RUTGERS, ETC. VS. TEON D. RUSSELL RUTGERS, ETC. VS. MICHAEL J. MOONEY (DC-003227-19 AND DC-005799-19, CAMDEN COUNTY AND STATEWIDE) (CONSOLIDATED)
A-5171-18/A-0911-19
N.J. Super. Ct. App. Div.Jun 29, 2021Background
- Rutgers made Federal Perkins loans to two students (Russell: $6,500; Mooney: $2,000) under promissory notes referencing the HEA and its regulations.
- Notes allow acceleration on default and require borrower to pay "all reasonable collection costs, including attorney's fees, court costs, and other fees."
- Rutgers sought collection costs calculated at 40% of principal, interest, and late charges to cover a 28.5% contingency fee paid to its outside collection counsel.
- Trial court entered judgments for principal, interest, and late fees but sua sponte limited collection-cost awards ($750 for Russell; $375 for Mooney) based on what it deemed reasonable attorney time, rejecting the 40% formula.
- Rutgers appealed, arguing federal Perkins Loan regulations preempt the trial court's state-law–style attorney-fee reduction and require application of the 40% cap.
- The Appellate Division vacated the collection-cost awards and remanded, instructing the trial court to award collection costs equal to 40% of principal, interest, and late fees under the federal regulation.
Issues
| Issue | Plaintiff's Argument | Defendant's / Trial Court's Argument | Held |
|---|---|---|---|
| Whether federal Perkins Loan regulations preempt the trial court's reduction of collection costs | Federal regulations require lenders to assess "all reasonable costs" and authorize a 40% cap for litigation-related collection costs; regs preempt conflicting state-law approaches | Trial court applied state-law reasonableness review (hourly time-based attorney-fee analysis) and declined to apply the 40% formula as mandatory | Held: Federal regulation preempts the trial court's approach; 40% formula controls and trial court's awards vacated |
| Whether the 40% collection-cost rate is a permissible cap or a binding measure of reasonable costs | Rutgers: 40% is authorized by federal regs to ensure the Fund is made whole and permits payment of contingency fees | Trial court: 40% is a cap but not required; it may award lesser reasonable costs based on attorney time | Held: The regulation endorses the 40% formula as the proper measure for litigation-related collection costs and the trial court frustrated the regulation by imposing a lower, time-based award |
| Whether contingency fees paid to outside counsel may be recovered from borrower as collection costs | Rutgers: Contingency fees (28.5%) are part of collection costs and must be recoverable so Fund is reimbursed | Trial court: Reduced award effectively forced Rutgers/Fund to absorb much of the contingency fee; it did not treat the contingency arrangement as fully recoverable | Held: Contingency fees are recoverable within the 40% framework; shifting that cost to the Fund frustrates federal purpose |
| Whether additional contract/equity arguments affect the outcome | Rutgers: Promissory-note terms and equity support full recovery under the 40% method | Trial court: Applied equitable/time-based reductions; defendants admitted debt but court limited costs | Held: Court resolved appeal on federal-regulation preemption grounds and did not reach separate contract/equity arguments |
Key Cases Cited
- None cited with official reporter citations; the opinion rests on and interprets federal regulations governing Perkins Loan collection costs rather than reported case authority.