HOPE D. DARRISAW, Plaintiff-Appellant, versus PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY (PHEAA), Defendant-Appellee.
No. 17-12113
United States Court of Appeals, Eleventh Circuit
February 7, 2020
D.C. Docket No. 3:16-cv-00082-DHB-BKE
[PUBLISH]
Appeal from the United States District Court for the Southern District of Georgia
(February 7, 2020)
Before WILLIAM PRYOR, MARTIN, and KATSAS,* Circuit Judges.
This appeal presents the question whether a guaranty agency for federal student loans qualifies as a “debt collector” under the Fair Debt Collection Practices Act,
I. BACKGROUND
Because this appeal is from the dismissal of a complaint, we accept the allegations of the complaint as true. See Am. Dental Ass‘n v. Cigna Corp., 605 F.3d 1283, 1288 (11th Cir. 2010). We recount the facts as alleged in the complaint. And we construe them in the light most favorable to the plaintiff. See id.
Hope Darrisaw obtained student loans to attend college. In July 2014, her loan servicer, Nelnet, placed the loans in deferment because Darrisaw was “enrolled in school at least half-time.” Nelnet scheduled the deferment to last from July 2014 until December 2016, during which time no payments would be due.
In April 2016, Darrisaw received a letter from the Pennsylvania Higher Education Assistance Agency stating that the Agency had “paid a default claim on your student loan(s) identified below” and was “now the legal owner of your loan(s).” The letter identified four loans and informed Darrisaw that because of her default she was “required to pay [her] loan(s) in full immediately” to the Agency. Darrisaw had not
The following month, May 2016, the Agency sent Darrisaw a second letter. That letter warned Darrisaw that her defaulted loan was “now a federal debt” and would be “subject to collection efforts” if she failed to remit payment in the amount of $18,812.83. Concerned, Darrisaw called the Agency at “the number listed on the Federal Student Aid website” because she “did not trust the information in the letters.” She planned to “inquire about the debt” and “correct the error.” But the representative Darrisaw called denied that she had an outstanding debt with the Agency and terminated the call because the Agency‘s “records did not contain any reference to” Darrisaw.
Darrisaw received a third letter from the Agency in June 2016. This letter stated that the Agency would begin garnishing Darrisaw‘s wages to collect her defaulted student loans unless she established a repayment plan by the following month. Because the Agency had denied the existence of the debt over the telephone, Darrisaw believed the collection letters were part of “a fake debt collection scam,” so she continued to ignore them.
In July 2016, the Agency sent a garnishment order to Darrisaw‘s employer directing it to deduct and remit to the Agency 15 percent of her disposable pay. The Agency sent a second letter in September 2016 notifying Darrisaw‘s employer that it had not received any garnishment payments and explaining that the Agency could take legal action if the employer failed to comply with the garnishment order. Darrisaw‘s employer began garnishing her wages shortly after receiving the second letter.
Darrisaw filed a pro se complaint against the Agency for alleged violations of the Fair Debt Collection Practices Act,
Darrisaw alleges that the debts the Agency sought to collect were “assigned to [her] in error, either on the part of the lender, the [Department of Education], or the [Agency].” She alleges that she “does not owe the debt” the Agency sought to collect and that the Agency “abdicated its responsibilities . . . to maintain procedures reasonably adapted to avoid such an error.” She also asserts that the Agency made “false or misleading representations,” was “negligen[t],” and “fail[ed] to validate the debt.” And she accuses the Agency of engaging in “fraudulent” business practices.
The Agency moved to dismiss Darrisaw‘s claim under the Fair Debt Collection Practices Act. See
II. STANDARD OF REVIEW
We review de novo the dismissal of a complaint. Culverhouse v. Paulson & Co., 813 F.3d 991, 993 (11th Cir. 2016). We construe the allegations of a pro se complaint liberally, in the light most favorable to the plaintiff. Dixon v. Hodges, 887 F.3d 1235, 1237 (11th Cir. 2018).
Congress enacted the Higher Education Act of 1965 “[t]o strengthen the educational resources of our colleges and universities and to provide financial assistance for students in postsecondary and higher education.” Higher Education Act of 1965, Pub. L. No. 89-329, 79 Stat. 1219, 1219; see also Cliff v. Payco Gen. Am. Credits, Inc., 363 F.3d 1113, 1122 (11th Cir. 2004). Title IV of the Act empowers “the Secretary of Education to administer several federal student loan and grant programs, including the Federal Family Education Loan Program.” Cliff, 363 F.3d at 1122; see also
Guaranty agencies are either states or nonprofit organizations that agree with the Secretary to administer a loan-guarantee program under the Higher Education Act.
Because guaranty agencies must recover and safeguard money that belongs to the federal government, federal law regulates their relationships with the Secretary. The Higher Education Act requires the agreements between guaranty agencies and the Secretary to establish procedures “to protect the United States from the risk of unreasonable loss” and “to assure that due diligence will be exercised in the collection of loans insured under the program.”
We must decide whether the Agency acted as a “debt collector” when it attempted to collect student-loan debts from Darrisaw that she never incurred.
We have held that a guaranty agency acts “incidental to a bona fide fiduciary obligation” when it attempts to collect a debt from a borrower who defaulted on a federal student loan. Pelfrey v. Educ. Credit Mgmt. Corp., 208 F.3d 945, 945 (11th Cir. 2000) (internal quotation marks
Darrisaw argues that a guaranty agency is not protecting federal assets when it attempts to collect a nonexistent debt, so it does not act “incidental to a bona fide fiduciary obligation” in that circumstance. She points to federal regulations acknowledging that guaranty agencies sometimes perform tasks “outside of their [federal] guaranty activities” and requiring guaranty agencies “to ensure that Federal funds are not subsidizing non-[federal] guaranty activity.” 61 Fed. Reg. 49,382, 49,382 (Sept. 19, 1996). She also maintains that the Higher Education Act requires guaranty agencies to exercise “due diligence . . . in the collection of loans insured under the program“—but not in the collection of false, nonexistent loans.
The Agency responds that application of the fiduciary-obligation exception does not depend on whether the debt a guaranty agency attempts to collect is valid or nonexistent. It points to the text of the Act, which says the exception applies whenever a person attempts to collect any debt that is “owed or due or asserted to be owed or due another” if the activity “is incidental to a bona fide fiduciary obligation.”
We agree with the Agency that Darrisaw‘s interpretation of the phrase “incidental to a bona fide fiduciary obligation” would read out of the statute the language about debts “asserted to be owed or due another.”
Congress easily could have written the Act to impose liability on persons who attempt to collect nonexistent debts pursuant to a fiduciary obligation. Congress could have narrowed the exception to the definition of “debt collector” to cover only persons attempting to collect debts “owed or due” another—that is, it could have omitted the phrase “asserted to be owed or due” from the exception. But Congress made a different choice. And to give effect to that choice, we must conclude that whether a debt is “owed” or only “asserted to be owed” is not dispositive of whether the exception applies. What matters is not whether the debt is real or nonexistent, but whether the guaranty agency acted “incidental to a bona fide fiduciary obligation” in attempting to collect it.
Darrisaw contends that our interpretation of the fiduciary-obligation exception would allow a guaranty agency that sometimes collects valid debts for the Secretary to commit fraud by collecting debts that it knows never existed, but we disagree. To fall within the exception, a person must act “incidental to a bona fide fiduciary obligation.”
The dissent argues that we must “rewrite” the fiduciary-obligation exception to conclude that a guaranty agency does not act incidental to a good-faith fiduciary obligation when it acts in bad faith to collect a nonexistent debt. Dissenting Op. at 21. Not true. To be sure, as the dissent points out, the adjective “bona fide” modifies the term “fiduciary obligation.”
Although a guaranty agency may not claim the fiduciary-obligation exception if it acts in bad faith, the text of the Act makes clear that it need not be perfect. After all, the exception applies even to those who collect debts that are only “asserted to be owed.”
The problem for Darrisaw is that her complaint fails to allege that the Agency acted in bad faith. She alleges that the debts the Agency sought to collect were “assigned to [her] in error, either on the part of the lender, the [Department of Education], or the [Agency].” She accuses the Agency of “abdicat[ing] its responsibilities . . . to maintain procedures reasonably adapted to avoid such an error.” And she asserts that the Agency made “false or misleading representations,” was “negligen[t],” and “fail[ed] to validate the debt.” That is, Darrisaw‘s complaint alleges that the Agency negligently but mistakenly tried to collect a debt she did not owe, not that the Agency purposefully sought to collect a debt it knew she did not owe. When asked at oral argument whether the complaint alleged that the Agency acted in bad faith, even Darrisaw‘s counsel did not contend that the complaint alleged the Agency knew the debt it sought to collect was nonexistent. Oral Argument at 3:43–5:08 (Dec. 3, 2019). Although Darrisaw‘s complaint accuses the Agency of engaging in “fraudulent” business practices, that conclusory allegation of “fraud” is a legal conclusion we are not required to accept as true. See Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009).
Considering only the factual allegations of the complaint, and construing them liberally in the light most favorable to Darrisaw, she has not plausibly alleged that the Agency acted with “[d]ishonesty of belief, purpose, or motive” in attempting to collect the debts from her. Bad Faith, Black‘s Law Dictionary (11th ed. 2019). Because a defendant‘s status as a “debt collector” is an element of a plaintiff‘s claim under the Act, it was Darrisaw‘s burden to allege facts plausibly establishing that the Agency qualifies as a debt collector. See Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216, 1218 (11th Cir. 2012). She failed to do so, and the district court correctly dismissed her complaint.
IV. CONCLUSION
We AFFIRM the dismissal of Darrisaw‘s complaint.
MARTIN, Circuit Judge, dissenting:
The majority affirms dismissal of Ms. Darrisaw‘s pro se complaint, giving the reason that she did not plausibly allege that the Pennsylvania Higher Education Assistance Agency‘s (“PHEAA“) collection efforts were undertaken in bad faith. I dissent because my reading of the statute that excepts those who are acting as fiduciaries does not support this result. As I understand it, a guaranty agency acts as a fiduciary to the Department of Education—and is thus exempt from limitations put on debt collectors—only when it
I.
Under the Fair Debt Collection Practices Act (“FDCPA“), a person is not a “debt collector” if they are “collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity [] is incidental to a bona fide fiduciary obligation.”
The majority is correct in recognizing that a guaranty agency like PHEAA can act pursuant to a “bona fide fiduciary obligation” to the federal government when attempting to collect defaulted student loan debt. See Pelfrey v. Educ. Credit Mgmt. Corp., 71 F. Supp. 2d 1161, 1180 (N.D. Ala. 1999), aff‘d, 208 F.3d 945 (11th Cir. 2000) (per curiam). That is because when a guaranty agency makes a “default payment” to a private lender to acquire defaulted student loan debt, it does so using federal funds. Id. Given that federal funds are used to acquire the defaulted loans, they remain assets of the Department of Education throughout the collection process. Id. (citing
As Ms. Darrisaw points out, however, this does not mean that an agency acting as a fiduciary for some loans is given fiduciary status for everything else it does. See Federal Family Education Loan (FFEL) Program, 61 Fed. Reg. 49,382, 49,382 (Sept. 19, 1996) (recognizing that guaranty agencies may act “outside of their [federal loan program] guaranty activities“); see also Peete-Bey v. Educ. Credit Mgmt. Corp., 131 F. Supp. 3d 422, 429 n.4 (D. Md. 2015) (observing that a company which “often acts as a guarantor” does not always act in that capacity). For example here, when a guarantee agency collects debt that is not part of a federal loan program, it is not acting as a fiduciary to the federal government because it is not attempting to recover or safeguard federal assets. See
Thus, an agency taking collection actions is not acting “incidental to a fiduciary obligation” when it tries to collect a nonexistent
II.
The majority offers fiduciary protection to PHEAA by relying on what I view as an erroneous interpretation of the fiduciary-obligation exception. I believe the majority makes two principal mistakes in its analysis.
a. The Majority Incorrectly Concludes That Ms. Darrisaw‘s Interpretation of the Exception Renders Meaningless the Term “Assert[ed].”
The majority says Ms. Darrisaw‘s interpretation of the FDCPA, which limits the exception to agencies collecting existing federal student loans, would render inoperable the phrase “asserted to be owed or due.” Maj. Op. at 9–10. The majority correctly points out that the fiduciary-obligation exception applies not only to the collection of debts that are “owed or due,” but also to debts that are merely “asserted to be owed or due.”
b. The Majority Incorrectly Concludes that a Guaranty Agency Must Act in Bad Faith to Fall Outside the Scope of the Exception.
The majority opinion says the fiduciary-obligation exception applies even when a guaranty agency attempts to collect a debt that never existed, as long as it does so in “good faith.” Maj. Op. at 12. The majority opinion starts from the premise that “bona fide” means “in or with good faith.” Id. (alteration adopted). The opinion then says that a guaranty agency “acts incidental to a bona fide fiduciary obligation” whenever it “acts in good faith to collect a debt.” Id. at 13. I reject this interpretation of the statute.
In my view, the majority‘s result can only be achieved by a grammatically incoherent reading of the exception. Substituting the words “good faith” for the words “bona fide” in the statute, as the majority proposes, would make the exception apply to “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity [] is incidental to a [good faith] fiduciary obligation.”
III.
Based on this rewriting of the fiduciary-obligation exception, the majority says a plaintiff bringing an FDCPA claim against a guaranty agency must specifically plead that the agency acted in “bad faith.” Again, the words “bad faith” do not appear in the statute, so imposing the obligation on Ms. Darrisaw to specifically plead bad faith would have required her to be able to see into the future to anticipate the interpretation of the statute given by the majority opinion here. Even if I were to accept the majority‘s interpretation as correct, I would hold that Ms. Darrisaw‘s complaint adequately alleges PHEAA acted in “bad faith.”
In an appeal from the dismissal of a complaint, we must “accept[] the factual allegations in the complaint as true and constru[e] them in the light most favorable to the plaintiff.” Fourth Estate Pub. Benefit Corp. v. Wall-Street.com, LLC, 856 F.3d 1338, 1339 (11th Cir. 2017) (quotation marks omitted). Complaints by pro se litigants, “however inartfully pleaded, must be held to less stringent standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551 U.S. 89, 94, 127 S. Ct. 2197, 2200 (2007) (per curiam) (quotation marks omitted). This more liberal pleading standard for pro se plaintiffs requires federal courts to “look beyond the labels” used in a complaint and instead to the substance of the plaintiff‘s allegations when determining if the plaintiff has stated a claim. See Means v. Alabama, 209 F.3d 1241, 1242 (11th Cir. 2000) (per curiam).
The gravamen of Ms. Darrisaw‘s complaint is that PHEAA tried collecting debt from her that did not exist, and that it continued its collection efforts even after acknowledging that Ms. Darrisaw owed it nothing. She alleges, for instance, that after PHEAA told her that “its records did not contain any reference to [the debt],” she considered future collection attempts to be “dubious” and part of “a fake debt collection scam.” She said that notwithstanding her efforts to obtain information about this so-called debt from PHEAA, that it “concealed material facts” from her. Ms. Darrisaw also alleges that because PHEAA denied any knowledge or record of her student loan debt, that it “knowingly violate[d] the FDCPA” when it attempted to collect on the loan through a treasury offset. Finally, she claims that after PHEAA denied, for a second time, that she had “an[y] outstanding student loan debt with [PHEAA],” it “still characterize[d] the debt as owed.” On these facts, Ms. Darrisaw has by any measure alleged bad faith on the part of PHEAA. Cf. Westmoreland Cty. Emp. Ret. Sys. v. Parkinson, 727 F.3d 719, 726 (7th Cir. 2013) (observing that in the fiduciary context, “conscious” wrongdoing constitutes “bad faith“).
It‘s true, as the majority notes, that Ms. Darrisaw‘s complaint at times describes
Therefore, even applying the majority‘s interpretation of the fiduciary-obligation exception, I would reverse the District Court‘s dismissal of Ms. Darrisaw‘s complaint. I respectfully dissent from the majority‘s decision to allow that dismissal to stand.