Breitman v. Affiliated Computer Services, Inc. et al
Filing
37
OPINION & ORDER re: 24 MOTION to Dismiss With Respect To Plaintiff's Amended Class Action Complaint filed by U.S. Bank, N.A., Xerox Education Services, Inc., Affiliated Computer Services, Inc. For the foregoing reasons, the Court GRANTS Defen dants motion to dismiss Counts III (unjust enrichment), IV (breach of contract) but only with respect to the Principal Reduction Benefit, V (N.Y. Gen. Bus. Law 349), and VI (unjust enrichment). Defendants' motion is DENIED in all other respects. The Clerk of Court is directed to terminate the motion at Docket Number 24. The parties are ordered to submit a civil case management plan to the Court by October 25, 2013. (Signed by Judge Paul A. Crotty on 9/27/2013) (rsh)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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CINDY L. BREITMAN, on behalf of herself and all:
others similarly situated,
:
:
Plaintiff,
:
- against :
:
XEROX EDUCATION SERVICES, LLC, s/h/i as :
AFFILIATED COMPUTER SERVICES, INC.,
:
NEXTSTUDENT, INC., AND U.S. BANK, N.A. :
:
Defendants.
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: September 27, 2013
12 Civ. 6583 (PAC)
OPINION & ORDER
HONORABLE PAUL A. CROTTY, United States District Judge:
Plaintiff Cindy Breitman (“Breitman”) filed this putative class action on August 28, 2012,
against defendants Xerox Education Services LLC (“Xerox”), NextStudent, Inc. (“NextStudent”)
and U.S. Bank, N.A. (“U.S. Bank”). She filed an amended complaint on February 1, 2013,
asserting claims for breach of contract, violation of New York General Business Law § 349, and
unjust enrichment. Defendants moved to dismiss the amended complaint on February 27, 2013.
For the following reasons, Defendant’s motion is granted in part and denied in part, as set forth
below.
BACKGROUND1
In February, 2006, Breitman consolidated her federal student loans (the “Loans”) with
NextStudent, from which she initially borrowed money. The Loans were subsequently sold to
U.S. Bank, and at all times were serviced by Xerox. NextStudent promised that borrowers who
consolidated their loans would benefit from (1) a 1% rate reduction after timely making 36
consecutive payments (the “On-Time Payment Benefit”); (2) a 0.25% interest rate reduction for
1
All facts are taken from the Complaint, unless otherwise noted. See Bell Atl. Corp. v. Twombly, 550 U.S. 544,
572 (2007).
1
automating their payments (the “Auto Debit Benefit”); (3) a 0.375% interest rate reduction to the
grace period rate after timely making six consecutive payments (the “Grace Period Benefit”);
and (4) a 1% principal rebate after a loan is fully funded (the “Principal Reduction Benefit”).
Defendants failed to apply the Principal Reduction Benefit, On-Time Payment Benefit or Grace
Period Benefit to Breitman.
On March 23, 2006, Breitman enrolled in Checkmate II, an automated payment plan, in
order to trigger the Auto Debit Benefit. (Ans. Ex. 2 (Breitman’s “Checkmate II Agreement”).)
She un-enrolled in Checkmate II in November 2008, reinstated her enrollment in May 2009, and
was un-enrolled again on July 23, 2012.
While enrolled, Breitman received electronic
confirmations every time an automated payment was made.
Breitman’s April 2006 monthly statement, which she received after submitting her
Checkmate II application but prior to the commencement of her Checkmate II deductions, stated
that she would be notified if prepayments were applied to satisfy future payments in advance.
Despite making intermittent prepayments – with the goal of reducing the Loans’ principal
balance, repaying it at an accelerated rate and thereby reducing the overall amount of interest
payments that would be required of her – Breitman never received such notifications. On
November 14, 2011, Breitman emailed Xerox as follows:
I would like it on record that any extra payments I make beyond my monthly Checkmate
II deductions should be applied to my principal and should NOT advance my due date. I
want Checkmate II to ALWAYS continue to deduct on a monthly basis and I want the
option to send in EXTRA payments that are applied to the principal. Do NOT skip any
monthly deductions.
(Am. Compl. ¶ 32.) Nevertheless, her prepayments were applied by Xerox to satisfy future
monthly payments, preventing subsequent automated payments without reducing the Loans’
2
remaining principal.2 Breitman repeatedly contacted Xerox in an effort to determine why her
prepayments were not being used to pay down the Loans’ principal balance, but did not receive
an explanation.
Breitman seeks to represent two distinct classes of putative plaintiffs. First, she seeks to
represent a “Checkmate II Class,” for whom prepayments were improperly applied. Second,
Breitman seeks to represent a “Benefits Class” of plaintiffs for whom Defendants failed to apply
the Principal Reduction Benefit, On-Time Payment Benefit or Grace Period Benefit.
DISCUSSION
When considering a motion to dismiss, the Court “must accept as true all of the factual
allegations contained in the complaint” and construe the complaint in the light most favorable to
the plaintiff. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 572 (2007). “‘Further, courts are
normally required to look only at the allegations on the face of the complaint, though they may
also consider documents attached to the complaint or incorporated into it by reference, any
documents that are integral to the Plaintiff’s allegations even if not explicitly incorporated by
reference, and facts of which the Court may take judicial notice.’” Wagner v. Royal Bank of
Scotland Group PLC, No. 12 Civ. 8726, 2013 WL 4779039, *2 (S.D.N.Y. Sept. 5, 2013)
(quoting Universal Trading & Inv. Co., Inc. v. Tymoshenko, No. 11 Civ. 7877, 2012 WL
6186471, *1 (S.D.N.Y. Dec. 12, 2012)). The Court only “assess[es] the legally feasibility of the
complaint;” it does not “assay the weight of the evidence which might be offered in support
thereof.” Levitt v. Bear Stearns & Co., 340 F.3d 94, 101 (2d Cir. 2003). To state a facially
plausible claim, a plaintiff must plead “factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,
2
Specifically, Breitman alleges that she made prepayments on the following dates: June 23, 2007; August 10, 2007;
September 9, 2007; September 21, 2007; October 21, 2007; August 12, 2009; July 14; 2011; November 14, 2011;
November 21, 2011; and January 10, 2013.
3
556 U.S. 662, 677 (2009). “A pleading that offers ‘labels and conclusions’ or ‘a 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.’” Id. (quoting Twombly,
550 U.S. at 557).
I.
Checkmate II Class Causes of Action
a. Count I: Breach of Contract
The terms and conditions for the Checkmate II program were set forth in Breitman’s
Checkmate II Agreement, dated March 23, 2006, which stated that “each automatic withdrawal
will occur on the account’s (student loan) regular scheduled due date.” (Ans. Ex. 2 at 1.) The
Checkmate II Agreement makes no mention whatsoever of how prepayments will be treated.
Defendants contend that in the absence of such a term, there is no reason for prepayments made
by borrowers enrolled in Checkmate II to be applied to the Loans’ principal balance rather than
to delay the date of future payments.
Defendants’ is not the only reasonable interpretation of the Checkmate II Agreement.
The absence of any specific prepayment clause could just as easily be read to mean that
prepayment will have no affect on a borrower’s automated payments under Checkmate II. That
the Agreement refers to a borrower’s “regular scheduled due date,” rather than their “next
scheduled due date,” suggests that Defendants will debit a borrower’s account by the agreedupon amount at regular intervals, i.e. every month, regardless of whether prepayments have been
made. At the very least, it evidences an ambiguity in the contract, which “exists where a contract
term could suggest more than one meaning when viewed objectively by a reasonably intelligent
person who has examined the context of the entire integrated agreement and who is cognizant of
the customs, practices, usages and terminology as generally understood in the particular trade or
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business.” Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168,
178 (2d Cir. 2004) (quoting World Trade Ctr. Props. LLC v. Hartford Fire Ins. Co., 345 F.3d
154, 184 (2d Cir. 2003)); see also In re AMR Corp., -- F.3d --, 2013 WL 4840474, *5 (2d Cir.
2013) (“Whether a contract is ambiguous is a question of law for the courts to resolve.”).
Defendants also rely on Breitman’s April 2006 monthly billing statement, which
acknowledges that she is enrolled in the Checkmate II program and states that if she makes
prepayments, her “next payment due date will be advanced by the number of equivalent monthly
installments received.”3 (Lenci Decl. Ex. 2 at 2.) As an initial matter, the Court notes that it is
unclear whether this term is binding on Breitman because the record currently before the Court
does not suggest that she was made aware of this policy before enrolling in the Checkmate II
program, nor does the Checkmate II Agreement incorporate it directly or by reference. See
Lifeguard Licensing Corp. v. Gogo Sports, Inc., No. 10 Civ. 9075, 2013 WL 4400520, *9
(S.D.N.Y. Aug. 15, 2013) (“Since it included new terms, [defendant’s] response was a rejection
and counter-offer, rather than an acceptance of [plaintiff’s] initial offer.”). Regardless, the April
2006 billing statement was as ambiguous as the Checkmate II Agreement, if not outright
contradictory. In addition to aforementioned prepayment clause, it also states that payments will
be automatically deducted from Breitman’s account “on day 14 of each month.” (Lenci Decl.
Ex. 2 at 1; see also id. at 2 (“Once a month, on your payment due date, your student loan
payment will be automatically deducted from your checking or savings account and applied to
your student loan account.”).) No explanation is provided as to how these facially inconsistent
clauses are to be reconciled.
3
The monthly statement also stated that Breitman would “receive a letter informing [her] of [her] pre-paid
condition,” which did not occur. (Am. Compl. ¶¶ 30-31.) Nevertheless, her breach of contract claim is based on the
purported misapplication of her prepayments, not Defendants’ failure to keep her informed of her prepayment status.
(See id. at ¶ 34; see also Pl. Opp’n at 12-23 (“Defendants breached [the] contract by failing to apply Plaintiff’s
payments as required”).)
5
As a general matter, “[u]nless for some reason an ambiguity must be construed against
the plaintiff, a claim predicated on a materially ambiguous contract term is not dismissible on the
pleadings.” Eternity Global Master Fund, 375 F.3d at 178. Since Defendants have failed to
advance any such reason, their motion to dismiss Breitman’s first cause of action is denied.
b. Count II: N.Y. General Business Law § 349
i. Failure to State a Claim
“N.Y. Gen. Bus. Law ¶ 349(a) bars ‘deceptive acts or practices in the conduct of any
business, trade or commerce or in the furnishing of any service’ in New York.” Lifeguard
Licensing, 2013 WL 4400520 at *8. To state a claim for deceptive business practices, “a
plaintiff must allege ‘(1) acts or practices that are consumer-oriented; (2) that such acts or
practices are deceptive or misleading in a material way; and (3) that plaintiff has been injured by
reason of those acts.’” Lava Trading, Inc. v. Hartford Fire Ins. Co., 326 F. Supp. 2d 434, 438
(S.D.N.Y. 2004) (quoting DePasquale v. Allstate Ins. Co., 179 F. Supp. 2d 51, 58 (E.D.N.Y.
2002)). Defendants assert that that they “did nothing deceptive or misleading with respect to the
application of payments,” but do not challenge that the Checkmark II program was consumeroriented4 or that Breitman was injured. (Def. Br. at 12.)
In order to avoid “the potential for a tidal wave of litigation against businesses that was
not intended by the legislature,” the Court of Appeals has adopted “an objective definition of
deceptive acts and practices” that is limited “to those likely to mislead a reasonable consumer
acting reasonably under the circumstances.” Oswego Laborers’ Local 214 Pension Fund v.
Marine Midland Bank, 85 N.Y.2d 20, 26 (1995). A financial institution’s failure to properly
4
Nevertheless, Breitman’s argument that Defendants’ practices were deceptive as they relate to her November 14,
2011, email is “essentially a ‘private’ contract dispute . . . which is unique to these parties, not conduct which affects
the consuming public large.” N.Y. Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 321 (1995). Accordingly, the
Court focuses its analysis on only those aspects of Breitman’s allegations that are consumer-oriented, rather than
those involving only Breitman. See Oswego, 85 N.Y.2d at 25.
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implement an agreement with a customer by improperly crediting a customer’s account for their
payments, as alleged herein, is objectively deceptive. See Dolan v. Fairbanks Capital Corp., 03
Civ. 3285, 2013 U.S. Dist. LEXIS 34830, *52-56 (Mar. 13, 2013). Accordingly, Defendants’
motion to dismiss Count II in its entirety is denied.
ii. Statute of Limitations
A private right of action under § 349 accrues when a plaintiff “has been injured by a
deceptive act or practice,” triggering a three-year statute of limitations. Gaidon v. Guardian Life
Ins. Co. of Am., 96 N.Y.2d 201, 210 (2001). Defendants contend that any payments made by
Breitman prior to August 28, 2009, three years before the filing of the instant action, are
therefore time-barred. Where a § 349 claim is based on a series of allegedly deceptive acts,
however, the “continuing violations doctrine” applies and “effectively toll[s] the limitations
period until the date of the commission of the last wrongful act.” Harvey v. Metro. Life Ins. Co.,
No. 600663/04, 2005 N.Y. Misc. LEXIS 8422, *4 (Sup. Ct. Apr. 18, 2005), aff’d, 827 N.Y.S.2d
6, 6-7 (App. Div. 2006); see also Ring v. AXA Fin., Inc., No. 111869/04, 2008 WL 692564
(N.Y. Sup. Ct. Feb. 6, 2008) (applying continuing violations doctrine to § 349 claim where initial
payments occurred outside statute of limitations but “the insurer continued to bill, and . . .
plaintiff . . . continued to pay” within three years of filing suit). Since the most recent allegedly
deceptive act – the misapplication of Breitman’s January 10, 2013, prepayment – is well within
the statute of limitations, Breitman’s § 349 claim is not time-barred. Defendants’ motion to
dismiss those portions of it relating to payments made before August 28, 2009, is denied.
c. Count III: Unjust Enrichment
“Under New York law, for a plaintiff to prevail on a claim of unjust enrichment, he must
establish (1) that the defendant was enriched; (2) that the enrichment was at the plaintiff’s
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expense; and (3) that the circumstances are such that in equity and good conscience the
defendant should return the money or property to the plaintiff.”
Golden Pac. Bancorp v.
F.D.I.C., 273 F.3d 509, 519 (2d Cir. 2001). “[W]hen a valid agreement governs the subject
matter of a dispute between parties, claims arising from that dispute are contractual; attempts to
repackage them as sounding in . . . unjust enrichment . . . are generally precluded, unless based
on a duty independent of the contract.” Poplar Lane Farm LLC v. Fathers of Our Lady of
Mercy, 449 Fed. Appx. 57, 59 (2d Cir. 2011); see also Diesel Props S.r.l. v. Greystone Business
Credit II LLC, 631 F.3d 42, 54 (unjust enrichment “is an obligation the law creates in the
absence of any agreement.”). Although there are exceptions, Breitman does not argue that any
apply to the instant dispute. See, e.g., Am. Tel. & Util. Consultants, Inc. v. Beth Israel Med.
Ctr., 763 N.Y.S.2d 466, 466 (App. Div. 2003); Knobel v. Manuche, 536 N.Y.S.2d 779, 781
(App. Div. 1989).
A plaintiff may plead both contract and quasi-contract claims in the alternative, see, e.g.,
Marcella v. ARP Films, Inc., 778 F.2d 112, 117 (2d Cir. 1985); A.T. Kearney, Inc. v. Global
Crossing Telecomm., Inc., No. 11 Civ. 5035, 2013 WL 4838819, *3 (S.D.N.Y. Sept. 11, 2013),
but Breitman has not adequately done so. With regard to unjust enrichment, Breitman alleges
only that Defendants were enriched by “applying Prepayment[s] specifically to . . . maximize the
amount of interest paid over the life of the loans and thwart borrowers’ attempts to prepay their
student loans.” (Am. Compl. ¶ 64.) Assuming arguendo that the provisions that Breitman
elsewhere alleges governed her prepayments were not applicable, she has not explained why
Defendants would have any duty to apply her prepayments in the method most beneficial to her.
Regardless of whether self-interestedness and greed are “good” or “right,” cf. Wall Street (20th
Century Fox 1987), a financial institution’s efforts to maximize its return on investments – in this
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case, the loans extended to Breitman – are not so inherently unjust that equity and good
conscience require that a borrower’s debt payments be returned to her. Since Breitman has failed
to plead a claim for unjust enrichment in the absence of any contractual provisions governing her
prepayments, Defendants’ motion is granted with respect to Breitman’s unjust enrichment claim
relating to her prepayments.
II.
Benefits Class Causes of Action
a. Count IV: Breach of Contract
“[A] cause of action does not accrue until an injury is sustained. An action accrues, then,
when all of the facts necessary to sustain the cause of action have occurred, so that a party could
obtain relief in court.” Vigilant Ins. Co. of Am. v. Hous. Auth. of El Paso, 87 N.Y.2d 36, 43
(1993). In this context, “a breach of contract cause of action accrues at the time of the breach”
and has a “six-year Statute of Limitations.” Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d
399, 402 (1993). Since the instant action was brought on August 28, 2012, all of the allegedly
inappropriate benefit denials must have occurred on or after August 28, 2006, to be actionable.
Defendants assert that that the alleged breaches with respect to the On-Time Payment
Benefit and the Grace Period Benefit occurred on May 8, 2006, when, after being improperly
disqualified from these benefits, Breitman was falsely told that her eligibility for the benefits was
reinstated. That is not, however, the breach alleged by Breitman. Rather, Breitman alleged that
Defendants’ breached their contract with Breitman by “failing to apply” the benefits to the
Loans. (Am. Compl. ¶ 69.) Since Breitman’s “first payment [was] due on April 15, 2006” (id.
at ¶ 40), and the On-Time Payment Benefit and Grace Period Benefit required six months and
thirty-six months consecutive timely payments, respectively (see id. at ¶ 12), the earliest points at
which Breitman could have qualified for these benefits would have been in October, 2006, and
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April, 2009, respectively.5 Accordingly, the breach of contract action relating to the On-Time
Payment Benefit and Grace Period Benefit accrued only once Defendants failed to apply the
benefits to Breitman despite her having qualified for them, which occurred within the statute of
limitations.
With regard to the Principal Reduction Benefit, Breitman alleges that it was to apply to a
borrower’s loans once they were “fully funded.” (See, e.g., Am. Compl. ¶ 12.) Neither party
explains what it means for a loan to be fully funded and Breitman does not specify when this
occurred, but does not take issue with Defendants’ assertion that it “can only have taken place
before [Breitman] received her monthly statement in April 2006.” (Def. Br. at 16; see also Def.
Reply at 8-9.) Although this timing is not specified in the Complaint, and in the absence of any
information to the contrary, the Court assumes that it is accurate for purposes of analyzing the
instant motion. Based on this timeline, Defendants contend that their alleged breach of contract
for failure to apply the Principal Reduction Benefit to the Loans is time-barred, as the failure
occurred on an unspecified date prior to April, 2006. Breitman responds that each payment
made on the Loans constitutes “a discrete breach of contract,” as the amount of each payment
would have been lower if the Principal Reduction Benefit had been applied. (Pl. Opp’n at 23.)
Again, however, the alleged breach is Defendants’ failure to apply the allegedly applicable
benefit. Each payment made by Breitman does not constitute a breach of contract by Defendants.
Nor does the continuing violations doctrine save Breitman’s claim because it is “predicated on
continuing unlawful acts and not on the continuing effects of earlier unlawful conduct.” Selkirk
v. New York, 671 N.Y.S.2d 824, 825 (App. Div. 1998). It does not apply here because “the
mere fact that [Breitman] may continue to suffer damage . . . does not alter the fact that
5
Breitman alleges that she made sufficient consecutive timely payments to qualify, but does not specify when she
did so. (See Am. Compl. ¶¶ 38-39.)
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[Defendants’] unlawful conduct, if any, occurred [more than six years] before the claim was
filed.” Commack Self-Serv. Kosher Meats, Inc. v. New York, 704 N.Y.S.2d 737, 739 (App.
Div. 2000). Accordingly, the breach of contract claim relating to the Principal Reduction Benefit
is dismissed.
b. Count V: N.Y. General Business Law § 349
Breitman’s claims relating to the On-Time Payment Benefit, the Grace Period Benefit
and the Principal Reduction Benefit must have accrued on or after August 28, 2009, to be
actionable under N.Y. Gen. Bus. Law § 349’s three-year statute of limitations. As previously
discussed, these claims accrued in October, 2006, April, 2009, and prior to April, 2006,
respectively. (See supra at § II(a).) The continuing violations doctrine is not applicable because
the cause of action accrued when Defendants failed to apply each of the aforementioned benefits
to the Loans, rather than upon each of Breitman’s allegedly inflated loan payments. (Id.)
Breitman’s § 349 claim relating to On-Time Payment Benefit, the Grace Period Benefit, and the
Principal Reduction Benefit is therefore dismissed.
c. Count VI: Unjust Enrichment
With respect to the Benefits Class, Breitman alleges that Defendants were unjustly
enriched “[b]y failing to apply promised borrower benefits as a scheme to thwart prepayment of
student loans and make the cost of borrowing as high as possible.” (Am. Compl. ¶ 79.) For the
same reasons discussed supra at § I(c), Breitman has failed to adequately plead a claim for unjust
enrichment. Defendants’ motion to dismiss is granted with respect to Count Six.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendants’ motion to dismiss Counts III
(unjust enrichment), IV (breach of contract) but only with respect to the Principal Reduction
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