Nicole Nelson v. Great Lakes Educational Loan S ( 2019 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18‐1531
NICOLE D. NELSON,
Plaintiff‐Appellant,
v.
GREAT LAKES EDUCATIONAL LOAN
SERVICES, INC., et al.,
Defendants‐Appellees.
____________________
Appeal from the United States District Court for the
Southern District of Illinois.
No. 3:17‐CV‐183 — Nancy J. Rosenstengel, Chief Judge.
____________________
ARGUED OCTOBER 23, 2018 — DECIDED JUNE 27, 2019
____________________
Before KANNE, HAMILTON, and ST. EVE, Circuit Judges.
HAMILTON, Circuit Judge. Like many students, plaintiff Ni‐
cole Nelson borrowed money to pay for her education. De‐
fendant Great Lakes Educational Loan Services, Inc. services
repayment of her federally insured loans. On its website,
Great Lakes offered to provide guidance to borrowers strug‐
gling to make their loan payments. It told borrowers: “Our
trained experts work on your behalf,” and “You don’t have to
2 No. 18‐1531
pay for student loan services or advice,” because “Our expert
representatives have access to your latest student loan infor‐
mation and understand all of your options.” Nelson alleges
that despite these representations, when she and other mem‐
bers of the putative class struggled to make payments, Great
Lakes did not work on their behalf. Instead, Nelson contends,
Great Lakes steered borrowers into repayment plans that
were to Great Lakes’ advantage and to borrowers’ detriment.
Nelson alleges that defendant’s conduct violated the Illi‐
nois Consumer Fraud and Deceptive Business Practices Act
and constituted constructive fraud and negligent misrepre‐
sentation under Illinois common law. The district court
granted Great Lakes’ motion to dismiss, holding that all of
Nelson’s claims were expressly preempted by this provision
of the federal Higher Education Act: “Loans made, insured,
or guaranteed pursuant to a program authorized by title IV of
the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) shall
not be subject to any disclosure requirements of any State
Law.” 20 U.S.C. § 1098g. The district court reasoned that Nel‐
son’s claims are expressly preempted because they all allege
in substance only that Great Lakes failed to disclose certain
information.
The district court’s ruling was overly broad. When a loan
servicer holds itself out to a borrower as having experts who
work for her, tells her that she does not need to look elsewhere
for advice, and tells her that its experts know what options are
in her best interest, those statements, when untrue, cannot be
treated by courts as mere failures to disclose information.
Those are affirmative misrepresentations, not failures to dis‐
close. Great Lakes chose to make them. A borrower who rea‐
sonably relied on them to her detriment is not barred by
No. 18‐1531 3
§ 1098g from bringing state‐law consumer protection and tort
claims against the loan servicer. Tort law has long recognized
the difference between mere failures to disclose information
and affirmative deceptions. And as we explain below, the
Ninth Circuit decision the district court relied upon, Chae v.
SLM Corp., 593 F.3d 936 (9th Cir. 2010), does not apply to
claims of affirmative misrepresentations in counseling bor‐
rowers in distress.
Accordingly, Nelson’s claims are not expressly preempted
to the extent she is alleging that Great Lakes made false or
misleading affirmative representations to her in the counsel‐
ing process. Also, neither conflict preemption nor field
preemption applies to her claims. We vacate the judgment of
the district court and remand for further proceedings con‐
sistent with this opinion.
I. Factual & Procedural Background
The district court granted defendant’s Rule 12(b)(6) mo‐
tion to dismiss on preemption grounds, a legal determination
that we review de novo. Guilbeau v. Pfizer Inc., 880 F.3d 304, 310
(7th Cir. 2018), citing Toney v. L’Oreal USA, Inc., 406 F.3d 905,
907–08 (7th Cir. 2005). We accept as true all well‐pleaded fac‐
tual allegations in the amended complaint and draw all per‐
missible inferences in Nelson’s favor. E.g., Fortres Grand Corp.
v. Warner Bros. Entertainment Inc., 763 F.3d 696, 700 (7th Cir.
2014).
A. Loans Under the Higher Education Act
The Higher Education Act (“HEA”) was enacted “to keep
the college door open to all students of ability, regardless of
socioeconomic background.” Rowe v. Educational Credit Man‐
agement Corp., 559 F.3d 1028, 1030 (9th Cir. 2009) (citation and
4 No. 18‐1531
internal quotation marks omitted); see also 20 U.S.C.
§ 1071(a)(1) (identifying purposes of statute). The HEA estab‐
lished the Federal Family Education Loan Program
(“FFELP”), a system of loan guarantees administered by the
U.S. Secretary of Education that were “meant to encourage
lenders to loan money to students and their parents on favor‐
able terms.” Chae v. SLM Corp., 593 F.3d at 938–39 (footnote
omitted).
The FFELP regulated three parts of student loan transac‐
tions: (1) between lenders and borrowers, (2) between bor‐
rowers and guaranty agencies, and (3) between guaranty
agencies and the Department of Education. Bible v. United Stu‐
dent Aid Funds, Inc., 799 F.3d 633, 640 (7th Cir. 2015), citing
Chae, 593 F.3d at 939. Under the program, lenders used their
own funds to make loans to students attending postsecondary
institutions. These loans were guaranteed by guaranty agen‐
cies and reinsured by the federal government. See 20 U.S.C.
§ 1078(a)–(c). Thus, the federal government served (and still
serves) as the ultimate guarantor on FFELP loans. Bible, 799
F.3d at 640. Lenders assigned the loans to loan servicers like
Great Lakes to manage the repayment process with the bor‐
rowers.
In 2010, Congress ordered a halt in new FFELP loans and
transitioned to a “Direct Loan” program, in which the United
States serves as the lender and contracts with non‐
governmental entities to service loans issued by the
Department. 20 U.S.C. § 1071(d); see also Health Care and
Education Reconciliation Act of 2010, Pub. L. No. 111‐152,
§ 2201 et seq., 124 Stat. 1029, 1074. Federal Direct Loans “have
the same terms, conditions, and benefits” as those issued
under the FFELP. 20 U.S.C. § 1087e(a)(1).
No. 18‐1531 5
Central to the preemption issue here, the HEA requires
lenders and loan servicers to make certain “disclosures” be‐
fore disbursement of loans, before repayment of loans, and
during repayment of loans. See 20 U.S.C. § 1083. Required dis‐
closures include the core terms of the loan at origination, as
well as before and during repayment. § 1083(a), (b), & (e). But
when a borrower is having difficulty making payments, as
Nelson was, § 1083(e)(2)(A) requires loan servicers to provide:
“A description of the repayment plans available to the bor‐
rower, including how the borrower should request a change
in repayment plan.” Loan servicers must also provide to dis‐
tressed borrowers descriptions of forbearance and other op‐
tions to avoid default and expected costs or fees associated
with those options. § 1083(e)(2)(B) & (2)(C).
The HEA includes several express preemption provisions,
including the one dealing with “disclosures,” which is the fo‐
cus of this appeal. Entitled “Exemption from State disclosure
requirements,” again it provides: “Loans made, insured, or
guaranteed pursuant to a program authorized by title IV of
the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) shall
not be subject to any disclosure requirements of any State
law.” 20 U.S.C. § 1098g. Both Federal Direct Loan Program
and FFELP loans are so authorized, so lenders and loan ser‐
vicers are not subject to “disclosure requirements” imposed
by state law.
B. Nelson’s Loans and Claims
Nicole Nelson financed her education with federal student
loans. Great Lakes, Nelson’s loan servicer, manages borrow‐
ers’ accounts, processes payments, assists borrowers with al‐
ternative repayment plans, and communicates with borrow‐
ers about the repayment of their loans. Great Lakes services
6 No. 18‐1531
many billions of dollars in federal student loans for millions
of borrowers.
Nelson began repaying her loans in December 2009. In
September 2013, she changed jobs and her income dropped.
She contacted Great Lakes, and its representative led Nelson
to believe that “forbearance” was the best option for her
personal financial situation. A few months later, Nelson lost
her new job. She contacted Great Lakes again in March 2014.
Great Lakes’ representative again did not inform her of
income‐driven repayment plans and instead steered her into
“deferment.” Nelson alleges that Great Lakes’ representatives
were working off of a script provided to them by Great Lakes
when they made these recommendations to her. Nelson
alleges that she relied on the information provided by Great
Lakes.
Forbearance is “the temporary cessation of payments, al‐
lowing an extension of time for making payments, or tempo‐
rarily accepting smaller payments than previously were
scheduled.” 34 C.F.R. § 682.211(a)(1). Nelson argues that for‐
bearance is not appropriate for borrowers experiencing long‐
term financial difficulty. Under forbearance, unpaid interest
is capitalized (i.e., added to the loan principal), which can
substantially increase monthly payments after the forbear‐
ance period ends.
Federal law requires lenders and loan servicers to offer
income‐driven repayment plans, which set monthly loan
payments as a percentage of a borrower’s discretionary
income. See 20 U.S.C. § 1098e(b); 34 C.F.R. §§ 682.215
& 685.208. Nelson argues that these plans are more
appropriate in situations of longer‐term financial hardship.
These plans can offer borrowers extended payment relief and
No. 18‐1531 7
reduced monthly payments that can still count toward
various loan forgiveness programs. Despite the availability of
these plans, Nelson alleges, Great Lakes steered borrowers
away from income‐driven repayment plans that are less
lucrative to lenders and toward more burdensome options,
especially forbearance. Am. Cplt. ¶ 6. Nelson asserts that
enrolling borrowers in income‐driven repayment plans is
“time‐consuming” and requires “lengthy and detailed
conversations” with the borrowers about their financial
situations. She argues that Great Lakes thus “failed to
perform its core duties in the servicing of student loans.”
To help focus on the factor we view as decisive here—the
difference between affirmative misrepresentation and failure
to disclose information—we lay out next some of the details
of Nelson’s allegations.
Count I of Nelson’s Amended Complaint asserts viola‐
tions of the Illinois Consumer Fraud and Deceptive Business
Practices Act, 815 Ill. Comp. Stat. 505/1 et seq. She highlights
seven unfair acts and practices in servicing loans:
(a) Holding themselves out to be experts in stu‐
dent loan servicing issues or offering “expert”
help;
(b) Holding themselves out as working on
Plaintiff’s and Class Members’ behalves, when
they worked for the benefit of Defendants;
(c) Holding themselves out as understanding all
student loan options, and offering those options
to student loan borrowers, including Plaintiff
and Class Members;
8 No. 18‐1531
(d) Offering forbearance as a recommended or
best option to struggling student loan borrow‐
ers who could have enrolled in a much better re‐
payment plan;
(e) Failing to provide struggling student loan
borrowers all of their options, or discussing in‐
come driven repayment plans prior to enrolling
student loan borrowers in forbearance;
(f) Failing to follow up with student loan bor‐
rowers after a first forbearance and explaining
or alerting student loan borrowers to other,
more advantageous repayment options; and
(g) Systematically steering struggling student
loan borrowers, including Plaintiff and Class
Members into forbearance without explaining,
or even identifying other, better repayment
options, based in part of Defendants’ failure to
adequately staff its operations, providing scripts
that call center employees had to follow, reviewing
call center employees on call duration and how many
times a student loan borrower was cut off mid‐
sentence, or by providing other incentives for
quick call times.
Am. Cplt. ¶ 130 (emphasis in original). These allegations com‐
bine both affirmative misrepresentations by Great Lakes, such
as recommending forbearance as the best option for a partic‐
ular borrower, and failures to disclose information.
No. 18‐1531 9
Count II alleges constructive fraud under Illinois common
law, saying in part:
154. Defendants accomplish this breach of a
confidential or fiduciary relationship by misrep‐
resenting, concealing, or omitting the detri‐
mental effects of entering or continuing in for‐
bearance, omitting other alternative repayment
options, including income driven repayment
options that would allow $0.00 monthly pay‐
ments holding themselves out as “experts,”
holding themselves out as having all student
loan borrowers information, and holding them‐
selves out as working in the best interest of stu‐
dent loan borrowers, including Plaintiff and the
Illinois Constructive Fraud Class Members.
….
158. Defendants held themselves out to all stu‐
dent loan borrowers as “experts,” held them‐
selves out as knowledgeable regarding student
loan borrowers situations, and held themselves
out as working on behalf and to the benefit of
student loan borrowers.
Am. Cplt. ¶¶ 154 & 158. These allegations also combine af‐
firmative misrepresentations and failures to disclose.
Count III alleges negligent misrepresentation under Illi‐
nois common law. Nelson asserts that, to increase its profits,
Great Lakes “supplied false information or omitted material
information for the guidance of student loan borrowers.” Am.
Cplt. ¶ 170. Great Lakes is alleged to have accomplished this
by “misrepresenting their ‘expert’ status, misrepresenting
10 No. 18‐1531
that they work for the benefit of student loan borrowers, and
misrepresenting or omitting material information, including
alternative or income driven student loan repayment options
which may have offered a $0.00 monthly repayment amount.”
Am. Cplt. ¶ 171. Nelson includes a list that alleges both mis‐
representations and omissions of information similar to her
list in Count I:
(a) Defendants claim to be “experts” regarding
student loan;
(b) Defendants work for the benefit of student
loan borrowers;
(c) Forbearance or deferment are the only op‐
tions for struggling student loan borrowers; and
(d) Failure to discuss or counsel student loan
borrowers on alternative and income driven re‐
payment plans.
(e) Offering forbearance as a recommended or
best option to struggling student loan borrow‐
ers who could have enrolled in a much better re‐
payment plan;
(f) Failing to provide struggling student loan
borrowers all of their options, or discussing in‐
come driven repayment plans prior to enrolling
student loan borrowers in forbearance;
(g) Systematically steering struggling student
loan borrowers, including Plaintiff and Class
Members into forbearance without explaining,
or even identifying other, better repayment op‐
tions, based in part of Defendants’ failure to
No. 18‐1531 11
adequately staff its operations or by providing
other incentives for quick call times.
Am. Cplt. ¶ 172.1
The district court agreed with Great Lakes that all of Nel‐
son’s allegations pertain to information Great Lakes suppos‐
edly failed to disclose. The court dismissed all of Nelson’s
claims, holding that they are expressly preempted by
20 U.S.C. § 1098g. Nelson v. Great Lakes Educ. Loan Servs., Inc.,
No. 3:17‐CV‐183, 2017 WL 6501919, at *5–6 (S.D. Ill. Dec. 19,
2017). The court did not determine whether Nelson’s claims
were preempted under the conflict‐ or field‐preemption
1 Nelson’s allegations echo the findings of an Inspector General’s re‐
port on loan servicers’ compliance with federal law generally and advice
about repayment options in particular. See U.S. Department of Education
Office of Inspector General, ED‐OIG/A05Q0008, Federal Student Aid: Ad‐
ditional Actions Needed to Mitigate the Risk of Servicer Noncompliance
with Requirements for Servicing Federally Held Student Loans (Feb. 12,
2019), available at: https://www2.ed.gov/about/offices/list/oig/audit‐
reports/fy2019/a05q0008.pdf. According to the report, the Department’s
“oversight activities regularly identified instances of servicers’ not servic‐
ing federally held student loans in accordance with Federal require‐
ments,” yet the Department “rarely used available contract accountability
provisions to hold servicers accountable for instances of noncompliance”
and “did not provide servicers with an incentive to take actions to mitigate
the risk of continued servicer noncompliance that could harm students.”
Id. at 2. The Inspector General found that these failures can result in “in‐
creased interest or repayment costs incurred by borrowers, the missed op‐
portunity for more borrowers to take advantage of certain repayment pro‐
grams, negative effects on borrowers’ credit ratings, and an increased like‐
lihood of delinquency or even default.” Id. at 19. Particularly relevant to
this case is a section entitled “Servicer Representatives Not Sufficiently In‐
forming Borrowers of Available Repayment Options.” Id. at 10–13.
12 No. 18‐1531
doctrines or whether, in the absence of preemption, Nelson
otherwise stated viable claims.
II. Analysis
The Supremacy Clause of the United States Constitution
“invalidates state laws that ‘interfere with, or are contrary to,’
federal law.” Hillsborough County v. Automated Medical Labs.,
Inc., 471 U.S. 707, 712–13 (1985), quoting Gibbons v. Ogden, 22
U.S. 1, 211 (1824). The Clause provides:
This Constitution, and the Laws of the United
States which shall be made in Pursuance
thereof; and all Treaties made, or which shall be
made, under the Authority of the United States,
shall be the supreme Law of the Land; and the
Judges in every State shall be bound thereby,
any Thing in the Constitution or Laws of any
State to the Contrary notwithstanding.
U.S. Const. art. VI, cl. 2. “Since state law may not contradict
federal law, sometimes the latter will render the former unen‐
forceable.” Int’l Ass’n of Machinists Dist. Ten v. Allen, 904 F.3d
490, 509 (7th Cir. 2018).
Preemption can occur in three different ways: express,
conflict, and field. Express preemption applies when Con‐
gress clearly declares its intention to preempt state law. Mason
v. SmithKline Beecham Corp., 596 F.3d 387, 390 (7th Cir. 2010).
Conflict preemption applies when there is an actual conflict
between state and federal law such that it is impossible for a
person to obey both, or when state law stands as an obstacle
to fully accomplishing the objectives of Congress. Mason, 596
F.3d at 390; see also Patriotic Veterans, Inc. v. Indiana, 736 F.3d
1041, 1049 (7th Cir. 2013). Field preemption, which applies to
No. 18‐1531 13
only a few fields of law, occurs when “federal law so thor‐
oughly occupies a legislative field as to make it reasonable to
infer that Congress left no room for the states to act.” Aux Sable
Liquid Products v. Murphy, 526 F.3d 1028, 1033 (7th Cir. 2008)
(citation and internal quotation marks omitted). We first ex‐
plain why some of Nelson’s claims are not expressly
preempted. We then explain why those claims are not
preempted by either conflict or field preemption.
A. Express Preemption
1. Statutory Language
Express preemption presents a question of statutory inter‐
pretation, so we start with the preemptive language: “Loans
made, insured, or guaranteed pursuant to a program author‐
ized by title IV of the Higher Education Act of 1965 (20 U.S.C.
1070 et seq.) shall not be subject to any disclosure require‐
ments of any State Law.” 20 U.S.C. § 1098g. The intent to
preempt some state laws is evident, but Congress did not de‐
fine the term “disclosure requirements” in the HEA itself. The
central question here is whether and how the phrase “disclo‐
sure requirements” in § 1098g applies to state‐law remedies
for misleading business practices. Section § 1098g preempts a
state law declaring, for example, that student loan servicers
must affirmatively disclose X and Y in a specific format and at
a specific time. But Congress did not use language that
preempts all state‐law consumer protections for student loan
borrowers when they are communicating with their loan ser‐
vicers.
While § 1098g indicates that Congress “intended the
[HEA] to pre‐empt at least some state law, we must nonethe‐
less ‘identify the domain expressly pre‐empted’ by that
14 No. 18‐1531
language.” See Medtronic, Inc. v. Lohr, 518 U.S. 470, 484 (1996),
quoting Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517 (1992).
As the Supreme Court often reminds us, it is a “fundamental
canon of statutory construction that the words of a statute
must be read in their context and with a view to their place in
the overall statutory scheme.” Home Depot U.S.A., Inc. v. Jack‐
son, 139 S. Ct. 1743, 1748 (2019), quoting Davis v. Michigan
Dep’t of Treasury, 489 U.S. 803, 809 (1989). The statutory con‐
text and scheme here provide helpful guidance for the ques‐
tion we face here.
In general, disclosure requirements are familiar regulatory
tools applied to consumer borrowing and other financial
transactions. Rather than regulating the substance of the
transaction terms (such as usury laws do by limiting interest
rates), disclosure requirements are intended to ensure that
consumer‐borrowers have accurate, relevant information and
can make their own informed choices about their financial af‐
fairs. Such disclosure requirements are familiar under many
regulatory regimes, including, for example, the Truth in
Lending Act and federal securities regulation, including
FINRA rules for broker‐dealers. See, e.g., 15 U.S.C. § 1601 et
seq.; 17 C.F.R. § 240.15c2‐5; FINRA Rule 2264 (2011).
The language of § 1098g itself provides no specific guid‐
ance about the scope of “disclosure requirements.” Other
HEA provisions, however, impose explicit disclosure require‐
ments on lenders and loan servicers, particularly in
20 U.S.C. § 1083. It makes sense to understand “disclosure re‐
quirements” in § 1098g against the backdrop of those federal
disclosure requirements in § 1083. The HEA also includes, in
addition to § 1098g, several other fairly specific preemption
provisions: 20 U.S.C. § 1078(d) (usury laws), § 1091a(a)(2)
No. 18‐1531 15
(statutes of limitations), § 1091a(b) (collection costs/infancy
defenses), and § 1095a(a) (garnishment requirements). These
other provisions in the HEA help guide our interpretation of
§ 1098g.
First, the several specific preemption provisions in the
HEA weigh against attributing to Congress a desire to
preempt state law broadly. The specific preemption provi‐
sions show that Congress considered the issue of preemption
and decided to preempt on particular topics. It most certainly
did not enact language imposing broad preemption on any
state laws, or even any state consumer‐protection or tort laws,
that might apply to student loans and their servicing.
At the same time, the express disclosure requirements in
the HEA lead us to disagree with Nelson’s argument that
“disclosure requirements”—and the associated preemption
intended by Congress—pertain solely to “standardized, pre‐
scribed provision of the terms and conditions and facts of a
student lending transaction,” and not to counseling borrow‐
ers in financial difficulty. In particular, 20 U.S.C. § 1083 spells
out disclosures that are required before disbursement of
loans, before repayment of loans, and during repayment of loans.
Under the subsection entitled “Required disclosures during
repayment,” a paragraph entitled “Information provided to a
borrower having difficulty making payments” provides:
Each eligible lender shall provide to a borrower
who has notified the lender that the borrower is
having difficulty making payments on a loan
made, insured, or guaranteed under this part
with the following information in simple and
understandable terms:
16 No. 18‐1531
(A) A description of the repayment plans
available to the borrower, including how
the borrower should request a change in
repayment plan.
(B) A description of the requirements for
obtaining forbearance on a loan, includ‐
ing expected costs associated with for‐
bearance.
(C) A description of the options available
to the borrower to avoid defaulting on
the loan, and any relevant fees or costs
associated with such options.
20 U.S.C. § 1083(e)(2).
In the context of these express disclosure requirements in
§ 1083, the phrase “disclosure requirements” in § 1098g ap‐
plies to information that must be given to borrowers who are
struggling to repay their loans. Listed as a “required disclo‐
sure” to borrowers struggling during repayment is a “de‐
scription of the repayment plans available to the borrower, in‐
cluding how the borrower should request a change in repay‐
ment plan.” § 1083(e)(2)(A). This sort of communication be‐
tween a lender and a borrower is exactly what is at issue in
the present case. Nelson alleges that when she informed Great
Lakes that she was struggling with repayment, it did not ap‐
propriately inform her of her repayment plan options. We
therefore disagree with Nelson’s effort to distinguish between
disclosures on standardized origination and billing forms and
communications with struggling borrowers about their re‐
payment options.
No. 18‐1531 17
That being said, we agree with Nelson that the HEA’s
preemption of state‐law “disclosure requirements” does not
bar entirely her attempt to use Illinois consumer‐protection
and tort law. Nelson complains of false and misleading state‐
ments that Great Lakes made voluntarily, not required by fed‐
eral law. Imposing liability for those voluntary but deceptive
statements does not impose additional “disclosure require‐
ments” on Great Lakes.
Many of Nelson’s specific claims allege that Great Lakes
misled her and other class members by making affirmative
misrepresentations—about its expertise and its devotion to
borrowers’ best interests, and in recommending forbearance
as the best option for borrowers in financial trouble. The dis‐
trict court found these claims were preempted by recasting
them as omissions, such that state law would implicitly im‐
pose on Great Lakes some disclosure requirements in addi‐
tion to those imposed by federal law. Nelson, 2017 WL
6501919, at *5.
We respectfully disagree with that reasoning. At least
some of Nelson’s claims of affirmative deception do not nec‐
essarily imply any additional disclosure requirements at all.
She is complaining about at least some deceptive statements
that Great Lakes chose to make voluntarily, not because fed‐
eral law required them. Great Lakes could have avoided these
claims by remaining silent. State law could impose liability on
these affirmative misrepresentations without imposing addi‐
tional disclosure requirements on Great Lakes, and thus avoid
preemption under § 1098g. See Altria Group, Inc. v. Good, 555
U.S. 70, 79–82 (2008) (state‐law fraud claims for false affirma‐
tive representations in cigarette advertising were not
preempted by federal law).
18 No. 18‐1531
One foundation of the law of fraud and negligent misrep‐
resentation is the difference between an affirmative misrepre‐
sentation and a failure to disclose. The common law tort of
fraud ordinarily requires a deliberately false statement of ma‐
terial fact. E.g., Davis v. G.N. Mortgage Corp., 396 F.3d 869, 881–
82 (7th Cir. 2005); Connick v. Suzuki Motor Co., 675 N.E.2d 584,
591 (Ill. 1996); Siegel v. Levy Organization Development Co., 607
N.E.2d 194, 198 (Ill. 1992). An omission or failure to disclose,
on the other hand, will not support a common law fraud claim
but may be actionable as constructive fraud or fraudulent con‐
cealment if the defendant was under a particular duty to
speak, which may stem from a fiduciary duty or a similar re‐
lationship of trust and confidence. See Joyce v. Morgan Stanley
& Co., 538 F.3d 797, 800 (7th Cir. 2008) (Illinois law); Connick,
675 N.E.2d at 593; Restatement (Second) of Torts § 551 (1977).
When a plaintiff alleges a defendant’s actionable failure to
disclose, it is easy to understand how that claim implies a
“disclosure requirement,” to use the language of § 1098g. But
when a plaintiff alleges a defendant’s false affirmative mis‐
representation, recasting the claim as imposing a “disclosure
requirement” is not necessary and may not even be appropri‐
ate. If the claim is that the defendant said something false that
it was not required to say in the first place, the claim does not
necessarily imply a disclosure requirement. The defendant
could have complied with its legal obligations, under the
plaintiff’s theory, by merely refraining from making the false
affirmative misrepresentation about its expertise, its work in
borrowers’ best interests, and its recommendation of forbear‐
ance to most distressed borrowers.
In this case, the district court relied upon a broad reading
of the Ninth Circuit’s opinion in Chae v. SLM Corp., 593 F.3d
No. 18‐1531 19
936 (9th Cir. 2010), to treat Nelson’s complaints about affirm‐
ative misrepresentations as implying some additional disclo‐
sure requirements. While Chae may apply to some of Nelson’s
claims, it was a mistake to read Chae so broadly. The plaintiffs
in Chae complained about the supposed failures to disclose
key information in specific ways, such as loan terms and re‐
payment requirements. Since the defendant was required to
disclose that information by federal law and had disclosed it
in ways permitted by federal law, the Ninth Circuit found that
the plaintiffs were implicitly seeking to impose additional dis‐
closure requirements under state law. We do not disagree
with the Ninth Circuit’s reasoning, but Chae itself made clear
that § 1098g would not extend to other sorts of disclosures to
borrowers. Chae limited the reach of some of its broader lan‐
guage by holding that other state‐law claims, focusing on the
“use of fraudulent and deceptive practices apart from the bill‐
ing statements,” are not preempted by § 1098g. 593 F.3d at 943
(emphasis added).
That limitation applies to this case, or at least to parts of it.
The broad language in Chae simply does not extend to Nel‐
son’s claims about Great Lakes’ affirmative misrepresenta‐
tions in counseling, where Great Lakes could have avoided
liability under state law by remaining silent (or telling the
truth) on certain topics. On this theory, plaintiff may proceed
on her claims based on affirmative misrepresentations, as dis‐
tinct from those that require proof that defendant failed to dis‐
close information.
We recognize that it would be possible to apply state con‐
sumer protection laws to impose additional disclosure re‐
quirements on loan servicers of federally insured student
loans. Such applications would be preempted under § 1098g,
20 No. 18‐1531
as the Ninth Circuit made clear in Chae. 593 F.3d at 942–43.
But that result is not necessary or inherent in Nelson’s claims,
at least to the extent she alleges affirmative misrepresenta‐
tions. We cannot say on the pleadings that all of Nelson’s
claims are preempted by § 1098g. On remand, the district
court may need to use jury instructions and other tools to al‐
low Nelson to proceed on her claims of affirmative misrepre‐
sentations while ensuring that the case does not become a ve‐
hicle for state law to impose new disclosure requirements.
B. Conflict and Field Preemption
Great Lakes has argued in the alternative for conflict and
field preemption. The district court did not reach those issues,
but we should. They present questions of law that we can ad‐
dress at the pleading stage. To show conflict preemption,
Great Lakes must show either that it would be “impossible”
for Great Lakes to comply with both state and federal law or
that state law (as Nelson seeks to apply it) constitutes an “ob‐
stacle” to satisfying the purposes and objectives of Congress.
See Patriotic Veterans, Inc. v. Indiana, 736 F.3d 1041, 1049 (7th
Cir. 2013). Great Lakes does not identify any impossible con‐
flict, but it argues that application of state law here would be
an obstacle to the operation of federal student loan programs.
Conflict preemption does not bar Nelson’s claims. Recall
that there are several express preemption provisions in the
HEA: 20 U.S.C. § 1078(d) (usury laws), 1091a(a)(2) (statutes of
limitations), 1091a(b)(collections costs and infancy defenses),
1095a(a) (garnishment requirements), as well as § 1098g (dis‐
closure requirements). The number of those provisions and
their specificity show that Congress considered preemption
issues and made its decisions. Courts should enforce those
provisions, but we should not add to them on the theory that
No. 18‐1531 21
more sweeping preemption seems like a better policy. E.g.,
Virginia Uranium, Inc. v. Warren, 139 S. Ct. 1894, 1901 (2019)
(plurality opinion) (“Invoking some brooding federal interest
or appealing to a judicial policy preference should never be
enough to win preemption of a state law Y.”). Properly un‐
derstood, state law and federal law can exist in harmony
here.2
The Ninth Circuit in Chae used broad language on conflict
preemption and the value of uniformity in the federal loan
program: “Congress intended uniformity within the [FFELP].
The statutory design, its detailed provisions for the FFELP’s
operation, and its focus on the relationship between borrow‐
ers and lenders persuade us that Congress intended to subject
FFELP participants to uniform federal law and regulations.”
593 F.3d at 947. That broad language, however, focused on
different sorts of claims, where the value of uniformity would
be more compelling than it is here. Chae focused on uni‐
formity in the method of setting late fees, repayment start
2 We do not give special deference to the U.S. Department of Educa‐
tion’s 2018 informal guidance, entitled “Federal Preemption and State
Regulation of the Department of Educationʹs Federal Student Loan Pro‐
grams and Federal Student Loan Servicers.” 83 Fed. Reg. 10619 (Mar. 12,
2018). The Department expressed its view that the HEA preempts all state
regulations that “impact” FFELP loan servicing. We agree with the district
court’s thorough analysis of this issue in Student Loan Servicing Alliance v.
District of Columbia, 351 F. Supp. 3d 26, 48–49 (D.D.C. 2018), that Skidmore
v. Swift & Co., 323 U.S. 134 (1944), provides the appropriate test for defer‐
ence here. We also agree that the Preemption Notice is not persuasive be‐
cause it is not particularly thorough and it “represents a stark, unex‐
plained change” in the Department’s position. Student Loan Servicing Alli‐
ance, 351 F. Supp. 3d at 50; see Skidmore, 323 U.S. at 138. That is not to say
we disagree with every particular in the Department’s informal guidance,
but we give the document itself little weight.
22 No. 18‐1531
dates, and interest calculations. See id. at 944–47. We assume
the need for nationwide consistency on those sorts of admin‐
istrative mechanics is substantial. That need does not extend
to the claims Nelson asserts based on affirmative misrepre‐
sentations—not required by federal law—to borrowers hav‐
ing trouble making their payments.3
Finally, field preemption does not apply here. Field
preemption is rare. It applies “when federal law occupies a
‘field’ of regulation ‘so comprehensively that it has left no
3The Department’s Preemption Notice also cited Boyle v. United Tech‐
nologies Corp., 487 U.S. 500 (1988), to argue that the servicing of student
loans “is an area ‘involving uniquely Federal interests’ that must be ‘gov‐
erned exclusively by Federal law.’” See 83 Fed. Reg at 10619, citing Boyle,
487 U.S. at 504. The Department explained that “there is no question that
the ‘imposition of liability on Government contractors will directly affect
the terms of Government contracts,’ at the very least by raising the price
of such contracts, and ‘the interests of the United States will be directly
affected.’” Id. at 10621, quoting Boyle, 487 U.S. at 507. It is true that the
federal government has an interest in protecting the rights and obligations
established in its contracts, and that this interest extends to “liability to
third persons.” Boyle, 487 U.S. at 505. At the same time, Illinois has a com‐
pelling interest in protecting its consumers by providing oversight of fed‐
eral student loan servicers. See Student Loan Servicing Alliance, 351 F. Supp.
3d at 59. Boyle itself noted that just because an area involves a “uniquely
federal interest,” that “does not, however, end the inquiry. That merely
establishes a necessary, not a sufficient, condition for the displacement of
state law. Displacement will occur only where Y a significant conflict ex‐
ists between an identifiable federal policy or interest and the [operation]
of state law, or the application of state law would frustrate specific objec‐
tives of federal legislation.” 487 U.S. at 507 (internal citations, quotation
marks, and footnote omitted). While Boyle explained that the conflict in
such a situation “need not be as sharp” as it generally would to find
preemption, “conflict there must be.” Id. at 507–08. We see no such conflict
posed by Nelson’s claims here, at least to the extent those claims are con‐
fined to affirmative misrepresentations.
No. 18‐1531 23
room for supplementary state legislation.’” Int’l Ass’n of Ma‐
chinists Dist. Ten v. Allen, 904 F.3d 490, 498 (7th Cir. 2018),
quoting R.J. Reynolds Tobacco Co. v. Durham County, 479 U.S.
130, 140 (1986). “Federal statutes that preempt a field ‘reflect[
] a congressional decision to foreclose any state regulation in
the area, even if it is parallel to federal standards.’” Int’l Ass’n
of Machinists, 904 F.3d at 498, quoting Murphy v. Nat’l Colle‐
giate Athletic Ass’n, 138 S. Ct. 1461, 1481 (2018).
On this point we agree with Chae. See 593 F.3d at 941–42
(“we have previously held that field preemption does not ap‐
ply to the HEA”), citing Keams v. Tempe Technical Inst., Inc., 39
F.3d 222, 225–26 (9th Cir. 1994) (holding that field preemption
did not apply under HEA to preempt state tort claim by stu‐
dents against accrediting agency: “It is apparent … that Con‐
gress expected state law to operate in much of the field in
which it was legislating.”); accord, Armstrong v. Accrediting
Council for Continuing Educ. and Training, Inc., 168 F.3d 1362,
1369 (D.C. Cir. 1999) (affirming prior holding that “federal ed‐
ucation policy regarding [private lending to students] is not
so extensive as to occupy the field”). In the HEA, Congress
chose to displace state law only in certain specified, express
preemption provisions. Those provisions indicate that Con‐
gress has not sought to displace all state regulation of student
loans. And the absence of language indicating an intent to oc‐
cupy the field weighs heavily, of course, “in favor of holding
that it was the intent of Congress not to occupy the field.”
Frank Bros. v. Wisconsin Dep’t of Transp., 409 F.3d 880, 891 (7th
Cir. 2005), citing Hillsborough County v. Automated Medical
Labs., Inc., 471 U.S. 707, 718 (1985).
Field preemption is confined to only a few areas of the law,
such as the National Labor Relations Act, Int’l Ass’n of
24 No. 18‐1531
Machinists, 904 F.3d at 497–98, and the Employee Retirement
Income Security Act, Trustees of AFTRA Health Fund v. Biondi,
303 F.3d 765, 776–79 (7th Cir. 2002). Courts consistently apply
field preemption in cases dealing with those federal statutes.
The opposite is true here. Courts have consistently held that
field preemption does not apply to the HEA, and we do as
well.
Conclusion
Nelson has alleged claims under state law that are not nec‐
essarily preempted by federal law. The judgment of the dis‐
trict court is VACATED and the case is REMANDED for fur‐
ther proceedings consistent with this opinion.