Smith v. Collection Technologies, Inc.

Filing 25

MEMORANDUM OPINION AND ORDER granting Plaintiff's 7 MOTION to Amend the Complaint Pursuant to Rule 15 of the Federal Rules of Civil Procedure; directing that the ECF No. 7-1 First Amended Complaint is now the operative pleading in this matter; denying Plaintiff's 3 MOTION to Remand Case to Circuit Court of Kanawha County for Fees and Costs and for a Hearing on Remand; denying Defendant's 4 MOTION to Dismiss Complaint Attached to 1 Notice of Removal; denying as moot, Defend ant's 10 MOTION to Strike Improper Arguments in Plaintiff's 8 Reply to Response or in the Alternative, MOTION by Collection Technologies, Inc. for Leave to File Surreply; denying as moot Plaintiff's 21 MOTION for Hearing on 3 MOTION by Greg Smith to Remand Case to Circuit Court of Kanawha County for Fees and Costs and for a Hearing on Remand. Signed by Judge Thomas E. Johnston on 3/22/2016. (cc: counsel of record; any unrepresented party) (tmh)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION

GREG SMITH,
Plaintiff,
v.

CIVIL ACTION NO. 2:15-cv-06816

COLLECTION TECHNOLOGIES, INC.
Defendant.

MEMORANDUM OPINION AND ORDER
Before the Court are Plaintiff’s Motion to Remand and for Hearing [ECF No. 3], Motion
to Amend the Complaint [ECF No. 7], and subsequent Motion for Hearing [ECF No. 21]. Also
pending are Defendant Collection Technologies, Inc.’s Motion to Dismiss [ECF No. 4] and Motion
to Strike or, in the alternative, Motion for Leave to File Surreply [ECF No. 10]. For the reasons
that follow, the Court DENIES Plaintiff’s Motion to Remand and accompanying Motion for
Hearing [ECF No. 3], DENIES CTI’s Motion to Dismiss [ECF No. 4], GRANTS Plaintiff’s
Motion to Amend the Complaint [ECF No. 7], and DENIES AS MOOT CTI’s Motion to Strike
or for Leave to File a Surreply [ECF No. 10] and Plaintiff’s Motion for Hearing [ECF No. 21].
I.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Plaintiff Greg Smith brings this civil action in response to CTI Collection Technologies,
Inc.’s (“CTI”) garnishment of his wages for repayment of a student loan. CTI, a debt collector,
has purportedly garnished thousands of dollars of Plaintiff’s income in an attempt to recover

payments for a defaulted loan that Plaintiff allegedly repays directly to the United States
Department of Education (“DOE”) through an income-based repayment plan.
Plaintiff filed suit against CTI in the Circuit Court of Kanawha County, West Virginia on
April 22, 2015. His four-count Complaint alleges violations of the West Virginia Consumer
Credit and Protection Act (“WVCCPA”), negligence, intentional infliction of emotional distress,
and conversion. CTI was served on April 27, 2015 and timely removed the action to this Court
on May 27, 2015. CTI asserts that this Court has subject matter jurisdiction under the federal
officer removal statute codified at 28 U.S.C. § 1442(a)(1).

Plaintiff contests that statute’s

applicability and moves to remand. 1 CTI has since filed a Rule 12(b)(6) motion to dismiss
Plaintiff’s Complaint on grounds that each of its state law claims is preempted by the Higher
Education Act, 20 U.S.C. § 1070 et seq. (“HEA”), and its corresponding regulations. Plaintiff
moved for leave to amend his Complaint shortly after receipt of CTI’s motion to dismiss. His
amended pleading adds factual detail to comply, he explains, to the more stringent pleading
requirements of the federal courts. The claims asserted in the First Amended Complaint are
identical to those raised in the original pleading. Seeing the motion is unopposed, the Court
GRANTS the motion to amend [ECF No. 7] and relies on this amended pleading in its resolution
of the parties’ remaining motions.

Plaintiff’s initial arguments raised in support of his motion to remand were quite cursory and, as explained
below, premised on an inaccurate reading of applicable law. By the time he filed his reply, however,
Plaintiff seems to have been alerted to the deficiencies in his initial brief and submitted a much more
thorough analysis in support of his position. CTI perceives this as unfair and, as a result, moved to strike
Plaintiff’s reply or, in the alternative, for leave to file a surreply to address the arguments to which it did
not have the opportunity to respond. Because the Court ultimately resolves the motion to remand in CTI’s
favor without the necessity of further argument, the Court will DENY AS MOOT CTI’s motion to strike
or for leave to file a surreply.
1

2

II.

DISCUSSION

A. Motion to Remand
The federal officer removal statute set forth in 28 U.S.C. § 1442(a) confers federal
jurisdiction over a civil action directed at “any officer (or any person acting under that officer) of
the United States or any agency thereof, in an official or individual capacity, for or relating to any
act under color of such office.”

The words “acting under” are to be interpreted broadly,

Willingham v. Morgan, 395 U.S. 402, 406–07 (1969), and the statute must be construed liberally.
Watson v. Philip Morris Companies, Inc., 551 U.S. 142, 147 (2007); Willingham, 395 U.S. at 406–
07 (“The federal officer removal statute is not ‘narrow’ or ‘limited.’ . . . Congress has decided that
federal officers . . . require the protection of a federal forum. This policy should not be frustrated
by a narrow, grudging interpretation of § 1442(a)(1).”). Thus, the general rule requiring strict
construction of removal statutes, see Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d
148, 151 (4th Cir. 1994), is inapplicable to cases removed under § 1442(a)(1). See Durham v.
Lockheed Martin Corp., 445 F.3d 1247, 1252 (9th Cir. 2006); Gordon v. Air & Liquid Sys. Corp.,
990 F. Supp. 2d 311, 316 (E.D.N.Y. 2014) (distinguishing between general removal statutes and
federal officer removal).
To successfully remove a state lawsuit under this statute, a defendant must establish that
“(1) it is a ‘person’ within the meaning of the statute, (2) it acted under the direction of a federal
officer, (3) it has a colorable federal defense to the [plaintiff’s] claims, and (4) there is a causal
nexus . . . ‘between the . . . claims and acts it performed under color of federal office.’” Carter v.
Monsanto Co., 635 F. Supp. 2d 479, 488 (S.D. W. Va. 2009) (citing Virden v. Altria Group, Inc.,
304 F. Supp. 2d 832, 843 (N.D. W. Va. 2004)); see also In re Methyl Tertiary Butyl Ether
(“MTBE”) Products Liab. Litig., 488 F.3d 112, 124 (2d Cir. 2007) (citations omitted) (enunciating
3

a three-part test because the “acting under” requirement subsumes the existence of causation
between the charged conduct and asserted governmental authority). The parties do not dispute
that CTI is a “person” within the meaning of the statute. See Isaacson v. Dow Chem. Co., 517 F.
3d 129, 135–36 (2d Cir. 2008) (finding corporations are “persons” under § 1442(a)); Virden, 304
F. Supp. 2d at 844 (same).
This removal statute deviates from the traditional application of the “well-pleaded
complaint” rule. Kircher v. Putnam Funds Trust, 547 U.S. 633, 644 n. 12 (“Section 1442(a) is an
exception to the ‘well-pleaded complaint’ rule . . . .”). Under that rule, a case is typically
removable on federal question grounds only if the plaintiff’s complaint establishes that the case
“arises under” federal law. See Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S.
1, 9-10 (1983). Federal defenses are generally irrelevant. Id. (citations omitted). However,
“[u]nder the federal officer removal statute, suits against federal officers may be removed despite
the nonfederal cast of the complaint; the federal-question element is met if the defense depends on
federal law.” Jefferson Cty. v. Acker, 527 U.S. 423, 431 (1999). The Court can thus summarily
dispense with Plaintiff’s first argument in opposition to removal; that is, that removal is not proper
on the basis of CTI’s federal defense. The federal officer removal statute is an exception to the
general rule on which Plaintiff relies; indeed, the existence of a colorable federal defense is the
crux of the statute. See id. The Court addresses Plaintiff’s remaining contentions starting with
a discussion of the “acting under” and “causal nexus” prongs of the applicable standard.
i. “Acting Under” and Causal Nexus Requirements
A defendant “acts under” the control of a federal agency if the agency has “direct and
detailed control” over the activity. Carter, 635 F. Supp. 2d at 488 (citing Pack v. AC and S, Inc.,
838 F. Supp. 1099, 1103 (D. Md. 1993)); State v. Ivory, 906 F.2d 999, 1001 (4th Cir. 1990). The
4

defendant’s “‘acting under’ must involve an effort to assist, or to help carry out, the duties or tasks
of the federal superior.” Watson, 551 U.S. at 152 (citing Davis v. South Carolina, 107 U.S. 597,
600 (1883)) (emphasis in original). A “special relationship” must exist between the two. Id. at
156. CTI’s Notice of Removal states that under a Task Order contract with the DOE, it is
contractually obligated to support collection and administrative resolution activities on debts held
by that agency. (Not. of Removal at 4, ECF No. 1.) CTI claims that it “acts under” the DOE by
virtue of the authority delegated under this contract. Plaintiff, on the other hand, endorses a more
limited view of the “acting under” requirement that he claims was endorsed by the United States
Supreme Court’s opinion in Watson.
The United States Supreme Court has recognized that the “acting under” language in
1442(a) is “broad” but not “limitless.” Watson, 551 U.S. at 147. In Watson, the Supreme Court
considered whether the Philip Morris Companies (“Philip Morris”) were “acting under” a federal
officer when they tested and regulated tobacco cigarettes in accordance with detailed regulations
promulgated by the Federal Trade Commission. Id. at 142. The Court held that “the help or
assistance necessary to bring a private person within the scope of the statute does not include
simply complying with the law.” Id. at 152 (emphasis in original). Thus, a regulated corporation
does not “act under” a federal officer merely because its activities are closely monitored and
subject to highly detailed and technical regulations.2

The purposes underlying § 1442(a)’s enactment animated the Supreme Court’s decision. The Court
emphasized that the central purpose of § 1442(a) is to overcome the threat that state court prejudice poses
to federal activity. Watson, 551 U.S. at 150. It further reasoned that a highly regulated company’s
compliance with federal law “does not ordinarily create a significant risk of state court prejudice . . . [n]or
is a state court lawsuit brought against such a company likely to disable federal officials from taking
necessary action designed to enforce federal law.” Id. at 152 (citations omitted).
2

5

The Watson Court did not pass on the question of whether § 1442(a)’s removal provision
had potential application to a private entity contracting with the Government.

Id. at 156.

However, it took care to distinguish cases where the government’s close supervision of a private
contractor was deemed sufficient to meet the “acting under” statutory requirement. Id. at 154
(“[W]e need not further examine here (a case where private contracting is not at issue) whether
and when particular circumstances may enable private contractors to invoke the statute.”). The
analysis employed by the Court to find that Philip Morris was not a federal actor, however,
suggests the opposite conclusion may be appropriate when applied to a private entity contracting
with the Government. Id. at 153, 154 (noting that a private contractor “assists” or “helps carry
out” the federal officer’s duties by “produc[ing] an item that it needs” or performing tasks that, “in
the absence of a contract with a private firm, the Government itself would have had to perform.”).
Plaintiff reads Watson to foreclose removal under § 1442(a) by any individual or entity
other than those employed by the federal government. Because Watson pointedly distinguished
cases where a contractual relationship exists between a private firm and the government, however,
Plaintiff’s interpretation is unjustifiably narrow. Post-Watson, lower courts are still held to the
obligation to read “acting under” broadly where such a construction is consistent with the purposes
of the statute. See id. at 151 (citing City of Greenwood v. Peacock, 384 U.S. 808, 824 (1966))
(confirming that the statute authorizes removal by private parties “if they were ‘authorized to act
with or for federal officers or agents in affirmatively executing duties under federal law”). Unlike
Philip Morris, CTI has sought removal under § 1442(a) not based on its asserted compliance with
technical federal regulations, but because it received delegated authority from the DOE to carry
out collection activities on the agency’s behalf. Through that contract, CTI “assist[ed]” and
“help[ed] carry out” the duties of its federal superior. Id. at 152 (citation omitted); see Isaacson,
6

517 F.3d at 137. The Court has little hesitation finding that CTI “acted under” the direction of a
federal officer in light of the special relationship that existed between CTI and the DOE.
The next issue is whether, under the causal nexus requirement, the acts for which CTI has
been sued were dictated by the federal government, in this case, the DOE. Isaacson, 517 F. 3d at
137-38; Carter, 635 F. Supp. 2d at 489; see Willingham v. Morgan, 395 U.S. 402, 409 (1969)
(finding it sufficient for causation purposes to show that the defendant’s acts taken in performance
of an official duty constitute the basis of the state prosecution). The hurdle established by this
requirement is “quite low.” Isaacson, 517 F.3d at 137. In the case of a non-governmental
corporate defendant, the corporation “must demonstrate that the acts for which [it is] being sued
. . . occurred because of what [it was] asked to do by the Government.” Id.
CTI has provided evidence that pursuant to its contract with the DOE, it was obligated by
federal regulations attendant to the HEA to garnish Plaintiff’s wages in an attempt to collect on his
defaulted loan. Plaintiff does not contest the legitimacy of CTI’s contract with the DOE or CTI’s
regulatory obligations under that contract, at least in appropriate circumstances, to garnish the
wages of borrowers whose federal student loans have fallen into default. Rather, Plaintiff’s case
hinges on his allegation that while the garnishment of his wages may have been initially lawful
under DOE’s directive, CTI acted outside the scope of that directive by continuing to garnish
Plaintiff’s wages despite his request for a loan rehabilitation. Whether or to what extent CTI
departed from DOE’s guidance by refusing to acknowledge Plaintiff’s rehabilitation request is a
question for discovery. At this point, however, it appears to the Court that CTI easily clears the
causation hurdle. At least for purposes of resolving the jurisdictional question, CTI garnished
Plaintiff’s wages as alleged in the Complaint because of what it was asked to do by the

7

Government.

The Court finds that CTI has satisfied the “acting under” and causation

requirements of the statute.
ii. Colorable Federal Defense
Proper removal under the federal officer removal statute also requires the assertion of a
“colorable” federal defense. Mesa v. California, 489 U.S. 121 at 128–29, 136 (1989) (noting that
it is the raising of a federal defense in the § 1442(a) removal petition that constitutes the federal
law under which the action arises for purposes of Article III). Proof of success on the merits of
the defense is not required. Jamison v. Wiley, 14 F.3d 222, 238 (4th Cir. 1994) (quoting Mesa,
489 U.S. at 133) (“The CTI need not prove that he will actually prevail on his federal immunity
defense in order to obtain removal; indeed, ‘one of the most important reasons for removal is to
have the validity of the federal defense of official immunity tried in a federal court.’”); see Bennett
v. MIS Corp., 607 F.3d 1076, 1089 (6th Cir. 2010) (similarly finding that to satisfy the
jurisdictional question, it is sufficient if the defense is plausible). CTI raises two federal defenses
to Plaintiff’s claims: the government contractor defense and preemption under the HEA and
corresponding DOE regulations. Plaintiff contends that neither defense provides a basis for
removal.
As to the government contractor defense, Plaintiff asserts that the defense can be invoked
only by military contractors when sued over some failure in a product made for use in the military.
This common law defense was articulated in Boyle v. United Technologies Corp., 487 U.S. 500
(1988). Boyle held that the “uniquely federal interests” implicated by government contracts with
third parties permitted tort claims arising from federal procurement contracts to be litigated in
federal court.

Id. at 505–06. Under the test handed down in that case,

8

[l]iability for design defects in military equipment cannot be imposed, pursuant to
state law, when (1) the United States approved reasonably precise specifications;
(2) the equipment conformed to those specifications; and (3) the supplier warned
the United States about the dangers in the use of the equipment that were known to
the supplier but not to the United States.
Id. at 512. This test would appear to support Plaintiff’s argument and exclude non-military
contractors from utilization of the defense. The lower courts to subsequently interpret Boyle,
however, have not adopted such a narrow view. To be sure, the Fourth Circuit has not addressed
the issue of whether the government contractor defense is available based upon a non-military
performance contract like CTI’s. The Court nonetheless recognizes that at this juncture it must
test CTI’s alleged defenses only for plausibility. Because the defense has found considerable
support in the non-military context outside and, to a limited extent, within this circuit, the lack of
guidance from the Fourth Circuit itself does not defeat the plausibility of CTI’s claimed defense.3
Indeed, “where a federal defense . . . has previously found success in other circuits, one
would be hard pressed to say that the defense was not colorable.” Bennett, 607 F.3d at 1091
(quoting City of Cookeville v. Upper Cumberland Elec. Membership Corp., 484 F.3d 380, 391 (6th
Cir. 2007)) (private firm hired by the FAA to treat an airport’s air traffic control tower for mold
plausibly asserted government contractor defense); see Jacks v. Meridian Resource Co., LLC, 701
F.3d 1224, 1235 (8th Cir. 2012) (Federal Employees Health Benefits Act program carriers could
plausibly assert the government contractor defense because they contracted with the federal
government to provide health care insurance for federal employees); Hudgens v. Bell Helicopters,

3

The Court has located only one case within the Fourth Circuit where the government contractor defense
was raised by a non-military contractor in support of § 1442(a) removal. In a factually similar case from
this district, the Honorable Irene C. Berger found that a federal student loan servicer raised a colorable
federal defense to the plaintiff’s WVCCPA and state tort claims by claiming that the government contractor
defense immunized it from liability. Snuffer v. Great Lakes Educ. Loan Servs., Inc., 5:14-cv-25899, ECF
No. 16 (S.D. W. Va. May 19, 2015) (unreported disposition).

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328 F.3d 1329, 1334 (11th Cir. 2003) (applying defense to a service contract because subjecting a
contractor to state tort liability would create a conflict with uniquely federal interests); Carley v.
Wheeled Coach, 991 F.2d 1117, 1123 (3d Cir. 1993) (finding that the government contractor
defense is available to non-military government contractors). For that reason, the Court finds the
government contractor defense has potential application outside the military procurement contract
context. No more is required to justify removal.
The Court further concludes that even if the Fourth Circuit found the government
contractor defense inapplicable to non-military contractors, CTI’s alternative preemption defense
constitutes an independent “colorable” defense supporting removal. See In re Methyl Tertiary
Butyl Ether Products (“MTBE”) Liability Litigation, 364 F. Supp. 2d 329, 332–37 (S.D.N.Y.
2004) (preemption is a colorable federal defense under § 1442(a)).

CTI claims that to the extent

West Virginia law prohibited it from garnishing Plaintiff’s wages, the law conflicts with and is
preempted by the HEA. “Under ordinary conflict preemption, state laws that conflict with federal
laws are preempted, and preemption is asserted as a federal defense to the plaintiff’s suit.”
Darcangelo v. Verizon Commc’ns, Inc., 292 F.3d 181, 186–87 (4th Cir. 2002). The HEA provides
for the garnishment of a borrower’s disposable pay if the borrower is not making required
payments under a repayment agreement with the DOE. See 34 C.F.R. § 682.410(b)(6)(vi).
Because Plaintiff’s claims arise from the contention that CTI was not authorized, at least after it
ignored his request for loan rehabilitation, to garnish his wages, CTI’s reliance on the HEA proves
the potential for conflict between these two provisions. Plaintiff responds to CTI’s assertion of
this defense by repeating his same incorrect belief that Watson bars private governmental
contractors from removal under § 1442(a). (See Section II.A.i, supra.) Without ruling on the
defense’s merits, the Court will find that preemption is a colorable defense to Plaintiff’s claims.
10

CTI has satisfied the requisite elements of the federal officer removal statute, and the Court
therefore FINDS that it has subject matter jurisdiction over Plaintiff’s claims.
B. Motion to Dismiss
CTI moves to dismiss Plaintiff’s claims under Federal Rule of Civil Procedure 12(b)(6).
CTI’s motion was filed days before Plaintiff moved to amend his Complaint. CTI does not
oppose the motion to amend, and, while the arguments in its motion and its subsequent briefing
continue to refer to the original Complaint, CTI acknowledges that Plaintiff’s proposed
amendments do not alter or affect in any way its underlying arguments in support of dismissal.
The Court therefore views CTI’s motion as a challenge to the sufficiency of the First Amended
Complaint.
CTI asserts that because each of Plaintiff’s claims arises from the alleged illegality of his
wage garnishment, they are each preempted by the HEA. Alternatively, in the event that HEA
preemption is found to be inapplicable, CTI asserts that Plaintiff’s WVCCPA and conversion
claims fail to state a claim upon which relief can be granted.
i.

Legal Standard

Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Allegations “must be simple,
concise, and direct” and “[n]o technical form is required.” Fed. R. Civ. P. 8(d)(1).
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal
sufficiency of a civil complaint. See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.
1999).

“[I]t does not resolve contests surrounding the facts, the merits of a claim, or the

applicability of defenses.” Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992)
(citing 5A C. Wright & A. Miller, Federal Practice and Procedure 1356 (1990)). “To survive a
11

motion to dismiss, a complaint must contain 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) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court decides whether this standard
is met by separating the legal conclusions from the factual allegations, assuming the truth of only
the factual allegations, and then determining whether those allegations allow the court to
reasonably infer that “the defendant is liable for the misconduct alleged.” Id. A motion to
dismiss will be granted if, “after accepting all well-pleaded allegations in the plaintiff’s complaint
as true and drawing all reasonable factual inferences from those facts in the plaintiff’s favor, it
appears certain that the plaintiff cannot prove any set of facts in support of his claim entitling him
to relief.” Edwards, 178 F.3d at 244.
ii.

HEA Preemption

To fulfill the HEA’s goal of “keep[ing] the college door open to all students of ability,
regardless of socioeconomic background,” Chae v. SLM Corp., 593 F.3d 936, 938 (9th Cir. 2010),
Congress created the Federal Family Education Loan Program (“FFELP”), a financial aid program
with a built-in system of loan guarantees for private lenders willing to lend money to students and
their families. College Loan Corp. v. SLM Corp., 396 F.3d 588, 589 (4th Cir. 2005). Under
FFELP regulations, lenders unable to recover on a defaulted loan may recoup their losses from
certain “guaranty agencies” with contracts with the Secretary of the Department of Education.
Chae, 593 F.3d at 939. As part of a guaranty agency’s contract with the DOE, the DOE acts as a
secondary insurer on the loans guaranteed by that agency. Id.; 20 U.S.C. § 1078(c); 34 C.F.R. §
682.404(a) (providing for reimbursement to the guaranty agency for unrecoverable losses on loans
assigned per the parties’ contract). As part of its collection efforts on defaulted loans, HEA
regulations require the guaranty agency to “initiate administrative wage garnishment proceedings
12

against all eligible borrowers.” 34 C.F.R. § 682.410(b)(6)(vi). Not only does the HEA not grant
individuals a private right of action to enforce violations of its statutory scheme, 20 U.S.C. §
1082(a), but it also contains a number of preemption provisions that present a potential bar to both
Plaintiff’s WVCCPA and common law claims.

See 20 U.S.C. § 1095a; 34 C.F.R. §

682.410(b)(8).
The source of CTI’s preemption argument is the Supremacy Clause of the Constitution,
which makes federal law “the supreme Law of the Land.” U.S. Const. art. VI, cl. 2. Stemming
from the Supremacy Clause is the well-established principle that “federal statutes and regulations
properly enacted and promulgated ‘can nullify conflicting state or local actions.’” College Loan
Corp., 396 F.3d at 595 (quoting Nat’l Home Equity Mortgage Ass’n v. Face, 239 F.3d 633, 637
(4th Cir. 2001)). Preemption applies in three circumstances: “(1) when Congress has clearly
expressed an intention to do so (‘express preemption’); (2) when Congress has clearly intended,
by legislating comprehensively, to occupy an entire field of regulation (‘field preemption’); and
(3) when a state law conflicts with federal law (‘conflict preemption’).” Id. at 595–96.
CTI advances an express preemption and an alternative conflict preemption argument.
The Court must first consider whether the “[n]otwithstanding any provision of State law” clause
of the HEA’s wage garnishment provision expressly preempts the WVCCPA and West Virginia
common law claims asserted in this case. The applicable provision provides: “[n]otwithstanding
any provision of State law, a guaranty agency . . . may garnish the disposable pay of an individual
to collect the amount owed by the individual, if he or she is not currently making required
repayment . . . .” 20 U.S.C. § 1095a. “The HEA is riddled with isolated preemptive provisions
that expressly preempt certain provisions of state law,” Cliff v. Payco General Am. Credits, Inc.,
363 F.3d 1113, 1124–25 (11th Cir. 2004) (citations omitted), and this is one of them. Even in
13

light of a statutory provision that expressly preempts State law, however, the Court must determine
the scope of the statute’s reach. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517 (1992)
(reasoning that because Congress’ enactment of a preemptive provision implies that matters
beyond the reach of a statute are not preempted, courts must “identify the domain expressly
preempted” by the applicable provision). The Court starts with the assumption that “the historic
. . . powers of the States were not to be superseded by Federal Act unless that was the clear and
manifest purpose of Congress.” Wyeth v. Levine, 555 U.S. 555, 565 (2009) (citing Medtronic,
Inc. v. Lohr, 518 U.S. 470, 485 (1996)); Custer v. Sweeney, 89 F.3d 1156, 1167 (4th Cir. 1996)
(“Federalism concerns strongly counsel against imputing to Congress an intent to displace a whole
panoply of state law . . . absent some clearly expressed direction.”) (citation and internal quotation
marks omitted)). Consumer protection is an area traditionally reserved by the States. Taltech
Systems, Inc. v. Bryant, 702 F.3d 232, 236 (5th Cir. 2012) (finding a presumption in favor of no
preemption where state consumer protection laws were at issue); Aguayo v. U.S. Bank., 653 F.3d
912, 917 (9th Cir. 2011) (same); (Gen. Motors Corp v. Abrams, 897 F.2d 34, 41–42 (2d Cir. 1990)
(requiring compelling evidence to justify preemption of state consumer protection laws). A
presumption against preemption therefore applies. Incidentally, that presumption is even stronger
against preemption of state remedies where, as here, no federal private right of action exists.
College Loan Corp., 396 F. 3d at 597 (citing Abbot v. American Cyanamid Co., 844 F.2d 1108,
1112 (4th Cir. 1988)).
In evaluating the scope of express preemption in the HEA’s wage garnishment provision,
the Eleventh Circuit held that the “‘[n]otwithstanding any provision of State law’ clause preempts
only those provisions of state law that would otherwise prohibit or hinder the ability of a guaranty
agency to garnish a debtor’s wages.” Cliff, 363 F.3d 1113, 1125 (11th Cir. 2004) (noting that
14

Congress’ intent in including the preemptive clause in § 1095a was likely limited to preempting
the limitations state law often places on pre-judgment garnishment); see McComas v. Financial
Collection Agencies, Inc., 1997 WL 118417, at *2 (S. D. W. Va. Mar. 7, 1997) (“The HEA does
not expressly preempt West Virginia law relating to debt collection.”). The cases cited by CTI
actually prove the point that § 1095a was intended to expressly preempt state statutes that regulate
wage garnishment, not state consumer protection laws. See Savage v. Scales, 310 F. Supp. 2d
122, 134 (D.D.C. 2004) (finding that collection agency did not have to comply with District of
Columbia law regarding pre-garnishment requirements where wages were garnished pursuant to §
1095a); Nelson v. Diversified Collection Servs. Inc., 961 F. Supp. 863, 872 (D. Md. 1997) (statute
expressly preempted Maryland’s wage garnishment laws). Plaintiff’s claims arising under the
WVCCPA and common law do not regulate wage garnishment, and thus they are not expressly
preempted by the preemptive clause of § 1095a.
In the absence of express preemption, the issue becomes whether conflict preemption
presents a bar to Plaintiff’s claims.4 The Court must consider whether it is possible for a guaranty
agency to comply with the HEA and the WVCCPA at the same time.

The regulations

implementing the HEA require a guaranty agency to “engage in reasonable and documented
collection activities” on defaulted loans. 34 C.F.R. § 682.410(b)(6)(i). Among those mandatory
collection activities is the initiation of administrative wage garnishment proceedings against
eligible borrowers. Id. § 682.410(b)(6)(vi). With respect to these collection activities, the
regulations further provide for the preemption of “any State law, including State statutes,

4

The parties are in tacit agreement that the doctrine of field preemption is inapplicable to this case, and the
Court concurs. See McComas, 1997 WL 118417 at *2, *2 n. 4 (“The Court also has little difficulty
concluding the HEA lacks the comprehensive scope necessary for field preemption . . . Congress simply
did not intend to occupy the entire field of pre-litigation debt collection activities.”).

15

regulations, or rules, that would conflict with or hinder satisfaction of the requirements of these
provisions.” Id. § 682.410(b)(8).
Several courts hold that the HEA preempts any state causes of action relating to prelitigation collection efforts of federal student loans. See Brannan v. United Student Aid Funds,
Inc., 94 F.3d 1260, 1263 (9th Cir. 1996); Seals v. Nat’l Student Loan Program, No. 5:02-cv-101,
2004 WL 3314948, *5 (N.D. W. Va. Aug. 16, 2004) (viewing the WVCCPA’s prohibition on
fraudulent, deceptive, or misleading representations as a “burden” on pre-litigation activities
authorized by the HEA). However, this Court has held in three distinct cases that the HEA
preempts only those state debt collection activities that specifically conflict with the federal
scheme.

Each addressed the scope of HEA preemption in cases alleging violations of the

WVCCPA. See Snuffer v. Great Lakes Educ. Loan Servs., 97 F. Supp. 3d 827, 832 (S.D. W. Va.
2015); Martin v. Sallie Mae, Inc., 2007 WL 4305607 (S.D. W. Va. Dec. 7, 2007) (“[O]nly causes
of action based on conduct that is permitted by the federal regulations, but prohibited by state law,
would be preempted [by the HEA].”); McComas, 1997 WL 118417 at *2-3. CTI has articulated
no factual basis on which to distinguish these opinions, but predictably argues that the Court should
follow Seals and its predecessors by endorsing a more expansive view of HEA preemption. The
Court will adopt the reasoning of its prior cases because they constitute in-district precedent and
the Court finds no reason to depart from them.
In McComas, this Court reasoned that given the applicable regulations, agency
interpretation of those regulations, and the congressional intent in enacting the HEA, a plaintiff's
causes of action under the WVCCPA were not facially inconsistent with federal regulations
because the lender could have complied with both. Id. at *3–4. Just last year, this Court
distinguished Seals and held that “[t]hough portions of the WVCCPA conflict with DOE
16

regulations and are preempted, provisions barring threatening or fraudulent debt collection
practices cannot be said to place a ‘burden’ on pre-litigation debt collection activities or to conflict
with the objectives of the HEA.” Snuffer, 97 F. Supp. 3d at 832. In line with these decisions,
this Court again concludes that HEA preempts the WVCCPA “only where conflicting statutory
language, regulations, or HEA objectives exist.”5 Id.
Assuming the truth of Plaintiff’s factual allegations, the Court cannot conclude that the
WVCCPA presents a conflict with the pre-litigation collection efforts mandated by the HEA. CTI
reads Plaintiff’s claims as a general challenge to its right to garnish wages on the DOE’s behalf.
Plaintiff’s actual allegations are much more nuanced. Plaintiff admits that his student loan was
in default and does not take issue with the initial garnishment of his wages. Rather, he claims that
CTI was obligated, upon his request, to assist him in securing a loan rehabilitation agreement.
When CTI deliberately refused to do so, he alleges, it was no longer authorized to garnish his
wages. A more accurate synopsis of Plaintiff’s claims, therefore, is not that he challenges the
validity of wage garnishment under the HEA, but that he challenges wage garnishment that is
conducted in a fraudulent, deceptive, and misleading manner calculated to enrich the collection
agency at the borrower’s expense. Indeed, if Plaintiff’s allegations are accepted as true, CTI’s
collection efforts ran afoul of the HEA itself, let alone the WVCCPA.
This is so because the HEA offers rehabilitation as a method designed to lift borrowers out
of default status. The HEA expressly requires guarantee agencies to establish a loan rehabilitation
program for eligible borrowers. 34 C.F.R. § 682.405(a)(1). If a borrower requests rehabilitation,

5

Snuffer, Martin, McComas, and now this decision are in line with Fourth Circuit precedent which holds
that, as to the HEA, “[t]he existence of comprehensive federal regulations that fail to occupy the regulatory
field do not, by their mere existence, preempt non-conflicting state law.” College Loan Corp., 396 F.3d at
598.

17

as Plaintiff alleges he did, the HEA imposes an affirmative obligation on the guaranty agency to
“calculate a reasonable and affordable payment amount.” Id. at § 682.405(b)(1)(iii). This amount
is to be calculated based on the borrower’s Adjusted Gross Income (“AGI”) and family size, which
the guaranty agency must confirm by requesting supporting documentation from the borrower.6
Id. at § 682.405(b)(1)(iv). Within fifteen days of calculating the borrower’s monthly payment,
federal regulations require the guaranty agency to provide the borrower with a written loan
rehabilitation agreement. Id. at § 682.405(b)(1)(vi). Furthermore, while the regulations require
that “[a] guaranty agency must initiate administrative wage garnishment proceedings against all
eligible borrowers,” Id. at § 682.410(b)(6)(vi), the guaranty agency can continue garnishment only
until the borrower makes five qualifying payments under the rehabilitation plan, at which time the
garnishment must cease. Id. at § 682.405(a)(3)(i)–(ii). The regulations go on to address in further
detail the process by which a defaulted loan becomes rehabilitated, but these examples suffice to
prove the point: far from being impossible, as CTI claims, to comply with the obligations imposed
by federal regulations and the WVCCPA, the two sources of law would seem to be in harmony.
Plaintiff does not attempt to require more of CTI than was already required by the HEA and its
regulations. By ignoring, as Plaintiff alleges, his request for loan rehabilitation, CTI flouted HEA
regulations and in doing so engaged in deceptive trade practices and other unfair conduct
prohibited by the WVCCPA.

Based on the foregoing, Plaintiff has pled state law claims that are

complementary to, not in conflict with, HEA regulations. 7 CTI’s motion to dismiss based on
complete preemption is DENIED.

6

Plaintiff claims that it was after he provided his income information that CTI cut off all contact with him
regarding his loan rehabilitation request. (First Am. Compl. at ¶¶ 7, 10; ECF 7-1 at 1–2.)
7
CTI asserts that Plaintiff’s common law claims similarly “conflict with or hinder” its wage garnishment
obligations. For the same reasons that the WVCCPA claim is not preempted, the Court finds that

18

iii.

Sufficiency of the Pleadings

CTI contends that in the event Plaintiff’s claims survive its preemption challenge, Plaintiff
fails to state a claim under the WVCCPA because he has not alleged conduct that would constitute
“[u]nfair methods of competition and unfair or deceptive acts or practices” under W. Va. Code §
46A-6-104. Several examples of conduct that would meet the definition of “[u]nfair methods of
competition and unfair or deceptive acts or practices” are set forth in § 102. CTI claims that none
of the facts alleged by Plaintiff reasonably fit with any of the examples of prohibited conduct, and
thus Plaintiff’s WVCCPA claim should be dismissed.
CTI’s argument is unconvincing. First of all, the statute makes clear that the statutory list
providing examples of conduct prohibited by § 104 is not exhaustive. W. Va. Code § 46A-6-102
(“‘Unfair methods of competition and unfair or deceptive acts or practices’ means and includes,
but is not limited to, any one or more of the following [items][.]”). It remains to be seen whether
Plaintiff can garner facts sufficient to prove a violation of § 104. At this point in the case, the
Court finds that Plaintiff has sufficiently stated a claim under § 104 by alleging that CTI engaged
in subversive tactics designed to undermine his request for loan rehabilitation in order to continue
profiting from its collection activities. See W. Va. Code § 46A-6-102(7)(L) (including conduct
that “creates a likelihood of confusion or of misunderstanding” in the definition of unfair or
deceptive business practices).
CTI also avers that Plaintiff has failed to state a claim for conversion, apparently because
the DOE authorized the garnishment of Plaintiff’s wages. In so moving, CTI relies on and
attaches as an exhibit its Task Order contract with the DOE.8 (Def. Mot. to Dismiss Ex. 1, ECF

Plaintiff’s common law claims do not conflict with CTI’s collection activities under the HEA.
8
The Task Order contract is a document referenced in Plaintiff’s First Amended Complaint, (ECF No. 7-1

19

No. 4-1.) West Virginia law defines conversion as “[a]ny distinct act of dominion wrongfully
exerted over the property of another,” in denial of or inconsistent with the property owner’s rights.
Rodgers v. Rodgers, 399 S.E.2d 664, 667 (W. Va. 1990). In this case, CTI asserted an act of
dominion over Plaintiff’s property by administratively garnishing his wages. Whether that act
was “wrongful” will ultimately depend on whether CTI deliberately ignored Plaintiff’s request for
loan rehabilitation in violation of the HEA regulations described above. Based on the regulatory
mandate on the part of CTI to establish a rehabilitation program, see 34 C.F.R. § 682.405(a), and
to extend loan rehabilitation agreements to eligible borrowers upon request, Id. at § 682.405(b), it
is certainly plausible that CTI acted outside the scope of authority delegated by the DOE by taking
no action on Plaintiff’s rehabilitation request in an attempt to preserve its profits by continuing
possibly unnecessary garnishment. The Court thus DENIES the motion to dismiss Plaintiff’s
common law conversion claim.
III.

CONCLUSION

For the foregoing reasons, the Court GRANTS Plaintiff’s Motion to Amend the Complaint
[ECF No. 7], and ORDERS that the First Amended Complaint, [ECF No. 7-1], is now the
operative pleading in this matter. The Court further DENIES Plaintiff’s Motion to Remand and
accompanying Motion for Hearing [ECF No 3], DENIES CTI’s Motion to Dismiss [ECF No. 4],
and DENIES AS MOOT CTI’s Motion to Strike [ECF No. 10] and Plaintiff’s Motion for Hearing
[ECF No. 21] .

at 2), and the Court may consider it in evaluating the legal sufficiency of Plaintiff’s claims. See Gasner v.
County of Dinwiddie, 162 F.R.D. 280, 282 (E.D. Va. 1995).

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IT IS SO ORDERED.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:

21

March 22, 2016