violated CCPA regulations. Citibank also argues that a creditor can only
be liable under the CCPA for “abusive, harassing, fraudulent, deceptive or
misleading representation, device or practice to collect a debt.” [Dkt. #33, p. 7-8].
Conn. Gen. Stat. §36a-646 provides that “[n]o creditor shall use any abusive,
harassing, fraudulent, deceptive or misleading representation, device or practice
to collect or attempt to collect any debt.” Id. “The Commissioner of Banking may
adopt regulations to specify ‘those acts which are deemed to be in violation of
Section 36a–646.’” Citibank v. Bennet, No.CV106002153S, 2011 WL 3427224, at *[]
(Conn. Super. Ct. July 14, 2011) (quoting Conn. Gen. Stat. §36a-647(a)). Parola
alleges that Citibank violated five regulations promulgated under the CCPA which
the Court will examine in turn.
a. Regs., Conn. Stat. Agencies §36a-647-4(a)(2)
Connecticut state agency regulations section 36a-647-4(a)(2) promulgated
by the Commissioner of Banking provides that “creditor shall not communicate
with a consumer debtor or consumer debtor agent in connection with the
collection of any debt... [i]f the creditor knows the consumer debtor or consumer
19
debtor agent is represented by an attorney with respect to such debt and has
knowledge of such attorney's name and address, unless the attorney fails to
respond within a reasonable period of time to a communication from the creditor,
not to exceed thirty days after such communication, unless the attorney consents
to direct communication with the consumer debtor or consumer debtor agent,
provided that a creditor may send to a consumer debtor or consumer debtor
agent normal periodic billing statements which do not contain any message that
violates the provisions of section 36a-647-5 or 36a-647-6 of the Regulations of
Connecticut State Agencies.” Regs., Conn. Stat. Agencies §36a-647-4(a)(2).
(emphasis added). Parola does allege that she informed Citibank that she had
retained counsel and supplied them with her counsel’s name, phone number and
address. See [Dkt. #19, Amended Compl., ¶37]. However, Parola has failed to
allege that Citibank communicated with her “in connection with the collection of
any debt” despite its knowledge that she was represented. Regs., Conn. Stat.
Agencies §36a-647-4(a)(2). Instead, Parola alleges that Citibank contacted her to
let her know that the information she provided regarding her retained counsel
was incomplete or insufficient to reach the attorney. Id. at ¶39. Consequently,
Citibank did not contact Parola to collect the debt. Instead, it contacted her by
letter on three occasions solely for the express purpose of obtaining her
attorney’s correct contact information so that it could contact her attorney to
discuss collection of the debt. To hold otherwise would deprive a lender of its
only avenue to collect its debt. Parola has failed to allege that Citibank contacted
her in connection with the collection of the debt as is required for a violation of
20
Regs., Conn. Stat. Agencies §36a-647-4(a)(2). The Court therefore dismisses
Parola’s Regs., Conn. Stat. Agencies §36a-647-4(a)(2) claim.
b. Regs., Conn. Stat. Agencies §36a-647-5(5)
Connecticut state agency regulations section § 36a–647–5 provides that
“[a] creditor shall not engage in any conduct the natural consequence of which to
a reasonable person would be to harass or abuse such person in connection with
the collection of a debt. A creditor shall not intentionally engage in any conduct
which the creditor knows would harass or abuse any person. Without limiting
the general application of the foregoing, the regulation sets forth conduct which
violates this section.” Conn. Agencies Reg. § 36a–647–5. “Causing a telephone
to ring or engaging any person in telephone conversation repeatedly or
continuously if the natural consequence of such action to a reasonable person is
annoyance, abuse or harassment” is a violation of that regulation. Regs., Conn.
Stat. Agencies §36a-647-5(5). Parola alleges that Citibank violated §36a-647-5(5)
by “continuing to engaged Plaintiff in conversation when it knew that Plaintiff
was represented by counsel.” [Dkt. #19, Amended Compl., ¶60]. However,
Parola has failed to allege that Citibank caused her telephone to ring or engaged
her in a telephone conversation repeatedly as is required for a violation of §36a647-5(5). Parola only alleges that Citibank sent her three letters regarding their
inability to contact her retained counsel. Id. at ¶39. A creditor’s ability to
communicate with a debtor is not wholly restricted after the creditor notifies the
creditor that he or she is represented by counsel. The debtor is obligated to
inform the creditor of the means by which the creditor can contact his or her
21
attorney. The Connecticut regulations provide that “[i]f the creditor knows the
consumer debtor or consumer debtor agent is represented by an attorney with
respect to such debt and has knowledge of such attorney's name and address,
unless the attorney fails to respond within a reasonable period of time to a
communication from the creditor, not to exceed thirty days after such
communication, unless the attorney consents to direct communication with the
consumer debtor or consumer debtor agent, provided that a creditor may send to
a consumer debtor or consumer debtor agent normal periodic billing statements
which do not contain any message that violates the provisions of § 36a–647–5 or
§ 36a–647–6 of the Regulations of Connecticut State Agencies.” Regs., Conn.
Stat. Agencies §36a-647-4. (emphasis added). The regulation permits
communication by a creditor with a debtor who has retained an attorney both to
obtain the attorney’s contact information and if the attorney fails to respond to
the creditor’s interties after the debtor has furnished the creditor with the
attorney’s contact information. In addition, Parola has failed to allege sufficient
factual content to allow the Court to draw a reasonable inference that the natural
consequence of Citibank’s alleged communications to Parola would be annoying,
abusive or harassing to a reasonable person. The Court therefore dismisses
Parola’s Regs., Conn. Stat. Agencies §36a-647-5(5) claim.
c. Regs., Conn. Stat. Agencies §36a-647-5(14)
Another example of conduct that violates § 36a–647–5 is “[r]efusing to
make a reasonable effort to determine the validity of a debt the consumer debtor
disputes unless such a verification has already been made.” Regs., Conn. Stat.
22
Agencies §36a-647-5(14) provides Parola alleges that Citibank violated this
regulation by refusing to investigate an ongoing dispute. [Dkt. #19, Amended
Compl., ¶60]. Parola does not now nor does she allege that she ever disputed
the debt. Although not clearly alleged in her undifferentiated amended
complaint, consisting of 43 numbered paragraphs all of which are incorporated
by reference as the factual basis for each of her claims, Parola claims that
Citibank misapplied to her federal loans two payments she made on her private
loans and refused to contact the DOE to rectify this alleged error. Id. at ¶¶ 31-35.
Citibank argues that §36a-647-5(14) is not relevant because Parola has not
disputed the validity of the debt but has instead taken issue with the
misapplication of two payments towards her debts.
This Court agrees that Parola has failed to allege that she has disputed the
validity of the debt which gave rise to Citibank’s obligation to investigate the
dispute and verify the debt. Parola only alleges that she informed Citibank that
two payments were misapplied to her federal loans and does not dispute that her
debt was invalid. Connecticut courts have recognized that the “CCPA parallels
that FDCPA in almost all respects.” Cuda & Assocs., LLC v. Yuchnuik,
No.CV095013066, 2012 WL 164435, at *6 (Conn. Super. Ct. Jan. 3, 2012) (collecting
cases). In addition, “there are no Connecticut decisions cited to or found by the
court distinguishing the CCPA's verification requirement from that of the
FDCPA.” Id.
Under the FDCPA, courts have held that “a debt collector need not do
much to verify a debt ... Indeed ... it appears as though every court to have
23
examined the issue has held that the verification provided here—confirmation of
the amount of the debt and the identity of the creditor, which is then relayed to
the debtor—is sufficient.. [T]his provision of the FDCPA is not intended to give a
debtor a detailed accounting of the debt to be collected. Instead, [c]onsistent
with the legislative history, verification is only intended to eliminate the problem
of debt collectors dunning the wrong person or attempting to collect debts which
the consumer has already paid.” Id. at 5 (internal quotations marks and citations
omitted). Parola is not alleging that Citibank is dunning the wrong person or
attempting to collect a debt already paid. Moreover, verification consisting of a
confirmation of the amount of her debt by Citibank would not rectify the injury
that Parola is seeking to remedy. Consequently, this Court agrees that Regs.,
Conn. Stat. Agencies §36a-647-5(14) is not relevant to Parola’s allegations that
Citibank misapplied two payments to her federal loans. The Court therefore
dismisses Parola’s Regs., Conn. Stat. Agencies §36a-647-5(14) claim.
d. Regs., Conn. Stat. Agencies §36a-647-6(2)(A)
Regs., Conn. Stat. Agencies §36a-647-6 provides that a “creditor shall not
use any fraudulent, deceptive or misleading representation, device or practice in
connection with the collection of any debt. Without limiting the general
application of the foregoing, the following conduct is a violation of this section.”
Id. (emphasis added). Regs., Conn. Stat. Agencies §36a-647-6(2)(A) provides one
example of conduct that violates §36a-647-6: the false representation of the
“character, amount or legal status of any debt.” Id. Parola alleges that Citibank
violated this regulation by falsely representing the character, amount and legal
24
status of the debt when claiming that she had missed two payments on her
private student loan. [Dkt. #19, Amended Compl., ¶60]. Parola further alleges
that Citibank admitted its mistake, refused to do anything about it, and continued
to report the late payments on her consumer credit report.2 Id. at ¶¶33, 36.
However, Parola fails to allege that Citibank made this allegedly false
representation in connection with the collection of a debt as required under §36a647-6. Parola only alleges that Citibank reported the late payment on her
consumer credit report and has not alleged that Citibank has attempted to collect
the debt. The heart of Parola’s claim is that Citibank engaged in improprieties in
connection with the administration of her debt as opposed to improprieties in
connection with the collection of her debt. Financial institutions, especially one
the size of Citibank, report voluminous amounts of information both favorable
and unfavorable to credit reporting agencies routinely separate and distinct from
their debt collection activity to collect debts. The Court therefore dismisses
Parola’s Regs., Conn. Stat. Agencies §36a-647-6(2)(A) claim.
e. Regs., Conn. Stat. Agencies §36a-647-6(11)
This regulation prohibits “[t]he use of any other false representation or
deceptive means to collect or attempt to collect any debt or to obtain information
2
The Court notes that Parola has not asserted a cause of action under the Fair
Credit Reporting Act with respect to her allegations that Citibank made false
statements on her credit report. However, Parola would not have a private right
of action to assert such a cause of action if she had done so. See Longman v.
Wachovia Bank, N.A., No.3:09-cv-01669(JCH), 2011 WL 4352102, at *3 (D. Conn.
Sept. 16, 2011) (holding that “Congress has not provided a private right of action
to challenge a violation of the duties required of a furnisher under 15 U.S.C.
§1681s-2(a)).
25
concerning a consumer debtor or consumer debtor agent.” Regs., Conn. Stat.
Agencies §36a-647-6(11). Parola alleges that Citibank violated this regulation by
falsely stating that it was Plaintiff’s responsibility to contact the DOE to get the
money back that Citibank wrongfully sent to the DOE and by refusing to contact
the DOE directly to get the money back. [Dkt. #19, Amended Compl., ¶60].
This
claim fails for the same reasons as Parola’s §36a-647-6(2)(A) claim fails. Parola
has not alleged that Citibank made these allegedly false representations or failed
to correct them in connection with its debt collection activity. The Court
therefore dismisses Parola’s Regs., Conn. Stat. Agencies §36a-647-6(11) claim.
iv.
CUTPA
Parola’s CUTPA claims are expressly predicated on her breach of contract,
fraud and CCPA violation claims. [Dkt. #19, Amended Compl., ¶63].
Since the
Court has dismissed these claims, Parola’s corresponding and contingent
CUTPA claims must likewise be dismissed. However, Parola has also alleged
that Citibank violated CUTPA by “denying IBR for erroneous policy reasons not
based on any statute or regulation governing the Family Federal Education Loan
Program.” Id. at ¶63.
“[T]o prevail on a CUTPA claim, the plaintiffs must prove that (1) the
defendant engaged in unfair or deceptive acts or practices in the conduct of any
trade or commerce . . . and [plaintiff suffered] ascertainable loss of money or
property as a result of the defendant's acts or practices.”
Neighborhood
26
Builders, Inc. v. Town of Madison, 294 Conn. 651, 657 (2010) (quoting CONN. GEN.
STAT. § 42-110b(a); CONN. GEN. STAT. § 42-110g(a)).
“It is well settled that in determining whether a practice violates CUTPA we
have adopted the criteria set out in the cigarette rule by the federal trade
commission for determining when a practice is unfair: (1) [W]hether the practice,
without necessarily having been previously considered unlawful, offends public
policy as it has been established by statutes, the common law, or otherwisewhether, in other words, it is within at least the penumbra of some common law,
statutory, or other established concept of unfairness; (2) whether it is immoral,
unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to
consumers [competitors or other businessmen].” Hoffnagle v. Henderson,
No.CV020813972S, 2003 WL 21150549, at *8 (Conn. Super. Ct. April 17, 2003)
(internal quotation marks and citations omitted). “All three criteria do not need to
be satisfied to support a finding of unfairness. A practice may be unfair because
of the degree to which it meets one of the criteria or because to a lesser extent it
meets all three…Thus a violation of CUTPA may be established by showing either
an actual deceptive practice or a practice amounting to a violation of public
policy.” Id. (internal quotation marks and citations omitted).
“The ascertainable loss requirement is a threshold barrier that limits the
class of persons who may bring a CUTPA action seeking either actual damages . .
. . Thus, to be entitled to any relief under CUTPA, a plaintiff must first prove that
he has suffered an ascertainable loss due to a CUTPA violation.” Neighborhood
Builders, Inc., 294 Conn. at 657 (2010) (quoting Artie's Auto Body, Inc. v. Hartford
27
Fire Ins. Co., 287 Conn. 208, 217-18 (2008)). “An ascertainable loss is a loss that
is capable of being discovered, observed or established. The term loss . . . has
been held synonymous with deprivation, detriment and injury. To establish an
ascertainable loss, a plaintiff is not required to prove actual damages of a specific
dollar amount.” Artie's Auto Body, Inc., 287 Conn. at 218 (citations and internal
quotation marks omitted). But in order for a loss to be ascertainable it must be
“measurable even though the precise amount of the loss is not known.” Id. “A
plaintiff also must prove that the ascertainable loss was caused by, or ‘a result
of,’ the prohibited act.” Id. (quoting Conn. Gen. Stat. §42-110(g) (a)).
“When
plaintiffs seek money damages, the language ‘as a result of’ in§42-110(g)(a)
‘requires a showing that the prohibited act was the proximate cause of a harm to
the plaintiff.... [P]roximate cause is [a]n actual cause that is a substantial factor in
the resulting harm.... The question to be asked in ascertaining whether proximate
cause exists is whether the harm which occurred was of the same general nature
as the foreseeable risk created by the defendant's act.’” Id. (quoting Abrahams v.
Young & Rubicam, Inc., 240 Conn. 300, 306 (1997)).
Parola argues that Citibank’s conduct in denying her IBR offends the public
policy as it has been established by the HEA. Parola alleges that in June of 2009
she followed Citibank’s advice to not apply for IBR and instead use EHD. [Dkt.
#19, Amended Compl., ¶¶5-7]. Consequently, Citibank did not deny Parola IBR in
June 2009 and therefore these allegations cannot be the basis for a CUTPA claim.
Parola also alleges that Citibank improperly denied her IBR application from
December 2009 when they failed to treat her application as an implied request to
28
terminate her EHD. Id. at ¶¶ 8-10. However as discussed above, since she
admittedly did not make a request to terminate her EHD, Citibank cannot have
violated CUTPA by failing to do something it was neither asked to do nor shown
to have had a legal obligation to do.
Parola further alleges that Citibank denied two additional IBR requests
because a portion of her account was on a Debt Burden forbearance and was
instructed to reapply when the forbearance or deferment period had ended. Id. at
¶¶ 12-13, 18-20. She does not claim that she took any steps to terminate the
forbearance or deferment period nor does she cite any provision of the MPN or
any other provision which either authorizes or obligated Citibank to counsel her
or act on her behalf. She acknowledges that when the forbearance period on her
loans expired she did not reapply for IBR. Id. at ¶¶20-21. Parola contends that
“Citibank’s statement that deferments and forbearances have priority over IBR is
an erroneous policy statement that is not based on any statute or regulation” and
that Citibank’s “policy to give priority to deferment and forbearance in order to
deny IBR to Plaintiff and other borrowers is simply a way for Citibank to profit
from its position of power over Plaintiff.” Id. at ¶¶26-27.
Here, Parola has failed to plausibly allege that Citibank’s denial of IBR on
the basis that a portion of her loans were in EHD or forbearance offends the
public policy of the HEA. Although it appears that a borrower can apply for IBR
during a period of EHD or any other type of deferment or forbearance, a borrower
would not begin making payments under IBR until the end of the deferment or
forbearance period. http://studentaid.ed.gov/sites/default/files/income-based29
repayment-common-questions.pdf (last visited 8/28/2012). Parola has alleged
that she failed to reapply for IBR as Citibank instructed at the end of the
deferment or forbearance period. Since she would not have begun making
payments under the IBR until the deferment or forbearance periods ended,
Citibank’s denial and instruction to reapply at the end of those periods could not
have offended the public policy of the HEA as the public policy of the HEA
provides that repayments can only begin after deferment or forbearance has
ended.
Lastly, the Court notes that Parola has failed to establish that she suffered
an ascertainable loss caused by or the result of Citibank’s denial of her IBR
applications on the basis that a portion of her account was in EHD or
forbearance. Parola has alleged that she suffered an ascertainable loss because
her “loan balance is based on interest that never should have accrued or been
capitalized, Plaintiff is two years behind in qualify [sic] for her 25 year discharge,
Plaintiff was forced to make payments that were above her means in order to
maintain her good credit, such payments being substantially greater than they
would have been under the IBR program.” [Dkt. #19, Amended Compl., ¶65].
Parola is claiming that she suffered an ascertainable loss on the basis of the
savings she would have gained had she participated in the IBR program.
However since Parola alleges that she choose not to reapply for IBR when her
deferment or forbearance period ended and failed to initiate an early termination
of that period, she cannot demonstrate that this loss was proximately caused by
Citibank’s conduct as opposed to her own conduct in failing to reapply as
30
instructed. Consequently, Parola has failed to state a plausible claim for relief
under CUTPA. The Court therefore dismisses Parola’s CUTPA claim.
Conclusion
Based upon the above reasoning, Defendant’s [Dkt. #27] motion to dismiss
is GRANTED as to all of Plaintiff’s claims. The Clerk is directed to close the case.
IT IS SO ORDERED.
________/s/__ ________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: September 10, 2012
31
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