Pfeiffer v. Spellings

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_____________________________
)
BRENDA KAY PFEIFFER, )
)
Plaintiff, )
)
) Civ. No. 07–522 (EGS)
v. )
)
ARNE DUNCAN,1 Secretary )
of Education, et. al., )
)
Defendants. )
_____________________________ )
MEMORANDUM OPINION
Student loan borrower Brenda Kay Pfeiffer has brought this
breach of contract action against the U.S. Secretary of
Education, the Department of Education, and the United States
(collectively “DOE” or “defendants”). Plaintiff alleges that
defendants violated the terms of the promissory note governing
her student loan repayment plan, and has moved for partial
summary judgment on the issue of liability. Defendants have also
filed a motion for summary judgment. The question before the
Court is whether the promissory note executed by plaintiff
contractually authorizes defendants to capitalize interest that
accrued during the period between defendants’ receipt of
1
The complaint, filed on March 19, 2007, named as
defendant Margaret Spellings, in her official capacity as U.S.
Secretary of Education. Arne Duncan was sworn in as Secretary of
Education on January 20, 2009 and is therefore substituted in his
official capacity for Ms. Spellings as a defendant in this case
pursuant to Fed. R. Civ. P. 25(d).
plaintiff’s June scheduled payment and June 30 – the date on
which DOE annually capitalizes accrued interest – for those years
when plaintiff’s loan was in a “negative-amortization condition”
under the Income Contingency Repayment Plan (“ICRP”) in which she
participated. Upon consideration of the motions, responses and
replies thereto, the applicable law, the entire record, and for
the reasons stated below, the Court GRANTS IN PART AND DENIES IN
PART both parties’ motions.
I. Background
A. DOE’s Direct Loan Program
DOE lends money to students pursuing post-secondary
education through the William D. Ford Direct Loan Program (the
“Direct Loan Program”). Borrowers participating in the Direct
Loan Program are given a number of repayment plans from which to
choose, see 34 C.F.R. § 685.208; Defs.’ Mot. at 4 n.2, one of
which is the ICRP. Under the ICRP, a borrower’s scheduled
monthly payment is determined by a formula based on “adjusted
annual income, family size and the principal balance of the
loan.” Pl.’s Statement of Undisputed Material Facts (“Pl.’s
Statement”) ¶ 8; see 34 C.F.R. § 685.209(a) (explaining
calculation of borrower’s repayment amount under ICRP). Because
the monthly scheduled payments of borrowers participating in the
ICRP are based primarily on their income rather than on the
amount of their loan, the scheduled payment can sometimes be an
2
amount less than the interest accruing on their loans each month.
Pl.’s Statement ¶ 10; Defs.’ Mot. at 7. DOE designates these
loans as being in a negative-amortization condition. See Pl.’s
Mot. at 2; Defs.’ Statement of Material Facts as to Which There
Are No Genuine Issues to Be Tried (“Defs.’ Statement”) ¶ 21.
Individuals who obtain student loans from DOE pursuant to
the Direct Loan Program execute identical or substantially
identical form promissory notes. Pl.’s Statement ¶¶ 1-2. The
promissory note contains “the terms and conditions of the loan,
including how and when the loan must be repaid.” Pl.’s Statement
¶ 2 (internal citations and quotation marks omitted).
When a student borrower’s loan enters repayment, DOE assigns
each borrower a monthly “payment due date” of the 7th, 14th,
21st, or 28th of each month.2 Pl.’s Statement ¶ 6; Tr. of Nov.
14, 2008 Mot. Hr’g (“Tr.”) at 45, 56. When the agency receives a
payment on a student loan, it applies the payment “first to any
accrued charges and collection costs, then to any outstanding
interest, and then to outstanding principal.” 34 C.F.R. §
685.211(a)(1). On each monthly due date, DOE bills the borrower
for the interest that has accrued as of his or her payment date.
Pl.’s Mot. at 2. Interest that accrues after a borrower’s
2
At the hearing held on November 14, 2008, counsel for
defendants initially stated that borrowers actually pick their
due dates. Tr. at 19. Counsel later clarified that the agency
assigns a payment due date to the borrower, but the borrower has
the ability to change that date. Tr. at 62.
3
monthly due date is not billed until the borrower’s next monthly
due date the following month. Pl.’s Mot. at 2.
B. DOE’s Capitalization of Interest
Borrowers participating in the ICRP who are in a negative-
amortization condition may be subject to the capitalization of
certain interest that accrues on their loans. As defined by 34
C.F.R. § 685.202(b)(1), capitalization is the process of
increasing the principal balance of a loan by “add[ing] unpaid
accrued interest to the borrower’s unpaid principal balance.”
DOE’s form promissory notes describe the agency’s practice of
capitalizing interest as follows:
Interest. Except for interest [DOE] does not charge me
during an in-school, grace or deferment period, I agree
to pay interest on the principal amount of my Direct
Consolidation Loan from the date of disbursement until
the loan is paid in full or discharged. [DOE] may add
interest that accrues but is not paid when due to the
unpaid principal balance of this loan, as provided
under the Act. This is called capitalization.
Pl.’s Mot. at Ex. 6 (form promissory note used in 2001); Defs.’
Mot. App. at 27 (same).
DOE regulations also address the agency’s authority to
capitalize interest, but the regulatory language differs somewhat
from the language contained in the form promissory notes.
Specifically, 34 C.F.R. § 685.202(b) states that “the Secretary
[of Education] annually capitalizes unpaid interest when the
borrower is paying under the [ICRP] and the borrower’s scheduled
4
payments do not cover the interest that has accrued on the loan.”
Id. § 685.202(b)(4).
The standard form promissory notes executed by borrowers
also contain a section relating to governing law. See Pl.’s Mot.
at Ex. 3. That provision of the promissory note states that
[t]he terms of this [promissory note] will be
interpreted in accordance with the Higher Education Act
of 1965, as amended (20 U.S.C. 1070 et seq.), the U.S.
Department of Education’s . . . regulations, as they
may be amended in accordance with their effective date,
and other applicable federal laws and regulations
(collectively referred to as the “Act”).
Id.; Defs.’ Mot. App. at 30.
Since at least March 19, 2001, DOE has been capitalizing
interest accrued on loans in a negative-amortization condition
not paid as of June 30 each year, a date that is not specified in
the regulations but is chosen by the agency for administrative
reasons. See Pl’s Statement ¶ 11; Tr. at 37, 44-45. These
interest-capitalization procedures are based upon a borrower’s
scheduled payment amount, regardless of the amount of the
borrower’s actual payments and payment due date. Defs.’
Statement of Genuine Issues ¶ 11, attached to Defs.’ Mot.
(“Defs.’ Opp’n Statement”). Moreover, the unpaid accrued
interest annually capitalized on June 30 includes interest
accruing after receipt of the borrower’s June payment through
June 30. Id.
5
C. Plaintiff’s Participation in the Direct Loan
Program
Plaintiff graduated from chiropractic school in 1994 with
multiple DOE student loans. Compl. ¶ 7. She executed two
variable interest rate notes with the agency in 1997, and another
note in November 2001 that consolidated her loans and “locked in”
a fixed interest rate. See Pl.’s Statement ¶¶ 13-14; Defs.’
Statement ¶¶ 1-2, 7. Since she executed the 2001 promissory
note, plaintiff has participated in the Federal Direct
Consolidation Loan Program, one of the four program components of
the Direct Loan Program which “provides loans to borrowers to
consolidate certain Federal educational loans.” 34 C.F.R. §
685.100(a)(4); Defs.’ Mot. at 3 n.1. Plaintiff has at all times
elected to use the ICRP for repayment of her loan. Defs.’
Statement ¶ 6.
Plaintiff’s monthly scheduled payments were less than the
amount of interest that accrued on her loan in the years ending
June 30, 2002; June 20, 2004; and June 30, 2005. Defs.’ Mot. at
7. In those years, plaintiff was not contractually required to
make payments that covered the entire amount of interest accruing
on her loan. Defs.’ Mot. at 7. Because plaintiff’s scheduled
monthly payments were less than the amount of monthly interest
accruing on her loan, her loan was designated in negative-
amortization condition for these years, and defendants
6
capitalized all unpaid interest as of June 30 in those years.
Defs.’ Mot. at 7.
Plaintiff’s actual monthly loan payments since November 2001
have been timely and at an amount “equal to or greater than the
interest accrued in the previous month as estimated by [DOE].”
Compl. ¶ 16. Thus, even though plaintiff’s scheduled monthly
payments for the years in question did not cover the entire
amount of the interest accruing on her loan, plaintiff’s actual
payments were greater than her scheduled monthly payment listed
on the statements she received from DOE.
D. Procedural History
On March 19, 2007, plaintiff filed a complaint against
defendants on behalf of herself and all others similarly situated
seeking damages and injunctive and declaratory relief.3 See
generally Compl. Plaintiff alleges that DOE has breached the
terms of her 2001 form promissory note by capitalizing interest
that accrued after her June payment date through June 30, because
payment for such interest was not required until her July payment
3
Pursuant to Federal Rule of Civil Procedure 23, plaintiff
seeks to maintain this suit as a class action on behalf of “[a]ll
individuals who have been obligated to repay money to the United
States Department of Education at any time since March 19, 2001
pursuant to a Federal Direct Consolidation Loan Promissory Note.”
Compl. ¶ 28. In January 2008, plaintiff filed a motion to
certify a class. The Court subsequently denied that motion
without prejudice to refiling pending resolution of the motions
for summary judgment. This Memorandum Opinion therefore does not
address any issues relating to plaintiff’s request for class
certification.
7
date. See Compl. ¶¶ 1, 37-39. The complaint does not challenge
defendants’ interest-capitalization practices with regard to her
1997 promissory notes. Defs.’ Mot. at 7 n.5. Furthermore, as
her scheduled monthly payments exceeded the amount of interest
that accrued on her loan for the years ending in June 30, 2003
and June 30, 2006,4 plaintiff’s complaint does not address her
loan payments during these years. Defs.’ Mot. at 7 n.6.
On January 31, 2008, defendants filed a motion for summary
judgment on the basis that the promissory note executed by
plaintiff expressly authorizes DOE to capitalize interest in the
challenged manner. Plaintiff filed a cross-motion for partial
summary judgment with respect to defendants’ liability for breach
of contract. She seeks an Order from the Court (1) declaring
that defendants’ practice of capitalizing interest that accrues
between a borrower’s June payment due date and June 30 each year
constitutes a breach of the form promissory note; (2) enjoining
defendants from continuing this practice; and (3) directing the
parties to meet in an attempt to stipulate as to the proper
measure of damages. The Court heard oral argument on November
14, 2008, at which point it directed the parties to submit
supplemental briefing on the applicability of Segar v. Mukasey,
4
Plaintiff’s scheduled monthly payments exceeded the
amounts of interest that accrued on her loan for the year ending
June 30, 2007 as well, though that date occurred after plaintiff
filed her complaint.
8
508 F.3d 16 (D.C. Cir. 2007). On March 16, 2009, the Court
denied the parties cross-motions without prejudice and ordered a
renewed round of consolidated briefing. The parties have
rebriefed the issues and the cross-motions are now ripe for
decision.
II. Standard of Review
Summary judgment is appropriate if the pleadings 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. Fed. R. Civ. P.
56(c). Material facts are those that “might affect the outcome
of the suit under the governing law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). The party seeking summary
judgment bears the initial burden of demonstrating an absence of
a genuine issue of material fact. Celotex Corp. v. Catrett, 477
U.S. 317, 322 (1986); Tao v. Freeh, 27 F.3d 635, 638 (D.C. Cir.
1994). In considering whether there is a triable issue of fact,
the court must draw all reasonable inferences in favor of the
non-moving party. Tao, 27 F.3d at 638.
III. Discussion
A. Contract Interpretation
Courts interpreting a contract to which the United States is
a party apply general principles of contract law. See Franconia
Assocs. v. United States, 536 U.S. 129, 141 (2002). The starting
9
point for such interpretation is the plain language of the
contract and the ordinary meaning of its terms – “unless the
parties mutually intended and agreed to an alternative meaning.”
Boeing Co. v. United States, 75 Fed. Cl. 34, 42 (2007) (quoting
Harris v. Dep’t of Veteran Affairs, 142 F.3d 1463, 1467 (Fed.
Cir. 1998)). Because contract interpretation is a matter of law,
issues of contract interpretation are often “readily susceptible
of resolution via summary judgment.” Id.In the event that a contract provision is ambiguous, the
ambiguity is to be resolved against the drafter, which in this
case is DOE. See United States v. Seckinger, 397 U.S. 203, 216
(1970) (noting that this principle merited “considerable
emphasis” in that case “because of the Government’s vast economic
resources and stronger bargaining position in contract
negotiations”). A contract provision, however, “‘is not
ambiguous merely because the parties later disagree on its
meaning.’ It is ambiguous only ‘if it is reasonably susceptible
of different constructions.’” Segar v. Mukasey, 508 F.3d 16, 22
(D.C. Cir. 2007) (quoting Bennett Enters. v. Domino’s Pizza,
Inc., 45 F.3d 493, 497 (D.C. Cir. 1995)).
“When a contract incorporates a regulation by reference,
that regulation becomes a part of the contract for the indicated
purposes as if the words of that regulation were set out in full
in the contract.” United States ex rel. Dep’t of Labor v. Ins.
10
Co. of N. Am. (“INA II”), 131 F.3d 1037, 1042 (D.C. Cir. 1997)
(concluding that a bond provision, which stated that liability
would be determined “pursuant to [the relevant] Act and the
applicable regulations duly promulgated thereunder,” evidenced an
unambiguous intent by the parties to incorporate by reference the
statute and implementing regulations). Here, the governing law
section of the promissory note and the reference to the Act in
the note’s section dealing with interest make clear that the
language of the applicable DOE regulations is incorporated by
reference into the note.5
In the present case then, the Court’s task is to interpret
the promissory note in a way that reconciles the language of 34
C.F.R. § 685.202(b) (defining capitalization as the practice of
adding “unpaid accrued interest” to the loan balance and
permitting DOE to capitalize “unpaid interest” (emphasis added)),
with the language in the promissory note stating that the agency
will annually capitalize “interest that accrues but is not paid
when due,” Pl.’s Mot. at Ex. 6; Defs.’ Mot. App. at 30. See,
e.g., United States v. Ins. Co. of N. Am. (“INA I”), 83 F.3d
1507, 1511 (D.C. Cir. 1996) (“[T]he ‘cardinal principle of
5
Although plaintiff did not explicitly concede this point,
plaintiff’s counsel did acknowledge at oral argument “that the
regulation and the note should be construed consistently.” Tr.
at 42. The Court in any event finds no serious room for doubt
that the regulatory language is incorporated by reference into
the promissory note.
11
contract construction [is] that a document should be read to give
effect to all its provisions.’” (quoting Mastrobuono v. Shearson
Lehman Hutton, Inc., 514 U.S. 52, 63 (1995))); Shulman v. Voyou,
LLC, 251 F. Supp. 2d 166, 169 (D.D.C. 2003) (“[W]here two
seemingly conflicting contract provisions exist within a
contract, it is the province and duty of the court to find
harmony between them and reconcile them if possible.”). In so
doing, the Court is mindful that it “must give reasonable meaning
to all parts of the contract and not render portions of the
contract meaningless.” YRT Servs. Corp. v. United States, 28
Fed. Cl. 366, 389 (1993).
B. Scope of the Parties’ Dispute
At the outset, the Court notes the substantial number of
issues not seriously disputed by the parties. Both plaintiff and
defendants agree that interest accrues on plaintiff’s loan on a
daily basis, but that for the convenience of both parties, DOE
does not require daily payment of such interest. See Defs.’ Mot.
at 12; Tr. at 48, 63. The parties also agree that DOE clearly
has the authority to capitalize interest under certain
circumstances – namely, that the promissory note authorizes the
agency to capitalize any interest that accrues and has not been
paid as of the borrower’s scheduled payment date. Furthermore,
defendants do not dispute that during the relevant time period,
plaintiff voluntarily submitted payments in excess of her
12
scheduled payment amount, but that she was nevertheless subject
to capitalization of the interest that accrued between the
agency’s receipt of her June scheduled payment and June 30. See
Defs.’ Opp’n Statement ¶¶ 16-20. Finally, defendants acknowledge
that under DOE’s current practices, the only way for plaintiff to
avoid the capitalization of the interest that accrues during that
period would be to send a second payment of that amount to DOE
and ensure that the agency actually processes the payment on June
30.6 See Tr. at 19-20. There also appears to be no dispute that
this course of action is foreclosed as a practical matter because
a borrower has no control over when the agency processes her
payment.
The resolution of the parties’ cross-motions instead rests
on the narrow question of whether the promissory note – and
incorporated regulations – authorized defendants to capitalize
interest that accrued during the period between DOE’s receipt of
plaintiff’s June payment through June 30. Plaintiff contends
that such a practice violates the terms of the promissory note,
because the note provides that DOE will capitalize “interest that
accrues but is not paid when due,” but payment of interest
accruing between her June scheduled payment date and June 30 is
6
This is because, as the parties appear to agree, the
agency lacks the authority to apply any excess payment by a
borrower to interest that has not yet accrued at the time the
payment is processed. See 34 C.F.R. § 685.211(a)(1).
13
not required (i.e., “due”) until her July payment due date. In
other words, plaintiff argues that DOE is prematurely
capitalizing unpaid accrued interest by capitalizing before that
interest is “due.” Pl.’s Mot. at 2. By contrast, defendants
claim that an interpretation of the note that permits the
agency’s current capitalization practice is the only way to
harmonize the phrase “not paid when due” with 34 C.F.R. §
685.202(b), which expressly authorizes DOE to “add unpaid accrued
interest” to a borrower’s principal loan and specifically directs
the Secretary to “annually capitalize unpaid interest.” Defs.’
Mot. at 13-14. Framed by the parties in this way, the question
before the Court is how to harmonize the note’s use of the phrase
“not paid when due” and the regulations’ reference to “unpaid
interest” and “unpaid accrued interest.”
The Court agrees with defendants that a reasonable reading
of the plain terms of 34 C.F.R. § 685.202(b), standing alone,
might permit Defendant’s current practice of annually
capitalizing “unpaid interest.” Moreover, defendants correctly
note that if plaintiff were challenging the validity of the
agency’s interpretation of § 685.202(b), the agency would be
entitled to “‘considerable deference’ with regard to the
construction” of the regulation. Defs.’ Mot. at 29 (quoting
Chevon USA, Inc. v. Nat’l Resource Defense Council, Inc., 467
U.S. 837, 844 (1984)). But plaintiff here is not challenging the
14
regulation itself. Rather, she is arguing that the promissory
note she executed has been breached. In these circumstances,
where the agency is a party to a disputed contract, the Court
applies “neutral principles of contract law, not the deferential
principles of regulatory interpretation.” Mesa Air Group v.
Dep’t of Transp., 87 F.3d 498, 503 (D.C. Cir. 1996).
The recognition that the language in the regulations might
otherwise permit the challenged capitalization practice does not
end the matter, however, because the Court must read the language
of the regulations and the language of the promissory note in
conjunction with one another. The language contained in the
promissory note does not refer to capitalizing “unpaid interest,”
but states that the agency will capitalize interest that is “not
paid when due.” Plaintiff’s claim of a breach rests upon her
contention that the inclusion of the phrase “not paid when due”
in the promissory note bars DOE from capitalizing interest that
is not yet “due.” This interpretation, in turn, is based on
plaintiff’s argument that “due” means “payment required,” so that
the interest accruing between her June payment and June 30 cannot
be “due” before her July payment date. See Pl.’s Mot. at 5-6.
By contrast, defendants argue that “due” means owed as a
debt. Because interest accrues on plaintiff’s loan every day,
defendants contend that the interest accruing between plaintiff’s
scheduled payment date and the date that DOE capitalizes interest
15
is owed as a debt and properly capitalized under the terms of the
promissory note. See Defs.’ Mot. at 18. The heart of the
dispute between the parties – and the key to interpreting the
promissory note and incorporated regulations – therefore rests in
large part on the meaning of the word “due.”
C. The Parties’ Proffered Interpretations
Both parties claim that the unambiguous language of the
promissory note and incorporated regulations support their
proffered interpretation, relying on both the plain meaning of
the relevant terms and related portions of the regulations in an
attempt to demonstrate that the note should be interpreted in
their favor.
1. Plain Meaning
Plaintiff contends that the regulatory reference to “unpaid”
interest and the promissory note’s reference to interest “not
paid when due” permit DOE to capitalize only “interest that was
not paid as it became due[,] because ‘unpaid’ is synonymous with
‘due.’” Pl.’s Mot. at 8 (emphasis in original) (citing Roget’s
II, The New Thesaurus, Third Edition (1995)). Accordingly,
plaintiff asserts that the ordinary meaning of both the
regulation and the promissory note allow annual capitalization of
interest not paid by a borrower’s scheduled due date, but not any
interest that accrues between that date and June 30. Pl.’s Mot.
at 9.
16
Plaintiff also cites Biggs v. Wilson, 1 F.3d 1537 (9th Cir.
1993), a case interpreting the Fair Labor Standards Act, in
support of her conclusion that “unpaid” interest is interest “not
paid when due” on a borrower’s scheduled payment date. See id.
at 1538-40 (holding that California’s failure to issue paychecks
promptly when due violated the statute’s minimum-wage provision,
because the provisions at issue “necessarily assume that wages
are due at some point, and thereafter become unpaid”).
Defendants contend that Biggs is inapplicable in the present
case, Defs.’ Mot. at 25 n.18, and further claim that plaintiff’s
reference to the particular Thesaurus definition she cites is
selective. Defs.’ Mot. at 26. As DOE points out, the full
Thesaurus definition of “unpaid” cited by plaintiff reads: “Owed
as a debt: due, outstanding, owed, owing, payable, receivable,
unsettled.” Defs.’ Mot. at Ex. D. Defendants argue that the
full definition actually supports the agency’s proffered
interpretation, that “unpaid” means “[o]wed as a debt.” Defs.’
Mot. at 26.
DOE further argues that the interchangeability of the words
“unpaid” and “due” in the above definition confirms that both
terms should be read as a reference to whether a borrower has
incurred a liability and not whether the borrower has reached the
point in time after which payment would be delinquent. Def.’s
Mot. at 26. In other words, according to defendants, although
17
interest accruing after plaintiff’s June payment date is not
billed until her July payment date, it is still considered “due”
on June 30. They further note that this construction of “due” is
consistent with the relevant definition in Black’s Law
Dictionary, which includes among its definitions for “due”:
“Owing or payable; constituting a debt.” Defs.’ Mot. at 27
(citing Black’s Law Dictionary (8th ed. 2004)).7
2. Interpretations Based on the
Regulatory Framework
Both parties also rely on the regulations themselves to
support their arguments as to when the DOE may capitalize
interest that has accrued but that was not paid when due.
Plaintiff argues that if the regulations permit DOE to
capitalize interest before it is listed and due in a monthly
scheduled payment, then the regulations contradict and nullify
the “not paid when due” language in the promissory note. Pl.’s
Mot. at 7. Thus, she contends that the only way to harmonize the
language in the promissory note with the language in the
regulations is to conclude that “unpaid accrued interest” refers
7
Black’s Law Dictionary also includes as a definition for
“due”: “Immediately enforceable,” as in “payment is due on
delivery.” Black’s Law Dictionary (8th ed. 2004). Defendants
assert that in regards to repayment of a promissory note, under
scheduled payments, “the notion of immediate enforceability is
inapposite because no delivery is involved with a promissory
note.” Defs.’ Mot. at 27 n.19.
18
to interest that has accrued and that was not paid as of the
debtor’s scheduled monthly payment date. Pl.’s Mot. at 8.
Plaintiff also argues that her interpretation of “due”
comports with the principle that a regulatory section should be
interpreted in the context of the remainder of the regulation of
which it is a part. Pl.’s Mot. at 9 (citing McCarthy v. Bronson,
500 U.S. 136, 139 (1991)). For instance, the regulations
describe when “unpaid accrued interest” may be capitalized into
the debtor’s “unpaid principal balance.” 34 C.F.R. §
685.202(b)(1). Plaintiff asserts that within this regulation,
the word “unpaid” cannot mean the same thing as “accrued,” and
indeed, that if “unpaid” meant “accrued,” DOE would not have used
both words in the phrase “unpaid accrued interest.” Plaintiff
further argues that the remaining sections of the regulations
also treat the words “unpaid” and “accrued” as having two
different meanings. Pl.’s Mot. at 9-10 (citing other subsections
of 34 C.F.R. § 685.202(b) and 34 C.F.R. § 685.102(b)).
Finally, plaintiff points out that nothing in the
regulations states that the annual capitalization of accrued
interest that was “not paid when due” must occur on June 30. If
DOE capitalized such interest on the date of the debtor’s timely
June payment, DOE would be in compliance with both the promissory
note and regulations and would not be prematurely capitalizing
accrued interest.
19
DOE argues, in contrast, that the word “due” does not mean
“scheduled payment date” because that interpretation cannot be
reconciled with the regulations incorporated in the promissory
note. Defs.’ Mot. at 17. DOE notes that other sections of the
regulations allow interest to be capitalized at times when there
are no scheduled payment dates, such as in grace periods,
deferments, and forbearances. Defs.’ Mot. at 17 (citing 34
C.F.R. § 685.202(b)(2)-(3)). Thus, defendants contend that
plaintiff’s interpretation of the word “due” would render these
other regulation sections meaningless.
DOE also points out that many debtors in a negative-
amortization state have scheduled monthly payments that are less
than the amount of interest that has accrued on the loan. Def.’s
Mot. at 17-28. In that situation, interest accrues between each
scheduled payment but is not “due” on the scheduled payment date.
Nevertheless, the interest that accrues over the course of the
year but is not paid is properly capitalized under the terms of
the promissory note and regulations. Accordingly, DOE argues
that the proper interpretation of “due” is “owed as a debt”
because only such an interpretation harmonizes the terms of the
promissory note and regulations.
D. The Promissory Note and Incorporated
Regulations Are Not Ambiguous
Upon consideration of the parties’ proffered
interpretations, the relevant authority, and the record, the
20
Court concludes that the language of the promissory note and
incorporated regulations is not ambiguous and that plaintiff’s
interpretation is correct.
The parties agree that a student loan constitutes an
outstanding debt and that interest accrues on that debt on a
daily basis. But the entire amount of the outstanding debt is
not “due” on a daily basis, nor is the interest that accrues each
day for the entire lifetime of the loan. The promissory note
specifies that the debtor will repay the loan plus accrued
interest in “monthly installments” and that DOE will provide the
debtor “with a repayment schedule that identifies [the debtor’s]
payment amounts and due dates.” Pl.’s Mot. at Ex. 3 (Federal
Direct Consolidation Loan Application and Promissory Note).
Debtors are sent monthly statements that indicate the amount due
(i.e., listing the amount of interest that has accrued) as well
as the scheduled monthly payment. See Pl.’s Mot. at Ex. 12
(plaintiff’s monthly billing statements).
For a typical loan, the amount due is the same as the
monthly scheduled payment, which covers the accrued interest on
the principal balance and a partial payment of the principal. It
is only in the unique situation of the ICRP that the amount due
is not necessarily the same as the scheduled monthly payment. In
that situation, the amount of interest that has accrued on the
loan is due each month, but the parties have a separate
21
contractual agreement not to require payment of the full amount
that is due. If the debtor does pay the entire amount due,
however, which the debtor has the right to do (there is no
penalty for prepayments), then no further amount of money is
“due” until the next scheduled monthly payment. This is true
even though interest accrues on the outstanding principal balance
on a daily basis, starting again the day after each monthly
scheduled payment is processed.
This interpretation, that accrued interest is only “due” on
each monthly scheduled payment date – whether or not the
scheduled payment amount covers everything that is due – is in
harmony with the rest of the language of the promissory note.
The note specifies that DOE will provide the debtor with a
repayment schedule, payment amounts, and “due” dates. Pl.’s Mot.
at Ex. 3. In addition, the note provides for “acceleration” of
the entire amount of the loan if the debtor defaults. Pl.’s Mot.
at Ex. 3. The acceleration clause therefore makes clear that the
entire amount of the debtor’s outstanding debt is not “due” on a
daily basis. Rather, the entire amount of the principal and all
accrued interest can only become “due” all at once if the debtor
defaults on the loan. Pl.’s Mot. at Ex. 3.
This interpretation is also in harmony with the regulations,
which spell out how the DOE capitalizes “unpaid accrued
interest,” but do not define that phrase. Insofar as this phrase
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becomes a part of the promissory note itself, it must be defined
in the context of the other language in the note. The
regulations do make clear, however, that the words “unpaid” and
“accrued” must mean two different things; otherwise, both words
need not have been included in the regulations. No one disputes
that interest that accrues on the principal balance between
monthly payments but is not paid by the debtor in her monthly
payment is “unpaid accrued interest” that can be capitalized
annually. Indeed, the interest that accrues each month is “due”
even though the debtor and DOE have a separate agreement that
permits the debtor to pay less than what is due. This does not
mean, however, that DOE can choose any date of the year to
capitalize interest that, while it is “unpaid” and has “accrued,”
is not “due” under the debtor’s repayment schedule issued by DOE.
If any ambiguity exists in the promissory note or
regulations with regard to how interest is capitalized, the
ambiguity is created by the fact that DOE has chosen a date to
capitalize interest that is arbitrary with respect to the debtor.
At the hearing, defendants indicated that June 30 is the date the
DOE capitalizes interest because July 1 is the date the Secretary
adjusts interest rates for variable interest loans. Tr. at 37.
June 30 might make sense for DOE’s administrative processes, but
it is not tied in any way to the debtor’s individual loan. The
fact that this date is arbitrary with regard to the individual
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debtor is underscored by the fact that (1) similarly situated
debtors experience different levels of capitalization based
solely on how much time passes between their payment due date and
June 30, despite the fact that the debtor does not initially
choose her payment date; and (2) it is a virtual impossibility
for a debtor in plaintiff’s situation to avoid some amount of
interest being capitalized each year despite every effort to pay
the entire amount of interest that has accrued. Moreover,
although the amount of damages that this creates might be nominal
with respect to some debtors, there is no dispute that the annual
capitalization of interest between a debtor’s June payment and
June 30 increases the overall cost of the loan to the debtor.
Indeed, the promissory note itself warns the debtor that
capitalization will increase the overall cost of the loan to the
debtor. Pl.’s Mot. at Ex. 3.
E. Plaintiff’s Interpretation of the Promissory
Note is Supported by Authority
The fact that plaintiff and DOE can articulate differing
interpretations of the language in the promissory note and the
incorporated regulations does not mean that the language is
ambiguous. See Segar, 508 at 22. In Segar, for instance, the
D.C. Circuit held that the language in a footnote to the
agreement must be interpreted within the context of the entire
agreement, thereby holding that the language of the agreement was
not ambiguous. Id. at 23-24.
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Similarly, the Court must interpret the language in the
regulations within the context of the promissory note into which
the regulations were incorporated. If the Court concluded that
DOE could capitalize interest that accrues between a debtor’s
June payment and June 30, the Court would essentially be writing
out of the promissory note the language that allows DOE to
capitalize accrued interest that is “not paid when due.” That
phrase cannot be interpreted to simply mean “owed as a debt” or
“accrued,” because such an interpretation would render the phrase
meaningless and the sentence nonsensical. The sentence would
essentially read “interest that accrues but is not paid when
accrued.” Thus, although the dictionary definition of the word
“due” may include “owed as a debt,” in the context of this
promissory note, the plain language of the note calls for
capitalization of interest that is not paid by the scheduled
monthly payment date; it does not call for capitalization of
interest merely because it has accrued since the debtor sent in
her timely monthly payment that covered all interest that had
accrued to date.
In sum, the only interpretation of “due” and “not paid when
due” that harmonizes the language of the regulations and makes
sense within the context of the entire promissory note is
plaintiff’s interpretation. The promissory note allows DOE to
capitalize interest on an annual basis if the debtor has not paid
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the entire amount of interest that has accrued within the course
of the year’s scheduled monthly payments. DOE’s current practice
of capitalizing interest that accrues between a debtor’s June
payment and June 30 is not authorized by the promissory note or
the incorporated regulations and is therefore inappropriate.
F. The Court Lacks Jurisdiction To Grant
Injunctive and Declaratory Relief
Defendants argue that because the Court’s jurisdiction in
this case is premised on the Little Tucker Act, 28 U.S.C.
§ 1346(a)(2), the Court lacks the authority to grant declaratory
or injunctive relief. Therefore, according to defendants, DOE is
entitled to summary judgment on all of plaintiff’s non-monetary
claims. This Court agrees.
The Tucker Act grants jurisdiction to the U.S. Court of
Federal Claims over, inter alia, “any claim against the United
States founded . . . upon any express or implied contract with
the United States.” 28 U.S.C. § 1491(a)(1). Jurisdiction under
the Tucker Act is limited to claims for monetary relief,
Richardson v. Morris, 409 U.S. 464, 465 (1973) (per curiam), with
the following narrow exception:
To provide an entire remedy and to complete the relief
afforded by the judgment, the court may, as an incident
of and collateral to any such judgment, issue orders
directing restoration to office or position, placement
in appropriate duty or retirement status, and
correction of applicable records, and such orders may
be issued to any appropriate official of the United
States.
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Id. § 1491(a)(2). The Little Tucker Act, in turn, “grants
concurrent Tucker Act jurisdiction to district courts where the
amount in controversy is less than $10,000.” Cartwright Int’l
Van Lines, Inc. v. Doan, 525 F. Supp. 2d 187, 194 (D.D.C. 2007)
(citing 28 U.S.C. § 1346(a)(2)); see also Richardson, 409 U.S. at
466 (noting that § 1346(a)(2) “did no more than authorize the
District Court to sit as a court of claims and . . . the
authority thus given to adjudicate claims against the United
States does not extend to any suit which could not be maintained
in the Court of Claims” (quoting United States v. Sherwood, 312
U.S. 584, 591 (1941))).
Plaintiff argues that her non-monetary claims are not barred
under the Little Tucker Act because of the exception granting
“subject matter jurisdiction over both monetary claims and ‘any
incidental relief in equity in aid of such a judgment.’” Pl.’s
Reply at 8 (quoting Blanc v. United States, 244 F.2d 708, 709-10
(2d Cir. 1957)). But see Blanc, 244 F.2d at 709 (concluding
that, with respect to the claims for equitable relief in that
case, Tucker Act jurisdiction was lacking). Section 1491(a)(2),
however, clearly delineates the situations under which such
relief “incident of and collateral to” a monetary judgment may be
granted. The relief requested by plaintiff in this case plainly
does not qualify under the narrow types of equitable relief
permitted by the Tucker Act (i.e., the issuance of “orders
27
directing restoration to office or position, placement in
appropriate duty or retirement status, and correction of
applicable records”), and her non-monetary claims must therefore
be dismissed from the action. See Greenhill v. Spellings, 482
F.3d 569, 576 (D.C. Cir. 2007) (explaining that § 1491(a)(2) has
been “narrowly construed” and that the D.C. Circuit has “found
very sharp constraints on district court jurisdiction to grant
equitable relief on contract claims against the government”); cf.
Transohio Sav. Bank v. Dir., Office of Thrift Supervision, 967
F.2d 598, 608 (D.C. Cir. 1992) (“[T]he [Tucker] Act has long been
construed as waiving sovereign immunity only for claims seeking
damages, and not for those seeking equitable relief (except in
very limited circumstances).” (internal quotation marks
omitted)); Sharp v. Weinberger, 798 F.2d 1521, 1523 (D.C. Cir.
1986) (noting that “the Tucker Act and Little Tucker Act
impliedly forbid [claims for declaratory and injunctive]
relief”).
IV. Conclusion
For the reasons stated above, this Court concludes that
plaintiff is entitled to summary judgment on her claim that
defendants are liable for damages resulting from their breach of
the promissory note. Defendants, however, are entitled to
summary judgment as to plaintiff’s claims for declaratory and
injunctive relief. Accordingly, the parties’ cross-motions are
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GRANTED IN PART AND DENIED IN PART. An appropriate Order
accompanies this Memorandum Opinion.
Signed: Emmet G. Sullivan
United States District Judge
October 5, 2009
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