460 F.Supp.3d 269
E.D.N.Y.2020Background
- Plaintiff Marie Travis borrowed federal Direct Loans (2005–2006); Navient (successor to Sallie Mae) has serviced those loans under a 2009 DOE Servicing Contract.
- In 2016 Travis became temporarily disabled, could not afford payments, contacted Navient, and was placed repeatedly into forbearance rather than being told about income-driven repayment (IDR) plans or disability forgiveness.
- Travis alleges Navient’s public statements and customer-service representations promised assistance and unbiased counseling but that Navient instead steered distressed borrowers into forbearance to preserve profit.
- She filed a putative class action asserting (1) Delaware Consumer Fraud Act (DCFA) violations, (2) breach of the DOE–servicer Servicing Contract as a third‑party beneficiary, (3) New York GBL § 349 violations, and (4) declaratory relief; she sought nationwide and NY subclasses.
- Navient moved to dismiss for HEA preemption and failure to state claims and to strike class allegations; the court rejected HEA preemption, dismissed the DCFA and breach claims, allowed the GBL § 349 claim to proceed, treated declaratory relief as a remedy request, and denied the motion to strike as premature.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| HEA preemption (20 U.S.C. § 1098g) | Travis argues state-law consumer and tort claims for affirmative misrepresentations are not preempted. | Navient contends HEA (§1098g) and conflict preemption bar state-law claims grounded in alleged failures to disclose or that frustrate federal uniformity. | Court: rejects express and conflict preemption; follows Nelson, Pennsylvania, and Hyland reasoning that affirmative misrepresentations about counseling are not §1098g disclosure claims. |
| DCFA (Delaware consumer fraud) | DCFA applies to Navient’s deceptive promises to borrowers; Navient’s statements induced reliance. | Navient says DCFA covers only deception tied to sale/advertisement of merchandise and conduct in Delaware; Travis’s claims are post‑sale servicing not connected to the loan sale and lack Delaware‑centric conduct. | Court: DCFA claim dismissed—post‑sale representations are not connected to the sale of loans and mere incorporation in Delaware is insufficient to apply the statute. |
| Breach of Servicing Contract / third‑party beneficiary | Travis contends borrowers are intended third‑party beneficiaries of the 2009 Servicing Contract and Navient breached duties to assist and educate borrowers. | Navient says the Contract lacks language evincing intent to confer enforceable rights on borrowers and plaintiff fails to identify specific breached contract terms. | Court: breach claim dismissed—borrowers are incidental beneficiaries (no clear intent to confer enforceable rights) and complaint does not identify specific contractual breaches. |
| New York GBL § 349 (consumer deception) | Travis alleges consumer‑oriented, materially misleading conduct: affirmative promises to help, but steering into forbearance—caused injury. | Navient argues heightened Rule 9(b) pleading should apply and the alleged acts were not materially misleading. | Court: GBL § 349 claim survives; Rule 9(b) does not apply and the complaint pleads sufficient consumer‑oriented, materially misleading misrepresentations. |
Key Cases Cited
- Nelson v. Great Lakes Educ. Loan Servs., Inc., 928 F.3d 639 (7th Cir.) (state consumer and tort claims based on affirmative misrepresentations in borrower counseling are not expressly preempted by §1098g)
- Chae v. SLM Corp., 593 F.3d 936 (9th Cir.) (claims that effectively challenged standardized billing/disclosure practices were preempted under §1098g and conflicted with federal forms)
- Pennsylvania v. Navient Corp., 354 F. Supp. 3d 529 (M.D. Pa. 2018) (state consumer‑protection claims alleging forbearance‑steering not preempted by HEA)
- Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996) (presumption against preemption in areas of traditional state regulation)
- Skidmore v. Swift & Co., 323 U.S. 134 (1944) (agency interpretations merit deference according to persuasiveness)
- Estate of Landers v. Leavitt, 545 F.3d 98 (2d Cir.) (factors for Skidmore deference)
- Pelman ex rel. Pelman v. McDonald’s Corp., 396 F.3d 508 (2d Cir.) (GBL § 349 is broader than common‑law fraud; Rule 9(b) typically does not apply)
- New York SMSA Ltd. Partnership v. Town of Clarkstown, 612 F.3d 97 (2d Cir.) (preemption inquiry focuses on Congressional intent)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not entitled to assumption of truth)