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Lima v. United States Department of Education

United States Court of Appeals, Ninth Circuit

December 18, 2019

Charles Stephan Lima, Plaintiff-Appellant,
v.
United States Department of Education, Defendant, and Educational Credit Management Corporation, Defendant-Appellee.

          Argued and Submitted October 22, 2019 Honolulu, Hawaii

          Appeal from the United States District Court for the District of Hawaii No. 1:15-cv-00242-KSC Kevin S. Chang, Magistrate Judge, Presiding

          Amani S. Floyd (argued) and George C. Harris, Morrison & Foerster LLP, San Francisco, California, for Plaintiff-Appellant.

          Troy A. Gunderman (argued), ECMC Shared Services Comp., LLC, Minneapolis, Minnesota; Theodore D. C. Young, Cades Schutte LLP, Honolulu, Hawaii; for Defendant-Appellee.

          Before: Susan P. Graber, Milan D. Smith, Jr., and Paul J. Watford, Circuit Judges.

         SUMMARY[*]

         Debt Collection

         The panel affirmed the district court's summary judgment in favor of the defendant on claims under the Fair Debt Collection Practices Act and the Due Process Clause.

         Defendant, a nonprofit guaranty agency, caused an offset against plaintiff's Social Security benefits, to recover on a judgment it had obtained by assignment after plaintiff defaulted on his student loans. Under the Higher Education Act, student loans are guaranteed by guaranty agencies, which receive guarantees from the United States.

         The panel held that, under the FDCPA's definition of a debt collector, defendant regularly collected or attempted to collect debts asserted to be owed or due another. Defendant was not collecting a debt for its own account, but rather was collecting a debt for the United States. Nonetheless, defendant fulfilled the criteria of the fiduciary exception because it had a broader fiduciary role with respect to plaintiff's debt than merely collecting the debt, and its collection activity was incidental to its fiduciary obligation to the Department of Education. Accordingly, defendant was not a debt collector under the FDCPA.

         Assuming without deciding that defendant was a state actor, the panel held that defendant did not violate plaintiff's procedural due process rights because it provided plaintiff with notice of the debt, of defendant's intention to seek a Treasury offset against plaintiff's Social Security benefits, and of the means by which plaintiff could respond.

          OPINION

          GRABER, CIRCUIT JUDGE:

         Defendant Education Management Credit Corporation caused an offset against Plaintiff Charles Lima's Social Security benefits, to recover on a judgment obtained after Plaintiff defaulted on his student loans. Plaintiff filed a civil action alleging, among other things, violations of the Fair Debt Collection Practices Act and the Fifth Amendment's Due Process Clause. The district court granted summary judgment to Defendant. We affirm.

         BACKGROUND

         A. Statutory Framework

         The Higher Education Act of 1965 ("Act") established the Federal Family Education Loan Program ("Loan Program"), which the Department of Education ("DOE") administers. Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1030 (9th Cir. 2009). Under the Act, lenders provide loans to students or their parents to help finance higher education. Typically, those loans are guaranteed by guaranty agencies, which are "[s]tate or private nonprofit organization[s]" that have agreements with the Secretary of Education to administer the Loan Program. 34 C.F.R. §§ 682.200, 682.401(a). Those agencies, in turn, receive guarantees from the United States. Guaranty agencies, therefore, operate as intermediaries between the student-loan lender and the United States. Rowe, 559 F.3d at 1030.

         If a borrower defaults on a student loan, the lender must try to obtain repayment from the borrower. If the lender is unsuccessful, it can file a claim with the guaranty agency and be repaid the outstanding balance of the loan. In that situation, the guaranty agency is assigned the loan from the lender. The guaranty agency, in turn, is repaid by the DOE in exchange for undertaking "due diligence" activities to attempt to collect the debt from the borrower. Id. Those "due diligence" activities include "locating the defaulting borrower, offsetting federal and state tax refunds . . ., initiating administrative garnishment proceedings . . ., and filing suit against the borrower." Id. (citing 34 C.F.R. § 682.410(b)(6)(i)-(iv)).

         B. Factual Background

         Plaintiff obtained three student loans, totaling $8, 500, in the 1970s. The New York State Higher Education Services Corporation ("New York Corporation") acted as guarantor for those loans under the Act. Plaintiff defaulted on the loans in 1980. In 1991, New York Corporation obtained a judgment against Plaintiff for approximately $14, 000, representing both principal and interest.

         Defendant is a nonprofit guaranty agency under the Act. In 2008, the DOE and Defendant agreed that Defendant would take assignment of certain Loan Program accounts in which ...


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