Ballard v. Navient Corporation et al
ORDER 1. The r/r of Judge Carlson is adopting 56 Report and Recommendations. 2. The defts' motion to dismiss and to strike class allegations 39 will be GRANTED in part and DENIED in part. 3. The Motion to Strike the class action allegations 39 will be DENIED. 4. The Motion to Dismiss be GRANTED as to the tortious interference with contract claim and DENIED in all other respects. 5. The instant action is REMANDED to Judge Carlson for all future pre-trial proceedings. Signed by Honorable Malachy E Mannion on 4/28/2021 (jw)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
JILL BALLARD, on behalf of
herself and the class members
CIVIL ACTION NO. 3:18-121
NAVIENT SOLUTIONS, INC. AND
NAVIENT SOLUTIONS, LLC.,
Pending before the court is the report of United States Magistrate
Judge Martin C. Carlson, which recommends that the defendants’ motion to
dismiss and to strike class allegations (Doc. 39), be granted, in part, and
denied, in part. Specifically, Judge Carlson recommends the motion to strike
the class action allegations should be denied; the motion to dismiss be
granted as to the tortious interference with contract claim; and the motion
to dismiss should be denied in all other respects. (Doc. 56). No objections
have been filed to the report.
Where no objection is made to a report and recommendation, the court
should, as a matter of good practice, Asatisfy itself that there is no clear error
on the face of the record in order to accept the recommendation.@ Fed. R.
Civ. P. 72(b), advisory committee notes; see also Univac Dental Co. v.
Dentsply Intern., Inc., 702 F.Supp.2d 465, 469 (M.D.Pa. 2010) (citing
Henderson v. Carlson, 812 F.2d 874, 878 (3d Cir. 1987) (explaining judges
should give some review to every report and recommendation)).
Nevertheless, whether timely objections are made or not, the district court
may accept, not accept, or modify, in whole or in part, the findings or
recommendations made by the magistrate judge. 28 U.S.C. '636(b)(1);
Local Rule 72.31.
The uncontested factual background of the instant action is set forth
Our analysis of the instant motion is governed by the wellpleaded facts in the amended complaint. By way of introduction,
the amended complaint explains that:
2. Student loan debt is now the largest category of nonhousing related consumer debt in the United States with more
than $1.34 trillion outstanding at the end of June 2017. The
overwhelming majority of student loans in the United States are
owned or guaranteed by the federal government through the U.S.
Department of Education.
3. Since June 2009, Defendant Navient Corp. and its
predecessors in interest, through their subsidiaries, Navient
Solutions, LLC (“NSL”) and Navient Solutions, Inc. (“NSI”) acting
in the capacity of agents on behalf of their principal, Navient
Corp., have served as one of four primary servicers of federal
student loan debt.
4. Loan servicers who contract with the Department of
Education perform all tasks associated with loan repayment,
such as collecting payments, responding to customer service
inquiries, providing loan documents to borrowers, handling
applications for loan deferment or forbearance based on financial
hardship, and administering repayment programs designed to
help borrowers effectively manage the increasing cost of higher
education. These programs include the various Income-Driven
Repayment Plans (“IDR plans”) offered by the federal
government, which provide qualifying borrowers with relief from
student loan debt by adjusting their payments to a reasonably
affordable amount based on their income, occupation, and family
size. Borrowers enrolled in IDR plans can also apply to have their
federal loans forgiven after a certain number of payments.
5. Navient Corp. and its predecessors in interest, and/or
their duly appointed agents, NSL and NSI, received and continue
to receive monthly servicing fees for the federal loans that they
administer. Thus, Navient Corp. has a strong financial interest in
keeping loans active for as long as possible to continue collecting
these monthly fees. To that end, Navient Corp. and its
predecessors in interest, through their duly appointed agents,
NSL and NSI, delayed or failed to process IDR plan applications
in order to generate additional monthly servicing fees. Because
loan payments only count toward forgiveness once a borrower’s
application is processed, this practice extended the duration of
loans in the various IDR programs, and injured borrowers who
were required to make additional payments on loans that
otherwise would have been forgiven at an earlier date.
6. Navient Corp. and its predecessors in interest, through
their duly appointed agents, NSL and NSI, also improperly
placed borrowers making timely loan payments into deferment or
forbearance status–a designation typically reserved for
situations where the borrower seeks relief from its payment
obligations due to financial hardship. Borrowers who are in
deferment or forbearance cannot make qualifying payments that
count towards loan forgiveness under the various IDR plans,
even though Navient Corp. continues to collect fees on servicing
their loans. Thus, Navient Corp.’s abuse of the deferment and
forbearance process, through its agents, NSL and NSI,
improperly increased Navient Corp.’s revenue and extended the
duration of the borrowers’ loans in the various IDR programs.
Moreover, at the conclusion of each forbearance, any accrued
interest is “capitalized,” or added to the borrower’s principal loan
balance, which may increase the borrower’s debt considerably.
Thus, Navient Corp.’s abuse of the forbearance process, through
its agents, NSL and NSI, improperly increased the principal loan
balance of its borrowers, putting them deeper and deeper into
7. Navient Corp. had a financial incentive to increase its
borrowers’ loan balances because two of its subsidiaries –
Pioneer Credit Recovery (“Pioneer”) and General Revenue
Corporation (“GRC”) – provide collection and rehabilitation
services on defaulted federal student loans. Under the current
compensation structure for companies that provide such
rehabilitation services, collectors earn nearly $40 in
compensation for every $1 in cash recovered through certain
rehabilitations. (Id., ¶¶ 2-7). According to the plaintiffs’ complaint,
Navient has a documented, and widespread, history of
mishandling student loan IDR requests and accounts and has
been the subject of thousands of complaints over its deficiencies
in the processing of these accounts. (Id., ¶¶ 9-14).
Cast against this factual backdrop, the plaintiffs’ amended
complaint sets forth in their pleading a series of detailed
substantive factual averments. (Id., ¶¶ 43-86). These averments
explain that, with the rising cost of college education, students
seeking higher education opportunities have been compelled to
increasingly rely upon student loans to finance their education.
(Id., ¶¶ 43-44). These loans then come with an array of
Burdened by academic debt, many student loan borrowers
cannot afford the monthly payments prescribed by standard
repayment plans and must turn to various income-driven
repayment plans. (Id., ¶¶ 45-47). Such income-driven repayment
plans, or IDRs, must be renewed annually by the student, and
the failure to timely renew the IDR can result in increased
payments and added interest expense. (Id.) In order to assist
students loan borrowers in avoiding these financial-penalties,
student loan servicers are required to timely process IDR
requests within 10 to 15 business days. (Id., ¶ 48). In contrast to
these IDR plans, student loan borrowers may also be placed into
a temporary loan forbearance status by loan servicers. Such
temporary forbearance is more lucrative for the loan servicer,
according to the plaintiffs, but has financial disadvantages for the
borrowers. (Id., ¶ 49).
The plaintiffs allege that Navient’s financial incentives for
mishandling student IDR applications and accounts stem from
the structure of its contract with the Department of Education.
(Id., ¶¶ 50-55). That contract compensates Navient on a per unit
basis for the student loan accounts it manages, and pays Navient
at a higher rate for accounts that are in forbearance, thus
creating incentives to place accounts in forbearance status and
minimize the number of accounts which are forgiven or
The amended complaint then details the experience of the
three named plaintiffs with Navient as their loan servicer. (Id., ¶¶
56-86). In each instance it is alleged that Navient mishandled the
named plaintiffs’ IDR account by failing to meet processing
deadlines, improperly placing accounts in forbearance status,
erroneously capitalizing interest payments, and failing to
acknowledge and process timely student borrower IDR renewal
(Doc. 56, pp. 2-5).
Judge Carlson proceeds to outline the class action allegations, which
relate to a nationwide class, in addition to California, New York and Illinois
classes, as well as the seven claims and causes of action the plaintiffs have
brought on behalf of themselves and the putative classes that they claim to
represent. The plaintiffs’ claims include breach of contract claims alleging
that Navient’s conduct has violated the terms of both its contract with the
Department of Education, as well as student promissory notes. Moreover,
the plaintiffs allege that Navient’s IDR loan processing practices tortiously
interfere with these contracts. The plaintiffs also allege five causes of action
based upon California, Pennsylvania, Illinois, and New York consumer
protection statutes. The plaintiffs request that the court certify this class
action, find that Navient’s actions are unlawful, enjoin these practices, and
award the plaintiff class compensatory and punitive damages along with
In their motion to dismiss, defendants seek to strike the plaintiffs’ class
action allegations. Considering Fed.R.Civ.P. 12(f) and related case law as
applied to class action allegations, Judge Carlson has determined that, if the
evidence supports what the plaintiffs have alleged, then class certification
may well be appropriate here. Given this, he determined that striking the
plaintiffs’ class allegations without the benefit of class discovery would be
premature and improper, and as such, the defendants’ motion to strike
should be denied.
The defendants’ motion also seeks to dismiss the plaintiffs’ breach of
contract and tortious interference of contract claims. In considering the
arguments related to these claims, Judge Carlson has determined that the
loan servicing agreement and federal law both seem to expressly
contemplate that Navient will perform its loan servicing duties in accordance
with federal regulations to the benefit of student borrowers, and that the
contract and the statutes contemplate potential third party liability by Navient
to these student borrowers. As such, Judge Carlson found that the student
borrowers have plausibly alleged that they qualify as third party beneficiaries
under this servicing agreement and are entitled to assert breach of contract
claims if Navient breaches its duties to them under that agreement. Further,
Judge Carlson determined that the plaintiffs have plausibly alleged breach
of contract claims pursuant to the promissory agreement between the
student borrowers and the United States which would allow the plaintiffs’
claims to go forward at this stage of the proceedings.
To the extent that the plaintiffs allege in the alternative that Navient
tortiously interfered with the contracts, Judge Carlson determined that the
fact that there was a favorable ruling on the plaintiffs’ breach of contract
claims means that the tortious interference with contract claim fails, since it
is well established that Navient cannot tortiously interfere with a contract to
which it was a party. As such, Judge Carlson recommends that this claim be
To the extent the defendants argue that the breach of contract claims
are subject to dismissal under Fed.R.Civ.P. 19 because the plaintiffs have
failed to name the Department of Education, a necessary and indispensable
party, Judge Carlson has determined that, given the explicit statutory
prohibition forbidding assessment of damages against the United States for
errors by student loan servicers like Navient, the Department of Education’s
absence from this litigation simply does not deny the putative plaintiffs
complete relief. Moreover, Judge Carlson determined that the failure to join
the Department of Education as a defendant would not in any way prejudice
the parties to this litigation or deny the putative plaintiffs an adequate
judgment in the event that they prevailed in this lawsuit. Finally, Judge
Carlson determined that, while the Department of Education is not a
necessary party in this lawsuit, nothing would prevent the joinder of the
Department of Education as a party in this case if the current parties deemed
joinder to be appropriate. As such, he found that, under Fed.R.Civ.P. 19(a)
and (b), the Department of Education is neither a necessary nor
Finally, to the extent defendants seek to have plaintiffs’ state consumer
protection law claims dismissed, Judge Carlson determined that the
allegations of the plaintiffs’ amended complaint are sufficient considering
caselaw construing these various state consumer protection statutes.
The court has carefully considered the defendants’ motion to dismiss
and related materials, as well as Judge Carlson’s rulings on the matters
raised therein, and finds no clear error of law. Moreover, the court agrees
with the sound reasoning which has led Judge Carlson to the conclusions in
his report. As such, the report and recommendation will be adopted in its
entirety as the opinion of the court.
NOW, THEREFORE, IT IS HEREBY ORDERED THAT:
(1) The report and recommendation of Judge Carlson (Doc. 56) is
ADOPTED IN ITS ENTIRETY AS THE RULING OF THE COURT.
(2) The defendants’ motion to dismiss and to strike class allegations
(Doc. 39) will be GRANTED, IN PART, AND DENIED, IN PART.
(3) The motion to strike the class action allegations will be DENIED.
(4) The motion to dismiss be GRANTED as to the tortious
interference with contract claim and DENIED in all other respects.
(5) The instant action is REMANDED to Judge Carlson for all future
s/ Malachy E. Mannion
MALACHY E. MANNION
United States District Judge
DATE: April 28, 2021
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