Russo v. SLM Private Credit Student Loan Trust

Filing 37

MEMORANDUM AND ORDER granting 27 Motion to Amend the complaint and Plaintiff shall file [27-1] Second Amended Complaint. Accordingly, 23 Defendants' Motion to Dismiss the first amended complaint is DENIED as moot. Signed by District Judge J. Garvan Murtha on 9/21/2017. (kak)

UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
KAYLA RUSSO,

:
:
Plaintiff,
:
:
v.
:
:
NAVIENT SOLUTIONS, LLC;
:
SLM PRIVATE CREDIT STUDENT
:
LOAN TRUST 2006-A; SLM PRIVATE
:
CREDIT STUDENT LOAN TRUST 2010-C; :
SLM PRIVATE CREDIT STUDENT LOAN :
TRUST 2011-A; SLM PRIVATE CREDIT
:
STUDENT LOAN TRUST 2011-B; and
:
SLM PRIVATE CREDIT STUDENT
:
LOAN TRUST 2015-A,
:
:
Defendants.
:
_____________________________________ :

Case No. 1:16-cv-316-jgm

MEMORANDUM AND ORDER
(Docs. 23, 27)
I.

Introduction
Plaintiff Kayla Russo commenced this action in state court in October 2016. (Doc. 6.) The

case was subsequently removed to this Court based on diversity jurisdiction. (Doc. 1.) Defendants
Navient Solutions, LLC, SLM Private Credit Student Loan Trust 2006-A, SLM Private Credit
Student Loan Trust 2010-C, SLM Private Credit Student Loan Trust 2011-A, SLM Private Credit
Student Loan Trust 2011-B, and SLM Private Credit Student Loan Trust 2015-A (collectively,
Defendants) move to dismiss the complaint. (Doc. 20.) The motion is fully briefed. See Docs. 26,
31. Russo moves for leave to file a second amended complaint. (Doc. 27.) Her motion is also fully

briefed. See Docs. 32, 33.1 For the reasons discussed below, Plaintiff’s motion is granted and
Defendants’ motion is denied as moot.
II.

Background
A prior defendant, SLM Private Credit Student Loan Trust, removed the case to this Court

(Doc. 1) and, while a motion to substitute defendant (Doc. 9) was pending, Russo filed a motion to
amend her complaint (Doc. 17) resulting in the March 2017 first Amended Complaint (Doc. 20)
naming the current Defendants.
On April 21, 2017, Defendants moved to dismiss the Amended Complaint. (Doc. 23.) On
June 9, 2017, Russo opposed the motion to dismiss in a short filing (Doc. 26) and simultaneously
filed a motion for leave to amend her complaint for a second time (Doc. 27). The proposed Second
Amended Complaint adds factual allegations and contains specific counts of negligence, violation of
the Vermont Consumer Protection Act, negligent misrepresentation, and invasion of privacy.
(Doc. 27-1 (Proposed Second Amended Complaint).)
Navient Solutions, LLC (“Navient”) was the servicer of the loans issued by each loan trust
and acted as their agent. (Doc. 27-1 ¶¶ 6-7.)2 Between 2005 and 2009, Kathryn Blank applied
through Navient’s website for four private student loans3 for Plaintiff Russo4 that Navient later
bundled into the Loan Trust defendants. Id. ¶¶ 23-40. Russo did not apply for the last three loans,

1

Defendants also filed a notice of supplemental authority. See Doc. 34.

2

The following facts are assumed to be true for purposes of the pending motions.

3

Though neither party addresses it, the Court points out Plaintiff alleges the 2006 loan was
requested in the amount of $288,750; perhaps this is a typographical error as the other loan amounts
were between $15,000 and $17,500. Compare Doc. 27-1 ¶ 28 with ¶¶ 23, 32, 36.
4

Russo’s former last name was Blank. (Doc. 27-1 ¶ 1.)
2

Navient did not verify whether she was applying, and she did not become aware of the extent of the
loans until after her graduation from college. Id. ¶¶ 41-42, 45.
Navient provides professional services by counseling or assisting borrowers in the repayment
of their loans. (Doc. 27-1 ¶¶ 47-48.) Russo could not remain current on her repayment obligations
and, in August 2014, requested an income based repayment plan. Id. ¶¶ 46, 49-51. Navient advised
Russo forbearance of her loans was her best option as they worked on a repayment plan, including
her request for an income based plan, and her loans were placed in forbearance until October 2014.
Id. ¶¶ 49-50, 52-53. She alleges Navient’s advice was false and misleading because forbearance
resulted in the addition of unpaid interest to the principal of the loans which Navient did not explain
to her. Id. ¶¶ 55-57, 59-60, 65.
In September 2014, Navient informed Russo it would not allow her an income based
repayment plan. (Doc. 27-1 ¶ 61.) Navient again advised forbearance. Id. ¶ 63. In December,
Navient informed Russo she did not qualify for a lower payment option and advised her best option
was the interest only repayment plan. Id. ¶ 64. In the spring of 2015, when Russo stopped making
payments, Navient began contacting her every day--including while she was working--up to seven
times per day. Id. ¶¶ 66-68. Navient’s collection practices disrupted her employment and damaged
her reputation with her employer and teaching peers. Id. ¶ 70. Navient ignored Russo’s oral request
to contact her only after school hours and not to call her employer and her October 2015 written
request that she be contacted only in writing. Id. ¶¶ 68, 71-72.
III.

Standard of Review
Federal Rule of Civil Procedure 15(a) allows a party to amend its pleading with the court’s

leave and states the court should freely give leave when justice so requires. Fed. R. Civ. P. 15(a)(2).
Where a motion to amend is opposed on grounds of futility, the Court must determine whether the

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amended complaint could withstand a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6). Balintulo v. Ford Motor Co., 796 F.3d 160, 164-65 (2d Cir. 2015) (citing Lucente v. Int’l
Bus. Machines Corp., 310 F.3d 243, 258 (2d Cir. 2002)).
The Court will deny leave to amend if the proposed pleading fails to set forth “sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citation omitted). The Court must
draw inferences from the allegations in the light most favorable to the plaintiff. Starr v. Georgeson
S’holder, Inc., 412 F.3d 103, 109 (2d Cir. 2005). “A complaint should not be dismissed on the
pleadings unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his
claim which would entitle him to relief.” Cleveland v. Caplaw Enters., 448 F.3d 518, 521 (2d Cir.
2006) (internal quotation marks and citation omitted). The party opposing an amendment bears the
burden of demonstrating why leave to amend would be futile. See Semper v. N.Y. Methodist Hosp.,
786 F. Supp. 2d 566, 582 (E.D.N.Y. 2011).5

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In making futility determinations, as with a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim, the Court is limited to the allegations in the complaint
and any documents attached to the complaint as exhibits or incorporated by reference. See
Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). A court may, however, consider
a document that is not incorporated by reference where the complaint “relies heavily upon its terms
and effect.” Id. at 153 (internal quotation marks and citation omitted). Here, Defendants have
submitted various documents related to the loans and correspondence between the parties. The
Court does not consider these extraneous materials because, though the documents may have been
known to or in the possession of Russo, it is not clear she relied on the terms and effect of each of
the documents in drafting the complaint.
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IV.

Discussion
A.

Motion to Amend Complaint

Defendants contend Russo’s motion to amend should be denied because the proposed
Second Amended Complaint suffers the same infirmities as the first Amended Complaint and is
therefore futile. See Doc. 32.
1.

Negligence Claim

Defendants assert a lender does not, as a matter of law, owe a duty to a borrower in an arm’s
length commercial transaction. (Doc. 23 at 7; Doc. 32 at 4.) Plaintiff’s proposed pleading alleges
three duties Defendants owed her: (1) to verify her identity prior to approving the loans; (2) to
ensure the loans taken out in Plaintiff’s name were to a qualified borrower; and (3) to maintain a
reasonable website. (Doc. 27-1 ¶¶ 74-76.)
Under Vermont law, negligence requires a legally cognizable duty owed by the defendant to
the plaintiff, a breach of that duty, that the breach was the proximate cause of plaintiff’s injury, and
damages. Carvalho v. Grzankowski, 36 F. Supp. 3d 423, 428 (D. Vt. 2014) (citing Powers v. Office
of Child Support, 795 A.2d 1259, 1265 (Vt. 2002)). The existence of a duty is primarily a question
of fact. Powers, 795 A.2d at 1265. “Generally, whether there is a cognizable legal duty that
supports a tort action depends on a variety of public policy considerations and relevant factors.”
Hamill v. Pawtucket Mut. Ins. Co., 892 A.2d 226, 228 (Vt. 2005). Causation requires both “but-for”
and proximate causation. Collins v. Thomas, 938 A.2d 1208, 1211 (Vt. 2007). A plaintiff must
show: (1) the harm would not have occurred “but for” the defendant’s conduct such that the
“tortious conduct was a necessary condition for the occurrence of the plaintiff’s harm,” and (2) the
defendant’s negligence was “legally sufficient to result in liability such that liability attaches for all the
injurious consequences that flow from the defendant’s negligence until diverted by the intervention

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of some efficient cause that makes the injury its own.” Id. (internal quotation marks and citations
omitted). Proximate cause is ordinarily characterized as a jury issue. Id.
Defendants rely on a case applying New York law to dismiss breach of fiduciary duty and
negligent misrepresentation claims where the fiduciary and “special” relationships required to give
rise to a duty was missing between the borrower and lender in an arm’s length transaction.
See Doc. 23 at 7, Doc. 32 at 4-5 (both citing Genna v. Sallie Mae, Inc., No. 11 Civ. 7371(LBS),
2012 WL 1339482, at *5-7 (S.D.N.Y. Apr. 17, 2012). Vermont law, however, applies to Russo’s
claims. She alleges various duties in her proposed pleading and, under Vermont law, the existence
of a duty is primarily a question of fact. Powers, 795 A.2d at 1265. As lack of duty is the sole
ground on which Defendants oppose amendment to the negligence claim, and as the proposed
amendment alleges multiple duties, Russo’s proposed amendment of her negligence claim is
allowed.6
2.

Vermont Consumer Protection Act Claim

Defendants argue Russo’s VCPA claim fails because she does not allege “actionable
misconduct.” (Doc. 32 at 6-7.)
The Vermont Consumer Protection Act is violated if a party engages in an unfair or
deceptive act or practice in commerce. Vt. Stat. Ann. tit. 9, § 2453; Foti Fuels, Inc. v. Kurrle Corp.,
90 A.3d 885, 891 (Vt. 2013). A private party may prosecute a VCPA violation but must meet
standing requirements: the private party must be a consumer who was harmed by the unfair or
deceptive act or practice. Vt. Stat. Ann. tit. 9, § 2461(b). Accordingly, “[a]ny consumer who

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The Court notes Defendants have not raised--and therefore the Court has not considered-the economic loss rule, adopted by Vermont, which prohibits recovery under tort for economic
losses which are not also accompanied by tangible, physical harm. See Hunt Constr. Grp., Inc. v.
Brennan Beer Gorman, 607 F.3d 10, 14 (2d Cir. 2010).
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contracts for goods or services in reliance upon false or fraudulent representations or practices”
made in commerce in violation of the VCPA may recover damages. Id. A consumer is defined, in
pertinent part, as anyone “who purchases, leases, contracts for, or otherwise agrees to pay
consideration for goods or services not for resale in the ordinary course of his or her trade or
business but for his or her use or benefit.” Id. § 2451a(a).
Here, Russo alleges she is a consumer as defined by the VCPA who was harmed by specific
instances of unfair, misleading, and deceptive actions of Defendants both at the time the loans were
made and during servicing and repayment of the loans. Accepting the factual allegations as true and
drawing all inferences in her favor, Russo has stated a claim under the VCPA. Accordingly, the
Court does not find a VCPA claim to be futile.
3.

Negligent Misrepresentation Claim

Defendants also argue Plaintiff’s negligent misrepresentation claim fails because a lender
owes no duty to a borrower. (Doc. 23 at 7, Doc. 32 at 4.) The Vermont Supreme Court has
adopted the Restatement (Second) of Torts § 552 definition for claims of negligent
misrepresentation. Glassford v. Dufresne & Assocs. P.C., 124 A.3d 822, 827 (Vt. 2015) (citing
Limoge v. People’s Trust Co., 719 A.2d 888, 890 (Vt. 1998)). Accordingly, in Vermont, a claim of
negligent misrepresentation may be made “against one who, in the course of his business, profession
or employment supplies false information for the guidance of others in their business transactions,
where there is justifiable reliance on the information provided, and where that reliance results in
pecuniary loss.” McGee v. Vt. Fed. Bank FSB, 726 A.2d 42, 44 (Vt. 1999).
Here, Russo alleges Defendants represented that her best repayment option was to go into
forbearance, that representation was false and material, she relied on the misrepresentation to her
detriment, and suffered significant damages as a result. This is sufficient to state a claim for

7

negligent misrepresentation under Vermont law.7 Accordingly, the Court does not find a negligent
misrepresentation claim to be futile.
4.

Invasion of Privacy

Defendants do not address Plaintiff’s invasion of privacy claim in their papers. Accordingly,
as Defendants bear the burden of demonstrating the amendment is futile, the Court will not find the
proposed amendment to be futile with regard to this claim at this time.
5.

Statute of Limitations

Defendants also generally argue Plaintiff’s claims are barred by Vermont’s six-year statute of
limitations. (Doc. 32 at 8 (citing Vt. Stat. Ann. tit. 12, § 511.) They assert her allegations and claims
concerning loan applications submitted from 2005 to 2009 expired at the latest in 2015, before the
litigation was initiated in October 2016.
If the statute of limitations bars Russo’s claims, she cannot show an entitlement to relief and
her proposed pleading would be futile. See Brown v. Castleton State Coll., 633 F. Supp. 2d 392, 396
(D. Vt. 2009). The statute of limitations is tolled during the time a plaintiff is a minor. Vt. Stat.
Ann. tit. 12, § 551. As the loans at issue here were student loans issued to pay for college, the Court
must infer Plaintiff was a minor at the time--and may have been a minor for years after--the loans
were received. See Renteria v. Nationwide Credit, Inc., No. 09-cv-1195, 2009 WL 2754988, at *2
(S.D. Cal. Aug. 27, 2009) (where a defendant seeks dates as a basis for dismissal under a statute of
limitations, “[d]efendant’s recourse is to conduct discovery on the matter and bring a motion for
summary judgment if it turns out that [p]laintiff’s claims are time-barred”). Accordingly, the Court

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The Court notes the issue of whether the economic loss rule applies to claims of negligent
misrepresentation in Vermont is unresolved. The Second Circuit Court of Appeals has certified the
question to the Vermont Supreme Court but the appeal was dismissed because the parties settled
while it was pending. See Hunt Constr. Grp., 607 F.3d at 17-18.
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cannot conclude the proposed amendment is futile as a result of the operation of the statute of
limitations.
B.

Motion to Dismiss Complaint

In light of the Court’s determination with regard to Russo’s motion to amend her complaint,
Defendants’ motion to dismiss (Doc. 23) the Amended Complaint (Doc. 20) is moot as the
proposed second amended complaint will become the operative complaint.
V.

Conclusion
For the reasons discussed above, Plaintiff’s motion to amend the complaint (Doc. 27) is

GRANTED, and Plaintiff shall file the Second Amended Complaint (Doc. 27-1). Accordingly,
Defendants’ motion to dismiss (Doc. 23) the first amended complaint is DENIED as moot.
SO ORDERED.
Dated at Brattleboro, in the District of Vermont, this 21st day of September, 2017.

/s/ J. Garvan Murtha
Honorable J. Garvan Murtha
United States District Judge

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