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Dawson v. Great Lakes Education Loan Services Inc.

United States District Court, W.D. Wisconsin

September 28, 2016



          BARBARA B. CRABB District Judge.

         Plaintiff Meredith D. Dawson has filed this putative class action lawsuit against defendants Great Lakes Education Loan Services, Inc., Great Lakes Higher Education Corporation and certain Great Lakes Education Loan Services, Inc. executives. She contends that defendants violated the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. §§ 1961-1964) (RICO), were negligent in capitalizing certain types of interest that had accrued on plaintiff's loans and made negligent misrepresentations in connection with their actions.

         Presently before the court is plaintiff's motion for class certification under Fed.R.Civ.P. 23(b)(3), which I am denying. At this stage of the litigation, plaintiff's claims remain too vague and her injury too ill-defined to enable the court to conduct the necessary inquiry into whether Rule 23(a) and Rule 23(b)(3)'s requirements are met. I will give her an opportunity to submit additional briefing in support of her motion for class certification and I will deny defendants' motion to submit supplemental briefing as moot.

         From the declarations, depositions and other materials submitted by the parties, I find the following facts for the purpose of deciding plaintiff's motion for class certification.


         Great Lakes Education Loan Service, Inc. and Great Lakes Higher Education Corporation are student loan servicing companies that contract with the United States Department of Education to service borrowers' accounts. (The parties do not distinguish between these two entities in their briefs, so I will refer to them collectively as “Great Lakes.”) Defendants Jill Leitl, David Lentz and Michael Walker are officers for Great Lakes.

         The majority of loans made by Great Lakes are held by the Department of Education under the Federal Family Education Loan program (FFEL loans) or the William D. Ford Direct Loan program (Direct loans). Plaintiff took out both FFEL loans and Direct loans serviced by Great Lakes.

         The interest rates borrowers must pay on FFEL loans and Direct loans are determined by Congress. Generally, interest that accrues on student loans is subject to capitalization, which is the process by which unpaid interest is added to the principal balance. Once added to the principal balance, additional interest accrues on that capitalized amount. The Department of Education promulgates rules and provides guidance for capitalizing accrued interest.

         The general rule is that accrued interest is capitalized when the interest accrues. However, during a B-9 Forbearance period, the borrower's monthly payment obligations are suspended for up to 60 days while Great Lakes processes certain paperwork related to a borrower's request to switch repayment plans. Government regulations clearly provide that interest that accrues during a B-9 Forbearance (“intra-forbearance interest”) is not subject to capitalization. However, the regulations do not make it clear whether the conclusion of a B-9 Forbearance qualifies as a “triggering event” for purposes of capitalizing the interest that accrued prior to the forbearance (so-called “pre-forbearance interest”). Between 2009 and September 2014, Great Lakes generally capitalized accrued pre-forbearance interest at the conclusion of the B-9 Forbearance period. The parties cite conflicting evidence on the questions whether this practice was prohibited by the governing regulations, what guidance defendants received from the Department and the nature of the borrowers' master promissory notes.

         On October 3, 2013, plaintiff's loans were placed into a B-9 Forbearance period while she applied for a switch from a standard repayment plan to an “income driven repayment plan.” Her application for an income driven repayment plan was approved. At the conclusion of the B-9 Forbearance on November 28, 2013, Great Lakes capitalized $819.65 worth of accrued interest on her loan, which included interest accrued during the B-9 Forbearance period. Plaintiff filed suit on July 31, 2015, contending that the capitalization of this interest was “illegal” and in violation of the regulations prohibiting the capitalization of intra-forbearance interest. Great Lakes determined that its system was programmed so that generally intra-forbearance interest was not capitalized. However, it discovered two errors that had improperly inflated plaintiff's principal balance. First, Great Lakes had mistakenly programmed its system so that only the interest that accrued up to, rather than through, the sixtieth day of the B-9 Forbearance period was exempt from capitalization. In other words, Great Lakes was improperly capitalizing one day of B-9 Forbearance interest. This single day of B-9 Forbearance interest represented $4.09 of the $819.65 plaintiff contends was illegally capitalized. Second, payments being made during the B-9 Forbearance period were being credited improperly against intra-forbearance interest before being credited against pre-forbearance interest. By applying plaintiff's payment to the intra-forbearance interest first, Great Lakes allowed $125.78 of plaintiff's pre-forbearance interest to be capitalized. Neither error was identified specifically in the complaint and defendants assert that they have corrected these programming errors and rectified plaintiff's and all other borrowers' accounts.


         Plaintiff has moved to certify a class under Fed.R.Civ.P. 23(b)(3). Before I can consider whether certification is appropriate under that rule, I must determine whether plaintiff has met the requirements set forth in Fed.R.Civ.P. 23(a), which provides that class certification is appropriate only when “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. Fed.R.Civ.P. 23(a). If those threshold requirements are met, I must then determine whether plaintiff has met Rule 23(b)(3)'s requirements that “common questions of law and fact predominate over individual questions” and that a class action is “superior” to other methods of adjudication. Fed.R.Civ.P. 23(b)(3). It is plaintiff's burden to establish that each of these elements is met. Retired Chicago Police Association v. City of Chicago, 7 F.3d 584, 596 (7th Cir. 1993).

         In deciding a motion for class certification, the court cannot accept the parties' assertions at face value. Instead, the court must “look beyond pleadings in order to properly understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful decision on class certification, as it must consider how a trial on the merits would be conducted.” Joseph M. McLaughlin, McLaughlin on Class Actions § 3:12 (11th ed. 2014) (citing Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013)). After reviewing plaintiff's complaint and the parties' class certification materials, I conclude that plaintiff's claims and her alleged injuries are too vague to enable the court to conduct the “rigorous analysis” required by Rule 23.

         A. Plaintiff's ...

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