United States District Court, D. Nebraska
JESSICA OLSEN, on behalf of herself and all others similarly situated, and TERI R. SMITH, on behalf of herself and all others similarly situated, Plaintiffs,
NELNET, INC., a Nebraska Corporation, NELNET DIVERSIFIED SOLUTIONS, LLC, a Nebraska limited liability company, and NELNET SERVICING LLC, a Nebraska limited liability company, Defendants.
MEMORANDUM AND ORDER
M. Gerrard Chief United States District Judge
plaintiffs' amended complaint alleges a class action
claim for damages regarding the defendants' conduct in
the servicing of their student loans. Filing 37. The
defendants move for dismissal pursuant to Fed.R.Civ.P.
12(b)(6) arguing that the plaintiff failed to state a claim
for relief. Filing 39. For the reasons that follow, the Court
will grant the defendants' motion in part, and deny the
motion in part.
STANDARD OF REVIEW
survive a Rule 12(b)(6) motion to dismiss, a complaint must
set forth a short and plain statement of the claim showing
that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2).
This standard does not require detailed factual allegations,
but it demands more than an unadorned accusation.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The
complaint must provide more than labels and conclusions; and
a formulaic recitation of the elements of a cause of action
will not suffice. Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007).
complaint must also contain sufficient factual matter,
accepted as true, to state a claim for relief that is
plausible on its face. Iqbal, 556 U.S. at 678. 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. Id. Where the well-pleaded facts do not
permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged-but it has not
shown-that the pleader is entitled to relief. Id. at
assessing a motion to dismiss, a court must take all the
factual allegations in the complaint as true, but is not
bound to accept as true a legal conclusion couched as a
factual allegation. Twombly, 550 U.S. at 555. The
facts alleged must raise a reasonable expectation that
discovery will reveal evidence to substantiate the necessary
elements of the plaintiff's claim. See Id. at
545. The court must assume the truth of the plaintiff's
factual allegations, and a well-pleaded complaint may
proceed, even if it strikes a savvy judge that actual proof
of those facts is improbable, and that recovery is very
remote and unlikely. Id. at 556.
motion to dismiss under Rule 12(b)(6) tests only the
sufficiency of the allegations in the complaint, not the
sufficiency of the evidence alleged in support of those
allegations. Stamm v. Cty. of Cheyenne, Neb., 326
F.Supp.3d 832, 847 (D. Neb. 2018); Harrington v. Hall
Cty. Bd. of Supervisors, No. 4:15-CV-3052, 2016 WL
1274534, at *4 (D. Neb. Mar. 31, 2016).
defendants are Nebraska corporations. Filing 37 at 5.
Defendant Nelnet Servicing, LLC is a wholly-owned subsidiary
of defendant Nelnet Diversified Solutions LLC, which is a
wholly-owned subsidiary of defendant Nelnet Inc. Id.
The defendants administer, service and collect student loans
throughout the United States. Additionally, Nelnet, Inc. owns
over fifty other subsidiaries that also service and collect
student loans. Filing 37 at 4. The defendants and three other
private businesses contract with the federal Department of
Education regarding the administration and collection of
student loans owned by the Department. Filing 37 at 5. The
two loan programs involved in this matter are the Federal
Direct Loan Program, which are loans that originate directly
with the Department of Education, and loans purchased by the
Department pursuant to the Federal Family Education Loan
who cannot afford to repay their loan pursuant to the
standard repayment plan may enroll in an income-based, or
income-driven repayment plan. Those plans allow the
borrower's monthly payment to be capped at fifteen
percent of the borrower's discretionary income with
discharge of the remaining debt after twenty-five years of
qualifying payments. Filing 37 at 6-7. Income-driven plans
are renewed annually, with the borrower filing an application
that includes documentary proof of the borrower's income.
Filing 37 at 7.The lender or loan servicer is
required to notify the borrower when their annual renewal
application is due. This notification must be in writing, and
must be provided no sooner than 90 days, but no later than 60
days, prior to the borrower's deadline for renewal.
Id. The notice must also inform the borrower of the
consequences of failing to timely renew their repayment plan.
Id. Two such consequences are an increase in the
borrower's monthly payment to the amount that would be
due pursuant to a standard repayment plan, and capitalization
of the unpaid interest, which involves adding the current
interest due and owing to the unpaid loan balance.
submission of a renewal application and proof of income
entitles the borrower to certain protections. The
borrower's income-driven repayment plan may not be
cancelled while a renewal application is pending, and the
borrower's monthly payment must be maintained until the
renewal request has been fully processed. Id.
Further, loan servicers are directed to process income-driven
repayment applications within ten business days, and to
"promptly" determine new monthly payment amounts.
Id. Borrowers who lose the protections of an
income-driven repayment plan, and who can no longer afford to
make monthly payments pursuant to the standard repayment
plan, may ask to have their loan placed in forbearance.
Filing 37 at 8. Forbearance allows the borrower to
temporarily cease making payments during their period of
hardship, but forbearance delays progress toward obtaining
loan forgiveness, and any unpaid interest that accrues during
forbearance is capitalized to the unpaid loan balance.
Jessica Olsen is a citizen and resident of Oregon. Filing 37
at 4. Olsen consolidated her several student loans into a
single, federal direct consolidation loan pursuant to a
promissory note with the Department of Education.
Id. On March 7, 2014, Olsen enrolled in an
income-driven repayment plan offered by the Department of
Education. Filing 37 at 10. On December 5, 2014, the
defendants sent Olsen their standard renewal notice advising
her that her repayment plan would expire unless her renewal
documents were submitted within ten days of January 31, 2015.
Id. Olsen was advised that she could submit the
required documents at the Department of Education's
website. On February 10, Olsen submitted her complete renewal
application via the Department's website. However, around
February 16, the defendants canceled Olsen's
income-driven repayment plan and imposed a standard repayment
plan, billing her $968.10 per month. Id. The
defendants also capitalized $8, 669.08 in accrued interest.
Filing 37 at 11. Olsen's income-driven repayment plan was
not renewed for several months. Because she could not afford
the standard repayment amount, she was required to place her
loan into forbearance. Id. At the end of
forbearance, the defendants capitalized an additional $1,
061.90 of accrued interest to her loan balance. Id.
Teri R. Smith is a citizen and resident of Florida. Filing 37
at 4. Smith first enrolled in an income-driven repayment plan
in 2009 with loan servicer ACS Educational Services. Filing
37 at 12. In January 2017, Smith's loan servicer changed
to Conduent Educational Services, and she again timely
renewed her repayment plan with Conduent. Id. On
April 7, 2018, Smith timely submitted her renewal application
and proof of income to Conduent. Filing 37 at 13. Conduent
received Smith's renewal documentation on April 9. On
April 20, Smith's federal loan was reassigned to the
defendants. On May 18, the defendants began billing Smith for
the standard repayment amount of $903.34 and capitalized her
accrued interest. Id. On July 20, 2018, the
defendants notified Smith that her income-driven repayment
plan would be approved, lowering her monthly payment to
$77.52, but the lower monthly payment would not take effect
until September 20. Being unable to afford the $903.34
monthly charge, Smith was forced into forbearance and the
defendants again capitalized the interest that had accrued on
action complaint was filed against the defendants on June 8,
2018, identifying only Olsen as the class representative.
Filing 1. On September 25, an amended complaint was filed
identifying both Olsen and Smith as class representatives.
Filing 37. In summary, the plaintiffs allege the defendants;
(1) breached their servicing contract with the Department of
Education, (2) breached the promissory notes securing the
plaintiffs' consolidated loans, (3) tortiously interfered
with the promissory notes, (4) made negligent
misrepresentations regarding the plaintiffs' promissory
notes, and (5) unjustly enriched themselves at the
plaintiffs' expense. Filing 37 at 1.
Breach of the Servicing Contract
plaintiffs allege that Nelnet Servicing entered into a
servicing contract with the Department of Education on June
17, 2009, and that pursuant to the terms of that contract,
the defendants agreed to comply with all federal statutes and
regulations regarding the servicing of student loans. Filing
37 at 16-17. The plaintiffs allege that they are intended
third-party beneficiaries of the servicing contract between
the defendants and the Department of Education and that the
defendants materially breached the servicing agreement by
failing to administer their loans in accordance with the
federal statutes and regulations referenced in the contract.
Filing 37 at 17
defendants' argument for dismissal asserts that the
plaintiffs failed to allege facts showing that they are
intended third-party beneficiaries of the defendants'
servicing contract with the Department of Education. But,
even if the plaintiffs allege a plausible third-party
beneficiary claim, the defendants argue that the Higher
Education Act does not provide a private right of action, and
the plaintiffs are attempting an "end-run" around
the Act's enforcement regime. Filing 40 at 5-11.
Nebraska law, a third-party beneficiary must be acknowledged
by express stipulation or "by reasonable intendment that
the rights and interests of such unnamed parties were
contemplated and that provision was being made for
them." Podraza v. New Century Physicians of
Neb., 789 N.W.2d 260, 267 (Neb. 2010); BNSF Ry. Co.
v. Seats, Inc., 361 F.Supp.3d 947, 954 (D. Neb. 2019).
The party claiming ...