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National Education Financial Services, Inc. v. U.S. Bank, National Association

United States District Court, Third Circuit

November 27, 2013



Restrepo, J.

On November 28, 2012, Plaintiffs National Education Financial Services, Inc. and National Education Services, LLC (collectively “National Education”) filed suit against U.S. Bank, National Association (“U.S. Bank”), bringing contract, quasi-contract and tort claims. Plaintiffs filed an amended complaint on February 25, 2013, to which Defendant moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, the motion is granted, in part, and Plaintiffs are granted leave to amend consistent with this memorandum.


a. The Formation of a Contract

The facts, as alleged in the Amended Complaint, are as follows: Plaintiffs are “established marketer[s], originator[s] and servicer[s] of federal and private student loans both for many student lending institutions and on [their] own account.” Am. Compl. ¶ 7. Plaintiffs market these “education loans by working closely with college and university financial aid offices.” Id. ¶ 8. In or around December of 2010, Defendant contacted Plaintiffs and expressed interest “in contracting National Education to market U.S. Bank’s student loan product.” Id. ¶ 12. In essence, Plaintiffs, using their expertise and contacts, “would market the U.S. Bank student loan product to hundreds of schools and incalculable numbers of students.” Id. ¶ 13.

On or about February 18, 2011, the parties entered into a “marketing agreement” (“the Agreement”), which is the basis for the dispute here. Id. ¶ 15. The Agreement was derived from a template provided by Plaintiffs, but substantially edited by Defendant. Id. ¶ 16. Defendant was represented by counsel, while Plaintiffs, two related corporations with more than fifty employees, Oral Arg. Tr. 4:5-7, were not represented, Am. Compl. ¶ 16.

b. Relevant Terms of the Contract at Issue

Important terms of the Agreement, Doc. No. 9 at 24-39, include:

• Section 2.1: “Obligations of U.S. Bank.” Section 2.1 provides that Defendant agrees to (a) cooperate with Plaintiffs in the marketing of student loans; (b) let Plaintiffs use Defendant’s marks; (c)-(d) provide timely responses to Plaintiffs; (e) monitor the business that comes from Plaintiffs’ work under the contract so that Plaintiffs are adequately compensated; and, (f) provide a unique code that would allow Plaintiffs to list co-branded student loans on industry lender lists. Id. at 26-27.
• Section 2.6: “Reputation.” Section 2.6 provides that each party acknowledges the importance of good will and the good reputation of the other parties in the education loan environment, and thus agrees to “take no action . . . that reasonably may be anticipated to reflect badly on any of the other Parties.” Id. at 28.
• Section 5: “Termination.” Section 5 provides detail about the termination process. Section 5.1 provides that the Agreement shall last for two years, “unless otherwise terminated earlier in accordance with Section 5.2 or Section 5.3.” Section 5.2 (“General Termination”) provides that “any Party may terminate this Agreement for convenience upon 60 days written notice to the other Parties.” Id. at 30-31.
• Section 11.1: “Governing Law.” Section 11.1 selects Delaware law as governing the terms of the contract. Id. at 36.
• Section 11.8: “Entire Agreement and Waiver.” Section 11.8 is a full integration clause. Id. at 38.

c. The Performance and Termination of the Contract

The Amended Complaint further alleges that after executing the Agreement, Plaintiffs shifted approximately eighty-five percent of their resources to promoting and marketing Defendant’s loan products. Id. ¶ 20. In doing so, Plaintiffs moved their business away from other national lending institutions and turned down opportunities for new business. Id.

Further, the market for student loans is a highly competitive one, centering around a 75-day “window of opportunity, ” where schools decide what lenders may market their products to their students. Id. ¶ 22. This time period is resource intensive, and requires a full-time commitment of resources from businesses like Plaintiffs. Id.

Despite the Agreement being signed late in the year, the first year was successful for Plaintiffs, who procured approximately four million dollars in disbursement volume for Defendant. Id. ¶ 28. During year two of the Agreement, Plaintiffs continued their work for Defendant, including during the intensive “window of opportunity.” Id. Plaintiffs did so with the active encouragement of Defendant, including on March 8 and March 26, 2012. Id. ¶ 30. However, on March 27, 2012, Defendant directly notified educational institutions that it was immediately ending its student-loan line of business, including the very student-loan products that Plaintiffs were actively marketing. Id. ¶ 32. Two days later, on March 29, 2012, Defendant notified Plaintiffs of its decision to leave the market and terminate the Agreement. Id. ¶ 33. Because Plaintiffs were deep into the so-called “window of opportunity, ” they were unable to mitigate their damages, and thus were significantly harmed by this abrupt exit. Id. ¶ 34.

d. Procedural History

Plaintiffs filed this suit on November 28, 2012 and filed an Amended Complaint on February 25, 2013. The Amended Complaint contains nine counts: negligent misrepresentation, intentional misrepresentation, fraud in the inducement, fraud in the execution, violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, [1] breach of implied-in-fact contract, promissory estoppel, breach of implied-at-law contract, and breach of contract.

On March 14, 2013, Defendant filed a motion to dismiss the Amended Complaint, in part. The Court heard argument on September 19, 2013, and received supplemental briefing from the parties shortly thereafter.


In reviewing a motion to dismiss for failure to state a claim, a district court must accept as true all well-pleaded allegations and draw all reasonable inferences in favor of the non-moving party. See Bd. of Trs. of Bricklayers & Allied Craftsman Local 6 of N.J. Welfare Fund v. Wettlin Assocs., 237 F.3d 270, 272 (3d Cir. 2001). A court need not, however, credit “bald assertions” or “legal conclusions.” Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

To survive a motion to dismiss, a complaint must include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “Factual allegations [in a complaint] must be enough to raise a right to relief above the speculative level.” Id. at 555. Although the federal rules impose no probability requirement at the pleading stage, a plaintiff must present “enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element[s]” of a cause of action. Phillips v. Cnty of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Simply reciting the elements will not suffice. Id.; see also Phillips, 515 F.3d at 231. Finally, when, as here, a complaint contains attachments, examination of the attachments is proper when considering a motion to dismiss. Sands v. McCormick, 502 F.3d 263, 268 (3d Cir. 2007) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).


a. Intentional Misrepresentation, Fraud in the Inducement and Negligent Misrepresentation

Defendant seeks dismissal of Plaintiffs’ Intentional Misrepresentation, Fraud in the Inducement and Negligent Misrepresentation claims.

“Under Pennsylvania law . . . a fraudulent misrepresentation[2] is established by presenting clear and convincing evidence of (1) a misrepresentation of a material fact; (2) a fraudulent utterance thereof by the defendant; (3) an intention that the other person would thereby be induced to act, or to refrain from acting; (4) justifiable reliance by the recipient; and (5) damage to the recipient caused by this reliance.”

In re Cara Corp., 148 B.R. 760, 771 (Bankr. E.D. Pa. 1992). Fraud in the inducement, to the extent it is a separate cause of action from intentional misrepresentation, has a virtually identical standard. See Partners Coffee Co., LLC v. Oceana Servs. & Prods. Co., 700 F.Supp.2d 720, 727 (W.D. Pa. 2010). Further, the only distinguishing characteristics between intentional and negligent misrepresentations are a) the state of mind of the actor and b) the duty commonly assumed in negligence actions. See Weisblatt v. Minnesota Mut. Life Ins. Co., 4 F.Supp.2d 371, 380 (E.D. Pa. 1998).

Plaintiffs argue that there were two interrelated mispresentations. First, that Defendant induced Plaintiffs to believe that Defendant was guaranteeing that it would actually make loans to qualified borrowers, when in fact the Agreement only commits Defendant to “cooperate” with Plaintiffs. Am. Compl ¶¶ 38-39, 46-47, 56-59. And second, that Defendant knew or should have known that it was not intending to make loans for two years, and hid this fact in negotiating the termination-for-convenience clause. Plaintiffs ask that this Court to allow them to conduct discovery so that they may find extrinsic evidence to demonstrate that such a fraud (or negligent misrepresentation) occurred. Defendant ...

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