Flax v. Navient Solutions, Inc. et al
MEMORANDUM AND ORDER granting 13 Motion to Dismiss for Failure to State a Claim. Signed by Judge Marvin J. Garbis on 3/27/2017. (kw2s, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
CIVIL ACTION NO. MJG 16-1209
NAVIENT SOLUTIONS, INC., et al. *
MEMORANDUM & ORDER RE: DISMISS
The Court has before it the Motion of Navient Solutions,
Inc. to Dismiss, in part, Plaintiff’s Complaint Pursuant to Fed.
R. Civ. P. 12(b)(6) [ECF No. 13], and the materials relating
The Court finds that a hearing is unnecessary.
Plaintiff Joshua Flax (“Flax”)2 was informed by his parents
following their divorce that they would share the cost of paying
for his undergraduate tuition.
Starting in August 2011, Flax
attended Franklin & Marshall College in Pennsylvania.3
about April 2013, Flax learned that his sister had been
The “facts” herein are stated as alleged by Plaintiff and
are not necessarily agreed upon by Defendants.
And, apparently, his sister as well. See allegations in
Samantha Flax v. JPMorgan Chase Bank, N.A., et al., JKB-1601039.
From which he graduated in May 2015.
contacted about a loan she had not made. Flax checked his own
credit report and was surprised to find that his father had
taken three separate private educational loans from Navient
Solutions, Inc.4 in Flax’s name without his knowledge or consent
by forging his signature on pertinent documents.5
Flax filed the Complaint [ECF No. 2] in the Circuit Court
for Baltimore County.
Navient properly removed the case.6
Flax presents claims against Navient in seven counts:
Count I – Declaratory Relief (no loan obligation)
Count II – Negligence
Count III – Gross Negligence
Count IV – Violation of Fair Credit Reporting Act, 15
U.S.C. § 1681s-2(b) (“FCRA”)
Count V – Violation of Fair Debt Collection Practices
Act, 15 U.S.C. §§ 1692-1692o (“FDCPA”)
Count VI – Violation of Maryland Consumer Protection
Act, Md. Code Ann., Com. Law, §§ 13-303(3) and 13303(4) (“MCPA”)
Navient explains that it was misidentified as two separate
entities – Navient Solutions, Inc. and “Sallie Mae” – but they
are both the same entity. The entity known as Sallie Mae, Inc.
became Navient Solutions, Inc. following a corporate
reorganization in 2014. Mot. 2, ECF No. 13-1. Herein,
references shall be to Navient regardless of which name was used
in the Complaint.
The credit report reflects student loans to Flax on July 5,
2011 ($20,000), July 24, 2012 ($25,000) and January 8, 2013
($4,100). The Complaint references the Equifax Credit Report as
Exhibit 1, but there are no exhibits attached to the Complaint.
Removal was based on this Court’s jurisdiction under 28
U.S.C. § 1331 because two claims arise under federal law, and
the Court has supplemental jurisdiction under 28 U.S.C. § 1367
over the five state law claims. Additionally, the Court has
diversity jurisdiction under 28 U.S.C. § 1332.
Count VII – Violation of the Maryland Consumer Debt
Collection Act, Md. Code Ann., Com. Law § 14-202,
By the instant motion, Navient seeks dismissal of Counts
II-VII pursuant to Rule 12(b)(6) of the Federal Rules of Civil
A motion to dismiss filed pursuant to Rule 12(b)(6) tests
the legal sufficiency of a complaint.
A complaint need only
contain “‘a short and plain statement of the claim showing that
the pleader is entitled to relief,’ in order to ‘give the
defendant fair notice of what the . . . claim is and the grounds
upon which it rests.’”
Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (alteration in original) (citations omitted).
When evaluating a 12(b)(6) motion to dismiss, a plaintiff’s
well-pleaded allegations are accepted as true and the complaint
is viewed in the light most favorable to the plaintiff.
However, conclusory statements or “a formulaic recitation of the
elements of a cause of action will not [suffice].”
complaint must allege sufficient facts “to cross ‘the line
between possibility and plausibility of entitlement to relief.’”
Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009)
(quoting Twombly, 550 U.S. at 557)).
Inquiry into whether a complaint states a plausible claim
is “‘a context-specific task that requires the reviewing court
to draw on its judicial experience and common sense.’”
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)).
“the well-pleaded facts [contained within a complaint] do not
permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged – but it has not ‘show[n]’
– ‘that the pleader is entitled to relief.’”
Iqbal, 556 U.S. at 679 (alteration in original)).
There is no doubt that Flax’s allegations suffice to plead
plausible claims as stated in Count I.7
However, as discussed
herein, the Complaint does not adequately plead the claims
asserted in the other Counts.
In the instant dismissal contest, the Court accepts as true
Flax’s allegations that Navient made loans in his name to pay
for his educational expenses by virtue of forged loan documents
of which he had no knowledge.
Except to the extent that Count I includes claims based
upon alleged violations of the FCRA, MCPA and MCDCA.
Navient’s correspondence related to the student loans was
directed to Flax’s father’s address, with whom Flax has not
When Flax discovered the loans, he contacted Navient
by letter to protest the authenticity of the loans.8
Flax alleges that he has made reasonable attempts to reach
some sort of settlement and has demanded verification of the
debt, including a request for copies of the underlying contracts
and support documentation, but Navient was uncooperative. In
July 2015, Flax sent a letter9 requesting compliance with the
Federal and Maryland Fair Debt Collection Practices Acts and
Verification of the Debt.
Navient responded by requesting a
Letter of Authorization,10 pursuant to 15 U.S.C. § 1692c(a),
authorizing Flax’s counsel to communicate with Navient
concerning the disputed loans.
Upon receipt of the signed
authorization, Navient has communicated solely with Flax’s
counsel regarding the requested documentation.
has failed to provide any of the contracts or support
documentation that Flax requested. Loan repayment reminders and
The letter is referenced as Exhibit 2, but there are no
exhibits attached to the Complaint.
This letter is referenced as Exhibit 3, but there are no
exhibits attached to the Complaint. Flax also references a
“return receipt” as Exhibit 4.
Referenced as Exhibit 5 but not attached to the Complaint.
Flax also references a copy of the signed letter as Exhibit 6,
and an Ombudsman’s Office Letter as Exhibit 7.
invoices11 are being sent to Flax since November 2015 when the
six-month deferment12 period expired.
Negligence & Gross Negligence (Counts II and III)
“A complaint alleging negligence must contain the following
elements: (1) that the defendant was under a duty to protect the
plaintiff from injury, (2) that the defendant breached that
duty, (3) that the plaintiff suffered actual injury or loss, and
(4) that the loss or injury proximately resulted from the
defendant’s breach of the duty.”
Legore v. OneWest Bank, FSB,
898 F. Supp. 2d 912, 918 n.4 (D. Md. 2012) (quoting Lloyd v.
Gen. Motors Corp., 916 A.2d 257, 270–71 (Md. 2007)).
negligence requires these elements plus something more – an
intentional failure or reckless disregard of the consequences.
Barbre v. Pope, 935 A.2d 699, 717 (Md. 2007).
Navient asserts that Flax’s negligence claims fail because
Navient did not owe a common law duty to Flax.
of a legal duty is a question of law to be decided by the
Legore, 898 F. Supp. 2d at 918.
Referenced as Exhibit 8 but not attached to the Complaint.
Flax graduated from Franklin & Marshall College in May
Flax asserts that Navient owes him a duty because “banks
owe a duty of ‘ordinary care’ in all banking transactions
wherein a bank wrongfully disburses funds.”
Opp’n 2, ECF No.
16-2 (citing Md. Code Ann., Com. Law § 3-10313).
Complaint, Flax also references Md. Code Ann., Com. Law § 4-103.
However, the cited sections of Maryland’s Uniform Commercial
Code (“UCC”) apply only to the ordinary care to be used by
banks14 in the handling of negotiable instruments15 (e.g.,
Navient, as a student loan servicer, does not fit under the
definition of a “bank,” and a student loan of the type at issue
would not be considered a negotiable instrument.
Armstrong v. Accrediting Council for Continuing Educ. &
Md. Code, Commercial Law Definitions.
“‘Bank’ means a person engaged in the business of banking,
including a savings bank, savings and loan association, credit
union, or trust company.” Md. Code Ann., Com. Law § 4-105.
Md. Code Ann., Com. Law § 3-104, in pertinent part:
“negotiable instrument” means an
unconditional promise or order to pay a
fixed amount of money, with or without
interest or other charges described in the
promise or order, if it:(1) Is payable to
bearer or to order at the time it is issued
or first comes into possession of a
holder;(2) Is payable on demand or at a
definite time; and(3) Does not state any
other undertaking or instruction by the
person promising or ordering payment to do
any act in addition to the payment of money.
. . .
Training, Inc., 168 F.3d 1362, 1364 (D.C. Cir.), opinion amended
on denial of reh’g, 177 F.3d 1036 (D.C. Cir. 1999) (“Although
guaranteed student loans often change hands many times, they are
not considered negotiable instruments; neither repurchasers nor
assignees become ‘holders in due course.’”); but see In re
Dudley, 502 B.R. 259, 274 (Bankr. W.D. Va. 2013) (finding that
under Massachusetts law, the student loan note at issue was a
Under Maryland law, the relationship between a financial
institution and a borrower is contractual, not fiduciary, in
Legore, 898 F. Supp. 2d at 918 (citing Yousef v.
Trustbank Sav., 568 A.2d 1134, 1138 (Md. Ct. Spec. App. 1990)).
“Courts have been exceedingly reluctant to find special
circumstances sufficient to transform an ordinary contractual
relationship between a bank and its customer into a fiduciary
relationship or to impose any duties on the bank not found in
the loan agreement.” Parker v. Columbia Bank, 604 A.2d 521, 532
(Md. Ct. Spec. App. 1992).
There are certain special circumstances under which a loan
contract may give rise to a tort duty to a loan applicant.
contends that his circumstances are similar to those described
in Parker, wherein a bank received “an economic benefit separate
and apart from the benefit received through the loan itself,
through fraud.” Opp’n 3-4, ECF No. 16-2 (quoting Parker, 604
A.2d at 532).
Flax contends that Navient is attempting to
recover separate economic benefits procured through forgery of
However, the interest and payments due on a
loan contract do not constitute economic benefits separate from
the loan, nor does Flax allege that he has made any payments to
“Because the harm likely to result from negligent
processing of a loan application is limited to economic loss,
[courts] examine carefully the relationship that existed between
Jacques v. First Nat. Bank of Maryland, 515
A.2d 756, 760 (1986).
“[I]f the risk created by negligent
conduct is no greater than one of economic loss, generally no
tort duty will be found absent a showing of privity or its
equivalent.” Id. at 761.
Flax alleges that there is no valid
contract, although he did receive the benefit of the loan
proceeds paying his tuition.
Furthermore, Flax’s allegations of harm are based on the
harm to his creditworthiness. Compl. ¶ 44.
The FCRA, 15 U.S.C.
§ 1681h(e), states that “no consumer may bring any action or
proceeding in the nature of . . . negligence with respect to the
reporting of information against . . . any person who furnishes
information to a consumer reporting agency . . . based on
information disclosed . . . except as to false information
furnished with malice or willful intent to injure such
There are no factual allegations sufficient to
present a plausible claim that Navient reported false
information “with malice or willful intent to injure.”
Accordingly, Flax’s negligence and gross negligence claims
shall be dismissed.
FCRA Claims (Count IV)
The Fair Credit Reporting Act (“FCRA”) established a
comprehensive statutory scheme designed to regulate the consumer
reporting industry. 15 U.S.C. § 1681(a).
It serves to protect
consumers from having inaccurate information about their credit
status circulated in order to protect their reputation.
Freckleton v. Target Corp., 81 F. Supp. 3d 473, 481 (D. Md.
Those who furnish information to the credit reporting
agencies have a responsibility to investigate the accuracy of
reported information upon notice of a dispute.
15 U.S.C. §
1681s-2(b); see also Johnson v. MBNA Am. Bank, NA, 357 F.3d 426,
431 (4th Cir. 2004) (holding that “§ 1681s–2(b)(1) requires
creditors, after receiving notice of a consumer dispute from a
credit reporting agency, to conduct a reasonable investigation
of their records to determine whether the disputed information
can be verified.” (emphasis added)).
That is, a furnisher is
only required to investigate information it has provided if a
consumer reporting agency notifies it that a consumer has
contacted the agency and disputed the furnished information. 15
U.S.C. § 1681s–2(b)(1).
After receiving disputes, the furnisher must (1) “conduct
an investigation with respect to the disputed information,” (2)
“review all relevant information provided by the consumer
reporting agency,” (3) “report the results of the investigation
to the consumer reporting agency,” and (4) “if the investigation
finds that the information is incomplete or inaccurate, report
those results to all other consumer reporting agencies to which
the person furnished the information and that compile and
maintain files on consumers on a nationwide basis.” 15 U.S.C. §
Navient contends that Flax’s claim under the FCRA fails
because Flax did not present factual allegations establishing
that he notified a credit reporting agency or that the credit
reporting agency provided notice to Navient to investigate the
In his response to the instant motion, Flax asserts
that he did contact all three credit reporting agencies in April
2013 to obtain information and, during the telephone
conversation, he stated that he did not have student loans.
Opp’n 5, ECF No. 16-2.
Flax admits that he did not provide a
formal or written dispute to the credit reporting agencies, but
argues that he later made Navient aware of his issues with the
loans, referencing the missing Exhibit 5 letter in which Navient
acknowledges that the loans were disputed.
However, Navient’s duty to investigate was not triggered by
a notice from a credit reporting agency.
claim under the FCRA fails.
See 15 U.S.C. § 1681s-2(b),
Johnson, 357 F.3d at 431; see also Ausar-El v.
Barclay Bank Delaware, No. CIV. PJM 12-0082, 2012 WL 3137151, at
*3 (D. Md. July 31, 2012)(“to bring a claim under § 1681s–2(b),
a plaintiff must establish three elements: (1) that he or she
notified the consumer reporting agency of the disputed
information, (2) that the consumer reporting agency notified the
defendant furnisher of the dispute, and (3) that the furnisher
then failed to investigate and modify the inaccurate
Accordingly, Flax’s FCRA claims shall be dismissed.
FDCPA Claims (Count V)
The Fair Debt Collection Procedures Act (“FDCPA”) “protects
consumers from abusive and deceptive practices by debt
collectors . . . .”
United States v. Nat’l Fin. Servs., Inc.,
98 F.3d 131, 135 (4th Cir. 1996).
A debt collector is defined
any person who uses any instrumentality of
interstate commerce or the mails in any
business the principal purpose of which is
the collection of any debts, or who
regularly collects or attempts to collect,
directly or indirectly, debts owed or due or
asserted to be owed or due another. . . .
[T]he term includes any creditor who, in the
process of collecting his own debts, uses
any name other than his own which would
indicate that a third person is collecting
or attempting to collect such debts.
15 U.S.C. § 1692a(6).
Flax contends that Navient violated the FDCPA by not
sending him verification of the student loan debt pursuant to 15
U.S.C. § 1691(g), which requires a written notice containing the
details of the debt such as the amount owed, name of creditor,
However, Navient is not a “debt collector” that is subject
to the terms of the FDCPA.
See 15 U.S.C. § 1692a(6).
Navient is a creditor that is collecting its own debt without
the aid of a third party.
See 15 U.S.C. § 1692a(4) (defining
creditor); see also § 1692a(6)(F)(iii) (defining exclusions to
the term “debt collector”).
Accordingly, Flax’s FDCPA claims shall be dismissed.
MCPA & MCDCA Claims (Counts VI and VII)
Flax’s statutory state law claims are premised on Navient’s
“disclosing information in connection with the consumer
transaction.” Compl. ¶ 66, 73.
As such, these claims are
preempted by the FCRA, 15 U.S.C. § 1681t(b), which states:
No requirement or prohibition may be
imposed under the laws of any State-- . . .
with respect to any subject matter regulated
under-- . . . section 1681s–2 of this title,
relating to the responsibilities of persons
who furnish information to consumer
reporting agencies . . . .
15 U.S.C. § 1681t(b)(1)(F).
Section 1681s-2 encompasses the
“[d]uty of furnishers of information to provide accurate
information” which includes correcting any errors in reporting,
and the duties of furnishers of information “[a]fter receiving
notice . . . of a dispute with regard to the completeness or
accuracy of any information provided by a person to a consumer
reporting agency,” which includes conducting an investigation
into the dispute and correcting any errors discovered with the
credit reporting agencies. § 1681s-2(a),(b).
Accordingly, Flax’s MCPA and MCDCA claims shall be
For the foregoing reasons,
The Motion of Navient Solutions, Inc. to Dismiss,
in part, Plaintiff’s Complaint Pursuant to Fed.
R. Civ. P. 12(b)(6) [ECF No. 13] is GRANTED.
Any claims in Count I based upon alleged
violations of the FCRA, MCPA and MCDCA are
All claims in Counts II, III, IV, V, VI, and VII
are hereby DISMISSED.
Defendant shall file its Answer to the remaining
claims in Count I by April 14, 2017.
Plaintiff shall arrange a telephone conference,
to be held by April 21, 2017, to discuss the
scheduling of any further proceedings herein.
SO ORDERED, on Monday, March 27, 2017.
Marvin J. Garbis
United States District Judge
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