Hyland v. Navient Corp.

48 F.4th 110

Kathryn HYLAND, Melissa Garcia, Jessica Saint-Paul, Rebecca Spitler-Lawson, Michelle Means, Elizabeth Kaplan, Jennifer Guth, Megan Nocerino, Elizabeth Taylor, and Anthony Church, Each Individually and on Behalf of All Others Similarly Situated, Plaintiffs-Appellees,

v.NAVIENT CORPORATION, Navient Solutions LLC, Defendants-Appellees,

v.William Yeatman, Richard Estle Carson, III, Objectors-Appellants.^*

Docket Nos. 20-3765-cv

20-3766-cv

August Term, 2021

United States Court of Appeals, Second Circuit.

Argued: March 10, 2022

Decided: September 7, 2022

Caitlin J. Halligan (Faith E. Gay, Yelena Konanova, David A. Coon, Max Siegel, on the brief), Selendy & Gay PLLC, New York, NY; Mark Richard, Phillips, Richard & Rind, P.A., Miami, FL, for Plaintiffs-Appellees Kathryn Hyland, Melissa Garcia, Jessica Saint-Paul, Rebecca Spitler-Lawson, Michelle Means, Elizabeth Kaplan, Jennifer Guth, Megan Nocerino, Elizabeth Taylor, and Anthony Church, each individually and on behalf of all others similarly situated.

Ashley M. Simonsen, Covington & Burling LLP, Los Angeles, CA; Andrew A. Ruffino, Covington & Burling LLP, New York, NY, for Defendants-Appellees Navient Corporation, Navient Solutions, LLC.

Anna St. John, Hamilton Lincoln Law Institute, Center for Class Action Fairness, Washington, DC, for Objector-Appellant William Yeatman.

Eric Alan Isaacson, Law Office of Eric Alan Isaacson, La Jolla, CA, for Objector-Appellant Richard Estle Carson, III.

Before: SACK, LOHIER, and NARDINI, Circuit Judges.

LOHIER, Circuit Judge:

This appeal concerns a settlement that a class of public servants negotiated with the loan servicing companies Navient Corporation and Navient Solutions, LLC (together, "Navient"). As part of the settlement, Navient agreed to deliver better and more accurate information to borrowers and to contribute a cy pres award of $2.25 million to establish a nonprofit organization that provides counseling to borrowers at all stages of the repayment process. In exchange, the class agreed to release their claims for non-monetary relief, though they retain the right to sue Navient individually for money damages.

The United States District Court for the Southern District of New York (Cote, J.) certified a class for settlement purposes under Federal Rule of Civil Procedure 23(b)(2) and approved the settlement as "fair, reasonable, [ ] adequate," and "in the best interest of the Settlement Class as a whole." Hyland v. Navient Corp., 18 Civ. 9031, 2020 WL 6554826, at *1 (S.D.N.Y. Oct. 9, 2020). Two objectors now appeal that judgment, arguing that the District Court erred in certifying the class, approving the settlement, and approving service awards of $15,000 to the named plaintiffs. Because we conclude that the District Court did not abuse its discretion in making any of these determinations, we AFFIRM .

BACKGROUND

In 2007 the federal government created the Public Service Loan Forgiveness program ("PSLF") to help address the problem of overwhelming student debt. See College Cost Reduction and Access Act, Pub. L. No. 110–84, § 401, 121 Stat. 784, 800 (2007). Under PSLF, teachers, social workers, police officers, and others working in public service may have their federal student debt forgiven after 120 qualifying payments. To administer the program, the federal Department of Education contracts with for-profit "servicing companies," including Navient, which alone services more than $205.9 billion in federal student loans.

Navient aims to help borrowers "understand the complex array of federal loan repayment options so they can make informed choices about the plans that are aligned with their financial circumstances and goals." App'x 35. In October 2018, however, a group of public servants who had contacted Navient for help repaying their loans (collectively, "Plaintiffs") filed a putative class action lawsuit in the Southern District of New York, alleging that Navient had not "liv[ed] up to its obligation to help vulnerable borrowers get on the best possible repayment plan and qualify for PSLF." App'x 36. They claimed that Navient had "[d]eceived borrowers by [erroneously] informing them PSLF was not available to them," "[m]isled borrowers by stating they were ‘on track’ for PSLF when in fact their repayment plan did not qualify for PSLF," and "[a]dvised borrowers not to submit paperwork that would verify their employment and other qualifying factors for PSLF." App'x 37. As a result, according to the Plaintiffs’ amended complaint, borrowers were "denied loan forgiveness at alarming rates, with horrifying effects on the borrowers and their families and communities." App'x 37.

Plaintiffs brought a number of tort and contract claims, as well as claims under state statutes protecting against unfair and deceptive trade practices. Navient's business practices, they asserted, were largely to blame for their injuries. Plaintiffs alleged that Navient structured employee compensation "to incentivize short calls by rewarding employees for rushing borrowers off the phone, thereby preventing borrowers from receiving full and accurate information about their best repayment options." App'x 39. They also alleged that Navient's employees, looking for quick and easy solutions to present on the phone, pushed cash-strapped borrowers to enter loan forbearance, despite the availability of more flexible repayment plans and the fact that forbearance pauses PSLF-qualifying payments and can increase the total amount a borrower ultimately owes. In addition to various sub-classes based on geography, Plaintiffs proposed a nationwide class of public servants who have or had loans serviced by Navient and who contacted the company regarding their eligibility for PSLF, as well as a nationwide injunctive class of borrowers who have loans actively serviced by Navient, previously contacted Navient about PSLF eligibility, and intended to contact Navient in the future regarding PSLF eligibility.

Navient moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, which the District Court (Cote, J. ) granted in part, dismissing all claims except "the claim brought under New York's General Business Law Section 349," App'x 160, which prohibits "deceptive acts or practices in the conduct of any business ... or in the furnishing of any service" in the state, App'x 154. At a hearing in July 2019 Judge Cote informed the parties that she saw "an enormous hurdle to certifying this class." App'x 214. "I just can't imagine there would be any uniform[ ] oral representation," she explained, "[b]ecause anyone who picks up a phone to call Navient has a question ... [that] comes out of their individual circumstances and needs." App'x 215. She reiterated this concern at a hearing a few months later, saying that "there [was] an underlying problem ... with respect to the plaintiffs’ theory, which [she had] been frank about in [her] prior conferences." App'x 253.

Spurred in part by Judge Cote's comments, the parties reached a settlement in April 2020 in which they agreed to seek certification of a mandatory nationwide settlement class pursuant to Rule 23(b)(2). Class members also agreed to release their claims for non-monetary relief, though they retained the right to "file individual lawsuits for monetary relief on a non-class basis and excluding Aggregate Actions" of five or more individuals. App'x 328. In return, Navient agreed to implement a number of business reforms, including (1) enhancing internal resources for call-center representatives by, among other things, "updat[ing] job aids to clarify that customer service representatives should discuss loan forgiveness including PSLF with borrowers prior to offering forbearance"; (2) updating written communications with borrowers by "creat[ing] forms that can be sent via email to borrowers who request additional information about PSLF"; (3) improving its website and chat communications with borrowers by "requiring customer service representatives to look for keywords or phrases that indicate borrowers’ possible eligibility for forgiveness programs"; and (4) training customer service representatives to follow the new practices, and regularly monitoring their calls to ensure compliance. App'x 319–21. In what the parties and the District Court called a cy pres – or "next best" – award, Navient also agreed to contribute $1.75 million (later increased to $2.25 million) to establish a nonprofit that would "provide education and student loan counseling to borrowers employed in public service," App'x 354, and "generate administrative and legislative reforms" to improve PSLF, App'x 355. A project proposal estimated that the new organization could reach a projected 7,700 to 11,250 borrowers a year. App'x 357.

In June 2020 the District Court preliminarily approved the settlement agreement and the cy pres recipient. The District Court also conditionally certified a Rule 23(b)(2) settlement class of:

[a]ll individuals who, at any point from October 1, 2007 to the Effective Date (i) have or had Federal Family Education Loans ("FFEL") or Direct Loans serviced by Navient; (ii) are or were employed full-time by a qualifying public service employer or employers for purposes of PSLF; and (iii) spoke to a Navient customer service representative about subjects relating to eligibility for PSLF.

App'x 292. The District Court found that "Defendants [were] alleged to have acted or refused to act on grounds that appl[ied] generally to the Settlement Class," and that certification was therefore proper under Rule 23(b)(2). App'x 293.

Less than a month later, this Court decided Berni v. Barilla S.p.A., 964 F.3d 141 (2d Cir. 2020), which held that a class of past purchasers of a product (in that case, Barilla pasta) could not be certified under Rule 23(b)(2) because they were "not likely to encounter future harm of the kind that makes injunctive relief appropriate." Id. at 147. In response to the District Court's...