Olsen v. Nelnet, Inc. et al
Filing
63
MEMORANDUM AND ORDER - that the defendants' motion to certify issues for interlocutory appeal (filing 46 ) is denied. Ordered by Chief Judge John M. Gerrard. (LKO)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
JESSICA OLSEN, on behalf of herself
and all others similarly situated, and
TERI R. SMITH, on behalf of herself
and all others similarly situated,
4:18-CV-3081
Plaintiffs,
vs.
MEMORANDUM AND ORDER
NELNET, INC., a Nebraska
Corporation, NELNET
DIVERSIFIED SOLUTIONS, LLC, a
Nebraska limited liability company,
and NELNET SERVICING LLC, a
Nebraska limited liability company,
Defendants.
This matter is before the Court on the defendants' motion to certify for
interlocutory appeal pursuant to 28 U.S.C. § 1292(b) (filing 46), issues
determined in this Court's Memorandum and Order of May 21, 2019 (filing 45)
granting in part and denying in part the defendants' motion to dismiss (filing
39). For the reasons that follow, the Court will deny the defendants' motion.
I. STANDARD OF REVIEW
"Permission to allow interlocutory appeals should be granted sparingly
and with discrimination." Union Cty, Iowa v. Piper Jaffray & Co., Inc., 525
F.3d 643, 646 (8th Cir. 2008). The movant for certification bears the heavy
burden of demonstrating that the case is the exceptional one in which
immediate appeal is warranted. White v. Nix, 43 F.3d 374, 376 (8th Cir. 1994).
It has long been the policy of courts to discourage piece-meal appeals because
such appeals often result in additional and unnecessary burdens on the court
and litigants. Union Cty, Iowa, 525 F.3d at 646. Permission to allow an
interlocutory appeal is intended to be used only in the extraordinary cases,
where resolution of the appeal might avoid protracted and expensive litigation.
Id. Section 1292(b) interlocutory appeals are not intended merely to provide
review of difficult rulings in hard cases. Id.
Section 1292(b) establishes three criteria for certification: The Court
must be of the opinion that (1) the order involves a controlling question of law;
(2) there is substantial ground for difference of opinion; and (3) certification
will materially advance the ultimate termination of the litigation. White, 43
F.3d at 377.
II. DISCUSSION
1. BREACH OF CONTRACT CLAIMS
The first issue the defendants identify for certification is whether the
plaintiffs may remedy claimed Higher Education Act violations by asserting
various breach of contract claims. Filing 47 at 2. But the Court concluded that
the plaintiffs' amended complaint did not allege a cause of action to remedy
alleged Higher Education Act violations, and deemed the defendants'
argument in this regard as a straw man. Filing 45 at 7. The plaintiffs allege
that they were the third-party beneficiaries of the loan servicing contract
between the defendants and the Department of Education, and that the
defendants breached that contract. Filing 45 at 7-8. The Higher Education
Act's regulations functioned only as the contractual duties the defendants owed
to the third-party beneficiaries. Filing 45 at 8. Accordingly, the plaintiffs'
amended complaint did not allege a cause of action to remedy violations of the
Higher Education Act, but alleged a cause of action to remedy the defendants'
breach of the loan servicing contract.
2
The defendants seem to imply that a controverted issue in this matter is
whether the Higher Education Act provides for a private right of action to
enforce its regulations—but a private right of action is not what the plaintiffs
alleged in their amended complaint. Filing 47 at 3-4. Again, the plaintiffs
allege a contract breach, not the right to enforce the Higher Education Act's
regulations. The defendants' straw man argument cannot function as a
controlling issue of law upon which there is a substantial ground for difference
of opinion. Nor do the defendants identify a substantial ground for difference
of opinion when they cite this Court to cases that only concern private parties
seeking to enforce the Higher Education Act, instead of cases where a private
party alleges a breach of contract with the Higher Education Act's regulations
functioning as the contractual provisions that were allegedly breached.
The defendants also seek interlocutory review of this Court's finding that
the plaintiffs alleged a plausible claim that they may be considered third-party
beneficiaries of the loan servicing contract, and report that only one out-ofcircuit case could be found addressing a student loan borrower's invocation of
third-party beneficiary status. Filing 47 at 5. But the absence of caselaw does
not constitute substantial ground for difference of opinion. See Union Cty.,
Iowa, 525 F.3d at 647. Further, the case cited by the defendants held that a
pro se plaintiff's second amended complaint failed to plausibly allege that the
defendants owed the plaintiff a duty. Johnson v. Affiliated Computer Servs.,
Inc., 3:10-CV-2333, 2011 WL 4011429, at *7 (N.D. Texas Sept. 9, 2011). That
court did not determine that a loan servicing agreement—such as the one
alleged to exist between the defendants and the Department of Education in
the matter before this Court—failed to show that the plaintiff was a third-party
beneficiary.
3
The Court is not of the opinion that its order regarding the plaintiffs'
breach of contract claims involves a controlling question of law where there is
a substantial ground for a difference of opinion.
2. RETROACTIVE APPLICATION OF 34 C.F.R. § 685.221(e)(8)
Regulations specific to the Department of Education's income-based
repayment plan are found at 34 C.F.R. § 685.221. As it currently exists, §
685.221(e) is titled "Eligibility documentation, verification, and notifications."
Section 685.221(e)(8) delineates the Secretary's duties, obligations, and
responsibilities regarding the annual redetermination of a borrower's
eligibility for participation in an income-driven repayment plan and the
adjustments that may be necessary if there is a change in the borrower's
monthly repayment obligation. The plaintiffs alleged that the defendants were
assigned the Secretary's loan servicing duties, which required the defendants
to administer their income-driven repayment plan renewal applications
consistent with the pertinent regulations. Filing 37 at 17-18. The plaintiffs
allege that one such regulation is § 685.221(e)(8). Filing 37 at 10-12.
In their motion to dismiss, the defendants argued that the plaintiffs
executed their promissory notes in 2004, but § 685.221 did not take effect until
2009. Filing 40 at 15. Thus, according to the defendants, the plaintiffs seek to
retroactively impose regulatory changes and thereby modify the terms of the
plaintiff's promissory notes. Filing 47 at 6. This Court concluded that the plain
language found in § 685.221(a)(2)—that eligible loans mean any outstanding
loan made to a borrower—demonstrated that § 685.221 was intended to apply
retroactively to existing loans. Filing 45 at 12.
The defendants now seek leave for interlocutory review of the Court's
conclusion. In support, the defendants argue that the Court's conclusion is
4
subject to "substantial disagreement" because the defendants could not "locate
any precedent for applying § 685.221 or any of its subsections retroactively."
Filing 47 at 7. But again, the absence of caselaw does not constitute substantial
ground for difference of opinion. See Union Cty., Iowa, 525 F.3d at 647. The
Court's interpretation of the plain language of § 685.221(a)(2) hardly makes
this matter the kind of extraordinary case requiring interlocutory appeal. See
Union Cty, Iowa, 525 F.3d at 646. In fact, it is arguable whether the Court's
interpretation of § 685.221(a)(2) would even qualify as a difficult ruling in a
hard case—which also would not entitle the defendants to an interlocutory
appeal. Id. At its core, this is a breach of contract case with issues concerning
the plaintiff's capacity to sue as a third-party beneficiary, and the defendants'
capacity to be sued as an assignee of the Department of Education's duties
under a promissory note. Those issues are not particularly extraordinary.
3. PREEMPTION OF NEGLIGENT MISREPRESENTATION CLAIMS
The defendants argue that the Court's conclusion that the plaintiffs'
negligent misrepresentation claims were not expressly preempted by 20 U.S.C.
§ 1098g of the Higher Education Act is subject to substantial disagreement.
Filing 47 at 9. Section 1098g provides, in pertinent part, that loans made,
insured or guaranteed pursuant to the Higher Education Act shall not be
subject to any disclosure requirements of any State law. The disclosure that
the defendants argue is preempted concerns the plaintiffs' allegations that the
defendants negligently misrepresented the plaintiffs' monthly payment
obligations and account balances after the timely submission of their incomedriven repayment plan renewal applications. Filing 47 at 10; filing 40 at 2224.
5
The defendants' argument that there is substantial ground for a
difference of opinion relies on cases where state statutory remedial schemes
were preempted by the Higher Education Act's regulatory scheme. For
example, in Chae v. SLM Corp., 593 F.3d 936 (9th Cir 2010), the plaintiffs
alleged that Sallie Mae misled borrowers about its practices, which the Court
of Appeals concluded were restyled improper disclosure claims. The plaintiffs'
improper disclosure claims were made pursuant to the California Unfair
Competition Law and Consumer Legal Remedies Act. The Ninth Circuit held
that those claims were expressly preempted by the Higher Education Act. And
other non-statutory claims that were not expressly preempted, conflicted with
the Department of Education's goal of regulatory uniformity, and as such, were
also preempted. Id. at 943-50. The Chae court's ultimate conclusion was
"subjecting the federal regulatory standards to the potentially conflicting
standards of fifty states on contract and consumer protection principles would
stand as a severe obstacle to the effective promotion of the funding of student
loans." Id. at 950.
However, the Chae court, citing College Loan Corp. v. SLM Corp., 396
F.3d 588 (4th Cir. 2005), distinguished claims made pursuant to state
statutory schemes from claims made pursuant to contractual relationships
between lenders. Chae 593 F.3d at 946. The distinction the Court of Appeals
articulated concerned the imposition of a state-law statutory scheme verses the
enforcement of existing contractual duties. The Court of Appeals concluded
actions to enforce a contract would not undermine the federal regulations and
posed no threat to the goal of regulatory uniformity. Id. And a second
distinction recognized by the Chae line of cases cited by the defendants
concerned actions to vary the disclosures required by the Higher Education Act
versus actions to enforce rights that did not vary the Act's requirements.
6
Claims consistent with the requirements of the Higher Education Act are not
preempted. See Daniel v. Navient Solutions, LLC, 328 F. Supp. 3d 1319, 1324
(M.D. Fla. 2018).
But here, the plaintiffs' claims are based in tort and breach of contract.
They allege that the defendants made negligent misrepresentations in the
course of administering the plaintiffs' income-driven repayment applications.
The plaintiffs' claims are not the kind of claims the Chae court concluded were
expressly preempted, or preempted by conflict, with the Higher Education
Act's goal of regulatory uniformity. The defendants' reliance on caselaw that
does not speak to the kind of claims at issue in this matter does not give rise
to substantial ground for a difference of opinion regarding this Court's
conclusion that the plaintiffs' negligent misrepresentation claims were not
preempted by the Higher Education Act's regulatory scheme.
III. CONCLUSION
The Court is not of the opinion that the defendants have identified a
controlling question of law in the Court's Memorandum and Order of May 21,
2019, (filing 45), as to which there is substantial ground for difference of
opinion, such that an immediate appeal from this Court's order may materially
advance the ultimate termination of the litigation. This Court previously
considered only whether these two plaintiffs' amended complaint stated
plausible claims for relief—nothing more than that. At this very preliminary
stage of the proceedings, this matter is not an exceptional case where an
immediate appeal is warranted. An interlocutory appeal now, where the issues
are not yet fully joined, the defendants have not entered their denials or
assertions of avoidances and affirmative defenses, and where no evidence has
been produced, would promote piecemeal litigation and impose unnecessary
burdens on the litigants, as well as on this and other courts.
7
IT IS ORDERED that the defendants' motion to certify issues for
interlocutory appeal (filing 46) is denied.
Dated this 18th day of July, 2019.
BY THE COURT:
John M. Gerrard
Chief United States District Judge
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