416 F.Supp.3d 75
D. Conn.2019Background
- PHEAA is a federal student-loan servicer under contract with the U.S. Department of Education (Education) and services loans for ~80,000 Connecticut borrowers.
- Connecticut Department of Banking (CT DOB) issued a records demand as part of a servicer examination and threatened license sanctions for non‑production.
- Education instructed PHEAA not to produce requested borrower-identifying records, citing the Privacy Act and contractual obligations, and denied CT DOB’s direct request for the records.
- PHEAA sued, seeking (1) interpleader under Fed. R. Civ. P. 22 to force the State and Federal defendants to resolve competing claims to the records, and (2) declaratory and injunctive relief that federal law preempts the Connecticut disclosure statutes.
- Federal Defendants moved to dismiss, arguing interpleader is improper and that PHEAA has no cognizable claim against them in district court (contract claims fall under the Contract Disputes Act/Court of Federal Claims).
- The court dismissed PHEAA’s interpleader count but held that Education and the Secretary must be joined under Rule 19(a)(1)(B)(ii) as required parties for the limited purpose of binding them to the court’s preemption determination; the court otherwise found no district-court cause of action against the Federal Defendants for contract-related relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Interpleader appropriateness | PHEAA says a single obligation (to service loans) gives rise to conflicting claims and interpleader is proper | Fed. defendants say PHEAA has independent obligations to state law and to its federal contract (multiple obligations), so interpleader is improper | Interpleader denied: plaintiff faces separate obligations from contract and state law, so Rule 22 relief is inappropriate |
| Declaratory relief against Federal Defendants | PHEAA contends Education’s directives and letters create a credible threat and seeks declaratory relief that federal law does/does not preempt CT law | Fed. defendants argue PHEAA alleges no cognizable cause of action against them in district court; contract disputes belong in Claims Court | Court: No viable declaratory claim against Federal Defendants in district court; declaratory relief available only against State Defendants on preemption |
| APA vs. Contract Disputes Act (jurisdiction) | PHEAA says Education’s communications are final agency actions subject to APA review and §702 waiver of sovereign immunity | Fed. defendants say the dispute is essentially contractual and thus falls under the CDA with exclusive Claims Court jurisdiction | Court applies Up State/Megapulse test and finds PHEAA’s sought relief arises from its contract; CDA/Claims Court jurisdiction precludes district-court relief on those contract-based claims |
| Joinder under Rule 19 | PHEAA sought to bind both sides to a preemption ruling; initially named Federal Defendants but sought dismissal of claims against them | Fed. defendants sought dismissal and argued joinder unnecessary and raises sovereign immunity concerns | Court: Federal Defendants are required parties under Rule 19(a)(1)(B)(ii) because disposing of the action without them would leave PHEAA at substantial risk of inconsistent obligations; sovereign immunity does not bar joinder for the limited preemption-binding purpose |
Key Cases Cited
- Bankers Trust Co. v. Manufacturers Nat. Bank of Detroit, 139 F.R.D. 302 (S.D.N.Y. 1991) (interpleader improper where plaintiff faces multiple independent obligations)
- Bradley v. Kochenash, 44 F.3d 166 (2d Cir. 1995) (interpleader protects only against multiple liability on a single obligation)
- E.E.O.C. v. Peabody W. Coal Co., 400 F.3d 774 (9th Cir. 2005) (Rule 19 joinder required where absent party could cause inconsistent obligations)
- E.E.O.C. v. Peabody W. Coal Co., 610 F.3d 1070 (9th Cir. 2010) (reaffirming joinder of interested federal/state actors to avoid inconsistent obligations)
- Up State Fed. Credit Union v. Walker, 198 F.3d 372 (2d Cir. 1999) (CDA bars district-court relief for claims that are in essence contract disputes; applies Megapulse test)
- Int’l Broth. of Teamsters v. United States, 431 U.S. 324 (1977) (Rule 19 may require joinder of parties not themselves liable so full relief can be accorded)
- Gen. Bldg. Contractors Ass’n v. Pennsylvania, 458 U.S. 375 (1982) (limits on injunctive relief against parties not found to have violated rights; such parties may nevertheless remain in suit for ancillary relief)
- State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523 (1967) (interpleader is remedial and construed liberally)