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Olsen v. Nelnet, Inc.

United States District Court, D. Nebraska

July 18, 2019

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,
v.
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

          John M. Gerrard Chief United States District Judge

         This matter is before the Court on the defendants' motion to certify for interlocutory appeal pursuant to 28 U.S.C. § 1292(b) (filing 46), issues determined in this Court's Memorandum and Order of May 21, 2019 (filing 45) granting in part and denying in part the defendants' motion to dismiss (filing 39). For the reasons that follow, the Court will deny the defendants' motion.

         I. STANDARD OF REVIEW

         "Permission to allow interlocutory appeals should be granted sparingly and with discrimination." Union Cty, Iowa v. Piper Jaffray & Co., Inc., 525 F.3d 643, 646 (8th Cir. 2008). The movant for certification bears the heavy burden of demonstrating that the case is the exceptional one in which immediate appeal is warranted. White v. Nix, 43 F.3d 374, 376 (8th Cir. 1994). It has long been the policy of courts to discourage piece-meal appeals because such appeals often result in additional and unnecessary burdens on the court and litigants. Union Cty, Iowa, 525 F.3d at 646. Permission to allow an interlocutory appeal is intended to be used only in the extraordinary cases, where resolution of the appeal might avoid protracted and expensive litigation. Id. Section 1292(b) interlocutory appeals are not intended merely to provide review of difficult rulings in hard cases. Id.

         Section 1292(b) establishes three criteria for certification: The Court must be of the opinion that (1) the order involves a controlling question of law; (2) there is substantial ground for difference of opinion; and (3) certification will materially advance the ultimate termination of the litigation. White, 43 F.3d at 377.

         II. DISCUSSION

         1. Breach of Contract Claims

         The first issue the defendants identify for certification is whether the plaintiffs may remedy claimed Higher Education Act violations by asserting various breach of contract claims. Filing 47 at 2. But the Court concluded that the plaintiffs' amended complaint did not allege a cause of action to remedy alleged Higher Education Act violations, and deemed the defendants' argument in this regard as a straw man. Filing 45 at 7. The plaintiffs allege that they were the third-party beneficiaries of the loan servicing contract between the defendants and the Department of Education, and that the defendants breached that contract. Filing 45 at 7-8. The Higher Education Act's regulations functioned only as the contractual duties the defendants owed to the third-party beneficiaries. Filing 45 at 8. Accordingly, the plaintiffs' amended complaint did not allege a cause of action to remedy violations of the Higher Education Act, but alleged a cause of action to remedy the defendants' breach of the loan servicing contract.

         The defendants seem to imply that a controverted issue in this matter is whether the Higher Education Act provides for a private right of action to enforce its regulations-but a private right of action is not what the plaintiffs alleged in their amended complaint. Filing 47 at 3-4. Again, the plaintiffs allege a contract breach, not the right to enforce the Higher Education Act's regulations. The defendants' straw man argument cannot function as a controlling issue of law upon which there is a substantial ground for difference of opinion. Nor do the defendants identify a substantial ground for difference of opinion when they cite this Court to cases that only concern private parties seeking to enforce the Higher Education Act, instead of cases where a private party alleges a breach of contract with the Higher Education Act's regulations functioning as the contractual provisions that were allegedly breached.

         The defendants also seek interlocutory review of this Court's finding that the plaintiffs alleged a plausible claim that they may be considered third-party beneficiaries of the loan servicing contract, and report that only one out-of-circuit case could be found addressing a student loan borrower's invocation of third-party beneficiary status. Filing 47 at 5. But the absence of caselaw does not constitute substantial ground for difference of opinion. See Union Cty., Iowa, 525 F.3d at 647. Further, the case cited by the defendants held that a pro se plaintiff's second amended complaint failed to plausibly allege that the defendants owed the plaintiff a duty. Johnson v. Affiliated Computer Servs., Inc., 3:10-CV-2333, 2011 WL 4011429, at *7 (N.D. Texas Sept. 9, 2011). That court did not determine that a loan servicing agreement-such as the one alleged to exist between the defendants and the Department of Education in the matter before this Court-failed to show that the plaintiff was a third-party beneficiary.

         The Court is not of the opinion that its order regarding the plaintiffs' breach of contract claims involves a controlling question of law where there is a substantial ground for a difference of opinion.

         2. Retroactive Application of 34 C.F.R. § 685.221(e)(8)

         Regulations specific to the Department of Education's income-based repayment plan are found at 34 C.F.R. § 685.221. As it currently exists, § 685.221(e) is titled "Eligibility documentation, verification, and notifications." Section 685.221(e)(8) delineates the Secretary's duties, obligations, and responsibilities regarding the annual redetermination of a borrower's eligibility for participation in an income-driven repayment plan and the adjustments that may be necessary if there is a change in the borrower's monthly repayment obligation. The plaintiffs alleged that the defendants were assigned the Secretary's loan servicing duties, which required the defendants to administer their income-driven repayment plan renewal applications consistent with the pertinent regulations. Filing 37 at 17-18. The plaintiffs allege that one such regulation is § 685.221(e)(8). Filing 37 at 10-12.

         In their motion to dismiss, the defendants argued that the plaintiffs executed their promissory notes in 2004, but § 685.221 did not take effect until 2009. Filing 40 at 15. Thus, according to the defendants, the plaintiffs seek to retroactively impose regulatory changes and thereby modify the terms of the plaintiff's promissory notes. Filing 47 at 6. This Court concluded that the plain language found in § 685.221(a)(2)-that eligible loans mean any outstanding ...


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