Bryana Bible v. United Student Aid Funds, Inc.
799 F.3d 633
| 7th Cir. | 2015Background
- Bible obtained Stafford student loans under an MPN that expressly incorporated the Higher Education Act (HEA) and Department of Education regulations; she defaulted and then entered a loan rehabilitation agreement in 2012.
- She timely made the required rehabilitation payments (remains current) but USA Funds (the guaranty agency) nonetheless assessed $4,547.44 in collection costs and applied payments toward those costs.
- The MPN allowed only “charges and fees ... permitted by the Act.” Relevant regulations include 34 C.F.R. §§ 682.405 (loan rehabilitation rules) and 682.410 (procedural safeguards and collection-cost rules).
- Bible sued for breach of contract (Indiana law) and civil RICO (mail/wire fraud predicates), alleging the MPN incorporated regulations that barred collection costs under her circumstances and that USA Funds’ form communications misled borrowers.
- The district court dismissed both claims as preempted or implausible; the Seventh Circuit reversed and remanded, holding neither claim preempted and that both met Rule 12(b)(6) plausibility.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether guarantor breached MPN by imposing collection costs after Bible entered and complied with rehabilitation | MPN incorporated HEA/regulations which, read with §§ 682.405 and 682.410, prohibit assessing collection costs on a first-time defaulter who timely enters and complies with a repayment/rehabilitation agreement | MPN permits reasonable collection costs after default; regulations allow assessment and give agencies discretion to impose costs | Court: Breach plausible — contract incorporated federal regs; Secretary’s interpretation (deference) supports that collection costs were impermissible in these circumstances; damages sufficiently alleged |
| Whether federal law (HEA/regulations) preempts Bible’s state-law contract claim or displaces it as a “disguised” federal claim | Federal standards incorporated into contract — enforcing them under state law does not conflict with HEA; lack of a federal private right does not bar state remedies | Entertaining state enforcement would frustrate federal uniformity and is functionally an end-run around absence of federal private right | Court: Not preempted — state-law enforcement of incorporated federal standards is complementary, not conflicting; “disguised claim” theory rejected |
| Whether Bible adequately pleaded a RICO claim (enterprise, pattern, racketeering predicates) based on fraud in communications and practice of assessing costs | Alleged association-in-fact (USA Funds, GRC, Sallie Mae), systematic use of form letters/forms to induce rehabilitation and assess costs, and mail/wire fraud predicates (false/omitted statements) establishing pattern and continuity | Defendants say mere commercial relationships, no enterprise distinct from defendants; no plausible fraud, no intent, costs permitted by law, and pattern not pleaded | Court: RICO allegations sufficient at pleading stage — enterprise plausibly alleged, mail/wire fraud pleaded with particularity enough for Rule 9(b) and pattern/continuity alleged; preemption inapplicable to federal-on-federal claim |
| Proper interpretive approach to regulations defining when collection costs may be assessed | Plaintiff (and DOE amicus) reads 34 C.F.R. §§ 682.405 & 682.410 to create a safe harbor for first-time defaulters who timely enter into and comply with an alternative repayment (including rehabilitation) so that collection costs may not be assessed | USA Funds argues rehabilitation and repayment regimes are distinct; regulations allow collection costs on rehabilitated loans and do not create the claimed safe harbor; agency interpretation is new/untimely | Court: Adopts Secretary of Education’s interpretation (Chevron/Auer deference): reasonable to read the regulatory scheme to prevent assessment of collection costs against a first-time defaulter who timely enters into and complies with an alternative repayment agreement; Judge Flaum concurs on deference route (not textual clarity); Judge Manion dissents on both law and deference grounds |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility standard for federal pleading)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility and Rule 12(b)(6) standard)
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (agency deference to reasonable statutory interpretation)
- Auer v. Robbins, 519 U.S. 452 (deference to agency interpretation of its own regulations)
- Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (state-law contract claims that enforce federal-program standards are not categorically preempted)
- Black v. Educational Credit Mgmt. Corp., 459 F.3d 796 (7th Cir.) (HEA/regulatory framework governing collection costs and rehabilitation)
- H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (RICO pattern: continuity-plus-relationship test)
- Boyle v. United States, 556 U.S. 938 (association-in-fact enterprise definition)