Lyons v. Great Lakes Educ. Loan Servs.

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SIENNA LYONS, et al., Plaintiffs, v. GREAT LAKES EDUCATIONAL LOAN SERVICES, INC., et al., Defendants.

VICTORIA GALLAGHER, et al., Plaintiffs, v. NAVIENT CORPORATION, et al., Defendants.

GARY STROCKBINE, et al., Plaintiffs, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY a/k/a PHEAA d/b/a FEDLOAN SERVICING, Defendant.

Nos. 1:21-cv-01047, 1:21-cv-01052, 1:21-cv-09096

United States District Court, D. New Jersey

March 1, 2022

NOAH AXLER ANDERSON KILL, P.C. DAVID M. CEDAR WILLIAMS CEDAR, LLC ON BEHALF OF PLAINTIFFS SIENNA LYONS, DANIELLE LABELLA SAUNDRA O'DONNELL, VICTORIA GALLAGHER, MEGAN O'DONNELL, GARY STROCKBINE, SEAN MAHER, AND RACHEL ANN PHILBIN.

JONATHAN SPELLS KRAUSE AND CORINNE SAMLER BRENNAN KLEHR HARRISON HARVEY BRANZBURG, LLP ON BEHALF OF DEFENDANTS GREAT LAKES EDUCATIONAL LOAN SERVICES, INC., NELNET DIVERSIFIED SOLUTIONS, LLC, NELNET SERVICING, LLC, AND NELNET, INC.

DAVID G. MURPHY AND DIANE A. BETTINO REED SMITH LLP ON BEHALF OF DEFENDANTS NAVIENT CORPORATION AND NAVIENT SOLUTIONS LLC.

STEPHEN M. ORLOFSKY BLANK ROME LLP BLAIR A. GEROLD BLANK ROME LLP ON BEHALF OF DEFENDANT PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY A/K/A PHEAA D/B/A FEDLOAN SERVICING.

OPINION

Christine P. O'Hearn, United States District Judge

Before the Court is the Joint Motion to Dismiss in three separately filed actions (Case No. 21-01047 (“Lyons”), ECF No. 33; Case No. 21-01052 (“Gallagher”), ECF No. 23; Case No. 21-09096 (“Strockbine”), ECF No. 11) by Defendants Navient Corporation and Navient Solutions LLC (collectively, “Navient”), Great Lakes Educational Loan Services, Inc. (“Great Lakes”), Nelnet Diversified Solutions, LLC, Nelnet Servicing, LLC, and Nelnet, Inc. (collectively, “Nelnet”), and Pennsylvania Higher Education Assistance Agency a/k/a PHEAA d/b/a FedLoan Servicing (“PHEAA, ” and together with Navient, Great Lakes, and Nelnet, the “Defendants”) seeking to dismiss the Class Action Complaints (Lyons, ECF No. 1; Gallagher, ECF No. 1; Strockbine, ECF No. 1) filed by Sienna Lyons, Danielle Labella, Saundra O'Donnell (together, the “Lyons Plaintiffs”), Victoria Gallagher and Megan O'Donnell (together, the “Gallagher Plaintiffs”), and Gary Strockbine, Sean Maher, and Rachel Ann Philbin (the “Strockbine Plaintiffs, ” and together with the Lyons Plaintiffs and the Gallagher Plaintiffs, the “Plaintiffs”).

The Court did not hear oral argument pursuant to Local Civil Rule 78.1. For the reasons discussed herein, the Court GRANTS the Joint Motion to Dismiss.

I. BACKGROUND

These cases are three separately-filed putative class actions brought by several federal student loan borrowers against multiple federal student loan servicers alleging that the loan servicers wrongfully allocated the Plaintiffs' payments made on their federal student loans after the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was passed in March 2020.

A. Procedural Background

On January 22, 2021, the Lyons Plaintiffs filed a class action complaint (Lyons, ECF No. 1) (the “Lyons Complaint”) against Defendants Great Lakes and Nelnet asserting claims for breach of contract, tortious interference with a business relationship, negligent misrepresentation, unjust enrichment, negligence, violations of the New Jersey Consumer Fraud Act (the “NJCFA”) and seeking declaratory judgment and injunctive relief (herein referred to as the “Lyons Case”).

On January 22, 2021, the Gallagher Plaintiffs filed a class action complaint (Gallagher, ECF No. 1) (the “Gallagher Complaint”) asserting the same claims against the Navient Defendants (the “Gallagher Case”) as were asserted in the Lyons Case.

On April 13, 2021, the Strockbine Plaintiffs filed a class action complaint (Strockbine, ECF No. 1) (the “Strockbine Complaint, ” and together with the Lyons Complaint and the Gallagher Complaint, the “Complaints”) against PHEAA (the “Strockbine Case”) asserting the same claims as those in the Lyons and Gallagher Cases, and also asserting claims for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (the “UTPCPL”).

Given the overlapping allegations and issues presented in all three cases and the Defendants' expressed intention to each file a motion to dismiss in each case, the Court entered a briefing schedule (Lyons, ECF No. 28; Gallagher, ECF No. 22; Strockbine, ECF No. 7) whereby Defendants filed a Joint Motion to Dismiss (Lyons, ECF No. 33; Gallagher, ECF No. 23; Strockbine, ECF No. 11), and Plaintiffs filed a Joint Response in Opposition (Lyons, ECF No. 38; Gallagher, ECF No. 27; Strockbine, ECF No. 15), to which Defendants filed a Joint Reply (Lyons, ECF No. 41; Gallagher, ECF No. 30; Strockbine, ECF No. 16).^[1] In their Joint Motion to Dismiss, Defendants argue that the Complaints must be dismissed under Federal Rule of Civil Procedure (“Rule”) 12(b)(1) because Plaintiffs lack Article III standing as they have not suffered an injury in fact, and therefore, this Court lacks subject matter jurisdiction. (ECF No. 11 at 9-22). Defendants also argue that Plaintiffs have failed to state cognizable claims under Rule 12(b)(6) (id. at 22-43) and moved to strike Plaintiffs' class allegations under Rule 12(f) and Rule 23(d)(1)(D) (id. at 44-50).

Having considered the parties' arguments, this Court concludes that Plaintiffs lack Article III standing to bring their claims, as they have not suffered an injury in fact, and any alleged future injury is too speculative to satisfy the jurisdictional requirements placed on this Court by Article III of the Constitution. Therefore, the Court dismisses the Complaints without prejudice.

B. Factual Background

1. Administration of the Federal Student Loan Program

Under the Higher Education Act (“HEA”), the U.S. Department of Education (the “DOE”) has the authority to issue a variety of federal loans and grants to student borrowers. See 20 U.S.C. §§ 1071-1099c. In the 1990s, the federal government began originating loans under the William D. Ford Direct Loan Program, see 20 U.S.C. §§ 1087a-1087j, and in 2008, the DOE began purchasing student loans from non-federal entities through the Federal Family Education Loan Program, see (ECF No. 1, ¶ 14). The Federal Student Aid (“FSA”) office, a part of the DOE, is responsible for managing these and other federal loan programs authorized under the HEA. (Id.).

Congress directed the DOE to enter into contracts for the “servicing” of these federal loans and “such other aspects of the direct student loan program as the Secretary determines are necessary.” 20 U.S.C. § 1087f. In 2009, the DOE awarded each Defendant a contract to service federal loans (the “Servicing Contracts”) with five-year terms, each of which has been extended numerous times. (ECF No. 1, ¶¶ 15-16, 22). The Servicing Contracts require the Defendants to correctly record the borrowers' interest rates, calculate borrowers' balances, and appropriately apply payments to borrowers' accounts, among other obligations. (Id., ¶ 29). The DOE pays each Defendant a dynamic monthly servicing fee calculated based on a number of factors including the number of borrower accounts serviced by each Defendant and the repayment status of each borrower account. (See id., ¶¶ 24-27, Ex. A, § B.13).

2. The CARES Act Places Federal Student Loans in Administrative Forbearance

In March 2020, in response to the COVID-19 pandemic, Congress passed the CARES Act, which granted temporary relief to federal student loan borrowers by placing their loans in administrative forbearance^[2] until September 30, 2020, meaning that all payments due for certain student loans held by the DOE were suspended, interest on these loans would not accrue after March 13, 2020, and the interest rates on these loans were temporarily reduced to 0% (the “CARES Act Forbearance Period”).^[3] Before the CARES Act Forbearance Period expired on September 30, 2020, former President Trump directed the Secretary of Education to extend the administrative forbearance until December 31, 2020, by Presidential Memorandum.^[4] Since that first extension, the CARES Act Forbearance Period has been extended several times, most recently until May 1, 2022.^[5]

Because federal student loan borrowers are not required to make loan payments during the CARES Act Forbearance Period, these payments are considered “prepayments” under federal regulation, and are to be applied to repay a borrowers' federal student loans in the following manner: “first to any accrued charges and collection costs, then to any outstanding interest, and then to outstanding principal.” 34 C.F.R. §§ 685.211(a)(1)-(2) (2014). Although this provision is clear about how a prepayment should be allocated on amounts due under a single federal loan, the regulation does not specify how a single prepayment should be allocated across student loans when a student loan borrower has more than one loan.

3. The Plaintiffs' Prepayments and Allegations Against Defendants

The Plaintiffs all made prepayments during various months falling within the CARES Act Forbearance Period, with the first prepayment by a Plaintiff being made in March 2020, and the last in February 2021.^[6] Without providing much detail about how student loan borrowers make prepayments, Plaintiffs acknowledge in their class allegations and elsewhere in a footnote that each Plaintiff had the option to select a “custom payment allocation, ” whereby a Plaintiff's prepayment would be applied to the student loan of the Plaintiff's choice. (ECF No. 1, ¶¶ 94 n.9, 110-12). With the exception of Strockbine Plaintiff Sean Maher's May 2020 prepayment (id., ¶ 94 n.9), none of the Plaintiffs chose a “custom payment allocation” indicating the loan to which the prepayment should be applied. (Lyons, ECF No. 1, ¶¶ 83-124; Gallagh...