Riel et al v. Navient Solutions Inc

Filing 16

ORDER signed by Judge J.P. Stadtmueller on 1/17/2017 GRANTING IN PART AND DENYING IN PART 5 Defendant's Motion to Dismiss. Plaintiffs' first cause of action and certain bases for second cause of action DISMISSED in accordance with the terms of this Order. See Order for further details. (cc: all counsel) (jm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
DANNEL RIEL and CHERIE
BINGENHEIMER,
Case No. 16-CV-1191-JPS
Plaintiffs,
v.
NAVIENT SOLUTIONS INC.,

ORDER
Defendant.
1.

INTRODUCTION
On November 1, 2016, the defendant Navient Solutions Inc.

(“Navient”) filed a motion to dismiss the plaintiffs Dannel Riel (“Riel”) and
Cherie Bingenheimer’s (“Bingenheimer”) (collectively, “Plaintiffs”) complaint
along with a brief in support of the motion. (Motion, Docket #5; Brief in
Support, Docket #6). Plaintiffs filed a brief in opposition on November 22,
2016. (Docket #13). Navient submitted a reply in support of its motion on
December 6, 2016. (Docket #15). The motion is fully briefed and, for the
reasons explained below, it will be granted in part and denied in part.
2.

STANDARD OF REVIEW
Navient has moved to dismiss Plaintiffs’ complaint pursuant to

Federal Rule of Civil Procedure 12(b)(6). This rule provides for dismissal of
complaints which fail to state a viable claim for relief. Fed. R. Civ. P. 12(b)(6).
To state a viable claim, a complaint must provide “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R.
Civ. P. 8(a)(2). In other words, the complaint must give “fair notice of what
the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (citation omitted). The allegations must

“plausibly suggest that the plaintiff has a right to relief, raising that
possibility above a speculative level[.]” Kubiak v. City of Chicago, 810 F.3d 476,
480 (7th Cir. 2016) (citation omitted).
In reviewing Plaintiffs’ complaint, the Court is required to “accept as
true all of the well-pleaded facts in the complaint and draw all reasonable
inferences in [their] favor[.]” Id. at 480-81. However, a complaint that offers
“labels and conclusions” or “a formulaic recitation of the elements of a cause
of action will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Twombly, 550 U.S. at 555). The Court must identify allegations “that, because
they are no more than conclusions, are not entitled to the assumption of
truth.” Id. at 679.
3.

THE COMPLAINT
Accepting the truth of Plaintiffs’ well-pleaded allegations and drawing

all reasonable inferences in their favor, the relevant facts are as follows. Riel
took out a number of student loans to pay for school. The loans were initially
serviced by Sallie Mae, but that company created Navient and apparently
transferred servicing duties to Navient.
Riel was unable to find gainful employment sufficient to repay the
loans and went into default in June 2015. Plaintiffs believe that Navient
referred some of the loans to third-party collectors while retaining others to
collect on its own. Navient began calling Riel’s home phone in August 2015.
Plaintiffs note that Riel’s wife, Bingenheimer, worked from home and needed
to use the phone frequently as part of her work.
At that time, Riel retained his current counsel. Prior to the calling
campaign, Riel had attempted to deal with Navient and its collectors himself
without success. Feeling stressed by the repeated calls from Navient and the
other collectors, Riel asked his lawyer to handle the contacts (and he
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apparently agreed to do so). Riel told each of the collectors that he had hired
a lawyer and wanted all contacts to go through him.
In the evening of September 3, 2015, Riel gave Navient his lawyer’s
contact information and asked that it cease calling him at home. Navient’s
operator seemed to not be listening while Riel made these statements. It
attempted to call him again early the next morning, but reached
Bingenheimer, interrupting her work. The calls continued throughout the fall
of 2015, coming repeatedly and potentially using different numbers to mask
Navient’s identity.1
Navient also called Riel’s parents at least one time in 2014, and
continuing through 2015 and 2016. Riel never gave Navient permission to call
his parents and never gave it their phone number. These calls came several
times per week, and each time they picked up a call, Riel’s parents would
inform Navient that Riel did not live there. Navient would respond that it
knew Riel was living with his parents and that they were trying to hide him.
In one particular call, Navient told Riel’s mother that she owed student loans
and that her home might be sold if she did not pay.
Plaintiffs assert two causes of action. They first allege violations of the
Wisconsin Consumer Act (“WCA”) for Navient’s unconscionable conduct,
though they do not cite a particular provision of the law which was violated.
Plaintiffs claim that Navient’s above-described conduct unfairly takes
advantage of customers like them, especially in light of Navient’s substantial
resources and financial acumen compared to that of the average borrower.
They contend that Navient’s harassment was aimed at placing undue stress

1

Plaintiffs did not answer all of the calls and so cannot confirm which
numbers were used in executing this masking strategy, and which were simply
other collectors making their own calls.

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on borrowers such that they would make payments on the student loans to
the detriment of their other financial obligations. As a result, Plaintiffs pray
for the Court to declare Riel’s student loans void and order Navient to cease
any related credit reporting activity.
Plaintiffs’ second cause of action, also pursuant to the WCA, alleges
that Navient engaged in illegal collection practices in violation of Wis. Stat.
§ 427.104(1). These included calling Riel’s parents, disclosing the existence of
his loans to them, asserting that Riel’s mother owed a debt to Navient,
ignoring Riel’s request that it contact his counsel alone, and harassing
Plaintiffs with repeated calls using disguised phone numbers. Plaintiffs claim
that Navient’s actions caused them mental and emotional suffering.
Bingenheimer further contends that she lost her job because Navient’s calls
continually interrupted her work. Plaintiffs do not explicitly pray for
compensatory damages, but they do request punitive damages.
4.

ANALYSIS
Navient seeks dismissal of different portions of the complaint for

different reasons, and in sum requests that the entire action be dismissed. It
argues that the first cause of action must be dismissed because the applicable
statute, Wis. Stat. § 425.107, provides no independent right of action, and
even if it did, Plaintiffs fail to state a viable claim thereunder. Next, Navient
contends that all of the first cause of action, and three of the four subparts of
the second, are preempted by federal law, namely the Higher Education Act
(“HEA”) and its attendant regulations. The Court will address each of
Plaintiffs’ causes of action in turn.
4.1

First Cause of Action - Section 425.107

Though not cited in the complaint, the parties’ briefing reveals that
Plaintiffs’ first cause of action is premised on Section 425.107. This claim must
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fail because it has not been raised using the proper procedural vehicle.
Section 425.107 provides that if a court finds that any part of a consumer
credit transaction or its subsequent related conduct is unconscionable it may,
inter alia, refuse to enforce the transaction. Wis. Stat. § 425.107(1). As applied
here, Plaintiffs contend that the Court should find Navient’s collection
activity unconscionable, and as a remedy, forgive Riel’s loans.
Section 425.107 is subject to a scope provision. It provides that “[t]his
subchapter applies to actions or other proceedings brought by a creditor to
enforce rights arising from consumer credit transactions and to extortionate
extensions of credit under s. 425.108.” Id. § 425.102 (emphasis added). The
scope provision, by its plain text, does not permit consumers like Plaintiffs
from enforcing Section 425.107’s prohibitions on unconscionability via a
separate civil lawsuit. Tammi v. Porsche Cars N.A., Inc., 768 N.W.2d 783, 791
(Wis. 2009) (“When examining the statutory language, if the plain meaning
is clear, a court need not look to the rules of statutory construction or to
extrinsic sources of interpretation. . . . Moreover, [a] statute is not ambiguous
merely because the parties disagree as to its meaning.”) (quotations
omitted)). It implies that they must raise unconscionability in the form of an
affirmative defense to Navient’s lawsuit to collect the loans, if one is filed.
This is confirmed by the context of Section 425.107 within the WCA.
That Section and the scope provision, Section 425.102, appear within
Subchapter I, titled “Creditor’s Remedies,” of Chapter 425. This contrasts
with Subchapter III of Chapter 425, titled “Customer’s Remedies,” which
discusses a customer’s private right of action, a statute of limitations for those
actions, and attorneys’ fees and class action considerations. Wis. Stat. §
425.301 et seq. Subchapter I of Chapter 425 is also different from Chapter 427,
which is the basis of Plaintiffs’ second cause of action, for which Navient
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does not seek dismissal on scope grounds. Section 427.102, that chapter’s
scope provision, states that Chapter 427 applies to broadly to “conduct and
practices in connection with the collection of obligations arising from
consumer transactions.” Id. § 427.102. Section 427.105 provides that if a
customer proves one of the violations listed in Section 427.104, they may
recover their actual damages and a statutory penalty as provided in Section
425.304 (from Subchapter III, “Customer’s Remedies”). See id. §§ 427.104427.105. In light of Section 425.107’s plain language and context, the Court
concludes that it confers no independent right of action.
Plaintiffs’ arguments to the contrary do not disturb this result. First,
they claim that policy considerations favor allowing consumers to pursue
unconscionability claims without first being sued by their creditor. Even if it
agreed with them, the Court is not at liberty to weigh policy issues when the
statute’s language is unambiguous.2
Second, Plaintiffs contend that courts have previously allowed
customers to use Section 425.107 offensively, rather than defensively.
However, none of the cited decisions analyzed the effect of Section 425.102
on the application of Section 425.107. See generally Drogorub v. Payday Loan
Store of WI, Inc., 826 N.W.2d 123 (Wis. Ct. App. 2012); Hollibush v. Ford Motor
Credit Co., 508 N.W.2d 449 (Wis. Ct. App. 1993); Palacios v. ABC TV & Stereo

2

Plaintiffs’ desired interpretation would also render Section 425.102
superflouous. Pawlowski v. Am. Family Mut. Ins. Co., 777 N.W.2d 67, 72 (Wis. 2009)
(“As a basic rule of statutory construction, we endeavor to give each statutory
word independent meaning so that no word is redundant or superfluous.”). If
customers could file a separate lawsuit for unconscionable practices, either 1) there
is no need for Section 425.102 at all, or 2) it is needed to limit other parts of
Subchapter I, and the legislature inadvertently placed 425.107 within Subchapter
I (instead of Subchapter III, for instance). The Court cannot agree with either
proposition.

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Rental of Milwaukee, Inc., 365 N.W.2d 882 (Wis. Ct. App. 1985).3 Further,
because it is not jurisdictional, the Court cannot assume that the cited
decisions took any notice of the scope issue absent prompting from the
defendants. It appears those defendants either acquiesced to an improper
cause of action or knew of Section 425.102’s limitation and chose to do
nothing. This Court’s decision is thus not foreclosed by a contrary rulings; in
fact, the Court has located only two opinions which even cite Section 425.102,
and apart from being three decades old, neither offers any meaningful
analysis. General Motors Acceptance Corp. v. Schalow, 433 N.W.2d 674 at *2
(Wis. Ct. App. 1988); Matter of Ingersoll, 8 B.R. 912, 916 (Bankr. W.D. Wis.
1981).4
Finally, Plaintiffs assert that Wisconsin permits plaintiffs to bring
traditional affirmative defenses, which Section 425.107 appears to be, as a
direct claim. Zizzo v. Lakeside Steel & Mfg. Co., 752 N.W.2d 889, 895 (Wis. Ct.
App. 2008). Even assuming the Court agreed that Section 425.107 was
analogous to the laches defense at issue in Zizzo, they read the case too
broadly. The opinion stressed that its holding was “narrower [ ] than the
general question of whether a plaintiff may ever invoke laches.” Id. at 894.
Instead, the court found that “the fact that this is a declaratory judgment
action is a crucial point,” namely that in such actions, the parties’ traditional
3

Hollibush expressly declined to reach an analysis of Section 425.107,
Hollibush, 508 N.W. 2d at 813-14, and Palacios mentioned that the plaintiff had
brought a claim under that Section but gave it no attention, Palacios, 365 N.W.2d
at 884.
4

Because this is a diversity action, federal decisions interpreting Wisconsin
law are not binding on the Court. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
To the extent this opinion is inconsistent with other such decisions, it is based on
a direct consideration of Section 425.102, which again, only two courts have
addressed some thirty years ago.

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roles are reversed. Id. Here, Plaintiffs have not brought an action for
declaratory judgment and do not seek to change their traditional, offensive
position.5 More importantly, the Court must decline to apply Zizzo in a
manner which would run contrary to Section 425.102’s plain language.
4.2

Second Cause of Action - Section 427.104

Navient argues that Plaintiffs’ Section 427.104 claims are preempted
by the HEA and its associated regulations which govern Navient’s collection
activities.6 The Supremacy Clause “invalidates state laws that ‘interfere with,
or are contrary to,’ federal law.” Hillsborough Cnty., Fla. v. Automated Med.
Labs., Inc., 471 U.S. 707, 712 (1985) (quoting Gibbons v. Ogden, 9 Wheat. 1, 211
(1824)). This “preemption” doctrine may be applied in three ways: express,
field, and conflict preeemption. Aux Sable Liquid Prods. v. Murphy, 526 F.3d
1028, 1033 (7th Cir. 2008). Aux Sable explains:
Express preemption occurs when a federal statute
explicitly states that it overrides state or local law. As for field
preemption, it exists when federal law so thoroughly occupies
a legislative field as to make it reasonable to infer that
Congress left no room for the states to act. . . . [C]onflict
preemption . . . exists if it would be impossible for a party to
comply with both local and federal requirements or where local
law stands as an obstacle to the accomplishment and execution
of the full purposes and objectives of Congress.

5

Plaintiffs mention that they could seek declaratory relief, and might do so
in the future, but the Court cannot allow their Section 425.107 claim to continue
based on hypotheticals.
6

Because Plaintiffs’ first cause of action does not survive, the Court will not
address Navient’s preemption arguments thereon.

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Id. (citations and quotations omitted). Navient proceeds under the conflict
preemption theory.7 The Court‘s analysis must begin with “the basic
presumption against federal preemption of state law.” Johnson v. Sallie Mae
Servicing Corp., 102 F. App’x 484, 487 (7th Cir. 2004).
Conflict preemption itself takes two forms. The first occurs when it is
actually impossible to comply with both state and federal law
simultaneously. Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 652 (7th
Cir. 2015). The second takes effect when “state law stands as an obstacle to
the accomplishment and execution of the full purposes and objectives of
Congress.” Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995). Navient’s
argument rests primarily on the second form.
Navient contends that compliance with the WCA in the manner the
Plaintiffs’ lawsuit demands would prevent it from carrying out its duties as
a federal student loan servicer. It cites as the source of these duties a
Department of Education (“DOE”) regulation, 34 C.F.R. § 682.411, and a
Notice of Interpretation (the “NOI”) from the DOE providing guidance on
that code provision. Lender Due Diligence in Collecting Guaranty Agency
Loans, 34 C.F.R. § 682.411 (2014); Stafford Loan, Supplemental Loans for
Students, PLUS, and Consolidation Loan Programs, 55 Fed. Reg. 40120-01

7

Navient mentions express preemption in its opening brief but devotes little
argument to it. (Docket #6 at 13-14). Its reply concedes that conflict preemption is
its sole preemption argument. (Docket #15 at 13) (“[Navient’s] motion does not
argue that the HEA preempts the WCA in its entirety. Rather, it asserts that the
WCA is preempted to the extent it actually conflicts, ‘hinders or prohibits’
[Navient] from compliance with the HEA or relevant DOE regulations.”).

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(Oct. 1, 1990).8 Unlike other circuits, which have found that these and other
HEA regulations entirely preempt state consumer protection laws with
regard to student loan collection, the Seventh Circuit requires an analysis of
the particular claim at issue to determine whether it truly conflicts. See
Brannan v. United Student Aid Funds, Inc., 94 F.3d 1260, 1266 (9th Cir. 1996);
Bible, 799 F.3d at 652-54; Johnson, 102 F. App’x at 487.
Navient argues that two sets of Plaintiffs’ claims are preempted.9 First,
Navient asserts that Section 682.411 and the NOI mandate contact directly
with Riel, and so his allegations regarding Navient circumventing his counsel
are preempted. Plaintiff counters that the WCA does not directly prohibit
contact with persons represented by counsel, but instead proscribes
“harassment” generally. Wis. Stat. § 427.104(h) (A debt collector may not
“[e]ngage in other conduct which can reasonably be expected to threaten or
harass the customer or a person related to the customer.”). Their theory is
that Navient harassed them by refusing to direct its contacts through their
lawyer, and that the HEA regulations can co-exist with a prohibition on
harassment. While this distinction might make it theoretically possible to
comply with the WCA and federal law, that is not the only test to be applied.
In explaining the need for the NOI, the DOE explained that
[s]pecific questions have now arisen about the effect of
particular State laws that may restrict or prohibit holders of
8

The Court must accept the DOE’s interpretation via the NOI, as the Court
is not permitted to “substitute its own construction of a statutory provision for a
reasonable interpretation made by the administrator of an agency,” and Plaintiffs
do not argue that the NOI is unreasonable. Chevron, U.S.A., Inc. v. Nat. Res. Def.
Council, Inc., 467 U.S. 837, 844 (1984).
9

Plaintiffs initially contend that Navient is not subject to the above-cited
regulations because it is merely a servicer. The NOI, however, specifically includes
servicers within the ambit of Section 682.411. 55 Fed. Reg. 40120-01 at 40121.

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GSLP obligations from taking some of the actions required
under these regulations. For example, in a number of instances
borrowers who were contacted by a loan servicer acting on
behalf of a lender after the servicer had been notified that the
borrowers were represented by counsel asserted that the
servicer had violated State law prohibiting those direct
contacts.
...
[T]he Department’s regulations require lenders and
agencies to make a number of contacts with the borrower
directly, at specified intervals, using particular warnings to
attempt to persuade the borrower to repay the loan.
...
These provisions comprehensively regulate the
pre-litigation informal collection activity on GSL obligations,
by specifically requiring holders to complete a sequence of
collection contacts with debtors. These provisions therefore
preempt State law that would prohibit, restrict, or impose
burdens on the completion of that sequence of contacts either
on GSLP loans in general, or on any category of GSLP loans.
55 Fed. Reg. 40120-01 at 40120-21. Plaintiffs attempt to use the WCA’s antiharassment catchall provision to achieve a prohibition on contacting
represented parties, a theory which was specifically preempted by the NOI.
Plaintiffs’ other arguments on this point are also without merit. They
assert that the NOI was silent on contacting represented persons, but that is
demonstrably untrue as shown by the above quotation. Plaintiffs also point
out that while the DOE restricted state consumer protection laws via the
NOI, it “allowed” the Fair Debt Collection Practice Act’s (“FDCPA”)
represented consumer provision to stand. See 15 U.S.C. § 1692c(a)(2)
(prohibiting contact with consumers whom the collector knows or should
know are represented). Even had the Secretary of the DOE wanted to,
Plaintiffs offer no argument that he had authority to “allow” or otherwise
modify any provision of the FDCPA, a federal law not subject to preemption.
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Finally, Plaintiffs offer policy considerations lamenting Navient’s ability to
circumvent his decision to seek counsel, but again, the Court cannot reach
those issues when application of the law is clear. The Court must conclude,
therefore, that Plaintiffs’ claims based on contacting a represented person are
preempted because they burden Navient’s execution of the HEA’s
regulations.
The result is different, however, for their claims regarding the
frequency of Navient’s phone calls. The DOE regulations specify various
minimum phone contacts Navient is required to make (or attempt) with
Plaintiffs. See 34 C.F.R. § 682.411(d) (between 16 and 180 days delinquent,
lender must call borrower at least four times), (e) (no minimum number of
calls for 181 to 270 days delinquent). These phone contacts must be
“diligent,” meaning that they must either comprise one successful contact, or
two unsuccessful contacts (i.e., no answer). Id. § 682.411(m). Finally, there can
be no gap in collection activity of more than 45 days. Id. § 682.411(b)(2).
Here, it is technically possible to comply with the WCA’s antiharassment provisions and the HEA regulations. See Wis. Stat. § 427.104(g)
and (h). Further, unlike with represented debtors, the Court finds that a
prohibition on harassment offers no obstacle to the enforcement of those
regulations, especially in light of the presumption against preemption.
Plaintiffs’ allegations reveal that Navient’s call volume far exceeded the
minimum requirements of Section 682.411. As noted in Weber:
[T]he [HEA] regulations do not authorize debt collectors
to engage in abusive debt collection activities, and it is a stretch
to say that rules prohibiting what a state deems an abusive
collection practice obstructs Congress’s goals under the HEA.
Indeed, in the context of the overall FFEL program, it seems
apparent that Congress’ goal for the HEA collections

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provisions was to ensure that lenders make a good-faith effort
to collect, not to maximize loan repayment rates at all costs.
...
As long as the required uniform minimum standards set
forth in 34 C.F.R. § 682.411 can be reasonably achieved without
violating state law, therefore more restrictive state consumer
protection laws will not conflict with the federal purposes
embodied in the HEA or its implementing regulations.
Weber v. Great Lakes Educ. Loan Servs., Inc., No. 13-CV-291-WMC, 2013 WL
3943507 *4 (W.D. Wis. July 30, 2013). Navient can comply with Section
682.411 without “harassing” Plaintiffs with excessive phone calls. Their
claims based on call volume are thus not preempted.10
5.

CONCLUSION
Plaintiffs’ first cause of action must be dismissed because it is not

cognizable under the WCA. To the extent Plaintiffs’ second cause of action
asserts violations of the WCA based on contacting a represented customer,
those claims are preempted. All of Plaintiffs’ remaining claims survive
Navient’s motion. This includes not only the claims based on call frequency,
but also those allegations for which Navient did not seek dismissal, including
calling Riel’s mother, disclosing information about the debts to her, harassing
her and Bingenheimer about Riel’s debt, and Navient’s practice of disguising
its calls using multiple phone numbers.

10

Navient makes a final argument that policy considerations announced in
the Wisconsin Supreme Court’s Mussallem opinion require the Court to reject the
entirety of Plaintiffs’ complaint. Mussallem held that the University of Wisconsin
was not subject to the notice provisions of Chapter 425 of the WCA. Bd. of Regents
of Univ. of Wis. Sys. v. Mussallem, 289 N.W.2d 801, 807 (Wis. 1980). This conclusion
was based on a public policy determination that the University, a public institution
acting merely as a conduit for the subject loans, was not a “merchant” intended to
be subject to the WCA. Id. at 806-07. The Court declines to extend Mussallem to
cover a private loan servicing company like Navient.

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Accordingly,
IT IS ORDERED that the defendant’s motion to dismiss (Docket #5)
be and the same is hereby GRANTED in part and DENIED in part; and
IT IS FURTHER ORDERED that the plaintiffs’ first cause of action
and certain bases for their second cause of action (Docket #1 at 5-7) be and
the same are hereby DISMISSED in accordance with the terms of this Order.
Dated at Milwaukee, Wisconsin, this 17th day of January, 2017.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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