United States of America v. Giles

Filing 60

DECISION AND ORDER signed by Judge Lynn Adelman on 2/10/17 granting 41 Motion for Summary Judgment. Judgment shall be entered in favor of the government and against Giles in the principal sum of $55,026.07 and interest of $29,027.61 as of April 14, 2016; additional interest accruing thereafter and to the date of judgment at the annual rate of 7%; and additional interest accruing at the legal rate from the date of the entry of judgment until the indebtedness is paid in full. (cc: all counsel) (dm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
UNITED STATES OF AMERICA,
Plaintiff,
v.

Case No. 14-CV-978

JEAN P. GILES,
Defendant.

DECISION AND ORDER
The United States of America brought suit against Jean Giles, alleging that she
owes the U.S. Department of Education (DOE) more than $55,000 plus interest
because of a student loan that she received in 1996 but never repaid. The government
moves for summary judgment. In a prior order, I noted some potential evidentiary issues
with the materials that the government initially filed in support of its motion and gave it
an opportunity to submit additional materials. The government has done so, and the
parties have submitted briefs addressing the admissibility of those materials. I will now
consider the government’s motion on the merits.
I. BACKGROUND
Giles started college in 1978 and paid for her education in part by taking out
student loans. After graduating, she returned to school part-time to pursue a master's
degree. She made all required payments on her student loan debt until 1995 when,
through an attorney, she filed a petition for relief under Chapter 7 of the Bankruptcy
Code. In Schedule F of her petition (listing creditors holding unsecured nonpriority
claims), she listed $30,488 owed to “Great Lakes Higher Ed.” for student loans. ECF
No. 47-3, at 2. The bankruptcy court issued a discharge order on August 2, 1995, and
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Giles never again made a voluntary payment toward her student loan debt. The parties
dispute whether Giles’s student loans were discharged.
After her bankruptcy case ended, Giles started getting phone calls from Sallie
Mae, a financial services company specializing in student loans, demanding payment
on her student loan debt. She did not understand why Sallie Mae was calling given that
her loans were with Great Lakes and she thought they had been discharged. She told
Sallie Mae that the debt had been discharged and demanded that the calls stop. They
didn’t. Giles was told that if she signed an application for a consolidation loan, the calls
would stop. She signed in December 1995, and the calls stopped.
Giles’s consolidation loan (for $33,178.87 at 7% interest annually) was disbursed
by Sallie Mae on May 9, 1996. The loan was guaranteed by the Texas Guaranteed
Student Loan Corporation and reinsured by DOE under the Federal Family Education
Loan Program (FFELP), part of Title IV-B of the Higher Education Act of 1965, as
amended, 20 U.S.C. §§ 1071 to 1087-4.
Giles defaulted on October 18, 2005. The loan holder filed a claim on the loan
guarantee, the guarantor paid the claim in the amount of $55,566.73, and the entire
amount paid became due to the guarantor as principal. See 34 C.F.R. § 682.410(b)(4).
The guarantor collected a total of $6,049 while it held the debt but was unable to collect
the full amount due. On October 9, 2009, the guarantor assigned its right and title to the
loan to DOE.
On June 26, 2014, DOE referred the matter to the U.S. Attorney’s Office, which
brought this suit. According to the government, Giles owes outstanding principal in the
amount of $55,026.07 plus interest accruing at a rate of $10.55 per day.

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II. DISCUSSION
A party is entitled to summary judgment if it shows that there is no genuine
dispute as to any material fact and it is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(a). To survive a motion for summary judgment, a non-moving party must
show that sufficient evidence exists to allow a jury to return a verdict in its favor.
Brummett v. Sinclair Broad. Grp., Inc., 414 F.3d 686, 692 (7th Cir. 2005). For the
purposes of deciding the government’s motion, I resolve all factual disputes and make
all reasonable factual inferences in favor of Giles, the non-moving party. Springer v.
Durflinger, 518 F.3d 479, 483–84 (7th Cir. 2008).
A. Evidentiary Issues
Before proceeding to the merits, I will address the parties’ evidentiary issues.
Originally, the government relied on a certificate of indebtedness executed by a DOE
loan analyst and two declarations by Christian Odom, a DOE senior loan analyst, to
establish numerous material facts, such as when Giles defaulted on her student loan
obligation, when the original holder of the loan filed a claim seeking reimbursement from
the loan guarantor, and when the guarantor assigned its right and title to the loan to
DOE. Giles argued that these materials were not based on personal knowledge and that
they contained inadmissible hearsay.
I expressed concern about these materials because, as submitted, I could not
determine whether they were admissible. They appeared to be based on DOE records,
many of which the government did not provide. I also noted that the government had not
sufficiently demonstrated that the records were admissible under the so-called business
records exception to the general evidentiary prohibition on hearsay. Fed. R. Evid.

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803(6). I gave the government an opportunity to properly support its motion with
admissible evidence. I find that it has done so.
The government submitted additional DOE records with a supplemental
declaration from Odom, which shows that the records properly fall within the business
records exception. Federal Rule of Evidence 803 states that the following are not
excluded by the rule against hearsay:
(6) Records of a Regularly Conducted Activity. A record of an act,
event, condition, opinion, or diagnosis if:
(A) the record was made at or near the time by—or from
information transmitted by—someone with knowledge;
(B) the record was kept in the course of a regularly conducted
activity of a business, organization, occupation, or calling, whether or
not for profit;
(C) making the record was a regular practice of that activity;
(D) all these conditions are shown by the testimony of the custodian
or another qualified witness . . . ; and
(E) the opponent does not show that the source of information or
the method or circumstances of preparation indicate a lack of
trustworthiness.
Odom declares, under penalty of perjury, that the relevant DOE records submitted by
the government were made at or near the time of the act or event described by or from
information transmitted by someone with knowledge, they were kept in the course of
DOE’s regularly conducted student loan activity, and that making such records was (and
is) a regular practice of that activity. His declaration also demonstrates that he is a
competent custodian of these records, he is familiar with DOE processes for creating
and maintaining such records, and he has sufficient knowledge of and familiarity with
these records to describe their contents. Giles does not show that there is any reason to
doubt their trustworthiness.

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Even to the extent that the DOE records are based on or include the records of
the lender or guarantor, they are admissible, under the circumstances. “A document
prepared by a third party may qualify as another business entity’s business record
under Rule 803(6) if that entity integrated the third-party record into its records and
relied upon it in its day-to-day operations.” BP Amoco Chemical Co. v. Flint Hills
Resources, 697 F. Supp. 2d 1001, 1021 (N.D. Ill. 2010) (citing Brawner v. Allstate
Indem. Co., 591 F.3d 984, 987 (8th Cir. 2010); United States v. Adefehinti, 510 F.3d
319, 326 (D.C. Cir. 2007); Air Land Forwarders, Inc. v. United States, 172 F.3d 1338,
1342–44 (Fed. Cir. 1999); United States v. Duncan, 919 F.2d 981, 986 (5th Cir. 1990)).
Odom’s declaration clearly shows that DOE integrates records from lenders and
guarantors into its records—including promissory notes, disbursement records, and
servicing records—and that DOE relies on these records in its day-to-day operations. In
fact, federal regulations require DOE to obtain lender and guarantor records and
maintain them for FFELP loans assigned to DOE unless the Secretary of DOE says
otherwise. See 34 C.F.R. § 682.409.
The party offering business records prepared by a third party must also show that
they satisfy the other requirements of Rule 803(6). See Flint Hills, 697 F. Supp. 2d at
1021. Odom declares that he is familiar with the creation and maintenance of lender
and guarantor records; that they are made at or near the time of the events described
by or from information transmitted by individuals with knowledge; that they are kept in
the course of the regularly conducted student loans activities of lenders, guarantors,
and DOE; and that making these records is a regular practice of that activity. In fact,
lenders and guarantors are required to make and maintain such records, see 34 C.F.R.

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§ 682.414, and are subject to annual independent financial and compliance audits, see,
e.g., 20 U.S.C. § 1078(b)(1)(U); 34 C.F.R. §§ 682.305(c), 410(b). I find that Odom has
personal knowledge (acquired through his work at DOE) of how lenders, guarantors,
and DOE created and maintain the records material to this case, that the records
offered by the government are admissible business records, and that the
trustworthiness of these records is not disputed.
Giles argues that Odom’s declaration is not based on personal knowledge
because he only started working for DOE a few years ago and never worked for the
lender or guarantor in this case. The Seventh Circuit recently addressed a similar
situation in Cocroft v. HSBC Bank USA, N.A., 796 F.3d 680 (7th Cir. 2015). In Cocroft,
mortgage borrowers defending a foreclosure action objected on summary judgment to
the affidavit and deposition testimony of Lanisa Jenkins, a vice president at Bank of
America, the original mortgage lender’s successor-in-interest. Id. at 684–85. The district
court overruled the objection, finding that Jenkins had sufficient personal knowledge of
the bank’s business records, including those of the original lender, as a competent
custodian. Id. at 685. The Seventh Circuit agreed, noting that Jenkins “provided
sufficient indicia of the[] reliability” of the records and that the borrowers “point[ed] to no
evidence suggesting that any of the business records at issue were inaccurate, or
somehow unreliable.” Id. at 686. The court further said, “When it comes to testifying
about business records, ‘the custodian need not be the individual who personally
gather[ed] . . . a business record. The custodian of the records need not be in control of
or have individual knowledge of the particular corporate records, but need only be

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familiar with the company’s recordkeeping practices.’” Id. (quoting Thanongsinh v. Bd.
of Educ., 462 F.3d 762, 777 (7th Cir.2006)).
Giles raises virtually the same objections to Odom’s declaration that the Cocrofts
raised, and they fail for the same reasons. Odom has personal knowledge to support his
declaration based on his familiarity with DOE records, he has provided sufficient indicia
of their reliability, and Giles has done nothing to suggest that any of the records at issue
are inaccurate or unreliable.
B. The Government’s Prima Facie Case
The parties agree that to recover on a defaulted student loan, the government
must first make a prima facie showing that (1) the defendant signed a promissory note
for a student loan, (2) the government is the current holder of that note, and (3) the note
is in default. E.g., United States v. Petroff-Kline, 557 F.3d 285, 290 (6th Cir. 2009);
United States v. Lawrence, 276 F.3d 193, 197 (5th Cir. 2001); United States v. Tartt, 12cv-1416, 2013 WL 2151543, at *3 (N.D. Ill. May 16, 2013). The burden then shifts to the
defendant to show that she either does not owe the debt or does not owe the amount
the government claims. E.g., Petroff-Kline, 557 F.3d at 290.
The government has established a prima facie case. First, the government has
provided the promissory note at issue, ECF No. 42-3, which Giles admits to signing,
Giles Decl., ECF No. 47-2, ¶ 7. Second, the government has shown that it is the current
holder of that note, which was assigned to the guarantor and then to DOE. See Odom
Second Supp. Decl., ECF No. 58, ¶ 14. Finally, Giles signed the note years ago and
admits that she has never made a voluntary payment on it, Giles Decl., ECF No. 47-2,
¶ 5, so the note is clearly in default. See ECF No. 42-3, at 2 (defining “default” within the

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promissory note itself to include “the failure of the borrower to make an installment
payment when due, or to meet other terms of the promissory note under circumstances
where the Secretary [of DOE] or guarantor finds it reasonable to conclude that the
borrower no longer intends to honor the obligation to repay”); see also 34 C.F.R.
§ 682.200(b) (defining “default” in substantially similar terms).
The government has shown that the outstanding principal owed on the loan is
$55,026.07 and that interest is accruing at a rate of $10.55 per day, totaling $29,027.61
as of April 14, 2016. Giles argues that the government has not credited about $7,000
worth of tax return intercepts to her outstanding balance, but the record clearly shows
otherwise. Per Giles’s own documents, her loan guarantor received $5,606 from federal
tax return intercepts in 2008, see ECF No. 47-6, at 2–3, which is consistent with DOE
records indicating the amount that the guarantor was able to collect from Giles while it
held the loan, see ECF No. 58-5, at 4. Giles also provided a 1098-E statement of
student loan interest paid, which shows that Giles paid $1,395 in student loan interest in
2012. See ECF No. 47-6, at 1. This payment is also clearly reflected in DOE records.
ECF No. 58-5, at 9. Giles does not otherwise dispute the amount owed. Therefore,
there is no genuine dispute of material fact concerning the amount owed.
C. Giles’s Defenses
Giles raises several common law defenses to the government’s claim, arguing
that the promissory note is void and that the government should be barred from
attempting to collect on it. To the extent that such defenses are available in this case,
the parties agree that Wisconsin law provides them.

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1. Misrepresentation
Giles argues that she can avoid her student loan obligation because she was
induced to sign the promissory note by a misrepresentation of fact. Giles states that she
signed the note because a Sallie Mae representative told her that it was only an
application, she did not understand what it was for, and she would not have signed it
had she known that she was binding herself to a new loan obligation. Under Wisconsin
law, a contract is voidable if a party’s assent was induced by a material or fraudulent
misrepresentation of fact on which that party justifiably relied. Bank of Sun Prairie v.
Esser, 456 N.W.2d 585, 588 (Wis. 1990); First Nat’l Bank & Trust Co. v. Notte, 293
N.W.2d 530, 538 (Wis. 1980); Restatement (Second) of Contracts § 164(1) (1981).
Even assuming Giles relied on a material or fraudulent misrepresentation by a
Sallie Mae representative, she cannot show that her reliance was justified. “Negligent
reliance is not justifiable.” Esser, 456 N.W.2d at 589 (citing Ins. Co. of N. Am. v. Univ.
Mortg. Corp. of Wis., 262 N.W.2d 92, 95–96 (Wis. 1978); Ritchie v. Clappier, 326
N.W.2d 131, 134 (Wis. Ct. App. 1982)). “Generally, a person is negligent if he or she
signs a contract without ascertaining its contents and is not prevented from doing so,
even if induced to sign by . . . misrepresentations.” Ritchie, 326 N.W.2d at 134 (citing
Bostwick v. Mutual Life Ins. Co., 89 N.W. 538, 541 (Wis. 1903)). In determining whether
reliance was negligent in a given case, Wisconsin courts also consider other factors,
such as the party’s intelligence and experience. See id.
When Giles signed the note, she was well-educated, she had signed for and
received many prior student loans, and the promissory note was short and clear in its
terms. The note clearly states,

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By means of this application, I am applying to have my loans consolidated
. . . . If Sallie Mae accepts this application, it is my understanding Sallie
Mae will advance funds on my behalf to creditors . . . . The funds so
advanced by Sallie Mae will be disbursed to the holder(s) of the loans
designated . . . in order to pay off those loans. I further understand that the
amount of my SMART LOAN will equal the sum of the amounts which my
creditors verify are the pay-off balances on the selected loans. . . .
....
I . . . promise to pay to [Sallie Mae] . . . such loan amount as is
advanced on my behalf, to pay daily simple interest on the unpaid
principal balance thereof at the rate described . . . . I understand that the
amount of my loan will be based on the pay-off balances of loans selected
for consolidation as provided by the creditors of such loans and may
exceed my estimate of such pay-off balances. My signature below certifies
that I have read, understood, and agreed to the conditions and
authorizations stated . . . .
....
I certify that the above information is true and correct. I have read
the material and understand my rights and responsibilities under the loan
consolidation program.
ECF No. 57-1. Under the circumstances, no reasonable jury could find that Giles was
justified in believing that the note was a mere application.
2. Duress
Giles next argues that she can avoid her student loan obligation because she
signed the note under duress. She states that, after her bankruptcy case ended, Sallie
Mae’s representatives started calling her almost every day, were rude to her, and
refused to stop calling when she demanded that they do so. She argues that the stress
caused by these phone calls and her fear that they would continue combined with stress
caused by other personal, family, and financial issues she was facing at the time to
“influence[]” her to sign the note. See Def.’s Br., ECF No. 47, at 16. This is not enough
to show duress.
To show duress, Giles must demonstrate that she was induced to sign the note
by wrongful acts or threats that deprived her of the exercise of her free will. Putnam v.
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Time Warner Cable of Se. Wis., 649 N.W.2d 626, 635 (Wis. 2002) (citation omitted)
(citing Wurtz v. Fleischman, 293 N.W.2d 155, 160 (1980)); Galusha v. Sherman, 81
N.W. 495, 500 (Wis. 1900); Pope v. Ziegler, 377 N.W.2d 201, 203 (Wis. Ct. App. 1985)
(citing Wurtz, 293 N.W.2d at 158). Even assuming Sallie Mae’s conduct was wrongful,
Giles must show that it left her with no reasonable alternatives but to sign the note.
Restatement (Second) of Contracts § 175 cmt. b. Giles had reasonable alternatives. If
she believed her loans had been discharged, she could have sought relief in the
bankruptcy court. She could have sought counsel from her attorney. She also could
have simply tolerated or ignored the calls, id. (“Where the threat is one of minor
vexation only, toleration of the inconvenience involved may be a reasonable
alternative.”), which she did successfully for some period of time before signing the
note. Even assuming that everything that Giles says is true, a reasonable jury could not
find that she signed the note under duress.
3. Laches
Giles next argues that the government’s claim is barred by the equitable doctrine
of laches, which prohibits a party from asserting a claim after an unreasonable and
prejudicial delay. This defense fails for several reasons. First, subject to certain limited
exceptions not relevant here, laches is not an available defense against the United
States. United States v. Summerlin, 310 U.S. 414, 416 (1940); Silverman v. CFTC, 549
F.2d 28, 34 (7th Cir. 1977).
Second, courts have consistently found that Congress eliminated laches as a
defense to suits to collect on defaulted federally insured student loans when it passed
the Higher Education Technical Amendments of 1991. See, e.g., United States v. Tuerk,

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317 Fed. App’x 251, 253 (3d Cir. 2009); United States v. Lawrence, 276 F.3d 193, 196
(5th Cir. 2001). The provision, as relevant to this case, states, “[N]o limitation shall
terminate the period within which suit may be filed . . . by . . . the Secretary [of DOE] . . .
for the repayment of the amount due from a borrower on a[n FFELP] loan . . . that has
been assigned to the Secretary.” 20 U.S.C. § 1091a(a)(2)(D).
Finally, even if laches did apply here, Giles has not shown that she was
materially prejudiced by the government’s delay in bringing suit. She argues that she
destroyed her pre-bankruptcy payment records, which prejudices her defense that her
loans were discharged in bankruptcy, but the record suggests that Great Lakes still has
records of her loans dating back to 1981, see ECF Nos. 52-2 (summarizing Giles’s
student loan account with Great Lakes), and Giles does not argue that she has made
any effort to get these records and failed. She also has not shown that her bankruptcy
defense is a valid one, as discussed below. At worst, Giles was “lulled and then rudely
awakened,” which “is not the kind of harm, if it is a harm at all . . . , that allows laches to
be used to deprive a plaintiff of his rights.” United States v. Admin. Enterprises, Inc., 46
F.3d 670, 673 (7th Cir. 1995).
4. Lack of Consideration
Finally, Giles argues that the promissory note is void for lack of consideration
because the loans that she consolidated were discharged in bankruptcy, and therefore,
she received no benefit by consolidating them. Under Wisconsin law, “[t]he party
seeking to avoid a contract has the burden of proving failure of consideration,” NBZ, Inc.
v. Pilarski, 520 N.W.2d 93, 97 (Wis. Ct. App. 1994) (citing Jax v. Jax, 243 N.W.2d 831,
839 (Wis. 1976)), and consideration is presumed for promissory notes, Eli

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Environmental Contractors, Inc. v. 435 Partners, LLC, 731 N.W.2d 354, 358 (Wis. Ct.
App. 2007) (citing Jax, 243 N.W.2d at 839; Sucher v. Biller (In re Schoenkerman’s
Estate), 294 N.W. 810, 812 (Wis. 1940)).
Giles cannot carry her burden here. First, Giles has not shown that her student
loans were discharged in 1995. At the time, a Chapter 7 discharge did not discharge a
debtor from any debt owed on a federally insured student loan unless the loan had been
in repayment for at least 7 years. See 11 U.S.C. § 523(8)(A) (1994); see also, e.g.,
Moody v. ECMC, Inc. (In re Moody), 202 B.R. 720 (Bankr. S.D. Ohio 1996). Student
loan debts are presumed to be non-dischargeable, so a debtor seeking discharge of
such debts must obtain a determination of dischargeability. See In re Roberson, 999
F.2d 1132, 1134 (7th Cir. 1993); see also Tennessee Student Assistance Corp. v.
Hood, 541 U.S. 440, 450 (2004). Based on the documents Giles provides from her
bankruptcy case, she received a general discharge with no specific determination as to
the dischargeability of her student loans.
Second, Giles has not shown that the consolidation loan would lack
consideration even if her student loans were discharged. Under Wisconsin law,
consistent with relevant authorities, even if Giles had merely promised post-bankruptcy
to repay her student loan debts to Great Lakes, her moral obligation to do so would
have been sufficient consideration to make the promise enforceable. See Sucher, 294
N.W. at 811; Odell v. Smith (In re Smith’s Estate), 277 N.W. 141, 143 (Wis. 1938);
Elbinger v. Capitol & Teutonia Co., 242 N.W. 568, 569 (1932); Restatement (Second) of
Contracts § 83; 4 Williston on Contracts § 8:21 (4th ed.), Westlaw (database updated
May 2015). Given this, Giles has failed to show how her agreement to repay Sallie Mae

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with interest for paying off her student loan debts to Great Lakes could be void for
failure of consideration.
III. CONCLUSION
For the foregoing reasons, the government is entitled to judgment as a matter of
law. IT IS ORDERED that the government’s motion for summary judgment (ECF No.
41) is GRANTED. Judgment shall be entered in favor of the government and against
Giles in the principal sum of $55,026.07 and interest of $29,027.61 as of April 14, 2016;
additional interest accruing thereafter and to the date of judgment at the annual rate of
7%; and additional interest accruing at the legal rate from the date of the entry of
judgment until the indebtedness is paid in full.
Dated at Milwaukee, Wisconsin, this 10th day of February, 2017.

s/ Lynn Adelman
__________________________________
LYNN ADELMAN
District Judge

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