Student Loan Servicing Alliance v. Taylor

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUl\/IBIA
)
STUDENT LOAN SERVICING )
ALLIANCE, )
)
Plaintiff, )
)
v. ) Civil Action No. 18-0640 (PLF)
)
DISTRICT OF COLUMBIA, e_t ads )
)
Defendants. )
_ )
OPINION
This case involves the important question of Whether the District of Columbia
- and inferentially other states - may require student loan servicers Who manage federally-owned
and federally-guaranteed student loans to obtain a license to operate in the District of Columbia
in an effort to protect the consumers of those loans. Plaintiff Student Loan Servicing Alliance
(“SLSA”) maintains that the District of Columbia may not regulate such servicers because
Congress has preempted the field of regulating student loans servicers or has otherwise
preempted the law at issue - D.C. Law 21-214 and the Final Rules. SLSA’s position is
supported by the United States, which has filed a statement of interest in this case.
Defendants -the Di~strict of Columbia; Stephen C. Taylor, Commissioner,
Department of Insurance, Securities, and Banking; and Charles A. Burt, Student Loan and
Foreclosure Ombudsman - have moved [Dkt. 'No. 21] to dismiss SLSA’s amended complaint or,
in the alternative, for summary judgment SLSA filed a cross-motion [Dkt. No. 27] for summary
judgment. Upon careful consideration of the parties’ papers, the relevant legal authorities, the
oral arguments of counsel at a motions hearing on October 23, 2018, and the entire record in this
case, the_ Court will deny defendants’ motion to dismiss; grant defendants’ motion for summary
judgment in part; and grant in part and deny in part plaintiff’s motion for summary judgment.l
l The Court has reviewed the following filings in resolving the pending motions:
SLSA’s Amended Complaint (“Am. Compl.”) [Dkt No. 19]; Defendants’ Motion to Dismiss or,
in the Alternative, for Summary Judgment (“Def. MTD”) [Dkt No. 21]; Defendants’ Statement
of Material Facts As To Which There ls No Genuine Dispute (“Def. Facts”) [Dkt. No. 21-3];
SLSA’s Cross-Motion for Summary Judgment (“Pl. Cr-MSJ”) [Dkt No. 27-1]; SLSA’s
Statement of Facts (“Pl. Facts”) [Dkt. No. 27-3]; Defendants’ Memorandum in Opposition to
SLSA’s Cross-Motion for Summary Judgment and Reply in Support of l\/lotion to Dismiss (“Def.
Opp.”) [Dkt. No. 30]; SLSA’s Reply in Support of Cross-l\/lotion for Summary Judgment (“Pl.
Reply”) [Dkt. No. 33]; Defendants’ Supplemental Filing in Response to the Court’s October 10,
2018 Minute Order (“Def. IG Immunity”) [Dkt. No. 34]; SLSA’s Supplemental Brief on
Application of the lntergovernmental lmmunity Doctrine (“Pl. IG lmmunity”) [Dkt. No. 35];
United States’ Statement of Interest (“U.S. SOI”) [Dkt. No. 20]; Amicus Brief by Lawyers’
Committee, et al. (“Am. Br. Lawyers’ Committee) [Dkt. No. 24]; Amicus-Brief by State of New
York, et al. (“Am. Br. NYS”) (Dl20 U.S.C.
§§ 1001-1155, “[t]o strengthen the educational resources of our colleges and universities and to
provide financial assistance for students in postsecondary and higher education.” § Pub. L.
No. 89-329, 79 Stat. 1219, 1219 (1_965); Am. Compl. 1[1122-24. In order to improve access to
higher education for all students, Congress created federal student loan programs that “provide
federal taxpayer-funded benefits to borrowers that are not found in other consumer loans.” w
Am. Compl. 11 32.
The two student loan programs at issue in this case are the William D. Ford
Federal Direct Loan Program (“FDLP”), 20 U.S.C. § 1071, e_t M, and the Federal Family
Education Loan Program (“FFELP”). w 20 U.S.C. §1087a, e_t M. The FFELP, originally
known as the Guaranteed Student Loan Program, was first created in 1965 as part of the HEA.
§ Am. Compl. 11 26. Later, the FDLP was fully authorized pursuant to the Student Loan
Reform Act of 1993 as part of the Omnibus Reconciliation Act of 1993. w Q. 11 27. The two
programs differ in terms of the federal government’s role. Under the FDLP, the federal
government is the lender; students and their parents borrow directly from the federal
government § 20 U.S.C. § 1087a, e_t__s_eg;; U.S. SOI at 2. The FFELP is more complicated
FFELP loans were originally issued by private lenders and insured by guaranty
agencies, and the federal government reinsured the loans. S_e§ 20 U.S.C. §§ 1071(a)(1)(D),
1078(c); 34 C.F.R. § 682.404; Am. Compl. 1111 26, 62 n.6.2 In response to the 2008 financial
crisis, Congress passed the Ensuring Continued Access to Student Loans Act (“ECASLA”),
2 For a subset of FFELP loans, the federal government guarantees the loans
directly. g 34 C.F.R. § 682.100(b)(1).
which authorized the United States Department of Education (“DOED”) to purchase FFELP
loans from private lenders until the end of the 2009-2010 academic year. § Am. Compl. 1111 29,
71. The DOED purchased approximately 3 .91 million FFELP loans under ECASLA, s_ee_ Am.
Compl. 11 29, worth $94 million. §§ id 11 197. For those loans, the federal government is now
the “lender.” ln addition, under the Student Aid and Fiscal Responsibilityl Act (“SAFRA”), part
of the Health Care and Education Reconciliation Act of 2010, Congress discontinued the FFELP
program. B § 11 72; Pl. Facts at 4. For that reason, “over 90 percent of_new student loans
today are made through FDLP.” §§ i_d_. 11 73.
The types of federal student loans created by the HEA, therefore, can be grouped
into three different categories for purposes of this lawsuit. First are the FDLP loans - those are
owned by the federal government Second are the FFELP loans that were purchased by the
federal government under ECASLA (“Government-Owned FFELP loans”) - those are now
owned by the federal government. Third are the original FFELP loans (“Commercial FFELP
loans”) - those are owned by private lenders and the federal government reinsures or guarantees
them.3
The DOED extensively regulates the federal student loan industry and has
established specific standards and procedures to which borrowers, lenders, educational
institutions, and other actors - including loan servicers - must adhere. S_ee_ 34 C.F.R. Parts 682,
685. With respect to FDLP loans,“‘DOED is responsible for all aspects of the lending process,
3 There exists a fourth type of loan: private loans. For purposes of this lawsuit, the
federal government is not involved in the creation or servicing of those loans. SLSA represents
that its “members are willing to register for the private loans they service in the District,” and
thus do not challenge the D.C. Law and Final Rules as applied to their members’ servicing of
private loans. S_ee Pl. Cr-MSJ at 19. “Private student loans account for less than 8 percent of the
outstanding student loan debt nationally.” § Pl. Facts 1124.
from origination to repayment.” § Def. Facts 11 29 (citing 34 C.F.R. § 685.100(a)). ln
contrast, “[u]nder the FFELP, DOED is responsible for providing guarantees to lenders against
losses, reinsuring loans, and subsidizing loans made by private and non-profit lenders.” Y Def.
Facts 1122 (citing 34 C.F.R. § 682.100(a)). l
Consequently, student loans constitute an enormous industry, and the federal
government plays a maj or role. Thirty-four million Americans are obligated to pay federal
student loans, and the federal government made, owns, or guarantees 92 percent of all student
loans in the United States. § Am. Compl. 114.4 Federal student loans represent a large
proportion of the federal government’s assets: “Nearly half of the financial assets of the United
States government - over a trillion dollars - are promissory notes related to unpaid loans made to
America’s students for their higher education.” w i_d. 11 3. “[O]utstanding federal student loans
have more than doubled from less than $600 billion in 2008 to over $1.4 trillion today.” M i_d.
11 34.5 The District of Columbia, in particular, is “the most indebted jurisdiction in the country
when it comes to average federal student debt.” § Am. Br. Lawyers’ Committee at 16. “As of
March 31, 2018, the average student loan borrower in the District of Columbia had
approximately $51,192.00 in outstanding federal student debt.” § Am. Compl. 11 35.
B. Fea’eral Regulation of Student Loan Servicers
Student loan servicers serve as a kind of middle-man between lenders and
borrowers. Student loan servicers “process[] lncome-Driven Repayment (‘IDR’) applications,
4 The federal government owns and manages over 85 percent of federal student
loans as FDLP and Government-Owned FFELP loans. § Pl. Facts1121.
5 FDLP loans, worth $1.1 trillion in total, constitute over 79 percent of total federal
student federal loans. w Pl. Facts 11 20. Of the $288.6 billion in FFELP loans outstanding,
$167.5 billion are Commercial FFELP loans. § Pl. Facts. 1111 11-12.
5
maintain[] account records, send[] statements and other account notices, process[] payments,
process[] paperwork associated with a myriad of payment statuses, operat[e] incoming and
outgoing call enters to help inform and educate borrowers about their loans and select the best
repayment plan within their budget, and even facilitat[e] temporary cessation of payments, all in
an effort to avoid the consequences of delinquency and default.” w Am. Compl. 11 58. The
HEA and its implementing regulations govern certain procedures that loan servicers must follow
and standards they must meet in servicing federal student loans. §e_e § 11 39 (citing 20 U.S.C.
§§ 1082, 1087a, 1087e).
Congress has delegated to the Secretary of Education the authority to contract
directly with servicers for the administration of FDLP loans. § 20 U.S.C. § 1087f. The HEA
specifies certain standards that the Secretary must adhere to in selecting and contracting with
servicers, 20 U.S.C. § 1087f, but the “[r]egulations do not define the terms of DOED’s contracts
with FDLP servicers.” S_ee Def. Facts 11 32 (citing 34 C.F.R. Part 685).
The HEA also grants the Secretary of Education the authority to prescribe
regulations to “carry out the purposes of [the FFELP program] . . . applicable to third party
servicers” and “to establish minimum standards with respect to sound management and
accountability.” S_e_e_ 20 U.S.C. § 1082(a)(l).6 Pursuant to this authority, the DOED has issued
regulations that dictate certain standards of financial and administrative capability that servicers
must meet to contract with private lenders to service FFELP loans. _S_e_e 34 C.F.R. § 684.416.
DOED regulations also establish processes to limit, suspend, or terminate a third-party servicer’s
eligibility to contract with private lenders, 34 C.F.R. § 682.700, and impose certain obligations
on FFELP loan servicers, including reporting requirements E § § 682'.208. ln addition, the
6 Unless otherwise specified, FDLP Loans are subject to “the same terms,
conditions, and benefits” as FFELP loans. S_e_e 20 U.S.C. § 1087e(a)(1).
6
DOED manages the office of Federal Student Aid, which “audits the servicers and communicates
daily with them,” maintains a “Feedback System,” and receives complaints through the “FSA
Ombudsman Group _ a neutral and confidential resource available to borrowers to resolve
disputes related to their loans.” g U.S. SOI at 5-6 (quoting DOED Notice at 5).
The federal government’s relationship with servicers, therefore, differs based on
the type of federal student loans being serviced First are the FDLP loans, owned by the federal
government - the federal government contracts directly with servicers. Second are the
Government-Owned FFELP loans that Were purchased by the federal government under
ECASLA and are now owned by the federal government ~ those are serviced pursuant to federal
government contracts. Third are the Commercial FFELP loans, owned by private lenders and the
federal government reinsures or guarantees them. The private lenders contract directly with
third-party servicers.
C. The District ofColumbia Law and Final Rules
The Council of the District of Columbia enacted the Student Loan Ombudsman
Establishment and Servicing Regulation Amendment Act of 2016, known-as D.C. Law 21-214
(“D.C. Law”), on December 7, 2016. § Am. Compl.11 74; D.C. Law 21-214, Student Loan
Ombudsman Establishment and Servicing Regulation Amendment Act of 2016, Council Period
21, Permanent L. (Feb. 18, 2017), https://code.dccouncil.us/dclaws/2l/per'manent/. The D.C.
Law went into effect on February 18, 2017. § Def. Facts 11 3. The D.C. Department of
lnsurance, Securities, and Banking (“DISB”) issued three rounds of emergency rules to
implement the D.C. Law, each “enforceable upon promulgation until superseded.” § Am.
Compl. 11 114. SLSA has actively engaged with the District of Columbia in providing feedback
on the different iterations ofthe Rules. §§ § 1111 92-100, 102, 108, 112, 116; SLSA’s
Comments. The Third Emergency Rules were adopted as final (“Final Rules”) on July 25, 2018
and published in the D.C. Registerl on August 10, 2018. § Am. Compl. 11 115; Final Rules.
The Final Rules are currently enforceable § Am. Compl. 11 118.
The D.C. Law was enacted and the Final Rules were promulgated in response to
increasing evidence of misconduct by student loan servicers.7 The Amicus Briefs filed by the
State of New York and the Lawyers’ Committee for Civil Rights Under Law describe patterns of
fraud, abuse, and deceptive practices by servicers, and a lack of regulatory oversight or
enforcement by the DOED. § Am. Br. NYS; Am. Br. Lawyer’s Committee.8 Because the
HEA does not provide a private right of action for borrowers, se_e Nelson .v. Greal Lakes Educ.
Loan Serv. lnc.. No. 3:17-CV000183-NJR-SCW, 2017 WL 6501919, at *2 n.l (S.D. lll. Dec.
19, 2017), state consumer protection laws act as an important check on the regulatory failures of
the DOED. The Committee of the Whole, Subcommittee on Consumer Affairs, of the Council of
the District of Columbia recognized that “[t]he student loan market has grown significantly in
recent years, outpacing the ability of federal regulators to provide sound oversight and
enforcement of the market.” SL D.C. Committee Report at 7. ln turn, the Council of the
District of Columbia created a licensing scheme to counter the lack of “comprehensive federal
7 Connecticut, lllinois, and California have also created or are in the process of
creating licensing schemes similar to the District of Columbia’s. § Am. Br. NYS at 20. “Four
states besides the District have enacted laws within the last three years requiring licensure of
student loan servicers and imposing numerous and varying regulatory requirements on servicers,
and other states have considered similar legislation this past year.” §e_e Pl~. Cr-MSJ at 21.
8 According to the Lawyers’ Committee in its Amicus Brief, “the [DOED’s]
regulations provide few borrower protections; they are more in the nature of programmatic
guidance . . . . Under the HEA, the [DOED] lacks a strong enforcement mechanism, with @
ability [to] bring an enforcement action against a servicer to provide remedies to borrowers for
consumer protection violations.” S_ee Am. Br. Lawyer’s Committee at 23-24 (emphasis in
original).
statutory or regulatory framework providing consistent, market-wide standards for servicing
federal loans.” S_ee_ § at 6.
The D.C. Law was enacted to “protect[] student loan borrowers by creating
servicer accountability and providing appropriate oversight of the student loan servicing industry
through the requirement of licensure.” § D.C. Committee Report at 7.9 ln practice, the D.C.
Law and the Final Rules require servicers to be licensed by the Commissioner of the D.C.
Department of lnsurance, Securities and Banking (“Commissioner”) in order to service the loans
of D.C. residents E D.C. Law 21-214 §§ 7b(a)-(d). To qualify for a lic_ense, a servicer must
submit an application, obtain a surety bond, pay the associated fees, and comply with on-going
requirements - including maintaining a minimum net worth, undergoing periodic financial
auditing and annual assessments, submitting an annual report, reapplying annually for a license,
and responding to all requests for "‘[a]ny other information” the DISB considers “necessary and
appropriate.” w D.C. Law 21-214 § 7b(c)(l)(E); Final Rules §§ 3002, 3003, 3004, 3007, 3009,
3014-15. The Commissioner retains discretion to grant or deny a license and may revoke a
license after notice and a hearing. § D.C. Law 2l-214 §§ 7b(d), (h)(l). The D.C. Law also
creates an “Ombudsman who is responsible for resolving borrower complaints, developing a
borrower bill of rights, monitoring and analyzing information and data from borrower
complaints, providing information to student loan borrowers, and conducting examinations of
student loan servicers.” E Def. Facts 114; D.C. Law 21-214 § 7a.
9 In particular, “because [the District of Columbia] lack[s] robust federal standards
for student loan servicers, many of which generally have discretion to determine policies related
to their servicing operations, [its] students are at risk of receiving subpar and/or inconsistent
services and some are even being targeted by predatory debt relief companies.” w D.C.
Committee Report at 6-7.
D. The Case Before this Court
Plaintiff SLSA is a membership organization comprised of. student loan servicers.
S_ee_ Am. Compl. 11 9. SLSA’s national membership consists of 24 student loan servicers that
service federal or private loans or both, and 14 affiliate members. w § 11 9. SLSA’s members
“service over 95 percent of the outstanding 1FDLP] and [FFELP] student loans.” §e_e_ § 11 9. All
FDLP and Government-Owned FFELP loans are serviced by nine servicers; all nine are
members of the SLSA. § Pl. Facts 11 54. Fifteen of SLSA’s members (including the
aforementioned nine) service Commercial FFELP loans. _S_Y § 11 55.10 l
SLSA brought suit on behalf of its members against the District of Columbia;
Stephen C. Taylor, Commissioner of the Department of lnsurance, Securities, and Banking; and
Charles A. Burt, Student Loan and Foreclosure Ombudsman. w Am. Compl. 1111 9-12. SLSA
challenges the D.C. Law and Final Rules as unconstitutional under the Supremacy Clause as
applied to all three types of loans: FDLP loans, Government-Owned FFELP loans, and
Commercial FFELP loans. w Pl'. Cr-l\/lSJ at 43. The SLSA members who service federal
student loans in the District of Columbia - whether they be FDLP, Government-Owned FFELP,
or Commercial FFELP loans, or a mix of the three - are subject to the D.C. Law and the Final
Rules. § Pl. Facts11 54. SLSA requests two different forms of relief: (l) a declaratory
judgment that federal law preempts the D.C. Law and the Final Rules; and (2) an order
permanently enjoining the District from enforcing the D.C. Law and Final Rules against student
loan servicers. § Am. Compl. at 64.
The Court previously denied without prejudice the District?s earlier motion [Dkt.
No. 14] to dismiss SLSA’s complaint, ruling that the motion was premised on an outdated
10 The District disputes SLSA’s assertion that it has at least one member that
services only government-owned loans in the District of Columbia. § Def. Opp. at 3 n.4.
10
version of the Rules that had been superseded by the third emergency rules. § Student Loan
Servicing Alliance v. District ot`Cqumbia, 317 F.Supp.3d 89 (D.D.C. 2018).ll The Court
directed SLSA to file an amended complaint addressing the third set of emergency rules
promulgated to implement the D.C. Law. SLSA filed an amended complaint on September 7,
2018. The District of Columbia has since enacted the Final Rules to implement the D.C. Law,
and they are currently in effect.
The question before the Court now is whether the D.C. Law and Final Rules
unconstitutionally infringe upon protected federal sovereignty under the Supremacy Clause. The
defendants have moved to dismiss SLSA’s amended complaint pursuant to Rule l2(b)(l) and
Rule l2(b)(6) of the Federal Rules of Civil Procedure or, in the alternative, for summary
judgment under Rule 56 of the Federal Rules of Civil Procedure. SLSA has cross-moved for
summary judgment under Rule 56.
11. LEGAL STANDARD
A. Motion to Dismiss Under Rule 12(1)) (1) ofthe Federal Rules Of~Cl`vl`l Procedure
The District of Columbia argues that the Court lacks subject matter jurisdiction
over SLSA’s claims pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure because
SLSA does not have standing. Federal courts are courts of limited jurisdiction, possessing only
those powers authorized by the Constitution and an act of Congress. E, gg;, Janlto v. Gates,
741 F.3d 136, 139 (D.C. Cir. 2014); Beethoven.com LLC v. librarian of`Cong., 394 F.3d 939,
945 (D.C. Cir. 2005); Abulhawa v. U.S. Dep’t ofthe Treasurv, 239 F. Supp. 3d 24, 30 (D.D.C.
2017). On a motion to dismiss for lack of subject matter jurisdiction, the plaintiff bears the
ll The Court also denied without prejudice SLSA’s motion [Dkt. No. 9] to expedite
discovery, summary judgment deadlines, and trial.
11
burden of establishing that the Court has jurisdiction. E Walen v. United States, 246 F. Supp.
3d 449, 452 (D.D.C. 2017); Tal)man v. FBl, 718 F. Supp. 2d 98, 100 (D.D.C. 2010). In
determining whether to grant a motion to dismiss, the Court must construe the complaint in
plaintiffs favor and treat all well-pleaded factual allegations as true. § Attias v. Carcfirst. lnc.,
865 F.3d 620, 627 (D.C. Cir. 2017); Walen v. United Statcs, 246 F. Supp. 3d at 452-53. And in
determining whether a plaintiff has met the burden of establishing jurisdiction, the Court may
consider materials beyond the pleadings Where appropriate. § Walen v. United States, 246 F.
Supp. 3d at 453 (citing Am. Nal`l lns. v. FDIC, 642 F.3d1137, 1139 (D.C. Cir. 2011)); w
M, 718 F. Supp. 2d at 100 (citing Seolaro v. D.C. Bd. of Eleetions & lithics, 104 F. Supp. 2d
18, 22 (D.D.C. 2000)).
B. Motion to Dismiss Under Rule 12(b)(6) Ofthe Federal Rules ofCivil Procedure
The District also moves to dismiss SLSA’s amended compliant under Rule'
12(b)(6) of the Federal Rules of Civil Procedure. Rule 12(b)(6) allows dismissal of a complaint
if a plaintiff fails “to state a claim _upon Which relief can be granted.” E FED. R. CI\/. P.
12(b)(6). Generally, under Rule 8 of the Federal Rules of Civil Procedure, a plaintiff need only
provide “a short and plain statement of the . . . claim showing that the pleader is entitled to l
relief ’ that “give[s] the defendant fair notice of what the claim is and the grounds upon which it
rests.” § Bell Al'l. Col'p. v. Twomblv, 550 U.S. 544, 555 (2007) (alternation in original)
(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Although “detailed factual allegations"’ are
not necessary to withstand a Rule 12(b)(6) motion to dismiss, the complaint “must contain
sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.”’
E Ashcrol`t v. lqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corr). v Twombly, 550 U.S.
at 555, 570); g al_sQ Henok v. Kesslcl', 78 F. Supp. 3d 452, 457 (D.D.C. 2015). “A claim has
12
facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” l.n re lnterbanl<
Funding Cor\). Sec. Litig., 629 F.3d 213, 218 (D.C. Cir. 2010) (quoting Ashcroft v. lgbal, 556
U.s. 31678).
ln deciding a motion to dismiss under Rule 12(b)(6), the Court “must accept as
true all of the factual allegations contained in the complaint.” § Swierl~;iewicz v. Sorema
M, 534 U.S. 506, 508 n.l (2002) (citation omitted); g alj Henok v, I<_essler, 78 F. Supp. 3d
at 457. The Court considers the complaint in its entirety, g `1`ellabs, lnc. v. Makor lssues &
Rights, Ltd., 551 U.S. 308, 322 (2007), and construes it “liberally in the plaintiffs’ favor.” w
Kowal v. l\/lCl Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994); § alj Hettinga v.
United States, 677 F.3d 471, 476 (D.C. Cir. 2012). The Court must grant a plaintiff“the benefit
of all inferences that can [reasonably] be derived from the facts alleged,” although it need not
accept plaintiff s legal conclusions or inferences drawn by the plaintiff if those inferences are
unsupported by facts alleged § Sickle v. "l`orres Advanccd Enter. Sols.n I.LC., 884 F.3d 338,
345 (D.C. Cir. 2018) (alternation in original); s_e§ also l'lcttinga v. United States, 677 F.3d at
476 (citations omitted); l-lenok v. Kessler, 78 F. Supp. 3d at 457-58.
C. Motz`onsfor Summary Judgment
ln the alternative, the District moves and SLSA cross-moves for summary
judgment under Rule 56 of the Federal Rules of Civil Procedure. Summary judgment is
appropriate only if “the pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of law.” E Anderson v. Libelty
Lobby, lnc., 477 U.S. 242, 248 (1986) (quoting FED. R. CIV. P. 56(0)); s_e_e_ alj Baumann v.
13
District of Columbia, 795 F.3d 209, 215 (D.C. Cir. 2015); FED. R. CIV. P. _56(a). ln making that
determination, the Court must view the evidence in the light most favorable to the nonmoving
party and draw all reasonable inferences in its favor. E Baumann v. District ol`Colum|Jia, 795
F.3d at 215; g alj Tolan v. Cottou, 572 U.S. 650, 656-57 (2014) (per curiam); Anderson v.
Liberty Lobby. lnc., 477 U.S. at 255; "I`alavel'a v. Shah, 638 F.3d 303, 308 (D.C. Cir. 2011).
A disputed fact is “material” if it “might affect the outcome of the suit under the
governing law.” w Talavera v. Shah, 638 F.3d at 308 (quoting Anderson v. Libertv Lobbv`
L, 477 U.S. at 248). A dispute over a material fact is “genuine” if it could lead a reasonable
jury to return a verdict in favor of the nonmoving party. § Scott v. Harris, 550 U.S. 372, 380
(2007);G1'imes v. District ol`Collebia, 794 F.3d 83, 94-95 (D.C. Cir. 2015); Paige v. DEA, 665
F.3d 1355, 1358 (D.C. Cir. 2012). “Credibility determinations, the weighing of the evidence,
and the drawing of legitimate inferences from the facts are jury functions,.not those of a judge at
summary judgment. Thus, [the Court] do[es] not determine the truth of the matter, but instead
decide[s] only whether there is a genuine issue for trial.” Barnell v. PA Consu|ting Grp.1 lnc.,
715 F.3d 354, 358 (D.C. Cir. 2013) (quoting Parclo-Kronemann v. Donovan, 601 F.3d 599, 604
(D.C. Cir. 2010)); § alj "l`olan v. Cotton, 570 U.S. at 656; Baumann v. District of C.`.olumbia,
795 F.3d at 215; Allen v. Johnson, 795 F.3d 34, 38 (D.C. Cir. 2015).
lll. DISCUSSION
A. Standing
As a preliminary matter, the District of Columbia contends that SLSA lacks
standing to bring this lawsuit because it has failed to allege sufficient “causation” and a
justiciable “injury in fact.” § Def. MTD at 21-24.12 The Court disagrees
12 The District does not take issue with SLSA’s associational standing.
14
“Three inter-related judicial doctrines_standing, mootness, and ripeness_ensure
that federal courts assert jurisdiction only over ‘Cases’ and ‘Controversies.”’ Worth v. Jackson,
451 F.3d 854, 855 (D.C. Cir. 2006) (quoting U.S. CONST. art. lll, § 2). Standing is an Article lll
requirement under which the plaintiffs must show, at an “irreducible constitutional minimum”:
(1) that they have suffered an injury in fact - the invasion of a legally protected interest; (2) that
the injury is fairly traceable to the defendant’s conduct (a causal connection); and (3) that a
favorable decision on the merits likely will redress the injury. w Luian v. Del". of Wildlife, 504
U.S. 555, 560-61 (1992); § a_l§g Worth v. Jackson, 451 F.3d at 858; Gett_man v. DEA, 290 F.3d
430, 433 (D.C. Cir. 2002). The alleged injury in fact must be concrete and particularized and
actual or imminent, not conjectural, hypothetical or speculativel E Spokeo, [nc. v. I{obins, 136
S. Ct. 1540, 1548 (2016); Cla;)pel' v. Amnestv lnt`l USA, 568 U.S. 398, 408-09 (2013); L_]u`M
Def. ol"Wi.ldlife, 504 U.S. at 560-61; Worlh v. Jackson, 451 F.3d at 858; Siel'ra Club v. EPA,
292 F.3d 895, 898 (D.C. Cir. 2002).
Among other things, the District argues that there is insufficient causation because
SLSA members will be required by the D.C. Law and Final Rules to obtain and maintain a
license to service private loans, irrespective of the applicability of the D.C. licensing regime to
the servicing of federal loans. E Def. MTD at 24-26. SLSA responds that the District’s
argument is irrelevant because the D.C. licensing scheme would require SLSA members to
obtain and maintain a license or be barred from servicing their M loans in the District of
Columbia, substantiating causation. § Pl. Cr-l\/ISJ at 31. The Court agrees Whether SLSA
members must obtain a license to service their private loans is an issue not before this Court.
SLSA has explained that its members would be willing to obtain licenses to service their private
15
loans in the District of Columbia. §§ § at 31. The issue is whether the D.C. Law requires a
license to service federal loans, and it indisputably does.
Nine of SLSA’s members service federal loans in the District of Columbia. S_ee
Def. Facts 11 38. As plaintiff puts it: “1f SLSA’s members do not apply for a license by this
November, the law and its rules forbid them from servicing federal student loans in the District
pursuant to federal contracts and permit the District to assess late penalties lf they do apply, the
District has the power to deny licensure and prohibit Servicers from servicing federal student
loans in the District.” E Pl. Cr-MSJ at 31. There is sufficient causationlbetween the
application of the D.C. Law and Final Rules and SLSA members’ alleged inability to service
their federal loans consistent with the HEA and the terms of their contracts with the federal
government Moreover, although the servicers will have to pay a flat fee to obtain a license to
service their private loans in the District of Columbia, many of the fees and reporting
requirements of the D.C. Law and Final Rules apply on a per borrower or .per loan basis, so
“SLSA’s members would not spend nearly the time and money to comply with these
requirements if the licensure applied solely to private student loans.” S_e_e_ Pl. Reply at 14.
The District further argues that SLSA relies on hypothetical applications of the
D.C. Law and Final Rules to evidence preemption, failing to allege a sufficient injury-in-fact.
§ Def. MTD at 21. SLSA responds, correctly, that the “regulatory action of requiring its
members to be licensed in accordance with the District’s criteria” is not hypothetical §e_e Pl.
Cr-MSJ at 34. lt is true that the District of Columbia has not yet denied or revoked the license of
a federal loan servicer and that the disclosures feared by SLSA have not y_et been ordered
Courts have found sufficient injury-in-fact, however, when plaintiffs allege that they face
increased compliance costs from conflicting regulatory regimes, as SLSA does here. §e_e, gg,
16
Citv of Waukesha v. EPA. 320 F.3d 228, 236-37 (D.C. Cir. 2003) (finding injury-in-fact where
there was a “substantial probability” that plaintiff would face “significant monitoring,
compliance, and disposal costs” from new regulations); Nat’l Mining Ass’n v. U.S. Dep’l o'l"
M, 70 F.3d 1345, 1349 (D.C. Cir. 1995) (finding injury-in-fact where conflicting
enforcement schemes created uncertainty and forced company to “expend money to satisfy one
and then the other”). w also Publie Ulil. Comm’n v. United Stzlles, 355 U.S. 534, 538 (1958);
United States v. Virginia, 139 F.3d 984, 987 nn.2, 3 (4th Cir. 1998). l\/loreover, SLSA members
are already subject to enforcement of the Final Rules § Am. Compl. 11 118. Three members
have obtained their licenses under the Final Rules and paid the required fees, and others have
begun to expend money, resources, and time to comply with licensing requirements § §.
1111 122-28.13
The injury faced by SLSA members is not hypothetical, and a pre-enforcement
review of the D.C. Law is appropriate For that reason, the Court concludes that SLSA has
standing and therefore will deny the District’s motion to dismiss under Rule 12(b)(1).
B. The Supremacy Clause
The Court now turns to the merits of SLSA’s challenges to the D.C. Law and
Final Rules, all based on the Supremacy Clause of the Constitution. The Supremacy Clause
dictates that “the Laws 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
13 One of SLSA’s members applied for a license in 2017 and its annual assessment
fees were due on November 15, 2018. § Am. Compl. 11 123.
17
to the Contrary notwithstanding.” E U.S. CONST. art. VI, cl. 2.14 A state law or regulation may
be unconstitutional under the Supremacy Clause in two ways. First, under the doctrine of
intergovernmental immunity, a state law is unconstitutional if it “regulate[s] the [federal]
Government directly or discriminate[s] against it.” § Nortb l)akota v. United States, 495 U.S.
423, 434 (1990)-. Second, a state law is unconstitutional if it “conflict[s] with an affirmative
command of Congress.” § § at 434. The intergovernmental immunity doctrine provides the
federal government a minimum level of constitutional protection, but Congress can provide a
“further degree of immunity” by acting to preempt a state law or regulation that would otherwise
be constitutionally permissible §e_e § at 435, 442 & n.7. ln the present case, SLSA asserts that
Congress has deliberately sought to displace state law by passing the HEA. The more appropriate
starting point for this analysis, therefore, is preemption rather than intergovernmental immunity.
C. Preemption
The Supremacy Clause vests in Congress the power to preempt state law. g
Arizona v. United States, 567 U.S._ 387, 399 (2012); § also North Dal495
U.S. at 439 (“Congress has the power to confer immunity from state regulation on Government
suppliers beyond that conferred by the Constitution alone . . . .”); Sickle vt Torres Advaneed
Enter. Sols. LLC.., 884 F.3d 338, 346 (D.C. Cir. 2018) (“The decision whether a federal law
should preempt or operate alongside state law is Congress’s to make.”). Congressional purpose,
therefore, is the “ultimate touchstone in every preemption case.” E Wyeth v. .Levine, 555 U.S.
555, 565 (2009) (quoting Medtronie lne. v. Lohr, 518 U.S. 470, 485 (1996)). To determine
14 For purposes of the Supremacy Clause, the District of Columbia is treated as a
state “Traditional preemption principles apply to District of Columbia laws.” w Comm’n
lmp. §§pr. S.A. v. Reptlblic of the Congo, 757 F.3d 321, 326 (D.C. Cir. 2014).
18
Congress’ preemptive purpose, “[e]vidence . . . is sought in the text and structure of the [federal]
statute at issue” w C`SX Transp., I.nc. v, E-asterwood, 507 U.S. 658, 664 (1993).
Foundational principles of federalism caution courts against interpreting a federal
statute to preempt state law “unless that [is] the clear and manifest purpose of Congress.” §
Cipollone v. Liggett G:'p.` lnc., 505 U.S. 504, 516 (1992) (alteration in ori'gi_nal) (quoting M
Santa Fe Elevator Corg., 331 U.S. 218, 230 (1947)); ge also Arizona v. United States, 567 U.S.
at 400; CSX Ti'ansp., lnc. v. Easlerwood, 507 U.S. at 663-64 (“ln the interest of avoiding
unintended encroachment on the authority of the States . . . a court interpreting a federal statute
pertaining to a subject traditionally governed by state law will be reluctant to find
pre-emption.”); Bourheau v. Jonatliarl Woodner Co., 549 F. Supp. 2d 78, 88 (D.D.C. 2008).
lndeed, there is an established presumption against preemption §e_e Medtronie lne. v. Lohr, 518
U.S. at 485 (“[B]ecause the States are independent sovereigns in our federal system, we have
long presumed that Congress does not cavalierly pre-empt state-law causes of action.”).
Contrary to SLSA’s assertion, this presumption against preemption guides courts in a_l_l
preemption cases, “and particularly in those in which Congress has legislated . . . in a field which
the States have traditionally occupied.” §§ Wyeth v. l.evine, 555 U.S. at 565 (alteration in
original) (quoting Medtronie lne. v. Lohr, 518 U.S. at 485); § also Comm`n Imp. Exp. S.A. v.
Republie of the Congo, 757 F.3d 321, 333 (D.C. Cir. 2014). Consumer protection is one such
area that traditionally has been regulated by the states. E California v. ARC Am. Corp., 490
U.S 93, 101 (1989);F1a. Lirne & Avocado Growers, 373 U.S. 132, 146 (1963); Chae v, S`[.l\/IS
_CB, 593 F.3d 936, 944 (9th Cir. 2010); Gen. Motors Corp. v. Abrams, 897 F.2d 34, 41-42 (2d
Cir. 1990).
19
Congress preempts state law in two ways: express preemption and implied
preemption S_ee Sickle v. To:'res Advanced Enter. Sols.. LLC., 884 F.3d at 346. Express
preemption arises when Congress announces its intent to invalidate state law through “an express
preemption provision” explicit in the federal statute itself. § Ai'izona v.- United States, 567
U.S. at 399; § also Oneok` Inc. v. Leal'iet1 lnc., 135 S.Ct. 1591, 1595 (2015) (“Congress may
. . . pre-empt, i.e., invalidate, a state law through federal legislation. lt may do so through
express language in a statute.”); Hillsborough County v. Automated Med. Labs.` lnc.. 471 U.S.
707, 712-13 (1985).
ln contrast, implied preemption occurs “not through an explicit statutory
provision, but through the substantive nature and reach of the federal regulatory scheme that
Congress adopts.” S_ee Sicklc v. Torres Advanced Enter. Sols.. LLC., 884 F.3d at 346; g alj
Crosbv v. Nat’| Forei,v_n Tracle Couneil, 530 U.S. 363, 388 (2000). lmplie_d preemption, in turn,
can take two forms: field preemption and conflict preemption. § Sicltle v. Torres Advanced
Enter. Sols. LLC., 884 F.3d at 346; § also Oneok, lne. v. Learjet, lnc., 135 S.Ct. at 1595. The
Supreme Court has established that “[p]re-emption may result not only from action taken by
Congress itself; a federal agency acting within the scope of its congressionally delegated
authority may pre-empt state regulation.” E La. Pub. Serv. Comln`n v. FCC, 476 U.S. 355, 369
(1986); g also Hillsborough Countv v. Automated Med. l;abs.` lnc., 471-U.S. at 713
(explaining that “state laws can be pre-empted by federal regulations as well as by federal
statutes”).
SLSA challenges the D.C. Law and Final Rules under all three theories of
preemption - express, field, and conflict preemption. The Court will address each theory in turn.
Before turning to these three theories, however, the Court will first address the Department of
20
Education’s Preemption Notice (“DOED Notice”), which SLSA asserts deserves judicial
deference
1. Deference to the Department of Education Preemptionl Notice
The DOED issued informal guidance, published in the Federal Register on March
12, 2018, entitled “Federal Preemption and State Regulation of the Department of Education’s
Federal Student Loan Programs and Federal Student Loan Servicers.” E DOED Notice,
Federal Preemption and State Regulation of the Department of Education’s Federal Student Loan
Programs and Federal Student Loan Servicers, 83 Fed. Reg. 10619 (l\/lar. 12, 2018). The DOED
Notice outlines the Department’s position that recent state enactments of regulatory requirements
for loan servicers, such as the District of Columbia’s requirements, are preempted by federal law.
§ § According to the DOED Notice, the HEA and its implementing regulations preempt the
licensing scheme created by the D.C. Law under both express and conflict preemption
The parties disagree as to how much deference should be accorded the DOED’s
Notice SLSA explains that its claims stand on their own, but that the “Court should [also] defer
to the Department’s interpretation,” which would all but decide this case § Pl. Cr-l\/ISJ at 39.
The District argues that the DOED Notice should be accorded “little [interpretive] deference.”
g Def. MTD at 42.
The level of deference courts should accord to agencies on the issue of
preemption is an unsettled area of law. S_ee_: Delawal‘e v. Surface Transp. Bd., 859 F.3d 16, 20
(D.C. Cir. 2017) (“There is some legal uncertainty in this circuit about the appropriate level of
deference a court owes to an agency’s determination of its own preemption.”); Blue C ross and
Blue Shield of Cl823 F.3d 1198, 1202 (8th Cir. 2016) (“The law concerning
21
application of Chevron to an agency’s view on preemption is unsettled.”).15 The Court must
decide first what type of deference should be considered, if any, based on the qualities of the
DOED’s Notice, and then determine whether the Notice passes the applicable test to qualify for
deference This calculation may be different with respect to the two different types of
interpretation undertaken by the DOED in its Notice On the one hand, the DOED is interpreting
the statute that it is authorized to administer - specifically, the scope of one of the HEA’s express
preemption provisions On the other hand, the DOED is interpreting the conflict preemptive
effect of its own regulations As will be explained, the Court concludes that so-called Skidmore
deference is the correct test to apply to both of these types of agency interpretation
First, the Court considers the DOED’s interpretation of the_HEA’s express
preemption provision This analysis qualifies as “an agency’s construction of the statute which it
administers,” positioned squarely within the Chevron framework. § Chevron U.S.A. lnc. v.
Nat. Res Def. Council, lnc., 467 U.S. 837, 842 (1984); se_e, §§ United States v. Mead Corp.,
533 U.S. 218, 229 (2001); Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 314-15 (2d Cir. 2015).
When an agency does not “speak with the force of law” meriting M deference, M
States v. Meatl Corp., 533 U.S. at 229, however, and instead issues informal guidance - such as
an “interpretive bulletin,” informal ruling, or advisory opinion - it is accorded only Skidmore
deference M Skidmore v. Swif`t & Co., 323 U.S. 134, 138, 140 (1944); § alj Enjino
Motorcal's. IJI..C. v. l\lavarro, 136 S.Ct. 2117, 2125 (2016); 33 CHARLES ALAN WRIGHT,
CHARLES H. KoCH, JR., & RICHARD MURPHY, FEDERAL PRACTICE & PRoCEDURE §§ 8426, 8436
(2d ed. 2018). The DOED’s Notice qualifies as such informal guidance, nothing more The
15 The question before the Court is not whether the DOED Notice itself has
preemptive effect. § Wyelh v. Levine, 555 U.S. at 576. The DOED Notice was not issued
“with the force of law,” so “the question [before the Court] is what weight we should accord the
[agency’s] opinion” that its regulations preempt state law. w § at 576-76.
22
DOED did not undergo the proper rulemaking procedures to qualify as “acting with the force of
law” when it issued the DOED Notice. §§ 20 U.S.C. § 1098a (outlining procedural
requirements for rulemaking). For that reason, Skidmore is the appropriate test to apply to the
DOED’s interpretation of the HEA’s express preemption provision
Second, the Court considers the DOED’s interpretation of its own regulations’
preemptive effect under conflict preemption The Skidmore framework also applies to this
aspect of the agency’s interpretation.16 ln Wyeth v. L-evine, the Supreme Court faced similar
facts w Wyeth v. Levine, 555 U..S at 577. There, the agency had not promulgated a
regulation “with the force of law [to] pre-empt conflicting state requirements,” and the Supreme
Court instead Was forced to confront “an agency’s mere assertion that state law is an obstacle to
achieving its statutory objectives” found in the preamble of a regulation § § at 576. As in
erth v. Levine, the DOED Notice here does not have the “force of law”_because it did not
undergo the proper, statutorily-proscribed rulemaking process @ 20 U.S. C. § 1098a The
Court in Wyeth v. Levine determined Skidmore deference to be the appropriate test when
assessing an “agency’s explanation of state law’s impact on the federal scheme,” because
agencies “do have a unique understanding of the statutes they administer and an attendant ability
to make informed determinations about how state requirements” may be preempted by federal
law. E Wyeth v. Levinc, 555 U.S. at 577. Skidmore deference, therefore, is the appropriate
16 Courts typically give agencies’ interpretations of their own regulations so-called
w deference _S_e§ Auer v. Robbins, 519 U.S. 452 (1997). The Supreme Court has not applied
M deference, however, when the agency’s interpretation relates to preemption ln that
situation, as SLSA concedes, the agency’s interpretation is analyzed under Skidmoi'e, according
a lower level of deference to the agency’s interpretation if it meets the Skidmore test. E Wyeth
v. Levinc, 555 U.S. at 576-77; Pl. Cr-MSJ at 40. ME Chae v. SLM Corp., 593 F.3d at
949-50.
23
lens through which to consider the DOED’s interpretation of its own regulations’ preemptive
effect, as well.
Having found that so-called Skidmore deference is the appropriate test by which
to assess the DOED Notice - as to. both its express preemption and conflict preemption
interpretation -the Court next determines whether the DOED Notice warrants such deference
The U.S. District Court for the Northern District of Florida is the only court thus far to have
considered the DOED Preemption Notice E Order, Lawson-Ross & Bryne v. Greal Lakes
l-lig,her Educ. Corp. (N.D. Fla. Sep. 20, 2018) (No. 17-0253) [Dkt. No. 27-41. lt determined that
the DOED Notice should be accorded Skidmore deference, and it also concluded that the DOED
Notice is “persuasive” and should be accorded “due deference under Skidmore.” §§ § at 8.
This Court does not agree
To be considered persuasive guidance under Skidmore the Court would need to
find the DOED Preemption Notice to be sufficiently thorough, consistent, and persuasive §
Skidmore v. Swift & Co., 323 U.S. at 138, 140. But no deference is owed to an “agency’s
conclusion that state law is preempted.” §_e£ Wyeth v. Levine, 555 U.S. at 576 (emphasis in
original). And the DOED has provided only conclusions in this informal guidance The DOED
Notice is a retroactive, ex-post rationalization for DOED’s policy changes, and therefore does
not merit Skidmore deference lt does not analyze in any real way the regulations it cites
The DOED Preemption Notice fails the Skidmore test most notably because the
agency’s view represents a stark, unexplained change in the DOED’s position Contrary to
SLSA’s assertion that the pronouncement is not inconsistent because this “is the first time the
Department of Education expressed its interpretation regarding the constitutionality of state
licensing schemes for Servicers,” the District points to past statements by the United States that
24
explicitly rejected the preemptive effect of the HEA. § Pl. Cr-MSJ at 40; Def. MTD at 43.
Those statements include a Statement of lnterest filed by the United States in federal court in
New York in Sanchez v. Asa College Inc., No. 14-5006, 2015 WL 3540836 (S.D.N.Y. June 5,
2015), a case involving a for-profit college’s lending practices.17 ln its Statement of lnterest, the
United States declared that “[n]othing in the HEA or its legislative history even suggests that the
HEA should be read to preempt or displace state or federal laws Nor is there anything in the
HEA or the regulations promulgated thereunder to evince any intent of Congress or [the DOED]
that the HEA or its regulations establish an exclusive administrative review process of student
claims brought under state or deferral law, even if the conduct alleged may separately constitute
an HEA violation.” _Sj M U.S. SOl at 8-9. The DOED does not make any attempt to
explain its change in position, which may have excused such dramatic inconsistency. w
Encino Motorcars, LLC v. Navarro, 136 S.Ct. at 2125 (“Agencies are free to change their
existing policies as long as they provide a reasoned explanation for the change.”).
SLSA also argues that “[t]he other statements cited by Defendants were all made
before [several] states and the District [of Columbia] passed the Servicer licensing schemes and
addressed separate topics” and that the DOED Notice is consistent with the United States’
Statement of lnterest filed on January 8, 2018 in Massachusetts v. Pennsvlvania Highel'
Education Assistance Authoi'ily, No. 1784CV02682 (Mass. Sup. Ct.) [Dkt. No. 19-18], and its
statement as an intervenor in Chae v. SLM Col'g., 593 F.3d 936 (9th Cir. 2010). § Pl. Cr-MSJ
at 40-41. The Court is unpersuaded The January 2018 Statement of lnterest filed in
Massachusetts Superior Court is subject to the same criticism as the DOED Preemption Notice; it
17 The District also points to a DOED memoranda that reiterate servicers’
obligations to comply with state law as evidence of the federal government’s contradictory
position § Def. l\/lTD at 44.
25
Was issued three months prior to the DOED Preemption Notice and also marks a stark,
unexplained break from the DOED’s previous position And the DOED’s statement as an
intervenor in Chae v. SLM Corp. only further exemplifies the DOED’s inconsistency The
United States held one position in 2010 in Chae v. SLM Coi;p., another in .2015 in Sanchez v.
ASA College. lnc., and yet another in the DOED Preemption Notice in 2018. The Court does
not know whether the United States explained its inconsistency in its statement as an intervenor
in Chae v. SLM Corp. or whether that was an issue before the Ninth Circuit. What is clear.
though, is that the DOED has not been consistent in its position about the HEA’s preemptive
effect, and the DOED Preemption Notice does nothing to alleviate or explain those
contradictions
As the District argues, the Preemption Notice also lacks requisite thoroughness
and persuasiveness because it fails to specify the regulations that it is interpreting The Court
cannot agree with the Northern District of Florida that the DOED Notice is “well-reasoned and
sensible.” w Order at 8, Lawson-Ross & Bryne v. Great Lakes Higher Educ. Corp. (N.D. Fla.
Sep. 20, 2018) (No. 17-0253); Pl. Reply at 24. lt is not. The DOED Notice draws broad
conclusions about the regulations’ preemptive effect without actually interpreting any specific
regulations Thus, the Court gives no deference to the DOED Preemption Notice and turns now
to its own independent preemption analysis
2. Express Preemption
Congress’ intent to preempt state law is most easily identified by its own
legislative language Express preemption arises when Congress announces its intent to
invalidate state law through “an express preemption provision” explicit in the federal statute
itself. g Ai'izona v. United States, 567 U.S. at 399; § also Oneok, [ne. v. Leariet. lnc., 135
26
S.Ct. at 1595; Hillsborough County v. Automated l\/led. Labs., lnc.. 471 U..S at 712-13.
Although the presence of an express preemption provision may be a clear indication that
Congress “intended [the statute1 to pre-empt at least some state law, [the C_ourt] must nonetheless
‘identify the domain expressly pre-empted’ by that language.” w Medtronic. lnc. v. Lohr, 518
U.S. at 484 (quoting Cipollone v. Liggett Grp., lnc., 505 U.S. at 517).
Despite the existence of several express preemption clauses contained in the
HEA, the only express preemption provision discussed by the parties is Section 1098g. Section
1098g provides in full: “Loans made, insured, or guaranteed pursuant to a program authorized by
Title lV of the [HEA] (20 U.S.C. [§] 1070 et seq.) shall not be subject to any disclosure
requirements of any State law.” 20 U.S.C. § 1098g. FDLP loans are authorized pursuant to 20
U.S.C. § 1087a, e_t sjeq; (Part D), and FFELP loans are authorized pursuant to 20 U.S.C. § 1071,
e_t _sjj; (Part B), two separate parts of Title lV of the HEA. The federal student loans at issue in
this case, therefore, shall not be “subject to any disclosure requirements of any State law.” §
§ § 1098 g. The parties agree that the term “disclosure requirements” is not defined by the
HEA, so the Court must determine what type of disclosure requirements Congress intended to
preempt.
SLSA argues that Congress intended Section 1098g to prohibit states from
requiring servicers to report to third parties or to make any disclosures to borrowers that are not
explicitly set out in the HEA. § Pl. Cr-MSJ at 61; Am. Compl. 11233. SLSA extrapolates
from this reasoning to challenge the entire D.C. licensing scheme, not just the reporting
requirements SLSA argues that because disclosures by servicers to the D.C. government are
required to facilitate oversight of licensed servicers, if those disclosures are expressly preempted
by the HEA under Section 1098g, then the entire licensing scheme collapses. g Am. Compl.
27
1111 245-47. The District, on the other hand, maintains that the “disclosure requirements”
preempted by Section 1098 g should be read narrowly to include only particular communications
between lenders and borrowers, thus leaving states free to legislate additional requirements
related to communications by servicers, as the District of Columbia has done. E Def. l\/ITD at
29-33.
Even if Section 1098 g prohibited states from regulating communications by
servicers to borrowers, the D.C. Law and Final Rules do not require any such communications
SLSA is only able to point to the D.C. Student Loan Borrower’s Bill of Rights as evidence of
D.C. requirements that servicers communicate with borrowers E Am. Compl. 1111 234-40. As
an aspirational document, there is nothing to indicate that the District intends to or would be able
to enforce the Student Loan Borrower’s Bill of Rights. Thus, the D.C. Law and Final Rules do
not require any “disclosures” - if defined as communications between servicers and borrowers
- that could be preempted by Section 1098 g.
This leaves SLSA’s argument that Section 1098g expressly preempts state
regulation of communications by loan servicers to third parties § Am. Compl. 1111 229-33. lf
the Court were to define “disclosure requirements” as including those made by servicers to third
parties, SLSA argues that a number of provisions in the Final Rules requiring servicers to report
to the D.C. Commissioner or respond to requests for information by the D.C. government would
be preempted by Section 1098g. Those provisions include Sections 3014 1(annual reporting
requirements), 3016 (requirements to notify the Commissioner of certain events), 3018 (“Each
licensee shall make applicable books and records available to the Commissioner . . . .?’), 3021
(the Commissioner’s ability to investigate), and 3022 (the Commissioner may respond to
borrower complaints) of the Final Rules SLSA takes particular issue with the provisions of the
28
D.C. Law that allow the Commissioner to request information based on borrower complaints or
in the course of an investigation into “any dishonest activities or [] any misrepresentation in any
business transaction.” § D.C. Law 21-214 § 7b(h)(1); ge alj Final Rules § 3021; Pl. Cr-l\/lSJ
at 66.
No court has considered whether Section 1098 g of the HEA expressly preempts
state requirements for “disclosures” by servicers to third parties, like those required by the D.C.
Law and the Final Rules Nonetheless, SLSA argues that this Court should align itself with
recent decisions by other federal courts that have interpreted Section 1098 g within the context of
disclosures by servicers to borrowers See, e.g., Chae v. SLM C.ot'p.. 593 F.3d at 942-43; Order
at 4-9, l.iawson-Ross & Brvne v. Grth Lakes Higher Educ, Corp. (N.D. Fla. Sep. 20, 2018) (No.
17-0253); Nelson v. Great Lakcs Educ. Loan Serv.J lnc., 2017 WL 6501919, at *4-5.
ln Chae v. SLM Corp., plaintiffs claimed that their student loan servicer
misrepresented details related to their first repayment date, late fees assessment, and interest rate
calculations E Chae v. SLM Cot'p., 593 F.3d at 93 8, 942. The Ninth Circuit characterized
plaintiffs’ claims as “improper-disclosure claims” because they were “a challenge to the
allegedly-misleading method [the servicer] used to communicate with the plaintiffs about its
practices.” § § at 942-43. The Ninth Circuit found that Section 1098 g preempted plaintiffs’
state law claims because California’s “prohibition on misrepresenting a business practice ‘is
merely the converse’ of a state-law requirement that alternate disclosures be made.” E §. at
943 (quoting Cipollone v. Liggett Grp., lnc., 505 U.S. at 527). Other courts have latched onto
this reasoning, and SLSA argues that these cases support its position that Section 1098g
preempts any state laws that require additional disclosures to borrowers or to third parties that go
beyond those required in the HEA. § Pl. Cr-MSJ at 63; Am. Compl. 11 226-28. The cases it
29
cites, however, only deal with diclosures by servicers to borrowers, not third parties _S§, §§
Nelson v. Great Lakes Educ. Loan Sery.1 lnc., 2017 WL 6501919, at ~*4 (concluding that
Congress intended for 1098 g to “preempt any state law requiring lenders to reveal facts or
information not required by federal law”); Order at 8, Lawson-Ross & Brvne v. Great Lakes
Higher Educ. Corp. (N.D. Fla. Sep. 20, 2018) (No. 17-0253) (finding the reasoning in M
“persuasive”). The Court declines SLSA"s invitation to extend those decisions to interpret
Section 1098g as prohibiting any state regulation that requires servicers to make disclosures to
third parties that exceed those mandated by the HEA.
ln the absence of any controlling precedent, and because Congress retains the
exclusive ability to preempt state law expressly, the Court looks to the plain language of Section
1098g as the best evidence of how Congress intended to define the “domain” or scope of the
preemption provision w Medtronic Ine, v. Lohr, 518 U.S. at 484; § alj CSX 'l`i'ansp., lnc.
v. Eastei'wood, 507 U.S. at 664. ln addition, of course, the Court may also consider the
“statutory framework surrounding [the preemption provision],” and “the structure and purpose of
the statute as a whole, as revealed not only in the text, but through the reviewing court’s
reasoned understanding of the way in which Congress intended the statute and its surrounding
regulatory scheme to affect business, consumers, and the law.” §§ Medtronic lnc. v. Lohi', 518
U.S. at 485-86 (internal citations and quotations omitted); W alj Chae v. SLM Corp., 593 F.3d
at 942 (interpreting Section 1098g of the HEA using “the text of the provision, the surrounding
statutory framework, and Congress’s stated purposes in enacting the statute to determine the
proper scope of an express preemption provision” (citing Metltronie. lnc. v. [_.olir, 518 U.S. at
485-86)).
30
First, the plain language of the statute does not provide much clarity with respect
to the meaning of the word “disclosure.” Turning to Black’s Law Dictionary, as relied upon by
SLSA, a “disclosure” is any “act o_r process of making something known that was previously
unknoWn; a revelation of facts.” E Pl. Cr-MSJ at 62 (quoting Disclosure, BLACK’S LAW
DICTIONARY (10th ed. 2014)),. lf read consistently with its plain meaning without context,
Section 1098g might well prohibit state regulation of all foreseeable types of communication
Without a more explicit indication from Congress that it meant to preempt states from mandating
or prohibiting all types of communications within the context of federal student loans, however,
the Court declines to read the term “disclosure” so broadly. ln light of the presumption against
preemption and the fact that express preemption arises only when “the federal statute itself
announces its displacement of state law,” Sickle v. 'l`orres Advanced linlcr. Sols.. LLC., 884 F.3d
at 346, “when the text of a[n express] pre-emption clause is susceptible of more than one
plausible reading, courts ordinarily ‘accept the reading that disfavors pre-emption.”’ § M
_G_rp_., Inc. v. Good, 555 U.S. 70, 77 (2008) (quoting Bates v. Dow Agrosciences LLC., 544 U.S.
431, 449 (2005)).
For the same reasons, the Court rejects SLSA’s argument that the larger structure
of the HEA should compel this Court to broaden its interpretation of “disclosure” to include
servicers’ communications to third parties According to SLSA, the broader regulatory scheme
set out in the HEA dictates the outermost limits of the “disclosures” that can be required of
servicers - that is, states may not require servicers to make any type of “disclosure” that is not
31
set out in the HEA. E Pl. Cr-MSJ at 62; Am. Compl. 11 225.18 But the Court does not see any
reason to read Section 1098 g as prohibiting state regulation of all communications that are
additional to those required under the HEA. As one reason, most of the HEA provisions that
govern communications cited by SLSA relate to the reporting required by'insurers or lenders, not
servicers §§ Pl. Cr-MSJ at 61-62.19
Second, the Court looks for clues of Congressional intent elsewhere in the
language and structure of the statute “[l]dentical words used in different parts of the same act
are intended to have the same meaning.” 'l`aniguchi v. Kan Pac. Sainan. l,td., 566 U.S. 560, 571
(2012) (quoting Gustal"son v. Alloyd Co., 513 U.S. 561, 570 (1995)). The term “disclosure” is
used in only one other provision of the HEA, Section 1083(a). Section 1083(a) specifies in detail
the disclosures that lenders are required to make to borrowers before disbursement; it makes no
reference to disclosures to third parties §§ 20 U.S.C. § 1083(a).20 Referring to
18 As examples of the “comprehensive disclosure scheme” already set out in the
HEA, SLSA references reporting provisions that do not relate directly to servicers E, gg, 20
U.S.C. § 1082(0)(2) (data collected by Secretary from insurers); 20 U.S.Cl § 1083 (disclosure
requirements by lenders to borrowers at different stages of loan repayment process); and
implementing regulations 34 C.F.R. § 682.205 (disclosure requirements for lenders); 34 C.F.R.
§ 682.208(i) (requirements for reporting by lender to Secretary or guaranty agency on enrollment
and loan status information); 34 C.F.R. §§ 682.300-682.305 (regulations related to interest
benefits and special allowance payments by Secretary to lenders), among others § Pl. Cr-MSJ
at 62; Pl. Facts 11 37.
19 Section 682.414 is the only regulation cited by SLSA that relates to servicer
reporting and record retention § 34 C.F.R. § 682.414. Section 682.414 is entitled “[r]ecords,
reports, and inspection requirements for guaranty agency programs” and dictates that “[a]ny
reference to a guaranty agency under this section includes a third-party servicer that administers
any aspect of the FFEL[P] programs under a contract with the guaranty agency.” _S§ §
§ 682.414(a)(1)(i).
20 ln addition, the only explicit reference to “disclosures1’ in the DOED regulations
is found in Section 682.205, which also relates to “[d]isclosure requirements from lenders.” §§
34 C.F.R. § 682.205. Contrary to SLSA’s argument, the Court does not see any indication from
the statutory language that Section 682.205 applies to servicers w Am. Compl. 11220.
32
communications by lenders to borrowers as “disclosures” is consistent with the use of the term
“disclosure” in other loan settings See, eg., Solomon v. Falcone, 791 F. Supp. 2d 184, 188
(D.D.C. 2011) (“ln passing [the Truth in Lending Act], Congress sought to ensure the accurate
and meaningful disclosure of material terms to consumers in credit transactions.”).
The legislative history also supports reading “disclosures” as communications
only between lenders and borrowers As the District explains, Section 1098 g was first codified
as an amendment to the Truth in Lending Act (“TILA”). _S§ S. Rep. No. 97-536, at 42, 71
(1982); Act of Oct. 15, 1982, Pub. L. No. 97-320, § 701, 96 Stat 1469 (1982); Def. l\/lTD at 32.
ln enacting Section 1098 g, Congress explained that it would exclude federal student loans from
the TlLA lending regulations because “student loan programs, contained in the Higher Education
Act of 1965 . . . are already subject to statutory provisions and regulations that provide
comparable disclosures and explicit controls over the issuance of loan proceeds to student
consumers.” § S. Rep. No. 97-536, at 42 (1982) (emphasis added). Under the TlLA,
“disclosure requirements” are those between “creditor or lessor” to “the person who is obligated
on a . . . consumer credit transaction,” §, between a lender and a borrower. § 15 U.S.C.
§ 1631(a). The legislative history thus makes clear that the term “disclosure” in the context of
the TlLA - and therefore in the context of the origin of Section 1098 g - relates only to the
disclosures that lenders make to consumers - that is, the student borrowers lt follows, then, that
Section 1098g was meant to prohibit states from regulating communications by lenders to
borrowers, and nothing more
Without a stronger indication of Congress’ “clear and manifest purpose” to
preempt all state regulation related to communications between servicers and third parties, the
Court declines to read Section 1098g to prohibit the types of reporting requirements created by
33
the D.C. Law and Final Rules. S_ee Cipollone v. liggett Group. lnc., 505 U.S. at 516 (quoting
Rice v. Santa Fe Elevalor Corn, 331 U.S. at 230). And the Court certainly does not see reason
to derive from this one sentence provision an intent by Congress to invalidate an entire state
regulatory scheme that would require reporting. See, e.g., l\/let|tronic1 lnc. v. Lohr, 518 U.S. at
487 (refusing to read an express preemption clause of the Medical Device Amendments to
preclude all common law claims of injury due to a defective medical device without more
explicit instruction from Congress). SLSA therefore fails as a matter of law on its Third Claim
that federal law preempts the D.C. Law 21-214 and the Final Rules under principles of express
preemption lts motion for summary judgment on its Third Claim for declaratory judgment relief
therefore is denied
3. Field Preemption
Even where Congress has not expressed its intent to supplant state law, its intention to
do so may be inferred when it “occup[ies] the entire field.” _S_e§ Volt lnfo.- Scis. v. Bd. of Trs of
the Leland Stanl"ord .Iu:iior Univ., 489 U.S. 468, 477 (1989); g also Sicklc v. 'I"urres Advanced
Euter, Sois., LLC., 884 F.3d at 346-47. By occupying a field, Congress “forecloses state
regulation altogether in an area of law, such as alien deportation or nuclear safety regulation,
irrespective of a state law’s compatibility with the federal regime.” w Sickle v. Torres
Advan<:ed Enter. Sols., LLC,, 884 F.3d at 347; § also Uneok. lnc. v. Lc-:ariet1 lnc., 135 S.Ct. at
1595. Thus, “[w]here Congress occupies an entire field . . . even complementary state regulation
is impermissible Field preemption reflects a congressional decision to foreclose any state
regulation in the area, even if it is parallel to federal standards.” M Arizona v. L| nith States,
567 U.S. at 401.
34
Courts identify field preemption “through the substantive nature and reach of the
federal regulatory scheme that Congress adopts.” § Sickle v. Torres Advaneed Eriterprise
Solutions. LLC., 884 F.3d at 346. Congress’ intent to occupy a field can be inferred from (l) “‘a
framework of regulation’ . . . ‘so pervasive” that it leaves no space for state supplementation, or
[2] where the federal interest is ‘so dominant’ that the existence of a federal scheme can ‘be
assumed to preclude enforcement of state laws on the same subject.”’ w § at 347 (quoting
Arizona v. United States, 567 U.S. at 399); s_e_e_ also Wis. Pub. Intervenor v. Morticr, 501 U.S.
597, 605 (1991); Bovle v. United 'I`cchs. Corp., 487 U.S. 500, 504-05 (1988).
At the outset, the Court must define the “field” in order to determine if Congress
has occupied it. To define the field, the Supreme Court has instructed courts to “consider[] the
t§ge_t at which the state law M.” w Oneok, lnc. v. Leariel, lnc., 135 S. Ct. at 1599-1600(emphasis in original) (citing N. Nat. Gas Co. v. State Corp. Comm’n of Kaii., 372 U.S. 84(1963); Nw. Cent. Pineline Corp. v. State Corp. Comm’n of Kan., 489 U.S. 493, 514 (1989)).
The relevant field, therefore, is the regulation of student loan servicers because it is the “target”
of the D.C. Law and Final Rules
Although no court has addressed whether federal law occupies the field of
regulating student loan servicers, courts have consistently held that the HEA does not have field
preemptive effect. See, eg., Armstrong v. Accrediting Council for Contiriuing Educ. And
Training, lnc., 168 F.3d 1362, 1369 (D.C. Cir. 1999) (citing Jackson v. Culinarv Sch., 27 F.3d
573, 580-81 (D.C. Cir. 1994), vacated on other grounds 515 U.S. 1139 (1995)); Keams v.
'l`empc 'I`ech. lnst., lnc., 39 F.3d 222, 225-26 (9th Cir. 1994); Chae v. SLM Corp., 593 F.3d at
941-42 (“[F]ield preemption is off the table to resolve this case involving the HEA and its
attendant federal regulations.”); Cl.iff v. Pavco Gen. Am. Credits, lnc., 363 F.3d 1113, 1126
35
(11th Cir. 2004). ln so holding, courts have reasoned that Congress couldn not have intended to
occupy the field because the HEA requires adherence to state law in particular provisions and
explicitly preempts state law in others g Coll. Loan C.oru. v. SLM Corn., 396 F.3d 588, 596
n.5 (4th Cir. 2005); Clil`f`v. l’ayco Gen. Am. Credit§1 lnc., 363 F.3d at 1126. When Congress
expressly preempts state law in certain provisions, it follows that Congress did not intend for
state law to be preempted in all situations - or Congress would not have deemed it necessary to
legislate express preemptions. § 1"`rcightliner Corp. v. Mvrick, 514 U.S. at 288; Cipo|lonc v.
I_,iggett Grp., lnc., 505 U.S. at 517; .lackson v. Culinarv Sch. ofWash., Ltd., 27 F.3d at 580-81.
Considering both tests of field preemption -the pervasiveness of federal regulation or the
dominance of the federal interest - the Court sees no reason to disturb this precedent
Under the first prong, the Court must determine whether the regulatory scheme is
so pervasive that it leaves no room for state supplementation, Sickle v. Torres Advanced Enter.
Sols.. LLC., 884 F.3d at 347, Which is “a question of ascertaining the intent underlying the
federal scheme.” w l-lillsborough County v. Automated l\/[ed. Labs.` lnc-., 471 U.S. at 714.
SLSA alleges that the federal government has “fully occupied this field by extensively regulating
the servicing of loans.” § Am. Compl. 11 194. lt points out that student loan servicers are
regulated directly by the DOED and by the Consumer Financial Protection Bureau (“CFPB”), as
Well as through HEA statutory provisions and implementing regulations §§ Am. Compl.
11 198.21
The Supreme Court has explained, however, that the promulgation of
comprehensive regulations in a field is not sufficient to find full occupation of that field. “We
are even more reluctant to infer pre-emption from the comprehensiveness lof regulations than
21 For examples of the types of regulations issued by the DOED to regulate FDLP
and FFELP generally, § Def. MTD at 18.
36
from the comprehensiveness of statutes . . . . To infer pre-emption Whenever an agency deals
with a problem comprehensively is virtually tantamount to saying that whenever a federal
agency decides to step into a field, its regulations will be exclusive Such a rule, of course,
would be inconsistent with the federal-state balance embodied in our Supremacy Clause
jurisprudence.” w l--li_llsborough Courity v. Automated Med. l,abs.. 1m:.,.47l U.S. at 717.
lt is true that the HEA is a mammoth statute and its implementing regulations
pertain to a diverse and extensive number of aspects of higher education But even when
discussing the HEA as a whole, courts have found that the federal government does not occupy
the field E, ggg Keams v. Tem-pe Tech. lnst., lnc., 39 F.3d at 225-26. SLSA has not provided
any evidence that the federal government has occupied the more limited field of regulating
student loan servicers
Under the HEA, the Secretary of Education has the authority to contract directly
with servicers to service FDLP loans § 20 U.S.C. § 1087f(a)(l). Because the terms of the
contracts - and not other regulations - govern the servicers of FDLP loans for the most part, the
regulatory scheme itself does not evidence Congress’ intention to exclude state supplementation
in regulating FDLP loan servicers With respect to FFELP loans, the HEA delegates to the
Secretary of Education the authority to “prescribe such regulations as may be necessary to carry
out the purposes of [the FFELP], including regulations applicable to third party servicers . . . to
establish minimum standards with respect to sound management and accountability.” § §.
§ 1082(a)(1). Pursuant to this authority, the DOED has issued regulations that dictate certain
standards of financial and administrative capability that servicers must meet to contract with
private lenders to service FFELP loans, 34 C.F.R. § 684.416, as well as processes governing the
limitation, suspension, or termination by the Secretary of a third-party servicer’s eligibility to
37
contract with student loan lenders § 34 C.F.R. § 682.700. The HEA also establishes
oversight mechanisms that would apply to federal student loan servicers, including a
“Performance-Based Organization,” which the DOED has named the office of Federal Student
Aid, tasked with providing customer service and “ensuring the integrity of the Federal student
assistance programs.” §§ 20 U.S.C. § 1018(a), (b)(2)(A); 48 C.F.R. § 3402.101. ln addition,
the HEA directs the DOED to appoint a Student Loan Ombudsman who is tasked with reviewing
and resolving borrower complaints §§ 20 U.S.C. § 1018(D.
There is no indication, however, that Congress, in legislating in this field, left no
room for state supplementation § Sickle v. Torres Advanced Enter. Sols., LLC., 884 F.3d at
347. The federal regulatory scheme establishes a “floor” _ the very language of the statute
indicates that Congress intended DOED to set “minimum standards.” § 20 U.S.C.
§ 1082(a)(1). And the fact that the DOED established oversight mechanisms pursuant to the
HEA does not indicate that Congress intended to “foreclose any state regulation in the area,”
which is, in this case, “parallel to federal standards.” § Arizona v. United States, 567 U.S. at
401. l\/loreover, the HEA and its regulatory framework apply to federal student loan programs
and servicers, and do not regulate the entire field targeted by the D.C. Law and Final Rules,
which encompasses student loan servicers more broadly.
The District points to two other statements authored by agencies of the federal
government indicating their agreement that the “substantive nature and reach of the federal
regulatory scheme that Congress [has adopted]” is not so pervasive as to exclude state regulation
E Sickle v. Torres Advancecl Enter. Sols.. LLC.. 884 F.3d at 346. ln a 2015 request for
information regarding student loan servicing, the CFPB contrasted recent efforts to strengthen
consumer protections in the context of mortgage and credit card servicing'with the lack of
38
similar advancements in the student loan industry. The CFPB concluded that “there is no
existing, comprehensive federal statutory or regulatory framework providing uniform standards
for the servicing of all student loans.” w Request for lnformation Regarding Student Loan
Servicing, 80 Fed. Reg. 29302-01, 29305 (l\/lay 21, 2015). Similarly, in July 2018, the U.S.
Department of the Treasury recommended that the DOED “establish and publish minimum
effective servicing standards to provide servicers clear guidelines for servicing and help set
expectations about how the servicing of federal loans is regulated,” indicating that no such
regulations already existed § Treasury Report at 19. SLSA has not given this Court any
reason to rule to the contrary.
Under the second test for field preemption, this Court must determine whether the
federal interest is ‘“so dominant’ that the existence of a federal scheme can ‘be assumed to
preclude enforcement of state laws on the same subject.”’ S_ee_ Sickle v. forms Advanced linter.
M_l_,l_(., 884 F.3d at 347 (quoting Arizona v. United States, 567 U.S. at 399). SLSA argues
that the federal government’s dominant interest as a lender, guarantor, and regulator has only
grown due to recent policy changes that increased the proportion of federal student loan debt
owned by the federal government - namely purchasing FFELP‘ loans under ECASLA and
eliminating the FFELP program under SAFRA in 2010, w Pl. Reply at 30. Over 90 percent of
new student loans today are made through FDLP, and with the discontinuation of FFELP, “[a]ll
new federal student loans are serviced in accordance with federal contracts.” g § at 30. Such
a dynamic, SLSA contends, gives the federal government a “commanding share of the market”
and a “unique and essentially unilateral ability to determine who services federal student loans.”
S_ee Am. Compl. 11 30. ln addition, the sheer size of federal student loan debt is indicative of the
39
federal government’s significant interest E Pl. Cr-l\/lSJ at 60. The Court agrees with SLSA
that the federal interest in regulating federal student loans generally is substantial
Separately, the federal government has a unique interest in protecting the rights
and obligations established in its contracts §§ Bovle v. United 'l`echs. Corn, 487 U.S. at
504-05 (“The dispute in the present case borders upon two areas that we have found to involve
such ‘uniquely federal interests.’ We have held that obligations to and rights of the United States
under its contracts are governed exclusively by federal law.”) (citing United States v. Little Lake
Misere Land Co., 412 U.S. 580, 592-94 (1973); Priebe & Sons` lne. v. United States, 332 U.S.
407, 411 (1947); Nat`l Melro. Bank v. United States, 323 U.S. 454, 456 (1945); Clearfield Tr.
Co. v. United States, 318 U.S. 363 (1943)).
On the other hand, the District of Columbia has a compelling interest in protecting
its consumers by providing oversight of federal student loan servicers According to the
Committee of the Whole, Subcommittee on Consumer Affairs of the Council of the District of
Columbia, there are 140,000 student loan borrowers residing in the District of Columbia, owing
an average of “$40,885 [in student loan debt], about 40 percent higher than the national
average.” § D.C. Committee Report at 5. Those consumers have encountered difficulties with
and reported complaints about their servicers Between March 2012 and October 2016, CFPB
received 225 complaints about student loans from D.C. residents § § at 7.
The District also argues that “[a]ny federal interest in regulating student loan
servicers cannot compare with those interests courts have found justified field preemption.” E
Def. MTD at 37 n.l8. When courts have found federal law to “occupy the field” to the exclusion
of state law it has been in areas like: registration of aliens, Arizona v. United States, 567 U.S. at
401; military equipment procurement, Boyle v. United r1`echs. Corp., 487 U.S. 500; and tort
40
liability for private contractor integrated in wartime combatant activities, Saleh v. 'l"itan Corp.,
580 F.3d 1, 6 (D.C. Cir. 2009). S_e_e also Hillsborougli County v. Automated Med. l.,abs.. lnc.,
471 U.S. at 716-20 (finding no federal intent to pre-empt whole field of plasmapheresis
regulation, a particular type of medical procedure). The District maintains that servicing of
federal student loans does not implicate the same type of exclusive federal interests
Weighing these factors, the Court concludes that the federal government’s
interests are not so dominant as to preclude the District of Columbia’s legislating on the same
subject. § Sickle v. Torres Advanced Enter. Sols., LLC., 884 F.3d at 347. SLSA therefore
fails as a matter of law on its field preemption claim that federal law preempts D.C. Law 21-214
and the Final Rules lts motion for summary judgment on its Second Claim for declaratory
judgment relief is denied.
4. Conflict Preemption
Lastly, the Court turns to SLSA’s conflict preemption claim. “Even where
Congress has not completely displaced state regulation in a specific area, state law is nullified to
the extent that it actually conflicts with federal law.” § Hillsborough Countv v. Auto. Med.
I.abs. lnc., 471 U.S. 707, 713 (1985) (emphasis added); § also Arizona v. United States, 567
U.S. at 399-400; lireightliner Cor;). v. Mv'rick, 514 U.S. at 287; Volt lnl`o. Scis. v. Bd. of`Trs. ol`
the Leland Stan'l`ord .lunior Univ., 489 U.S. at 477. Such a conflict arises (l) “When ‘compliance
with both federal and state regulations is a physical impossibility,’ or [2] when state law ‘stands
as an obstacle to the accomplishment and execution of the full purposes and objectives of
Congress.”’ M Hillsborough County v. Automated Med, Labs., lnc., 471 U.S. at 713 (quoting
Fla. Lime & Avocado Growers. lnc. v. Paul, 373 U.S. at 142-43; Hines v. Davidowitz, 312 U.S.
52, 67 (1941)); § also Sickle v. Torres Advanced Ent'er. Sols., LLC., 884 F.3d at 347. An
41
actual conflict must be identified; the “‘ [m]ere possibility of inconvenience’ is not a sufficient
obstacle_the repugnance must be ‘so direct and positive that the two acts cannot be reconciled
or consistently stand together.”’ M United States v. California, 314 F. Supp. 3d 1077, 1088
(E.D. Cal. 2018) (quoting Goldstein v. Calil`ol'nia, 412 U.S. 546, 554-55 (1973); _Ke§§
Washington ex rel. Foss Co., 302 U.S. 1, 10 (1937)). Nonetheless, the Supreme Court “has
recognized that a ‘[c]onflict in technique”’ - such as a conflict in the method of enforcement
- “can be fully as disruptive to the system Congress erected as conflict in overt policy.” §
;\_ri_zglla v. United States, 567 U.S. at 406 (alteration in original) (quoting Motor Coach Emgs. v.
Lockrid ge, 403 U.S. 274, 287 (1971)). And in determining whether there 'is an actual conflict
between state and federal law, “[f]ederal regulations have no less pre-emptive effect than federal
statutes,” so long as the regulations clearly were “intended to pre-empt state law.” § My
Fed. Sav. & Loan Ass’n v. de 1a Cuesta, 458 U.S. l4l, 153-54 (1982); ge alj Wyeth v. Levine,
555 U.S. at 576 (2009); Citv of`New York v. Fed. Comrnc"ns Comm’n, 486'U.S. 57, 64 (1988);
Lazar v. Kronckc, 862 F.3d 1186, 1195 (9th Cir. 2017).
a. lmpossibility Preemption
As noted, there are two possible bases for conflict preemption - impossibility or
obstacle preemption SLSA invokes both. SLSA’s “impossibility” argument does not hold
water. SLSA argues that its members would be required to violate the HEA in order to comply
with a number of the provisions of the D.C. Law and Final Rules Upon closer inspection of the
state and federal provisions, it is apparent that there is no actual conflict on the grounds of
impossibility
First, SLSA argues that the reporting requirements of the D.C. Law and Final
Rules conflict with the federal Privacy Act. The Privacy Act governs the disclosure of
42
individuals’ personal information by federal government departments and agencies § 5
U.S.C. § 552; @alj Alexander v. FBl, 971 F. Supp. 603, 605-06 (D.D.C. 1997). According to
a memorandum authored by the DOED, all records maintained by the DOED are agency
property and therefore, under the Federal Privacy Act, “[a]ny request from any third party for
Department records to which a [federal loan servicer] has access must be made directly to the
Department, where it will be evaluated for compliance with the requirements of the Privacy
Act.” S_e§ DOED Privacy Act Memo at 2; Def. l\/lTD at 51.
SLSA argues that its members cannot comply with the requirements of the D.C.
Law and Final Rules to provide records to the government of the District of Columbia because
all requests for information must be made to the DOED; if servicers were to provide records
directly to the D.C. government, they would violate the Federal Privacy Act. This is a false
conflict The D.C. Final Rules themselves specify that student loan servicers shall retain records
“[e]xcept to the extent prohibited by federal law.” § Final Rules § 3018.1. To comply with
federal law, the District explains that if it wished to obtain information that might be covered
under the Privacy Act, it would “request borrower consent, 34 C.F.R. § 5b.9(a), or submit a
written request to DOED, 34 C.F.R. § 5b.9(b)(7).” § Def. Opp. at 18. ln addition, the
Commissioner retains the discretion to “waive or reduce [record keeping] requirements if [she]
determines that compliance would require the licensee to violate federal law.” § Final Rules
§ 3018.4. Furthermore, requests for documentation by the D.C. government could provide for
the submission of redacted records that would not disclose borrower information or other
individual, personal information, consistent with the Privacy Act. § ln re Subp_oena to Nat’l
Sc.i. Found.. Ol`lice of lnspector Gen, No. 18-0006, 2018 WL 5017612, at *3 (E.D. Va. Oct. 16,
43
2018); g alj Def. Opp. at 18; Def. MTD at 40. Thus, compliance with the D.C. Law and Final
Rules does not, by itself, engender a violation of the Privacy Act. 1
SLSA also contends that there exist two conflicting dispute resolution
mechanisms between the federal and state regulations Again, this is a false conflict Section
7a(c)(2) of the D.C. Law gives the D.C. Ombudsman authority to resolve borrower complaints,
which is, according to SLSA, in direct contention with H'EA implementing regulations,
specifically 34 C.F.R § 682.208(0)(3)(1) and (ii), “requir[ing] a three-step process for resolving a
dispute regarding the terms of the student loan.” § Pl. Reply at 29. As the District explains,
however, the two dispute resolution procedures can work in harmony because neither requires
mandatory action: the D.C. Law gives the student loan ombudsman the power to attempt to
resolve any complaints from a borrower, while the HEA provides instructions for lenders about
how to resolve complaints from a borrower. § Def. Opp. at 17. The first is akin to facilitation
or mediation, while the second merely dictates a timeline for lenders to respond to any inquiries
and the type of information that lenders and guaranty agencies must provide a borrower if she
disputes the terms of her loan. Lastly, SLSA contends that “the [D.C. Law] and its rules create
different servicing deadlines and processes than in the HEA,” § § at 16; Def. l\/lTD at 39, but
it does not point to any specific instances, and the District denies any such conflicts.22 Without
any actual conflicts between the procedures set forth by the federal and state regulations, there
can be no impossibility preemption
22 According to the District, the D.C. Law and Final Rules “do not: (1) require
servicers to respond to borrower complaints in a specified time; (2) impose deadlines for
notification of transfer between servicers; (3) impose dispute resolution procedures; (4) require
communication with authorized representatives of a borrower; or (5) impede guaranty agency
collection charges or servicers’ duty to perform due diligence in the collection.” §§ Def. l\/lTD
at 39.
44
b. Obstacle Preemption
Finally, the Court turns to the crux of SLSA’s conflict preemption argument
- and more accurately the core of its entire complaint: obstacle preemption Here, the D.C. Law
and Final Rules have met their match, a_t least in part. Under obstacle preemption a state law
actually conflicts with federal law when it “stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.” w Hillsborough Countv, Fla. v.
Automated Mcd. liabs.. lnc., 471 U.S. at 713 (quoting I-lines v. Davidowitz, 312 U.S. at 67).
Unlike with field preemption and express preemption, where the Court can
consider the D.C. Law and Final Rules in their entirety, conflict preemption requires the Court to
undertake a more detailed analysis to identify actual conflicts between the HEA and the D.C.
licensing scheme For purposes of this conflict analysis, the Court must compare the particular
regulations that apply to each of the three types of loans at issue here: (1) the FDLP loans, which
the federal government owns and are serviced pursuant to federal government contracts; (2) the
Government-Owned FFELP loans, for which the federal government was originally the reinsurer
or guarantee agency, but later purchased pursuant to ECASLA ~ also serviced pursuant to federal
government contracts; and (3) the Commercial FFELP loans, the private loans that the
government reinsures or guarantees
i. FDLP Loans
SLSA’s conflict preemption arguments are on their strongest footing with respect
to the federal government’s contracting decisions This argument is premised on recognizing
that Congress’ purpose in enacting the HEA was to delegate authority to the federal government
to select and contract directly with servicers for its FDLP loans SLSA argues that by creating
duplicative and additional requirements for loan servicers, the D.C. licensing scheme
45
impermissibly second-guesses the federal government’s decisions to contract with these
servicers g Pl. Reply at 18. The Court agrees
Courts have consistently held that any state law that impedes the federal
government’s ability to contract - including state licensing regimes that effectively second guess
United States’ contracting decisions - are preempted See, e.g., United States v. Virginia, 139
F.3d 984, 987-89 (4th Cir. 1998); Gartrell Constr, lnc. v. Aubry, 940 F.2d 437, 439-41 (9th Cir.
1991). A “[s]tate may not enforce licensing requirements which, though valid in the absence of
federal regulation, . . . impose upon the performance of activity sanctioned by federal license
additional conditions not contemplated by Congress.” §§ Sperry v. Florida ex rel. Fla. Bar, 373
U.S. 379, 385 (1963). The seminal case is the Supreme Court’s unanimous decision in L§lie
Miller Ine. v. Arkansas, in which the Court found an insurmountable conflict between the state
licensing requirements placed on federal contractors and the actions taken by Congress and the
Department of Defense to ensure “the reliability of persons and companies contracting with the
Federal Government.” E Leslie_Miller, lnc. v. Arkansas, 352 U.S. 187, 190 (1956). The Court
held that to subject a federal contractor to the Arkansas licensing requirements “would give the
State’s licensing board a virtual power of review over the federal determination of
‘responsibility’ and would thus frustrate the expressed federal policy of selecting the lowest
responsible bidder.” w § at 190. lt is difficult to see any light between the facts of L§lie
Miller, where obstacle preemption was found to bar state regulation, and the FDLP loan servicers
s
here
The HEA delegates authority to the Secretary of Education to select and contract
with loan servicers to service FDLP loans §§ 20 U.S.C. § 1087f. The Secretary of Education
is instructed to contract “at competitive prices” with those servicers “which the Secretary
46
determines are qualified,” specifically those “that have extensive and relevant experience,” and
have “demonstrated effectiveness.” § § § 1087f(a)(1)-(2). Pursuant to this authority, the
DOED has selected and contracted with nine servicers to service FDLP loans w Pl. Facts 11 55.
The D.C. Law and Final Rules require the same servicers to obtain a license to
operate within the District of Columbia. § D.C. Law 21-214 § 7b(a). And the Commissioner
retains the ability to grant, deny, or revoke servicer licenses §§ Final Rules §§ 3007, 3011,
3019. As part of the Commissioner’s initial determination to issue a license, a servicer’s
application for licensure must include “[e]vidence of the applicant’s financial responsibility,
character and general fitness” and “[e]vidence demonstrating that the applicant has met the
applicable net worth and surety bond requirements.” §§ § § 3002.2(c), (d). The
Commissioner may also revoke a license for a number of reasons, including if the servicer has
“[d]emonstrated incompetency and untrustworthiness to act as a licensee.” w D.C. Law 21-214
§ 7b(h)(1)(E)-
The District argues that “none of [the] requirements [of the D.C. Law and Final
Rules] substitutes the District’s judgment for DOED’s as to ‘effectiveness_”’ and “instead
[merely] impose basic business requirements.” § Def. Opp. at 20. But the D.C. licensing
scheme, in effeet, requires SLSA’s members to “desist from performance until they satisfy a
state officer upon examination that they are competent [to perform their duties] and pay a fee for
permission to go on.” §§ Leslie M`iller, lnc. v. Arkansas, 352 U.S. at 190 (quoting .lohnson v.
Maryland, 254 U.S. 51 (1920)). Here, there is a risk that the federal government will contract
with a servicer after evaluating its qualifications under federal law and regulations, and that
servicer neverthelesslwill be determined to be unqualified by the Commissioner and barred from
operating in the District of Columbia under the D.C. Law and Final Rules The threat of District
47
of Columbia officials’ second-guessing the federal government’s contracting decisions is
sufficient under Leslie Miller to invalidate the state licensing scheme as applied to servicers
when servicing their FDLP loans § United States v. Virginia, 139 F.3d at 987-990. Even if
the Commissioner’s assessment mirrored the federal government’s - based on the same
qualifications and culminating in the same outcome - it would not only thwart the federal
government’s general contracting discretion protected under Leslie Miller, but it would directly
conflict with HEA’s explicit delegation to the DOED to make that assessment
The District’s principal counter-argument rests on the existence of provisions
within servicer contracts that anticipate and require servicers’ compliance'with state law. A
provision in the sample contract submitted by SLSA provides that “contractor(s) will be
responsible for maintaining a full understanding of all federal and state laws and regulations
. . . and ensuring that all aspects of the service continue to remain in compliance.” § Sample
DOED-Servicer Contract at 24. lt is the District’s contention that if servicers must comply with
state law according to their federal contracts, there can be no conflict S§ee_ Def. Opp. at 20. The
District points to a letter issued on January 21, 2016 by the DOED to the State of Maryland as
evidence that the DOED, at least at one point, agreed with this proposition ln the letter, Vanessa
Burton, an attorney with the DOED’s Division of Postsecondary Education, explained that if
loan servicers were determined to be “collection agencies,” the Maryland Collection Agency
Licensing Act “would not conflict with the Department’s contracts with 1loan servicers], which
provide generally that loan servicers . . . must comply with State and Federal law.” §
DOED-Maryland Letter at 2. Similarly, a memorandum issued by Ted l\/litchell, Under
Secretary of DOED, explained that “[s]ervicing contracts should comply with federal and state
48
law, taking any necessary steps to support oversight by federal or state agencies, regulators, or
law enforcement officials.” g Mitchell Memo at 38.23
The DOED’s position, as set forth in its letter and memorandum, and the
existence of contractual provisions directing servicers to comply with state law do not save the
D.C. Law and Final Rules. The Ninth Circuit held in Gartrell Constr. lnc._ v. Aubry that similar
contractual provisions requiring a federal contractor to “obtain any necessary licenses and
comply with any applicable state laws, codes and regulations” did not negate the binding effect
of Leslie Miller. E Gartrell Constr. lnc. v. Aubry, 940 F.2d at 437 (emphasis omitted).
According to the Ninth Circuit, “state licensing laws cannot be ‘applicable’, or compliance with
them ‘necessary’, where such laws are preempted by federal law.” E § at 440. On this, the
Court agrees with the Ninth Circuit lf a state law is preempted under the -Supremacy Clause,
that state law is invalid, and state actors may not adhere to it whether directed to by a contract or
not. The District’s suggestion that the Court must first look to the contract provisions to
determine if there is preemptive intent is incorrect - only Congress has the power to preempt
state law, and the contracting parties’ intent is not relevant w Arizona v. United SLates, 567
U.S. at 399; Def. MTD at 53.
The District’s attempts to distinguish the Leslie Miller line of cases are also
unsuccessful w Def. MTD at 52. The factual differences between those cases and the one
before this Court are inconsequential ln particular, the District argues that Leslie Miller should
not apply because federal student loan servicing contracts do not pertain merely to a federal
installation, as in Leslie Miller, but rather concern a third-party -the student borrowers
~ implicating strong state consumer protection concerns that were not present in Leslie Miller
23 The memorandum authored by Ted Mitchell has since been withdrawn by the
DOED. § Def. MTD at 44 n.21.
49
and its progeny. w Def. MTD at 54. But Leslie Miller and its progeny are not so limited ln
Sperry v. Florida ex rel Fia. Bar, the Supreme Court applied Leslie Miller to vacate an
injunction enjoining a non-lawyer from practicing before the United States Patent Office because
he was not licensed by the state bar. w Sperry v. Florida ex rel Fla. Barl, 373 U.S. 379 (1963).
The Court in §}§y considered state action that prohibited the unauthorized practice of law
- also quintessentially a measure of consumer protection that implicated third-party consumers
- but nevertheless held that state attorney licensing requirements “must yield” to Congress’
delegation to authorize non-lawyers to represent applicants before the U.S. Patent Office g §
at 384-85 (quoting Gibbons v, Ogdcn, 22 U.S. (9 Wheat) 1, 211 (1824)); g alj United States
v. Virginia, 139 F.3d at 987-88. Thus, the distinction that the District attempts to draw is without
merit
Moreover, the fact that Leslie Miller and its progeny did not explicitly employ a
presumption against preemption is_ not dispositive 24 The presumption against preemption
applies here when considering congressionally-delegated contracting decisions, regardless of
courts’ previous analysis That presumption is overcome if there is indication of Congress’
“clear and manifest purpose” to preempt state law. § Cipollone v. Liggetl Grp.` lnc., 505 U.S.
at 516 (quoting Rice v. Santa lie lilevator Corp., 331 U.S. at 230). Here, Congress has
deliberately delegated the authority to DOED to contract with servicers to' service FDLP loans
24 The Court notes that Leslie Miller has also been characterized as a discussion of
the intergovernmental immunity doctrine, which is logical given the overlap between second-
guessing federal contracting decisions as prohibited under conflict preemption and the direct
regulation by a state of the federal government prohibited under the intergovernmental immunity
doctrine See, e.g., Norlh Dal»;ota v. United States, 495 U.S at 452-55. When considering federal
contracting authority as immunized by the broad protections of the Supremacy Clause, the
Supreme Court has recognized a presumption against state regulation of federal activities or
property, unless there is clear instruction to the contrary from Congress See, §g;, Don’t Tear lt
Down v. Pa. Ave. Dev. Corp., 642 F.2d 527, 534-35 & nn.71 & 76 (D.C. Cir. 1980) (discussing
Supreme Court cases).
50
§ 20 U.S.C. § 1087f. Congress’ purpose is clear, and allowing a state to impose separate, and
potentially conflicting, contracting requirements would nullify that provision
ii. Government-Owned FFELP Loans
The rationale employed to find the D.C. Law and Final Rules preempted as they
apply to the servicing of FDLP loans also would apply to the servicing of lGovernment-Owned
FFELP loans. ECASLA temporarily authorized the DOED to purchase FFELP loans w
Ensuring Continued Access to Student Loans Act of 2008, § 7, Pub. L. No. 110-227, 122 Stat.
740, 746-48 (2008) (codified at 20 U.S.C. § 1087i-l). To carry out this new authority, the HEA
was amended in 2008 to allow the DOED to contract with servicers to service its newly
purchased FFELP loans. E §; Pl. Facts 1142. The amendment dictated that “[t]he Secretary
may, if agreed upon by an eligible lender selling loans under this section, contract with such
lender for the servicing of loans purchased,” provided it met the detailed conditions S_e§ 20
U.S.C. § 1087i-l(c). The legislative history explains that this amendment “clarifie[d] that the
Secretary ha[d] the authority to enter into forward commitments to purchase new loans; and
clarifie[d] that, at the discretion of the Secretary, a loan purchased by the Secretary [could]
continue to be serviced by the current lender.” E H.R. Rep. No. 110-590, at 3 (2008)
(summary of Representative George Miller’s statement).
As owners of $94 million worth of Government-Owned FFELP loans, the federal
government is now a party to the servicing contracts and the loans are federal assets S_ee_ Am.
Compl. 11 197. According to the parties, the DOED contracts with the same nine loan servicers to
service both FDLP and Government-Owned FFELP loans. § Goldstein Declaration at 3; Def.
Facts 11 38; Pl. Facts 11 54; U.S. SOI at 4 n.5. Thus, under Leslie Miller, the DOED’s contracting
51
decisions with respect to servicing Government-Owned FFELP loans should be accorded the
same preemptive effect as those decisions in the context of its FDLP loans.
Unlike FDLP loans, however, the federal government was not lan original party to the
contracts between the lenders and servicers of the FFELP loans, and it therefore did not play a
role in assessing servicer fitness when the contract originated lt is possible to read Leslie Miller
and its progeny as protecting federal contracting decisions premised on determinations of “initial
responsibility” - the federal government’s choice to enter into a contract with a contractor. §§
Transcript at 28. But, the Court does not see any reason to draw a distinction between those
contracts into which the federal government entered initially, and those that it assumed and
enforces Here, Congress determined that it was at the DOED’s discretion to retain the same
servicer or to choose a different one, to modify or nullify the lender-servicer contracts it
assumed, and presumably the DOED undertook the same kind of “responsibility” assessment
when it purchased the FFELP loans
As the Ninth Circuit put it: “The concern in Leslie Miller was that a state Was
asserting a right or power of review over the federal government’s determination of
‘responsibility.’ The Court did not focus on the distinction between bidding and performance
but on the state’s interference with the federal government’s responsibility determination That
interference occurs when, as here, the state requires a contractor with the federal government to
comply with its licensing laws even if that requirement is not enforced until after performance
has begun.” Gaitrell Constr. lnc. v. Aubrv, 940 F.2d at 440-41 (rejecting the state of California’s
argument that the Ninth Circuit should distinguish between “placing a condition precedent on
[the federal government’s] right to bid” and requiring a contractor to comply with a state
licensing law “after it has been awarded the contract . . . leaving the federal government free to
52
shop for the most favorable bidder”). Ultimately, the DOED has exercised and will continue to
exercise its contracting discretion - including its ability to re-contract with different servicers
following the purchase of loans ~ and has decided to maintain contracts with a select number of
servicers to service Government-Owned FFELP loans, the same servicers with whom it contracts
to service its FDLP loans w Transcript at 48-49. The District of Columbia may not second-
guess DOED’s contracting decisions with respect to servicing Government-Owned FFELP loans,
just as it may not second-guess DOED’s contracting decisions with respect to servicing its FDLP
loans
iii. Commercial FFELP Loans
Unlike FDLP and Government-Owned FFELP loans, the federal government does
not contract with servicers for the servicing of Commercial FFELP loans Nor has it purchased
those loans and assumed the obligations and responsibilities under contracts governing the
servicing of Commercial FFELP loans lt acts only as a reinsurer or guarantor. Loan servicers
contract directly with private lenders to service Commercial FFELP loans Those contracting
decisions, therefore, are not accorded the same type of preemptive effect mandated by the L_e_s_li_e
M line of cases And the Court agrees with the District of Columbia that there is no reason
to “[i]mmunize [s]tudent [l]oan [s]ervicers [f]rom [s]tate [r]egulation [m]erely [b]ecause [s]ome
[a]lso [a]ct as [f|ederal [c]ontractors.” §§ Def. Opp. at 19. The federal government nonetheless
has some regulatory authority over Commercial FFELP loans under the HEA. For that reason,
the Court now turns to the remainder of SLSA’s conflict preemption arguments as they apply to
Commercial FFELP loans. Because the regulation of those loans by the District of Columbia is
not preempted under the Leslie Miller line of reasoning, the Court analyzes them under more
traditional principles of obstacle preemption
53
Under the obstacle theory of conflict preemption, the Court must first identify a
congressional purpose and then determine whether the state regulation obstructs the
accomplishment of that purpose - that is, whether it “stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress.” §§
l--Iillsborough County v. Automated Med. I.,ab:~:.1 lnc., 471 U.S. at 713 (quoting _ljlin§§
Davidowitz, 312 U.S. at 67); § also Sickle v. Torres Advanced Enter. Sols1 LLC., 884 F.3d at
347. To ascertain the goals or purposes of Congress in enacting a federal statute, the Court first
looks to the “text and structure of the [federal] statute at issue.” § C.SX `l`rans .. lnc. v.
liasterwood, 507 U.S. at 664. Then, to identify an obstacle to the accomplishment of those goals
that is sufficient to warrant preemption it is “a matter of judgment, to be informed by examining
the federal statute as a whole and identifying its purpose and intended effects.” §§ Crosby v.
Nat’l Foreign Trade Council, 530 U.S. at 373; w also Gobeille v. Liberty l\/lut. lns., 136 S. Ct.
936, 943 (2016); Volt ln'l`o. Scis., lnc. v. Bd. ofTrs. ol` the Leland Stanl`ord .lunior Univ., 489
U.S. at 477-78.
According to SLSA, Congress had three relevant goals or purposes in mind when
enacting the HEA: (1) to operate student loan programs cost-efficiently (saving taxpayer
money); (2) to protect taxpayer money by preventing student loan default', and (3) to administer
the federal student loan programs, and specifically loan servicing, in a uniform manner. E Pl.
Am. Compl. 1111 171-76. The Court concludes that the presumption against preemption is not
overcome here because the D.C. Law and Final Rules do not impermissibly obstruct any of these
three asserted congressional goals as applied to Commercial FFELP loans
At the outset, the Court considers Congress’ own description of its purpose in
enacting the HEA. Section 1071 of the HEA states that FFELP was intended to “enable the
54
Secretary [of Education] (A) to encourage States and nonprofit private institutions and
organizations to establish adequate loan insurance programs for students in eligible
institutions . . . , (B) to provide a Federal program of student loan insurance for students or
lenders who do not have reasonable access to a State or private nonprofit program of student loan
insurance . . . , (C) to pay a portion of the interest on loans to qualified students which are
insured [under FFELP], and (D) to guarantee a portion of each loan insured under a program of a
State or of a nonprofit private institution or organization.” w 20 U.S.C. § 107l(a)(1). On their
face, the goals expressly identified in the HEA do not match any of the three purposes that SLSA
argues motivated Congress in enacting the HEA. That said, the Court nonetheless will consider
whether Congress’ purposes in enacting the HEA align with the goals that SLSA has identified,
as reflected in the structure, legislative history, and remaining text of the statute
First, the Court has found no evidence that Congress intentionally sought to save
taxpayer money when it created the FFELP program. SLSA points to the fact that the HEA itself
requires the Secretary of Education to award servicer contracts at “competitive prices.” §§ 20
U.S.C. § 1087f(a)(l); Pl. Reply at 19-20. But that provision relates to FDLP loans where the
government is directly lending government money. The legislative history is clear that one of
the overarching goals of Congress in creating the FDLP was to “reduce the costs of the student
loan program to taxpayers and borrowers.” § 139 Cong. Rec. S5585-02, at S5627; 139 Cong.
Rec. H2297-02; Pl. Facts 11 17. There is no indication, however, that saving taxpayer money
motivated the creation of the FFELP. For example, in attempting to improve access to higher
education for borrowers, the federal student loan programs purposefully act contrary to the
federal government’s financial interests by subsidizing loans and offering 'more lenient interest
rates _S_e§ §§, 20 U.S.C. §§ 1077a, 1078‘, H.R. Rep. No. 103-111, at 158 (1993)-; Am. Compl.
55
11 32. While cost-efficiency might be an ever-present goal of Congress, without more explicit
evidence, the Court finds that saving taxpayer money did not underpin Congress’ purpose or
intent in legislating in the area of FFELP servicing.
Second, the Court is unpersuaded that Congress consciously aimed to protect
taxpayer money by preventing student loan default when it created the FFELP program. SLSA
provides no support for this assertion, relying only on the DOED Preemption Notice, which
states in a conclusory fashion that protecting taxpayer money was a goal of Congress - also
without any substantiation § DDED Notice at 3-4. lndeed, the federal student loan programs
themselves operate contrary to this goal in order to improve access to higher education for all
students Borrowers need not pass a credit test to take out a federal loan, which could lead to a
higher risk of delinquency or default E 20 U.S.C. § 1091. And, as the District points out,
borrowers have access to income-driven repayment plans that forgive the balance of their loans
after a set term. § § §§ 1078-10 to -12; Def. MTD at 50.
Finally, SLSA focuses on the congressional goal of uniformity, and this is its
strongest obstacle preemption argument.25 ln deciding whether uniformity motivated Congress
in passing the HEA, courts have come to different conclusions Compare Coll. Loan Corp. v.
SLM Co§g., 396 F.3d at 597 (explaining that the Fourth Circuit was “unable to confirm that the
creation of ‘uniformity,’ . . . was actually an important goal of the HEA”),. w Chae v. SLM
Q§, 593 F.3d at 947 (“Congress intended uniformity within the [FFELP].”); g M Order at
6-7, Daniel v. Navient Sols., LLC. (l\/l.D. Fla. June 25, 2018) (No. 17-2503) (“Uniformity,
however, is not one of Congress’s expressed goals in enacting the HEA, and broadening the
25 SLSA discusses uniformity interchangeably with “ease of administration” and
“stability.” §§, §§, Am. Compl. 11 171; Pl. Cr-l\/ISJ at 53-57. The Court agrees that these
concepts are related '
56
scope of the preemption statute would not rest upon a ‘fair understanding of congressional
purpose.”’ (quoting Cipollone v. Liggett Grp.. lnc.. 505 U.S. at 530)).
ln the absence of any controlling authority, the Court begins With the text and
structure of the statute and then considers legislative history. The term “uniformity” features
most prominently in Section 1082 of the HEA. Subpart L of Section 1082 of the HEA ~ entitled
“Uniform administrative and claims procedures” - provides that “[t]he Secretary shall, by
regulation . . . prescribe standardized forms and procedures” regarding a number of procedures,
including origination of loans, electronic funds transfers, guaranty of loans, and servicing. S_§
20 U.S.C. § 1082(1)(1).26 That subpart further tasks the Secretary of Education with reviewing
such regulations at least annually and soliciting recommendations from other relevant entities to
“simplify[] and standardiz[e] the administration of the [FFELP program].” E § § 1082(1)(4).
To be sure, these requirements support an inference that Congress intended to simplify the
administration of the FFELP program in every state through the creation of standardized forms
and procedures Without more, however, these requirements do not support an inference that
Congress broadly intended that all aspects of the FFELP program be identical nationwide; that
would be “field preemption by another name,” g Transcript at 22, an argument that the Court
already has rejected §§ s_\ip§ at 34-41. lndeed, many regulatory schemes that involve
_ standardized procedures are not grounded in the congressional goal of uniformity as to the entire
scheme As the District posits, the fact “[t]hat a [federal] statute describes the details of the
26 ln addition, Section 20 U.S.C. § 1082(m)(1) directs the Secretary of Education to
“prescribe common application forms and promissory notes, or master promissory notes” for
FFELP loans E 20 U.S.C § 1082(m)(1)(A). SLSA cites to Section 1087e, as referenced in
_C_h_a_e_, to evidence the congressional goal of uniformity. lt reads: “[L]oans made to borrowers
[under the FDLP program] shall have the same terms, conditions, and benefits, and be available
in the same amounts, as loans made to borrowers under the [FFELP program].” g 20 U.S.C.
§ 1087e(a)(1)
57
program it creates and establishes minimum standards, including the use of common forms and
procedures, does not warrant inference of overarching preemptive intent beyond compliance with
those requirements.” w Def. MTD at 47. The Court agrees with the District. § Bourbeau v.
jonathan Woodner Co., 549 F. Supp. 2d at 88. C_f. Geier v. Am. Honda Motor Co,, 529 U.S.
861, 868 (2000);l-la1'1'is v. Great Dane Trailers, lnc., 234 F.3d 398, 401 (8th Cir. 2000).
Looking beyond the text of the statute to its legislative history, the congressional
record provides no greater support for SLSA’s broad uniformity argument lt indicates only that
Congress sought to simplify the federal student loan process for borrowers As the House
Committee Report notes, “H.R. 3553 [the 1992 amendments to the HEA] simplifies the student
financial aid programs Many students and their families are denied access to student aid because
they cannot navigate through the bewildering complexity of the current student aid forms and
delivery system. This complexity has become a new barrier to educational opportunity. H.R.
3553 provides for dramatic simplification including a single free Federal form for applying for
Federal student aid and a single need analysis.” § H.R. Rep. No. 102-447, at 343 (1992).
From this record, the Court concludes that Congress intended to simplify the FFELP program for
student borrowers in order to further its foundational objective - improving access to higher
education for all borrowers - nothing more Congress sought the uniform administration of the
FFELP program to the extent that it ensures that all borrowers have the same opportunity to
obtain federal student loans
lf the Court assumes that the uniform administration of the FFELP program,
including the use of standardized forms and procedures, was a congressional goal or purpose, the
question is whether that purpose is obstructed or impeded by the D.C. Law and Final Rules. E,
e.g., Volt lnfo. Scis., lnc. v, Bd. of"l`rs. of the Leland Stanf`ord Junior Univ., 489 U.S. at 477-78;
58
Chae v. SLM Corp., 593 F.3d at 943. ln other words, to find that this congressional goal is
obstructed, the D.C. Law and Final Rules would have to interfere with the' DOED’s uniform
administration of the FFELP program in ways that hamper the access of borrowers to federal
student loans The Court concludes that the D.C. licensing scheme does not.
The D.C. Law and Final Rules set standards that student loan servicers must meet
and procedures they must follow to be found eligible to do business in the District of Columbia.
E, §g_., Final Rules §§ 3002-04. Those standards, however, do not interfere with the uniform
administration of the DOED’s regulations The HEA tasks the Secretary of Education With
setting minimum standards by issuing regulations:
[The Secretary of Education] may prescribe such regulations as
may be necessary to carry out the purposes of this part, including
regulations applicable to third party servicers (including
regulations concerning financial responsibility standards for, and
the assessment of liabilities for program violations against, such
servicers) to establish minimum standards with respect to sound
management and accountability of [the FFELP program].
§ 20 U.S.C. § 1082(a)(1) (emphasis added). Pursuant to this authority, the DOED has issued
regulations that establish baseline qualifications for third-party servicers to participate in the
FFELP program, including standards of administrative capability and financial responsibility
§§ 34 C.F.R. § 682.416(a), (b) (incorporating 34 C.F.R. § 668.15). There is no indication that
Congress, or the DOED for that matter, intended for the prescribed federal minimums to be
ceilings The D.C. licensing scheme merely supplements the minimum standards created by the
DOED. No matter where the borrower resides - whether in the District of Columbia or
elsewhere ~ her Commercial FFELP loans can be serviced by loan servicers that have (at least)
59
met the DOED’s baseline qualifications27 The D.C. Law and Final Rules', therefore, do not
threaten the DOED’s ability to uniformly administer the Commerc`ial FFELP program consistent
with its regulations The D.C. licensing scheme merely supplements the DOED’s regulations in
a way that does not obstruct borrowers’ access to federal student loans
ln the absence of statutory text and legislative history to support its position,
SLSA relies almost exclusively on the DOED’s Preemption Notice and on the Ninth Circuit’s
decision in Chae v. SLM Coi‘p. as evidence that Congress’ goal of uniformity is obstructed by
the District of Columbia’s licensing scheme. _SE Chae v. SLM Com., 593 F.3d at 947.28 As
explained s_upr_a at 21-26, the DOED Preemption Notice is due no deference whatsoever. And as
for C_hae, the District maintains that the “uniformity argument as to the mechanics of the loan
servicing or the core aspects of servicing” involved in w should not be extended to “state
regulations and oversight of loan servicers that don’t change those core aspects.” § Transcript
at 8-9; Def. MTD at 46. The Court agrees ln M, the Ninth Circuit held that the state law
claims - challenging a student loan servicer’s method of setting late fees, repayment start dates,
and interest calculations - were preempted because they “pose[d] an obstacle to the uniform
implementation of the FFELP.” w Chae v. SLM Corp., 593 F.3d at 950. Unlike the D.C.
27 Similarly, the two different dispute facilitation processes established by the
District of Columbia and by the DOED do not impede borrowers’ access to federal aid by
disrupting the uniform administration of the FFELP program, lnstead, they provide borrowers
more options to resolve their complaints - options which are not mutually exclusive or
inconsistent with one another. § W at 44. '
28 SLSA also argues that the “add[ed] layer of regulations, fees, and disclosures
requirements.” imposed by the District of Columbia’s licensing scheme would “increase the costs
of servicing FFELP Loans,” which would, in turn, undermine the stability of the FFELP program
because it would “cause Servicers to . . . service fewer FFELP Loans.” E Pl. Cr-MSJ at 55.
This argument is more accurately characterized as an attempt to show how the D.C. licensing
scheme obstructs the Congressional goal of operating the FFELP program cost-efficiently. And
the Court has already declined to recognize that goal.
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licensing scheme however, the state law claims at issue in _Cm threatened to interfere with the
uniform administration of the FFELP program in a way that would obstruct borrowers’ access to
federal student loans by creating variations in the core aspects of the servicing of their loans
-the methods for calculating interest, assessing late fees, and setting repayment dates The
Ninth Circuit therefore held that federal law preempted the state law claims that related to those
aspects of the servicers’ administration of student loans - that is, lM they service student loans
§§ i_d. at 947-50. Here, the D.C. Law and Final Rules create and implement an oversight
scheme that was designed to regulate the servicers themselves - that is, w_ho may service student
loans To the extent that the D.C. licensing scheme creates variations in the oversight of FFELP
loan servicers, those variations do not interfere with borrowers’ ability to access federal student
aid - in contrast to the state law claims in Chae that affected the “mechanics of loan repayment.”
§ Def. MTD ar 46.29
The Court is not persuaded by the argument that if the D.C-. licensing scheme is
upheld, servicers would be subject to 5l different types of processes and rules, thus undermining
Congress’ goal of administering federal student loan programs uniformly. §_e_e Pl. Cr-MSJ at 55.
Private companies are subject to 5l different sets of taxation, reporting, and licensing regimes in
a broad range of industries that are similar to the licensing scheme created by the District of
29 ln Chae, the Ninth Circuit “examine[d] the FFELP to evaluate whether it
show[ed] a preference for uniformity, and, if [it] [found] such intent demonstrated, [it would]
determine whether the plaintiffs’ claims conflict with a policy of uniformity.” _SE Chae v. SLM
Qp_., 593 F.3d at 947. The Court declines to follow this broad approach to conflict preemption
analysis The Supreme Court has said that “state law is nullified to the extent that it actually
conflicts with federal law.” § Hillsborough County v. Auto. Med. Labs., lnc., 471 U.S. at 7l3.
To identify such a conflict, the Supreme Court has instructed courts to determine whether state
law “stands as an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress” §§ g at 713 (quoting Hines v. Davidowitz, 312 U.S. at 67). The
Ninth Circuit in w appears to reverse this analysis, identifying actual conflicts in order to
determine if Congress’ objective is obstructed.
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Columbia here. There is nothing wrong with subjecting third-party loan servicers, who contract
with private lenders, to varying types of licensing and regulatory schemes, so long as those
regimes do not conflict with the federal regulatory standards or impede borrowers’ access to
student loans - which, the Court concludes, the D.C. licensing scheme does not.
Moreover, the D.C. Law and Final Rules do not actually conflict with the
Secretary of Education’s authority to review servicers’ compliance with the DOED’s baseline
qualifications The DOED regulations provide for enforcement of its minimum standards: “The
Secretary [of Education] may review a third-party servicer to determine that it meets the
administrative capability and financial responsibility standards in this section . . . . lf the servicer
does not, the Secretary may initiate an administrative proceeding.” g 34 C.F.R.
§ 682.416(c)(l), (4). If the Secretary of Education “determine[s] [a servicer] does not meet the
33 44
requirements, [a] lender that participates in the FFEL[P] programs may ~not enter into a
contract with [that] third-party servicer.” E § § 682.416(f). ln the context of Commercial
FFELP loans therefore - that is, the FFELP loans that are not now owned by the federal
government - the DOED does not have the authority to affirmatively choose servicers to the
exclusion of states’ eligibility determinations as it does in the context of FDLP and
Government-Owned FFELP loans Instead, the DOED only retains the authority to review the
servicers’ minimum qualifications and to disqualify those that it deems ineligible, nothing more.
The D.C. Law and Final Rules do not interfere with that discretion. lf the DOED determines a
third-party servicer to be unqualified, that servicer will not be_ permitted to operate in the District
of Columbia - or any jurisdiction ~ and therefore will be ineligible to obtain a license under the
D.C. Law. w D.C. Law 21-214 § 7b(a). No part of the D.C. Law or Final Rules contradicts the
DOED’s authority to nullify contracts that govern the servicing of Commercial FFELP loans
62
lf, on the other hand, the DOED undertakes a review of a third-party servicer and
deems that servicer to be qualified`, the District of Columbia could come to the opposite
conclusion based on its own additional criteria. The standards that the DOED has created are
baseline qualifications -the DOED has set the floor. An actual conflict does not exist when a
state adds qualifications that are additional to, and in no way displace those created by the
federal government And that is all that the District of Columbia has done here. The DOED
serves as a “check” on the fitness of servicers of Commercial FFELP loans - it does not
undertake a threshold analysis of servicer eligibility, nor does it have the authority to enforce its
affirmative determinations of eligibility. Consistent with the presumption against preemption,
the Court declines to conclude that the potential for a conflicting eligibility determination - that
is, if the DOED determines a third-party servicer qualified to service Commercial FFELP loans,
and the District of Columbia denies that servicer a license - constitutes an' actual conflict for
purposes of conflict preemption As this Court has said, “[a] state law that imposes additional
requirements over and above those imposed by a federal law does not . . . necessarily ‘conflict’
with federal law.” E Bourbeau v. Jonathan Woodner Co., 549 F. Supp. 2d at 88 (citing Cll.
fied. Sav. & Loan As:s`u v. Guerra, 479 U.S. 272, 290-92 (1987)); §§ ali (.`oll. Loan (,`<)1’1). v.
SLM Corp., 396 F.3d at 599 (“[T]he states are sometimes entitled to impose more stringent
common law or statutory requirements in areas regulated by federal law, so long as such
requirements are not incompatible with those established under federal law.” (citing Int`l Pape:'
Co. v. Ouellette, 479 U.S. 481, 498 (1987))); Hai'ris v. Great Danc 'l`railers, lnc., 234 F.3d at 401.
ln sum, the Court concludes that the D.C. Law and Final Rules are not preempted
as applied to the servicing of Commercial FFELP loans because the D.C. licensing scheme does
not conflict with the HEA under either impossibility or obstacle preemption For these reasons,
63
the Court will grant SLSA’s motion for summary judgment on its First Claim (conflict
preemption) in part and deny it in part. SLSA is entitled to judgment as a matter of law and a
declaratory judgment on its conflict preemption claim as it respects servicing of (l) FDLP loans
and (2) Government-Owned FFELP loans, but not with respect to (3) Commercial FFELP loans
D. lntergovernmental Immunity
Even though the D.C. Law and Final Rules are not preempted as applied to
Commercial FFELP loans, they may still be unconstitutional if they violate the overarching
doctrine of intergovernmental immunity derived from the Supremacy Clause. §§ North Dakota
v. United Statcs, 496 U.S. at 439. The Court now turns to that alternative argument as applied to
Commercial FFELP loans.
As an initial matter, the Court addresses the District’s argument that it is not
appropriate for the Court to consider the intergovernmental immunity argument at all. The
District points out that the intergovernmental immunity theory was initially raised by the United
States in its Statement of Interest, not by SLSA in its opening brief. § Def. IG lmmunity at 5.
But the District has not identified a single rule that prohibits the Court from considering SLSA’s
argument, and the cases that the District relies upon are not persuasive l\/lost of them are
appellate court decisions that discuss the scope of the issues that courts of appeal may consider
on appeal if they have not been raised first in the district court. Those cases and their reasoning
are inapplicable here. _S£e i_d. at 5.
SLSA explains that it is appropriate for the Court to consider the
intergovernmental immunity argument because, in its complaint, it asked for relief under the
Supremacy Clause, which encompasses both legal theories - preemption and intergovernmental
immunity. As SLSA’s counsel put it: “[A] complaint which asks for relief under preemption or a
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complaint which asks for relief under intergovernmental immunity is asking for relief under the
[S]upremacy [C]lause.” § Transcript at 50. The Court is not persuaded by this argument, but
nevertheless thinks it is appropriate, in its discretion, to consider the intergovernmental immunity
argument
Rule 8 of the Federal Rules of Civil Procedure, which governs the sufficiency of a
complaint, “does not require a plaintiff to set forth in [its] complaint all of the legal theories on
which [it] may rely. Any theory advanced, however, must be supported by the facts in the
complaint and a defendant must have notice and the opportunity to respond.” _S_§ ()ta}j Mesa
Prop. [.,.P. v, U.S. Dep`l of`lnterior, 7l4 F. Supp. 2d 73, 85 (D.D.C. 2010) (citation omitted)
(citing Kriege.r v. Fadely, 211 F.3d 134, 136 (D.C. Cir. 2000); l"lanso.n v. Hof`flnann, 628 F.2d
42, 53 (D.C. Cir. 1980); Arent v. Shalala, 70 F.3d 610, 618-19 (D.C. Cir. l995)),1'ev"d on other
gro_l.g_rgi_§, 646 F.3d 914 (D.C. Cir. 2011). While the Court agrees that SLSA made Supremacy
Clause arguments in its amended complaint, SLSA’s claims for relief were limited to
preemption. Nonetheless, the Court requested, and both parties submitted, supplementary briefs
responding to the intergovernmental immunity claim raised first by the United States in its
Statement of lnterest. The parties therefore were on notice that the Court might consider this
argument and had adequate opportunity to address it. The Court will consider the
intergovernmental immunity doctrine arguments even though they were not contained in the
amended complaint.
Under the intergovernmental immunity doctrine, “a state regulation is invalid
only if it [1] regulates the United States directly or [2] discriminates against the Federal
Government or those with whom it deals.” _S§ North Dakota v. United States 495 U.S. at 435.
Because “a [state] regulation imposed on one who deals with the Government has as much
65
potential to obstruct governmental functions as a regulation imposed on the Government itself,”
intergovernmental immunity may apply to state regulation that impacts government contractors
S_ee E. at 438; g also Boeing Co. v. Movassaghi, 768 F.3d 832, 842-43 (9th Cir. 2014) (“The
federal government’s decision to hire Boeing to perform the cleanup rather than using federal
employees does not affect our immunity analysis on [the grounds of discrimination]. When the
state law is discriminatory, a private entity with which the federal government deals can assert
immunity.”). Nevertheless, courts have consistently held that “neutral state law[s] regulating
[the federal government’s] suppliers” are not unconstitutional because they “are but normal
incidents of the organization within the same territory of two governments.” M North Dakota
v. United States, 495 U.S. at 435 (quoting l [elvering v. Gerhardt, 304 U.S. 405, 422 (1938)).
Under the first prong of the intergovernmental immunity doctrine, only those state
laws that regulate the federal government directly are unconstitutional. w North Dakota v.
United States, 495 U.S. at 435. The Supreme Court has “decisively rejected the argument that
any state regulation which indirectly regulates the Federal Government’s activity is
unconstitutional.” g § at 434.
To determine if the D.C. Law and Final Rules qualify as direct regulation of the
federal government, the Court looks to analogous case law. On the one hand, courts have
invalidated state laws that interfered with a federal contractor’s ability to “discharge its
contractual obligations” consistent with the terms set out by the federal government w, §§
Boeing Co. v. Movassaghi, 768 F.3d at 840. ln contrast, in North Dakota .v. United States, the
Supreme Court found that “concerns about direct interference with the Federal Government
. . . [were] not implicated” when the state’s “reporting requirement and the labeling regulation
operate[d] against suppliers [of liquor to military bases], not the Government.” w North
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Dakota v. United States, 495 U.S. 'at 43 6. The situation here is more akin to the facts of N_orlh
Dakota v. United States Although SLSA’s members may also operate as government
contractors for purposes of FDLP and Government-Owned FFELP loans, those servicers are n_ot
operating as government contractors when servicing Commercial FFELP loans With respect to
those loans, the servicer is acting pursuant to its contract with a private lender. By definition,
then, the servicer cannot be operating as a federal contractor protected from state direct
regulation.
The fact that the federal government guarantees and reinsures Commercial FFELP
loans is also insufficient to warrant providing intergovernmental immunity. lntergovernmental
immunity prevents states from regulating the federal government’s “operations” or its
“property.” § Blackburn v. United States, 100 F.3d 1426, 1435 (9th Cir. 1996) (citing
i-lancocl< v. Train, 426 U.S. 167, 178-80 (1976); McCulloch v. Maryland, 17 U.S. 316 (1819)).
Commercial FFELP loans are not owned by the federal government, and they therefore do not
qualify as federal government property for purposes of Supremacy Clause protection. The
question remains whether the federal government’s interests in Commercial FFELP loans - as a
guarantor or reinsurer - are sufficient to qualify them as federal property. -ln a case involving the
intergovernmental tax immunity doctrine - a corollary to the intergovernmental immunity
doctrine that prohibits states from taxing federal property ~ the Supreme Court held that a federal
agency’s guarantee of privately-owned securities was insufficient to render it property of the
United States w Rocki`ord life lns v. IIl. l_`)ep"t of Rc-:v., 482 U.S. 182, 189-91 (1987). The
Court reasoned that because the United States only guaranteed the loans, it had “[no] fixed and
certain obligations,” and that the state tax at issue had no “adverse effect”'on the borrowing
power of the United States §§ i_c_l. at 190. ln the instant case, where the federal government
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acts as a guarantee agency or reinsurer only, the Court concludes that its interests in Commercial
FFELP loans likewise do not qualify as federal property for purposes of intergovernmental
immunity.
Under the second prong of the intergovernmental immunity doctrine, the D.C.
Law and Final Rules may still violate the intergovernmental immunity doctrine if they
discriminate against the federal government or those with whom it deals To find that a state law
discriminates against the federal government, the Court must conclude that the state “treats
someone else better than it treats” the federal government or those with whom it deals w
North Dakota v. United States, 495 U.S. at 438 (quoting Washington v. United States, 460 U.S.
536, 544-45 (1983)). A regulation is non-discriminatory if it is “imposed ,on some basis
unrelated to the object’s status as a Government contractor or supplier, that is, [if it is] imposed
equally on other similarly situated constituents of the State.” w § at 438. The D.C. licensing
scheme applies to all student loan servicers operating in the District - whether they contract with
the federal government or not. we D.C. Law 21-214 § 3000.1. The D.C. Law and Final Rules
do not treat any other student loan servicers better than they treat those that contract with the
federal government, and therefore are not impermissibly discriminatory.
SLSA argues that the District of Columbia’s purpose in enacting the D.C. Law
and Final Rules should be dispositive in finding the D.C. licensing scheme discriminatory.
Specifically, SLSA argues, the D.C. licensing scheme was created because the District of
Columbia disagrees with federal policy, and the D._C. Law was intended to correct perceived
deficiencies in the federal government’s regulation of student loan servicers lt maintains that
the Council of the District of Columbia targeted the federal government, as evidenced by the
statute’s legislative history and the Council’s choice to regulate student loan servicing, in which
68
the federal government plays a major role, as opposed to other types of loan servicing. E Pl.
lG lmmunity at 8-10. The Supreme Court has never addressed whether discriminatory intent is
enough to violate the Supremacy Clause. But “[i]t is a familiar principle of constitutional law
that [the Supreme] Court will not strike down an otherwise constitutional statute on the basis of
an alleged illicit legislative motive.” §§ United States v. O’Bl'ien, 391 U.S. 367, 383 (1968). ln
United States Postal Serv. v. Citv of Berkelev, the United States Postal Service sought
declaratory relief, alleging that a city zoning ordinance was unconstitutional under the
Supremacy Clause. S_e_e_ United States Postal Serv. v. Citv ol"Berke|ev, 228 F. Supp. 3d 963, 968
(N.D. Cal. 2017). ln denying the City’s motion to dismiss, the Northern District of California
relied upon United States v. O`Brien to distinguish between discriminatory intent of a facially
neutral state law and its discriminatory, practical effect or impact w § at 969. The district
court explained that “allegations of legislative motive behind [the state law’s] passage would not
suffice to establish unconstitutionality,” but “the inevitable effect of a statute on its face may
render it unconstitutional.” § § at 969 (quoting United States v. O’Brien, 391 U.S. at
384-85). Thus, even if the D.C. Law and Final Rules were enacted with the discriminatory
motive that SLSA alleges, it is insufficient to render the state law discriminatory for purposes of
finding a violation of the Supremacy Clause. The Court would need to find a discriminatory
impact, and none exists here.
The D.C. Law and Final Rules, therefore, do not violate the intergovernmental
immunity doctrine as they apply to Commercial FFELP loans The D.C. licensing scheme
constitutionally regulates servicers in their servicing of Commercial FFELP loans The Court
will deny SLSA’s motion for summary judgment on its First Claim for declaratory judgment as it
respects servicing of Commercial FFELP loans
69
IV. CONCLUSION
For the reasons set forth in this Opinion, the D.C. Law and`Final Rules are
preempted under principles of conflict preemption as they relate to the servicing of FDLP and
Government-Owned FFELP loans, but not with respect to Commercial FFELP loans. Under
Claim One, conflict preemption, SLSA is entitled to judgment as a matterlof law with respect to
its members’ servicing of FDLP and Government-Owned FFELP loans The Court therefore
declares the D.C. Law 21-214 and Final Rules preempted under the Supremacy Clause as applied
to the servicing of FDLP and Government-Owned FFELP loans The District of Columbia is
enjoined from enforcing the D.C. Law 21-214 and Final Rules against student loan servicers with
respect to their servicing of FDLP and Government-Owned FFELP loans-
SLSA is not entitled to judgment as a matter of law with respect to its field
preemption (Claim Two) or express preemption (Claim Three) claims, nor is it entitled to
judgment as a matter of law with respect to its conflict preemption claim (Claim One) as it
relates to its members’ servicing of Commercial FFELP loans The D.C. Law 21-214 and Final
Rules may remain in place, and SLSA’s members must comply with the D.C. Law 21-214 and
Final Rules with respect to their servicing of Commercial FFELP loans The Court suggests that
the District of Columbia clarify for servicers operating in the District of Columbia how to
comply with its licensing scheme with respect to servicing some, but not all, of their loans An
Order consistent with this Opinion shall issue this same day.
SO ORDERED.
GZWL Mz--
PAUL L. FRIEDMAN
United States District Jud»ge
DATE¢ \\\L\\\K .
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