Colon et al v. DeVos et al
Filing
85
OPINION AND ORDER re: 59 MOTION to Dismiss for Lack of Jurisdiction and for Failure to State a Claim. filed by Elisabeth DeVos. For the reasons above, Defendant Elizabeth DeVos's motion to dismiss is GRANTED. Plaintiffs claims against the Secretary are dismissed, and the Clerk of Court is directed to terminate her as a Defendant in this case. As this dismisses the sole count of Plaintiff Carr, the Clerk of Court is directed to terminate her from the case as well. Count Th ree was stayed in favor of arbitration by stipulation between the parties. (Dkt. #79). Plaintiff Colon and the remaining Defendants are hereby ORDERED to provide a joint letter to the Court on or before March 22, 2019, stating how they intend to proc eed regarding Count Two of the Amended Complaint. The Clerk of Court is directed to terminate the motion at docket entry 59. SO ORDERED. (Tina Carr and Elisabeth DeVos (in her official capacity as Secretary of the U.S. Department of Education) terminated.) (Signed by Judge Katherine Polk Failla on 2/25/2019) (rro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
TINA CARR and YVETTE COLON,
Plaintiffs,
-v.ELIZABETH DEVOS, in her official capacity
as SECRETARY OF THE U.S. DEPARTMENT
EDUCATION, NAVIENT CORPORATION,
NAVIENT SOLUTIONS, LLC, NAVIENT
CREDIT FINANCE CORPORATION, and
JOHN DOE TRUSTS 1-4,
17 Civ. 8790 (KPF)
OPINION AND ORDER
Defendants.
KATHERINE POLK FAILLA, District Judge:
Plaintiffs Tina Carr and Yvette Colon (together, “Plaintiffs”) took out
significant student loans in order to attend the Sanford-Brown Institute (“SBI”),
a for-profit educational institution that, it is alleged, misrepresented the job
opportunities that SBI students could achieve. After completing their
respective courses of study, each Plaintiff found her SBI education to be
effectively worthless. In consequence, each Plaintiff sought to invoke the
“borrower defense,” pursuant to which students who rely on the
misrepresentations of an educational institution with respect to its
accreditation or graduate employment rates may be relieved of their debts or
have a defense to any collection attempts. The United States Department of
Education (“DOE” or the “Department”) has recognized the borrower defense in
certain circumstances; Plaintiffs applied to DOE for such relief in late 2015,
but DOE has not yet resolved their applications.
Plaintiffs now ask this Court for the resolution they have not yet obtained
from DOE: They seek a declaratory judgment that they are entitled to a
borrower defense for their outstanding student loans. DOE objects on the
grounds that (i) the Secretary of Education is immune from suit; (ii) the specific
loans that Plaintiffs received do not trigger a private right of action against the
Secretary; and (iii) administrative remedies have not been exhausted. The
Court agrees that the Secretary is immune from suit, thereby depriving the
Court of subject matter jurisdiction. Even if the Court had subject matter
jurisdiction, Plaintiffs have not adequately stated a claim for relief against the
Secretary. The Court declines to reach the issue of exhaustion, as it does not
consider it appropriate to undertake this unbounded inquiry in an advisory
capacity. While the Court sympathizes with Plaintiffs’ frustration over the
lengthy delays in the processing of their applications, it cannot find that this
bureaucratic lag gives rise to a viable claim for relief at this stage.
BACKGROUND 1
A.
Factual Background
Ms. Carr lives in Lindenhurst, New York, and took out federal student
loans to attend a Medical Assisting program at SBI. (Am. Compl. ¶ 10). Ms.
1
The facts in this section are drawn principally from the allegations in the Amended
Complaint (“Am. Compl.” (Dkt. #35)). The Court also relies on the exhibits provided in
the Declaration of Assistant United States Attorney Michael J. Byars in Support of
Defendant’s Motion to Dismiss for Lack of Jurisdiction and Failure to State a Claim
(“Byars Decl.” (Dkt. #61)), and the Declaration of Jessica Ranucci in Opposition to the
Motion to Dismiss for Lack of Jurisdiction and for Failure to State a Claim (“Ranucci
Decl.” (Dkt. #71)).
Defendants Navient Corporation, Navient Solutions, LLC, and Navient Credit Finance
Corporation filed answers to the Amended Complaint on April 13, 2018. (Dkt. #64-66).
Accordingly, references in this Opinion to “Defendant” refer only to Defendant DeVos.
2
Colon lives in New York City, and took out federal and private student loans to
attend to a Non-Invasive Cardiovascular Technology (Sonography) program at
SBI. (Id. at ¶ 11). Defendant Elizabeth DeVos (the “Secretary”) is the United
States Secretary of Education. (Id. at ¶ 12). In her capacity as Secretary, she
oversees DOE and its federal student loan programs. (Id. at ¶ 13).
1.
The Loans and the SBI Investigation
According to Ms. Colon, she decided in 2006 to further her career in
medicine by becoming a cardiac sonographer, and listened to SBI
representatives who promised her that attendance at the school would produce
this result. (Am. Compl. ¶¶ 120-25). Relying on these promises, Ms. Colon
enrolled at SBI; to finance her attendance, she took out four Federal Family
Education Loan (“FFEL”) program loans, totaling $14,838, and two private
loans, totaling $21,095. (Id. at ¶¶ 126, 128-30, 137-39). 2 Upon her
graduation, Ms. Colon found that the SBI sonography program’s lack of
accreditation prevented her from obtaining work as a sonographer, and other
sonography programs would not accept her credits for transfer due to the same
accreditation issues. (Am. Compl. ¶¶ 132-38). Ms. Colon’s private loans have
gone into default, and her credit rating has suffered. (Id. at ¶¶ 149-51).
For ease of reference, the Court refers to the Defendant’s Memorandum of Law in
Support of the Motion to Dismiss as “Def. Br.” (Dkt. #60); to Plaintiffs’ Memorandum of
Law in Opposition to the Motion to Dismiss as “Pl. Opp.” (Dkt. #70); and to Defendant’s
Reply Memorandum of Law in Support of the Motion to Dismiss as “Def. Reply” (Dkt.
#80).
2
The FFEL program allows participating private lenders to make loans with their private
funds, which “loans are then insured by guaranty agencies (state or private non-profit
organizations), and reinsured by [DOE].” (Def. Br. 3).
3
Ms. Carr provides a similar narrative. In 2011, she was persuaded to
apply for SBI’s medical assisting program to further her ambition of working as
a registered nurse. (Am. Compl. ¶¶ 87-100). Based on purportedly false
representations from SBI representatives, Ms. Carr enrolled in the program and
borrowed $14,576 in six federal direct student loans in order to finance her
attendance. (Id. at ¶¶ 101-12). She was unable to find work in medicine after
her graduation, and her federal loans are in default. (Id. at ¶¶ 113-18). She
has also suffered adverse credit consequences. (Id. at ¶ 119).
Plaintiffs are not the only victims of SBI’s practices. The New York State
Office of the Attorney General (“OAG”) found that SBI had made deceptive
promises to many students in violation of New York General Business Law
Sections 349 and 350. (Am. Compl. ¶¶ 152-66). OAG’s investigation resulted
in an assurance of discontinuance and the establishment of a restitution fund
of over $9 million from SBI’s parent company. (Id.).
2.
Plaintiffs’ Borrower Defense Applications
On March 18, 2015, Ms. Carr filed a letter with DOE, asserting that she
had a complete defense to the repayment of her federal loans due to SBI’s
misrepresentations. (Am. Compl. ¶ 183). On March 9, 2015, Ms. Colon
submitted a similar letter to DOE’s ombudsman. (Id. at ¶ 185). On April 10,
2015, DOE informed Ms. Carr that a school’s misrepresentations were not a
legal basis for debt relief, but thereafter DOE placed her loans in “stopped
4
collection” status. (Id. at ¶¶ 184-85). 3 Ms. Colon’s FFEL loans have been
placed in forbearance by the private loan holder, Navient Solutions LLC. (Id. at
¶¶ 59-60, 188).
B.
Regulatory Background
Both sides agree that since 1994, both FFEL and direct loans have had
language providing that students may assert a school’s violations of state law
as a defense to requests for repayment of the loans. (See Def Br. 3-6; Pl.
Opp. 6-7). The Department promulgated a regulation in 1994 with respect to
direct loans, which regulation provides that: “In any proceeding to collect on a
Direct Loan, the borrower may assert as a defense against repayment, any act
or omission of the school attended by the student that would give rise to a
cause of action against the school under applicable State law.” 34 C.F.R.
§ 685.206(c)(1). Ms. Colon’s FFEL loan incorporates a Master Promissory Note
(“MPN”) with similar language:
[I]f the proceeds of a particular loan made under this
MPN are used to pay tuition and charges of a for profit
school that refers loan applicants to the lender or that
is affiliated with the lender by common control, contract
or business arrangement, any lender holding such loan
is subject to all claims and defenses that I could assert
against the school.
(Ranucci Decl., Ex. A (Colon Master Promissory Note (redacted))).
3
While the Department does not address the April 10, 2015 letter in its briefing, it
acknowledges throughout its submissions that a school’s misrepresentations regarding
graduate placement and accreditation can serve as a complete defense to repayment.
(See, e.g., Def. Br. 3-6).
5
In June 2015, DOE experienced a surge in borrower defense applications
in the aftermath of the collapse of Corinthian Colleges, a for-profit secondary
education company that had filed for Chapter 11 bankruptcy one month
earlier. (Def Br. 6-7; Pl. Opp. 7-9). By December 20, 2017, DOE had
processed thousands of claims for relief, primarily from Corinthian students,
but thousands of applications remained outstanding. (Id.). At the time the
Department filed its motion to dismiss, Plaintiffs’ applications for debt relief
remained pending with DOE. (Def. Br. 2).
C.
Procedural Background
On September 20, 2017, Plaintiffs filed this suit against the Secretary
and Navient Corporation seeking a declaratory judgment against both parties
that Ms. Carr’s direct loans and Ms. Colon’s FFEL and private loans were
unenforceable. (Dkt. #2). On February 14, 2018, this Court held a pre-motion
conference to address Defendants’ anticipated motions to dismiss. In
response, on March 2, 2018, Plaintiffs filed the Amended Complaint naming
additional defendants and refining their claims against each. (Dkt. #34).
On April 6, 2018, the Secretary moved to dismiss all of Plaintiffs’ claims
against her pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).
(Dkt. #59-60). On May 7, 2018, Plaintiffs filed their opposition. (Dkt. #70). On
May 21, 2018, Ms. Colon and the private loan holders agreed to arbitrate her
claims regarding her private loans. (Dkt. #79). On May 24, 2018, the
Secretary filed her reply to Plaintiffs’ opposition. (Dkt. #80). The motion is
fully briefed and ripe for review.
6
DISCUSSION
A.
Plaintiffs’ Claims Are Barred by Sovereign Immunity
1.
Applicable Law
a.
Motions to Dismiss Under Rule 12(b)(1)
Defendant argues first that this Court lacks jurisdiction to consider
Plaintiffs’ claims against her due to sovereign immunity. Rule 12(b)(1) permits
a party to move to dismiss a complaint for “lack of subject-matter jurisdiction.”
Fed. R. Civ. P. 12(b)(1). “A case is properly dismissed for lack of subject matter
jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or
constitutional power to adjudicate it.” Lyons v. Litton Loan Servicing LP, 158 F.
Supp. 3d 211, 218 (S.D.N.Y. 2016) (quoting Makarova v. United States, 201
F.3d 110, 113 (2d Cir. 2000)). In resolving a Rule 12(b)(1) motion, “the district
court must take all uncontroverted facts in the complaint ... as true, and draw
all reasonable inferences in favor of the party asserting jurisdiction.” Fountain
v. Karim, 838 F.3d 129, 134 (2d Cir. 2016) (quoting Tandon v. Captain’s Cove
Marina of Bridgeport, Inc., 752 F.3d 239, 243 (2d Cir. 2014)). “A plaintiff
asserting subject matter jurisdiction has the burden of proving by a
preponderance of the evidence that it exists.” Id. (quoting Makarova, 201 F.3d
at 113).
b.
The Higher Education Act’s Waiver of Sovereign
Immunity
Where, as here, an officer of the United States is named as a defendant
in her official capacity, the doctrine of sovereign immunity may present a
jurisdictional bar to suit. See FDIC v. Meyer, 510 U.S. 471, 475 (1994). “The
7
basic rule of federal sovereign immunity is that the United States cannot be
sued at all without the consent of Congress.” Block v. North Dakota ex rel. Bd.
of Univ. and School Lands, 461 U.S. 273, 287 (1983). And “[t]he waiver of
sovereign immunity is a prerequisite to subject-matter jurisdiction[.]”
Presidential Gardens Assocs. v. U.S. ex rel. Sec’y of Hous. & Urban Dev., 175
F.3d 132, 139 (2d Cir. 1999) (citing United States v. Mitchell, 463 U.S. 206, 212
(1983)). The United States, through the Higher Education Act of 1965 (“HEA”),
Pub. L. 89-329, 79 Stat. 1219, has provided a limited waiver of sovereign
immunity. 20 U.S.C. § 1082(a)(2). As potentially relevant to the following
discussion, however, the HEA’s waiver of sovereign immunity specifically does
not cover claims for “attachment, injunction, garnishment, or other similar
process[.]” Id.
2.
Analysis
The Court begins by addressing the above-described carve-out to the
HEA immunity waiver — a carve-out that Defendant claims is dispositive of the
claims against her. (See Def. Br. 9-10). “When Congress attaches conditions,
such as a statute of limitations, to legislation waiving the United States’
sovereign immunity, those conditions must be strictly observed, and exceptions
thereto are not to be lightly implied.” Block, 461 U.S. at 287. Plaintiffs offer a
different standard, citing cases in which “sue and be sued” clauses were
construed broadly to give effect to the expressed intent of Congress. (Pl.
Opp. 23 (citing Meyer, 510 U.S. at 480; U.S. Postal Serv. v. Flamingo Indus.
(USA) Ltd., 540 U.S. 736, 741-42 (2004); Fed. Hous. Admin. v. Burr, 309 U.S.
8
242, 245 (1940))). A review of these cases, however, demonstrates that
Plaintiffs ascribe undue significance to them. While the cases articulate a
general principle that waivers must be liberally construed, they do not
contravene the “general rule that waivers of sovereign immunity are to be read
narrowly in favor of the sovereign.” Meyer, 510 U.S. at 480. Taking these
somewhat contradictory principles together, the Court identifies the relevant
question as whether allowing Plaintiffs’ suit would be clearly inconsistent with
the HEA statutory scheme. See Burr, 309 U.S. at 245.
The Court concludes that the limited waiver of sovereign immunity does
not allow declaratory relief that functions as injunctive relief by another name.
In so doing, it agrees with the conclusion advanced by DOE, but not the
entirety of DOE’s supporting arguments. Here, DOE relies heavily on a
decision from the United States Court of Appeals for the Ninth Circuit that held
that a request for declaratory relief “was foreclosed where it would have the
same coercive effect as an injunction.” Am. Ass’n of Cosmetology Sch. v. Riley,
170 F.3d 1250, 1255 (9th Cir. 1999) (“AACS”). Unsurprisingly, Plaintiffs object
to the invocation of this case, pointing out that it is not binding and pointing to
its dissenting opinion, which argues that the majority “interpret[ed] § 1082(a)(2)
in a manner not contemplated by Congress and not consistent with
Congressional intent.” (Pl. Opp. 16-17 (citing AACS, 170 F.3d at 1256
(Reinhardt, J. dissenting))). Having reviewed the case and the statute at issue,
the Court finds the majority’s analysis of the statute to reflect more accurately
the statutory scheme.
9
While § 1082(a) does not explicitly prohibit declaratory relief, it does
prohibit claims for injunctive relief “and other similar processes.” Applying the
rule against surplusage, the term “similar processes” must have some distinct
meaning. See Williams v. Taylor, 529 U.S. 362, 364 (2000) (holding that the
rule against surplusage is the “cardinal principle of statutory construction”).
Based on a straightforward reading of the text, the Court concludes that
Congress provided a catch-all provision to foreclose the possibility that a claim
that would produce the same effect as an injunction could escape the
limitation.
Having construed § 1082(a) in this manner, the Court must then
consider whether Plaintiffs’ request for a declaratory relief is in fact a disguised
request for injunctive relief. As a means of differentiating between permissible
and impermissible requests for declaratory relief, DOE proffers the distinction
between requests that are coercive as to future events and requests that seek
to resolve disputes as to past events. (Def. Br. 12-13). The Court agrees that
this is a straightforward way to understand the distinction, but it recognizes,
as DOE acknowledges, that certain decisions have allowed declaratory relief in
forward-looking cases. (See id. at 13-16 (“In certain circumstances, courts
have found a claim for declaratory judgment to fall outside the injunctive
exclusion of section 1082(a)(2) even though such relief would have prospective
effect.” (collecting cases))). DOE suggests that these outlier decisions concern
cases where the relief limited discrete mechanisms of behavior, as opposed to
providing a complete bar to agency action. (Id.). In so doing, DOE has
10
proffered a two-part test, in which courts are to prohibit a declaratory
judgment (i) that would “provide anticipatory relief” and (ii) that would be
effective against “all future collection activity on their loans by the
Department.” (Id. at 13).
Plaintiffs object and point to a series of cases allowing declaratory
judgment requests to proceed; they argue that DOE’s test is a selfcontradictory jumble of stray language from various opinions. With regards to
anticipatory relief, Plaintiffs argue that DOE has overread decisions that
allowed declaratory relief but contained language that might be seen as
limiting. In this category, the parties dispute how to interpret Bank of America
NT & SA v. Riley, 940 F. Supp. 348 (D.D.C. 1996), which allowed a suit against
DOE for declaratory relief to proceed, but stated in making its determination
“that the requested relief was not ‘anticipatory’ in nature.” Id. at 351.
Plaintiffs state that this decision disproves Defendant’s argument that claims
that are anticipatory in nature are foreclosed. (See Pl. Opp. 13-17). Plaintiffs
levy the same charge regarding DOE’s citations to declaratory judgment
decisions that have allowed forward-looking relief. (See id. at 18 (arguing the
“courts have repeatedly issued declarations regarding the underlying validity of
borrowers’ obligations on their loans — which are not limited to a particular
method of collection”)).
Relatedly, Plaintiffs dispute DOE’s interpretation of Thomas v. Bennett,
856 F.2d 1165, 1169 (8th Cir. 1988), which DOE cites to distinguish
challenges to mechanisms of collection from attempts to bar collection all
11
together. (Pl. Opp. 17-18). And it is here that Plaintiffs’ arguments have more
traction. Plaintiffs correctly note that merely because the Eighth Circuit Court
of Appeals allowed jurisdiction over a declaratory judgment action attacking a
mechanism of collection does not demonstrate that an action that totally
foreclosed collection would be prohibited. (See id.).
To review, the Court agrees with Plaintiffs that DOE may have overread
certain cases in formulating an appropriate mechanism for distinguishing
types of relief. That said, the Court agrees with DOE’s more fundamental
argument — that Plaintiffs indisputably are asking the Court to issue an order
that would have the practical effect of forcing the Secretary to take certain
actions, i.e., an order seeking injunctive relief. Indeed, as Defendant observes,
Plaintiffs’ briefing acknowledges this fact: “Plaintiffs confirm that they are
seeking impermissibly forward-looking relief when they state that ‘this action
seeks an advance adjudication of precisely such a collection proceeding[.]’”
(Def. Reply 5 (quoting Pl. Opp. 19)).
The Court also agrees that the vast majority of the declaratory judgment
cases to which Plaintiffs point involved review of final agency action under the
APA. (Def. Reply 2-4). This is a distinction with a difference: Reviewing a final
agency action is a common function of courts, whereas if every SBI borrower
succeeded in gaining the relief Plaintiffs seek here, the Court would essentially
be establishing an “express lane” for the resolution of borrower defense
applications, a task for which courts are not especially well-suited. See
generally Calise Beauty Sch., Inc. v. Riley, 941 F. Supp. 425, 430 (S.D.N.Y.
12
1996) (“Plaintiffs have not been left procedurally helpless by the preclusion of
injunctive relief. In addition to pursuing administrative appeals, they may
litigate final decisions by the Secretary under the Administrative Procedures
Act (‘APA’), pursuant to which they may be entitled to declaratory relief.”). The
Court considers Plaintiffs’ suit to be just the type of action that Congress
sought to foreclose by including the HEA’s limitation on injunctive relief.
In this Opinion, the Court need not, and does not, define with precision
when a court must construe a request for declaratory relief as an
impermissible request for injunctive relief. While DOE’s briefing admirably
attempts to give structure to an unsettled area of law, given the myriad factual
differences in cases (and in existing court decisions), the Court hesitates to
articulate such a test. As it happens, it does not need to. However the test for
injunctive relief is ultimately defined, it encompasses these facts, where
Plaintiffs have asked the Court to predetermine the outcome of an ongoing
review by a Government agency, and in so doing foreclose any future
enforcement actions by the Government agency against Plaintiffs.
As the Ninth Circuit observed in AACS:
[I]t seems obvious that the anti-injunction bar cannot
be skirted by the simple expedient of labeling an action
that really seeks injunctive relief as an action for
“declaratory relief.” Yet this is precisely what [Plaintiffs’]
complaint does when it asks for [a decision mandating
that Plaintiffs’ debts] be declared null and void.
170 F.3d at 1254. This Court lacks subject matter jurisdiction over Plaintiffs’
claims against Defendant. It therefore dismisses that portion of the case under
Rule 12(b)(1), but stresses that such dismissal will not, on its own, bar
13
Plaintiffs (or other student borrowers) from raising a similar challenge to a final
DOE decision under the APA.
B.
Plaintiffs Fail to State a Claim on Which Relief Can Be Granted
Because the Court lacks subject matter jurisdiction to consider Plaintiffs’
claims against the Secretary, it arguably should not consider the merits of
these claims. See Cornwell v. Credit Suisse Grp., 666 F. Supp. 2d 381, 385-86
(S.D.N.Y. 2009) (“[A]bsent authority to adjudicate, the Court lacks a legal basis
to grant any relief, or even consider the action further.”); Norex Petroleum Ltd.
v. Access Indus., 540 F. Supp. 2d 438, 449 (S.D.N.Y. 2007) (dismissal for lack
of jurisdiction “moots, and thus terminates, all other pending motions”).
However, the jurisdictional issues raised by Defendant are complex, and to a
certain extent, the Court is breaking new ground. To promote efficiency for the
parties — particularly for Plaintiffs, who have been waiting years for resolution
of their claims — the Court will address certain of Defendant’s merits
arguments.
1.
Applicable Law
a.
Motions to Dismiss Under Rule 12(b)(6)
When considering a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), a court must “draw all reasonable inferences in Plaintiffs
favor, assume all well-pleaded factual allegations to be true, and determine
whether they plausibly give rise to an entitlement to relief.” Faber v. Metro. Life
Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks omitted);
see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“To survive a motion to
14
dismiss, a complaint must contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face.” (internal quotation marks
omitted)). A plaintiff is entitled to relief if he alleges “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007); see also In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir.
2007) (“While Twombly does not require heightened fact pleading of specifics, it
does require enough facts to nudge plaintiff’s claims across the line from
conceivable to plausible.” (internal quotation marks omitted) (citing Twombly,
550 U.S. at 570)).
That said, a court is not bound to accept “conclusory allegations or legal
conclusions masquerading as factual conclusions.” Rolon v. Henneman, 517
F.3d 140, 149 (2d Cir. 2008) (internal quotation marks omitted); see
also Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009) (“[A]lthough a court must
accept as true all of the allegations contained in a complaint, that tenet is
inapplicable to legal conclusions, and threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not suffice.”
(internal quotation marks omitted) (quoting Iqbal, 556 U.S. at 678)). Moreover,
“[w]here 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.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at
557).
15
b.
The Declaratory Judgment Act
The Declaratory Judgment Act provides, “[i]n a case of actual controversy
within its jurisdiction, ... any court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other legal relations of any
interested party seeking such declaration, whether or not further relief is or
could be sought.” 28 U.S.C. § 2201. The Act provides courts a “unique and
substantial discretion in deciding whether to declare the rights of
litigants.” Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). “But that
discretion does not extend to the declaration of rights that do not exist under
law.... The [Declaratory Judgment Act] is procedural only, and does not create
an independent cause of action.” Chevron Corp. v. Naranjo, 667 F.3d 232, 244
(2d Cir. 2012) (internal quotation marks and citations omitted). The viability of
claims brought under the Declaratory Judgment Act is also limited by the
requirement of an “actual controversy”, which necessitates an examination of
the claims’ ripeness. See Ray Legal Consulting Grp. v. Gray, 37 F. Supp. 3d
689, 699-700 (S.D.N.Y. 2014) (explaining that the Declaratory Judgment Act
(i) does not create an independent cause of action and (ii) “incorporate[s] the
ripeness requirements of Article III”).
2.
Analysis
Defendant argues that the loans themselves do not create federal rights
that can be affirmatively enforced. (Def. Br. 17). Ms. Carr’s loan provides the
following statement: “In some cases, you may assert, as a defense against
collection or your loan, that the school did something wrong or failed to do
16
something that it should have done.” (Byars Decl., Ex. A (Carr’s Direct Loan
Master Promissory Note (redacted)) at 7). Ms. Colon’s loans contains similar
language, but with additional language limiting the borrower’s ability to bring
claims against anyone beyond the lender holding the loan. (See Ranucci Decl.,
Ex. A). Neither loan document contains contractual language providing for, or
even suggesting, the ability to bring affirmative claims for relief. For its
Rule 12(b)(6) argument, DOE contends that because (i) the plain language of
the contracts contains no right of action and (ii) Plaintiffs have identified no
statutory right of action, the “procedural” nature of the Declaratory Judgment
Act cannot give rise to a claim for relief. See Chevron Corp., 667 F.3d at 244.
In addition, DOE points to guidance from the Office of Post-Secondary
Education that the regulation creating a borrower defense “does not provide a
private right of action for a borrower and is not intended to create new Federal
rights in this area.” Notice of Interpretation, 60 Fed. Reg. 37,768, 37,769
(July 21, 1995).
Plaintiffs respond that they are seeking the textbook form of relief under
the Declaratory Judgment Act, an adjudication of contractual defenses. (Pl.
Opp. 1). What is more, Plaintiffs state that while the Act may not provide an
independent cause of action for student borrowers, the cause of action at issue
here is DOE’s, as the Secretary can bring a claim against Plaintiffs at any time.
See City of Rome, N.Y. v. Verizon Commc’ns, Inc., 362 F.3d 168, 174 n.3 (2d Cir.
2004) (stating that one purpose of the Declaratory Judgment Acts “is to ‘release
potential defendants from the Damoclean threat of impending litigation which a
17
harassing adversary might brandish, while initiating suit at his leisure — or
never’”). While the Court agrees that relief from impending litigation is a core
purpose of the Declaratory Judgment Act, it cannot agree that this accurately
describes Plaintiffs’ situations.
The Court agrees with DOE that, standing alone, the Declaratory
Judgment Act cannot support a claim for relief. Plaintiffs provide two primary
arguments in response. One can be disposed of quickly: Plaintiffs cite to a
letter from former Secretary of Education Arne Duncan, in which he suggested
“a borrower who is not in default … can … assert a claim that the loan is not
legally enforceable on the basis of a claim against the school.” (Pl. Opp. 20
(citing Ranucci Decl., Ex. E (Letter from Arne Duncan, Secretary, U.S. Dep’t of
Educ., to Sen. Elizabeth Warren) at 5)). However, as the DOE points out,
Plaintiffs have, if not outright mischaracterized this language, certainly shaded
it. (Def. Reply 8). The very next line of the letter states: “To do so, the borrower
should present the claim to the servicer handling the Direct Loan for the
Department.” (Ranucci Decl., Ex. E at 5). Secretary Duncan plainly did not
suggest that the Department had opened itself up to a private right of action for
litigation that would force such a determination. The Court does not consider
the Department’s regulations to create a private right of action.
Plaintiffs also cite to the threat of impending collection proceedings. (Pl.
Opp. 18). DOE notes that this confuses the requirement of ripeness in
Declaratory Judgment Actions with the requirement of an independent right of
action. (Def. Reply 6). Putting that to the side, DOE notes, correctly, that the
18
Government is not seeking a litigation advantage through delay, and has
actually provided protections to Plaintiffs as it considers their relief
applications. While Plaintiffs analogize their outstanding debts to the Sword of
Damocles, which DOE has left precariously dangling over them, Ms. Carr’s
loans are in “stopped collection” status, and Ms. Colon’s are in forbearance.
(Am. Compl. ¶¶ 185, 188). Furthermore, the Department has made clear that
anyone who has applied for a borrower defense will not be required to pay more
than one year’s worth of interest payments. (Def. Reply 7). Plaintiffs here filed
their initial complaint on September 20, 2017 (Dkt. #2), more than two years
after filing applications for relief with DOE. (Am. Compl. ¶¶ 183, 185).
Therefore, their loans had already reached the interest cap prior to the
commencement of the litigation, undercutting any argument that the
Department’s delay will create additional harm to Plaintiffs.
This Court has previously noted that for a Declaratory Judgment Act
case to be ripe under Article III, “the facts alleged, under all the circumstances,
[must] show that there is a substantial controversy, between parties having
adverse legal interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.” Ray Legal Consulting Grp., 37 F. Supp.
3d at 700. Here, it does not appear that any of these elements has been met.
Because the applications remain pending, it is not clear that there is an actual
controversy or adverse legal interest between the parties. The Department has
given no indication that the ultimate outcome of its review will not provide
Plaintiffs the entire relief sought; far from “immediacy and reality,” the legal
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threat at issue remains entirely hypothetical. Returning to the metaphor that
Plaintiffs borrow from City of Rome, the Department has sheathed the Sword
and put it into deep storage.
Ms. Colon’s claims suffer an additional defect, in that she has not
adequately pleaded that DOE holds any of her loans. Both sides acknowledge
that the language of the loan provides defenses only against the lender holding
the note. (See Ranucci Decl., Ex. A (“any lender holding such loan is subject to
all claims and defenses that I could assert against the school”)). Both sides
also acknowledge that DOE does not presently hold Ms. Colon’s loans. (Am.
Compl. ¶ 22). Plaintiffs attempt to argue around this point by citing the
integral role DOE plays in controlling the FFEL program; DOE’s status as the
insurer and collector of FFEL’s when borrowers default; and potential
undiscovered contracts between DOE and the lenders. (See Pl. Opp. 20-22).
These ruminations do not suffice to state a claim. The mere fact that the
Department is closely involved in the program and might one day hold Ms.
Colon’s loan does not today give Ms. Colon a claim against the Department.
The Declaratory Judgment Act requires immediacy and reality, and not
speculation about future events.
In sum, both the absence of a right of action and a failure to plead
adequately the threat of impending litigation require dismissal of Plaintiffs’
claims against the Secretary for failure to state a claim.
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C.
The Court Declines to Reach the Issue of Exhaustion
DOE asks the Court to impose a judicial exhaustion requirement in the
event that it declines to find sovereign immunity and determines that Plaintiffs
have adequately stated a claim for a relief. (Def. Br. 19-21). Given the Court’s
disposition of this motion, as well as the unsettled state of the law, an
exhaustion inquiry would be inappropriate. See McCarthy v. Madigan, 503
U.S. 140, 144 (1992) (“[W]here Congress has not clearly required exhaustion,
sound judicial discretion governs.”).
CONCLUSION
For the reasons above, Defendant Elizabeth DeVos’s motion to dismiss is
GRANTED. Plaintiffs claims against the Secretary are dismissed, and the Clerk
of Court is directed to terminate her as a Defendant in this case. As this
dismisses the sole count of Plaintiff Carr, the Clerk of Court is directed to
terminate her from the case as well. Count Three was stayed in favor of
arbitration by stipulation between the parties. (Dkt. #79). Plaintiff Colon and
the remaining Defendants are hereby ORDERED to provide a joint letter to the
Court on or before March 22, 2019, stating how they intend to proceed
regarding Count Two of the Amended Complaint.
The Clerk of Court is directed to terminate the motion at docket entry 59.
SO ORDERED.
Dated:
February 25, 2019
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
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