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Laura v. Great Lakes Higher Education Guaranty Corp.

United States District Court, D. New Hampshire

February 1, 2018

James F. Laura
Great Lakes Higher Education Guaranty Corporation; Goal Financial, LLC; American Education Services Corporation; and Performant Recovery, Inc.

          Peter G. McGrath, Esq. Lisa Snow Wade, Esq. Scott H. Harris, Esq. Ashley B. Scott, Esq. Dianne E. Ricardo, Esq. John J. O'Connor, Esq. Robert A. McCall, Esq.


          Joseph N. Laplante United States District Judge

         In this action arising from an unpaid debt, plaintiff James F. Laura challenges as predatory the fact that defendants Great Lakes Higher Education Guaranty Corporation, Goal Financial, LLC, American Education Services Corporation (“AES”), and Performant Recovery, Inc., issued loans to Laura to finance his legal education knowing he would be unable to repay them --which he has, twenty years later, not been able to do.[1] Laura brought this action in Merrimack County Superior Court. The defendants removed it to this court, see 28 U.S.C. § 1441, which has jurisdiction under 28 U.S.C. § 1332(a) (diversity).

         The defendants now move to dismiss this action in its entirety. After reviewing the parties' filings and holding oral argument, the court grants the defendants' motions. Laura's claims arising from the origination of his loans are time-barred by New Hampshire's three-year statute of limitations. Even were they not, Laura has failed to allege facts sufficient to state a claim for relief against these defendants under the New Hampshire Consumer Protection Act, or theories of “predatory lending, ” breach of the implied covenant of good faith and fair dealing, unjust enrichment, and civil conspiracy.

         I. Applicable legal standard

         “A pleading that states a claim for relief must contain, ” among other things, “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). To satisfy this requirement, the plaintiff must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Martinez v. Petrenko, 792 F.3d 173, 179 (1st Cir. 2015) (internal quotations omitted). This standard “demands that a party do more than suggest in conclusory terms the existence of questions of fact about the elements of a claim.”[2] A.G. ex rel. Maddox v. Elsevier, Inc., 732 F.3d 77, 81 (1st Cir. 2013). The court may “grant a motion to dismiss based on an affirmative defense, such as the statute of limitations . . . ‘when the pleader's allegations leave no doubt that an asserted claim is time-barred.'” Centro Medico del Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 6 (1st Cir. 2005) (quoting LaChapelle v. Berkshire Life Ins. Co., 142 F.3d 507, 509 (1st Cir. 1998)).

         In resolving a motion to dismiss pursuant to Rule 12(b)(6), the court “begin[s] by identifying and disregarding statements in the complaint that merely offer legal conclusions couched as fact or threadbare recitals of the elements of a cause of action.” Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011) (internal quotations and original alterations omitted). The court then treats the “[n]on-conclusory factual allegations in the complaint . . . as true, ” id., and draws all reasonable inferences in the plaintiff's favor, Martino v. Forward Air, Inc., 609 F.3d 1, 2 (1st Cir. 2010). The following recitation of facts takes this approach.

         II. Background

         Laura attended the Franklin Pierce Law Center, now the University of New Hampshire School of Law, between 1996 and 1999.[3] He financed his legal education -- including his tuition and living expenses -- through loans obtained despite the fact that, at the time, he “was a ‘subprime borrower'” who “had no employment; no prospects of employment; no employment history of any significance; no money; no bank accounts; no credit, no credit history and no assets.”[4] By the time he graduated in 1999, Laura had amassed debt of approximately $165, 479.[5] Laura secured employment as an attorney following his graduation, earning approximately $30, 000 per year.[6]

         As a single parent supporting two children, Laura was granted a forbearance on his payments for financial hardship, though interest on his loans continued to accrue.[7] At some point after 2003, Laura exhausted his forbearance options with respect to his private loans and began making scheduled payments which, ultimately, he was unable to pay in full.[8] He conceded to the debt in an action in Hillsborough County Superior Court, and currently pays $100 per month to satisfy the judgment against him.[9]

         Laura likewise exhausted his forbearance options with respect to his subsidized and unsubsidized consolidated student loans.[10] He unsuccessfully attempted to negotiate a settlement with respect to these loans which, including interest, penalties, and other fees, carry a present balance of $157, 135 -- a sum greater than the initial principal.[11] Laura has likewise been unable to pay this sum. Following Laura's default, he alleges, “[t]he [d]efendants have made negative reports against [him] to the credit agencies for many years affecting his credit, ” as a result of which he has been denied “numerous mortgage refinances over the years costing him hundreds of thousands of dollars in excess interest, as well as being refused for other types of financing . . . .”[12]

         In June 2017, Laura received a notice from either Great Lakes or Performant (or both), indicating that his wages would be garnished to satisfy the debt.[13] Laura then filed this action in Merrimack County Superior Court on July 18, 2017, bringing a variety of common-law and statutory claims against the defendants on the theory that the defendants never should have issued the loans to a “subprime borrower” such as himself, and seeking to enjoin Great Lakes from garnishing his wages “at the rate of 15% of his disposable pay each pay period . . . .”[14]

         Defendants Great Lakes and Performant timely removed the action to this court, citing its diversity jurisdiction.[15] See 28 U.S.C. § 1332. All of the defendants who have been served[16] have moved either to dismiss the claims against them, see Fed.R.Civ.P. 12(b)(6), or for judgment on the pleadings, see Fed.R.Civ.P. 12(c) .[17]

         III. Analysis

         Laura brings the following claims against all defendants: “predatory lending” (Count 1), breach of the implied covenant of good faith and fair dealing (Count 2), violation of New Hampshire's Consumer Protection Act, N.H. Rev. Stat. Ann. § 358-A (Count 3), unjust enrichment (Count 4), and civil conspiracy (Count 5). Through these claims, he seeks to discharge his debt and, on top of that, obtain compensatory damages, punitive damages, enhanced compensatory damages, and his attorneys' fees.

         Laura's allegations in this action, distilled to their essence, amount to this: between 1996 and 1999, he applied for and obtained loans that the loan originators and/or their agents and successors[18] knew or should have known that he would not be able to repay. In the years since, he has in fact been unable to repay those loans. Though he has engaged in negotiations with the lenders and/or their agents, he has not obtained any loan modification or other relief beyond an unspecified period of forbearance. One or more of the defendants attempted to collect the debt through a notice that his wages may be garnished. Laura concedes that he is obligated to repay at least the private loans, to which he has confessed judgment.

         The majority of Laura's claims thus arise from the origination of the loans at issue. Only his claim for breach of the implied covenant of good faith and fair dealing implicates actions taken by the defendants after that timeframe. As the defendants contend, New Hampshire's three-year statute of limitations bars claims arising from the loans' origination, which occurred between eighteen and twenty-one years ago. Even if it did not, Laura's complaint fails to set forth facts that, even with all inferences drawn in his favor, would permit the court to conclude that these defendants may be liable for the misconduct alleged in any of his claims.[19]

         A. Statute of limitations

         In New Hampshire, “all personal actions, ” with some exceptions not relevant here, “may be brought only within 3 years of the act or omission complained of . . . .” N.H. Rev. Stat. Ann. § 508:4, I. Its discovery rule provides that,

when the injury and its causal relationship to the act or omission were not discovered and could not reasonably have been discovered at the time of the act or omission, the action shall be commenced within 3 years of the time the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, the injury and its causal relationship to the act or omission complained of.

Id. New Hampshire similarly imposes a three-year statute of limitations on claims brought under its Consumer Protection Act. Id. § 358-A:3, IV-a (exempting “[t]ransactions entered into more than 3 years prior to the time the plaintiff knew, or reasonably should have known, of the conduct alleged to be in violation of this chapter” from its provisions). Laura's recitation of facts in his complaint grounds his claims for “predatory lending” (Count 1), unjust enrichment (Count 4), and civil conspiracy (Count 5), as well as his claim under the Consumer Protection Act (Count 2), squarely in the time period during which he obtained the loans in question.

         Predatory lending. By the terms of the complaint, “predatory lending” encompasses “any lending practice that imposes unfair or abusive loan terms on a borrower” and “any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that the borrower doesn't need, doesn't want or cannot afford.”[20] The defendants engaged in such a practice, Laura contends, because “[i]t was undoubtedly obvious to the Defendants at the time they disbursed funds to the Plaintiff that he would be unable to repay such amounts . . . .”[21] Under the facts set forth in the complaint, these loans originated between 1996 and 1999. Accordingly, under these facts, even if New Hampshire recognized “predatory lending” as a cause of action (and it is not clear to the court, as discussed infra Part III.B.1, that it does), Laura's claim is time-barred.

         Consumer Protection Act. The same is true of Laura's claim under the Consumer Protection Act. He alleges that, though he “contracted with the Defendants for certain services to be provided and performed in a legal and professional manner, ” to wit, “provid[ing] financing within [his] means, ” they instead “deceptively made [him] believe he was eligible to receive the loans the Defendants[] provided when it fact he was not.”[22] He further alleges that the defendants issued to him loans “that they knew [he] was not eligible for and could not repay, ” knowing and expecting that he would default, allowing them to “charge the Plaintiff interest, fees and penalties to benefit themselves.”[23] Finally, he contends that the defendants “misrepresented several material issues” and “failed to disclose all terms and conditions of the loans, ” though he does not specify which material issues were misrepresented and what terms and conditions the defendants failed to disclose.[24] All of these allegations refer to the origination of the loan and the circumstances surrounding, and representations made in connection with, that origination between 1996 and 1999. This claim is, therefore, also time-barred.

         At oral argument, Laura contended that the June 21, 2017 letter concerning wage garnishment constituted an actionable violation of the Consumer Protection Act within the three-year limitations period. Specifically, he clarified that he intended to bring his claim under the Consumer Protection Act through New Hampshire's Unfair, Deceptive, or Unreasonable Collection Practices Act (UDUCPA), N.H. Rev. Stat. Ann. § 358-C, invoking the provision of that statute under which “[a]ny violation of the provisions of this chapter shall also constitute an unfair and deceptive act or practice within the meaning of RSA 358-A:2 and may be enforced by the attorney general pursuant to RSA 358-A.” Id. § 358-C:4, VI. The June 21, 2017 wage garnishment letter, he contended, constituted a UDUCPA violation sufficient to trigger liability under the Consumer Protection Act. Courts in this district have expressed skepticism about whether this provision allows for a private right actions. See Gustafson v. Recovery Servs., No. 14CV305-JD, 2015 WL 5009108, at *4 (D.N.H. Aug. 21, 2015) (collecting cases). Even if it did, Laura has not pleaded any claim under the UDUCPA, alleged that the June 21, 2017 letter violated the UDUCPA, or included any allegations in his complaint that the UDUCPA provided a predicate for his Consumer Protection Act claim.

         Unjust enrichment. Laura's claim for unjust enrichment is predicated on his “predatory lending” and Consumer Protection Act claims. Specifically, he alleges that the Defendants purposefully engaged in “predatory lending” and the behavior allegedly underlying his Consumer Protection Act claim “in a deceptive attempt to pray [sic] upon unsuspecting borrowers like the plaintiff to unjustly enrichment themselves.”[25] Because it relies on the allegations underlying those two time-barred claims, New Hampshire's three-year statute of limitations on personal actions similarly bars Laura's claim for unjust enrichment.

         Good faith and fair dealing and civil conspiracy. It is not so clear to the court that Laura's claim for breach of the implied covenant of good faith and fair dealing (Count 2) is time-barred. To the extent that he invokes contract formation as the basis for his claim, see Birch Broad., Inc. v. Capitol Broad. Corp., 161 N.H. 192, 198 (2010) (implied good-faith obligations include the category of “contract formation”), those claims would be time-barred because the contract formation occurred between 1996 and 1999, more than three years before Laura filed his complaint.

         He predicates this claim not only on the loan's origination, however, but also on the defendants' refusal to modify the terms of his loan or negotiate some alternative resolution and on defendants' attempts to garnish his wages.[26]The complaint offers no clarity on the timeframe in which those actions occurred. To the extent that any occurred within the three years before Laura filed his complaint, the statute of limitations would not bar that claim. The same may be said of Laura's civil conspiracy claim (Count 5). The court concludes, however, that both of these claims must be dismissed for other reasons, as discussed infra Part III.B.2, 5.[27]

         The discovery rule. In objecting to Performant's motion, Laura invokes the discovery rule, arguing that the court must hold an evidentiary hearing before dismissing his claims on statute of limitations grounds.[28] “Once the defendant has established that the statute of limitations would bar the action, the plaintiff has the burden of raising and proving that the discovery rule is applicable to an action otherwise barred by the statute of limitations.” Glines v. Bruk, 140 N.H. 180, 181 (1995). Laura has not met that burden here. Laura does not plead any facts -- or assert in his objections any facts, or indicate what facts may come to light through discovery -- that suggest that the court should, or even permit that the court may, draw the inference that Laura may have been unaware of the alleged misconduct at the time he obtained the loans.[29]

         The terms of the complaint compel, instead, the opposite conclusion. His claims are premised on the conclusion that the defendants knew or should have known, at the time they (or their predecessors or agents) lent him money, that he would not be able to repay it. The bases pleaded for this knowledge -- his lack of employment or prospects for employment, bank accounts, credit, credit history, or assets, and the fact that he was a single parent with minor children to support[30] -- were as available to the plaintiff as to the defendants at that time, as was the fact that he did obtain the loans despite these considerations.[31] Thus, the complaint, even read in the light most favorable to the plaintiff, does not support a conclusion that the discovery rule precludes dismissal of these claims, or that Laura is entitled to an evidentiary hearing before their dismissal.

         B. Failure to state a claim

         Even setting aside the statute of limitations, Laura's complaint must be dismissed because he fails to plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged” with respect to any claim. Martinez, 792 F.3d at 179. Notably, Laura does not object to any of the defendants' motions to dismiss or for judgment on the pleadings on the merits. He objects solely on the grounds that he has not yet conducted discovery in this case, and thus the motions are premature.[32]But the court's task in resolving a motion to dismiss under Rule 12(b)(6) is to decide “whether [the plaintiff] is entitled to undertake discovery in furtherance of the pleaded claim.” Rodi v. S. New Eng. Sch. of Law, 389 F.3d 5, 13 (1st Cir. 2004). That discovery has not yet commenced does not alleviate the plaintiff of his burden of setting forth facts in his complaint from which a court may reasonably conclude that he may be entitled to undertake that discovery. Here, Laura has not carried that burden as to any claim.

         1. “Predatory lending” (Count 1)

         As discussed supra, Laura captions his first claim as “Predatory Lending.” He alleges, in effect, that the defendants[33] tortuously lent him money despite knowing or having reason to know he could not repay it, thus opening him up to “exorbitant interest, penalties and fees.”[34] He has not, however, offered an authority to establish “predatory lending” as a recognized common-law cause of action under New Hampshire law. Nor can he ground such a claim on federal regulations concerning registration of national banks that deal in municipal securities, see 12 C.F.R. § 10, or on Regulation Z promulgated under the Truth in Lending Act, see 12 C.F.R. §§ 1026.37 and 1026.38, and the Home Mortgage Disclosure Act, 12 U.S.C. § 2801 et seq., which concern mortgage lenders and mortgage loans, the existence of which Laura has not alleged.[35] On the facts alleged, therefore, Laura has not established the availability of, or stated a claim for, “predatory lending.”

         2. Breach of the covenant of good faith and fair dealing (Count 2)

         New Hampshire law recognizes the applicability of the implied covenant of good faith and fair dealing in three circumstances: “(1) contract formation; (2) termination of at-will employment agreements; and (3) limitation of discretion in contractual performance.” Birch Broad, 161 N.H. at 198. Invoking the first and third of these categories, Laura contends that the defendants breached this covenant by rejecting his efforts to “work out an affordable repayment plan, ” “refus[ing] to accept anything except the amounts ...

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