2020 Ohio 3153
Ohio Ct. App.2020Background
- Santagate took Direct federal student loans (final disbursement 2011); PHEAA began servicing his loans in June 2013 after the Department of Education switched servicers.
- On June 28, 2013 PHEAA sent an online message about an income-contingent repayment (ICR) plan requiring a 10-day application; Santagate alleges he did not see the message until September and missed the deadline.
- Santagate alleges PHEAA later placed his loans in forbearance without his request, miscalculated accrued interest, increased his payments and interest, and made other servicing-related misrepresentations.
- He sued asserting breach of contract (third-party beneficiary theory), fraud/fraudulent concealment, negligent misrepresentation, breach of fiduciary duty, unjust enrichment, and a CSPA violation.
- Trial court dismissed most claims on 12(B)(6) (including CSPA, fiduciary duty, unjust enrichment, fraud claims) but allowed breach-of-contract (third-party beneficiary) to proceed; later granted summary judgment for PHEAA on contract (no intended third-party beneficiary).
- On appeal the Tenth District affirmed dismissal/summary judgment on most claims but reversed as to fraud-based claims alleging affirmative misrepresentations (HEA does not automatically preempt such claims) and remanded those claims for further proceedings.
Issues
| Issue | Plaintiff's Argument (Santagate) | Defendant's Argument (PHEAA) | Held |
|---|---|---|---|
| Applicability of Ohio Consumer Sales Protection Act (CSPA) | CSPA covers student-loan servicing; PHEAA engaged in consumer transactions and is a "supplier" | Servicer is not a supplier and servicing is not a consumer transaction (Anderson governs) | Court: Anderson controlling; servicer not a supplier and servicing not a consumer transaction — CSPA claim dismissed |
| Privity / breach of contract | Santagate contends privity or enforceable rights arise from loan documents/servicing arrangements | No privity: servicer contracted with Dept. of Education, not borrower; borrower not party to servicing contract | Court: No privity; summary judgment for PHEAA on contract claim (absent third-party beneficiary status) |
| Third-party beneficiary status | Santagate argues he is an intended beneficiary of the Dept. of Education–PHEAA servicing contract | Servicing contract is a government contract and contains no clear intent to create enforceable rights for individual borrowers | Court: Government-contract rule; no clear intent found — Santagate is an incidental beneficiary; summary judgment affirmed on breach claim |
| Fraud / HEA preemption and affirmative misrepresentations | Santagate alleges PHEAA made affirmative misrepresentations and concealed options/accurate accountings, causing reliance and damages | HEA precludes private enforcement and federal law/regulations displace state-law claims related to required disclosures; many alleged acts are within HEA/regulatory scope | Court: HEA does not categorically preempt state-law claims alleging affirmative misrepresentations by servicers; claims that allege affirmative misrepresentations survive 12(B)(6); dismissal as to fraud based solely on HEA error — reversed in part and remanded |
| Fiduciary duty and unjust enrichment | Santagate claims special/trust relationship and unjust benefit retained by PHEAA | Relationship was arm's-length; PHEAA serviced for Dept. of Education and did not receive borrower's funds; no basis for fiduciary duty or unjust enrichment | Court: Dismissed fiduciary and unjust enrichment claims — no mutual special trust pleaded and no benefit conferred to PHEAA |
Key Cases Cited
- Anderson v. Barclay's Capital Real Estate, Inc., 136 Ohio St.3d 31 (Ohio 2013) (mortgage servicer is not a CSPA "supplier" and servicing is not a "consumer transaction")
- Lawson-Ross v. Great Lakes Higher Edn. Corp., 955 F.3d 908 (11th Cir. 2020) (HEA does not preempt state-law claims for affirmative misrepresentations by student-loan servicers)
- Nelson v. Great Lakes Educ. Loan Servs., Inc., 928 F.3d 639 (7th Cir. 2019) (HEA and regs preempt claims tied to required disclosures but do not bar claims based on affirmative misrepresentations)
- TRINOVA Corp. v. Pilkington Bros., P.L.C., 70 Ohio St.3d 271 (Ohio 1994) (only intended third-party beneficiaries may enforce contracts)
- Groob v. KeyBank, 108 Ohio St.3d 348 (Ohio 2006) (definition of fiduciary relationship; no fiduciary duty in ordinary arm's-length loan dealings)