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United States v. Ellis

United States District Court, W.D. Pennsylvania

April 12, 2017

PAUL A. ELLIS, JR., Defendant.


          Alan N. Bloch United States District Judge

         AND NOW, this 12th day of April, 2017, in consideration of Defendant Paul A. Ellis, Jr.'s Motion to Dismiss Amended Complaint or for a More Definite Statement (Doc. No. 8) and memorandum in support thereof, filed in the above-captioned matter on August 30, 2016, and in further consideration of Plaintiff United States of America's memorandum in response thereto (Doc. No. 10), filed in the above-captioned matter on September 29, 2016, IT IS HEREBY ORDERED that, for the reasons set forth herein, Defendant's Motion is DENIED. IT IS FURTHER ORDERED, pursuant to Federal Rule of Civil Procedure 12(a)(4), that Defendant shall serve and file his answer to the Amended Complaint no later than April 26, 2017.

         I. Background

         Plaintiff seeks here to collect on a student loan debt allegedly incurred by Defendant and owed to Plaintiff. The Amended Complaint and attached promissory note and Certificate of Indebtedness (“Certificate”) contend that Defendant executed a promissory note to secure a student loan, and that Defendant defaulted on his obligation and is now indebted to Plaintiff as reinsurer of the loan in the principal amount of $290, 760.05 ($149, 348.12 principal and $141, 411.93 interest accrued through April 5, 2016). (Doc. Nos. 5, 5-1, 5-2). Notably, the Certificate was signed under penalty of perjury, pursuant to 28 U.S.C. § 1746(2), by a loan analyst for the United States Department of Education. (Doc. No. 5-1, at 2).

         More specifically, according to the Certificate, Defendant executed the promissory note in order to secure a Federal Family Education Loan Program Consolidation loan from AES/PHEAA (“the holder”). The Certificate further provides that the loan obligation was guaranteed by the Pennsylvania Higher Education Assistance Agency (“PHEAA”) and reinsured by the Department of Education under loan guaranty programs authorized under Title IV-B of the Higher Education Act of 1965, as amended, 20 U.S.C. § 1071 et seq. (34 C.F.R. pt. 682). The Certificate also indicates that when Defendant defaulted on his obligation, the holder filed a claim on the loan guarantee, and the guaranty agency, PHEAA, paid the claim. Additionally, according to the Certificate, PHEAA was then reimbursed for that claim payment by the Department of Education under its reinsurance agreement, and PHEAA later assigned its right and title to that loan to the Department of Education.

         Before the Court is Defendant's Motion to Dismiss Amended Complaint or for a More Definite Statement.

         II. Legal Analysis

         A. Lack of Jurisdiction

         First, Defendant contends that the Court lacks jurisdiction over this action because Plaintiff, as assignee of the promissory note, possesses only the rights of the original lender and thus may not bring suit in federal court since the original assignor could not have done so. In support of his claim, Defendant relies on the general principle that an assignee stands in the shoes of the assignor. Defendant fails to acknowledge, however, the existence of federal statutes that govern student loans such as those which Defendant received.

         In fact, this Court has rejected this exact argument set forth by Defendant, as have other courts that have considered similar contentions. As in the present case, United States v. Deuerling involved an action for a judgment on defaulted student loans reinsured by the Department of Education. See No. 14-642, 2015 WL 3442029 (W.D. Pa. May 28, 2015). Like Defendant here, the defendant in Deuerling also argued that the Court lacked jurisdiction over her case because the original assignor of the loans could not have filed suit in federal court. See id. at *1.

         As this Court explained in Deuerling, “[p]ursuant to the Higher Education Act, 20 U.S.C. § 1070 et seq., commercial lenders may provide educational loans to students, and a guaranty agency bears the risk of default.” Id. at *2; see also United States v. Norcross, No. 8-37, 2008 WL 4360877, at *1 (D. Mont. Sept. 23, 2008) (holding the same). In fact, the Certificate in this case specifically notes that, “[p]ursuant to 34 C.F.R. § 682.410(b)(4), once the guarantor pays on a default claim, the entire amount paid becomes due to the guarantor as principal.” (Doc. No. 5-1, at 2). “The federal government as reinsurer then bears the guarantor's risk, and if the federal government must fulfill its obligation to pay the guarantor, the student is indebted to the federal government.” Deuerling, 2015 WL 3442029, at *2 (citing 20 U.S.C. § 1078(c)(8)); see United States v. Norcross, 2008 WL 4360877, at *1; United States v. Dold, 462 F.Supp. 801, 804 (D.S.D. 1978). Moreover, 20 U.S.C. § 1080(b) clearly states that, upon payment of such claim, “the United States shall be subrogated for all of the rights of the holder of the obligation upon the insured loan and shall be entitled to an assignment of the note or other evidence of the insured loan by the insurance beneficiary.” Finally, 28 U.S.C. § 1345 provides that federal district courts have jurisdiction over civil actions commenced by the United States, as is clearly the case here.

         Therefore, according to the Amended Complaint and attached Certificate, Plaintiff was subrogated for the rights of the holder of the obligation as a result of its payment to the guaranty agency, and Plaintiff then properly initiated its collection action in this Court. Accordingly, Defendant's first argument, that this Court lacks jurisdiction to hear Plaintiff's claim, pursuant to Federal Rule of Civil Procedure 12(b)(1), is without merit.

         B. Failure to State a Claim upon Which Relief Can Be Granted

         Next, Defendant argues that, because Plaintiff's Amended Complaint fails to allege consideration, one of the terms of the contract at issue, Plaintiff has failed to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the factual allegations contained in the complaint must be accepted as true and must be construed in the light most favorable to the plaintiff, and the court must “'determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.'” Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)); see Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 n.8 (2007). Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” The complaint must “‘give the defendant fair notice of what the . . . claim is and ...

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