Seaman v. National Collegiate Student Loan Trust 2007-2

Background

These consolidated putative class actions involved Katherine Seaman, Mary Re Seaman, Sandra Tabar, Christina Bifulco, Francis Butry, and Cori Frauenhofer. They alleged that National Collegiate Student Loan Trusts 2007-2, 2007-3, 2004-2, and 2006-4; Transworld Systems, Inc. and related entities; and Forster & Garbus LLP carried out a scheme to obtain default judgments on student-loan debts that could not be proved. The alleged conduct included filing mass-produced complaints, making statements about the trusts’ ownership and authority to sue, submitting affidavits claiming personal knowledge of loan records, and reporting debts to credit bureaus.

The plaintiffs asserted claims under the Fair Debt Collection Practices Act, New York General Business Law § 349, and New York Judiciary Law § 487. They moved for class certification. The defendants moved to dismiss for lack of constitutional standing, meaning the plaintiffs had to show a concrete injury that could be addressed by a federal court. Magistrate Judge Moses recommended granting the motion to dismiss in part and denying it in part, and granting class certification in part. Both sides objected.

Standing and Motion to Dismiss

Judge Gardephe agreed that the plaintiffs lacked standing for claims based on specific allegedly false statements in the state-court debt-collection filings. No plaintiff testified that they read and detrimentally relied on those statements or took or avoided an action because of them. The court held that the alleged statutory violations and legal consequences, without concrete resulting harm, were not enough to establish standing.

The court also agreed that only Bifulco had shown concrete injury from negative credit reporting. Bifulco testified that the reporting lowered her credit score and caused her to pay higher interest rates, including a 16% interest rate on a car loan that she said would otherwise have carried a 6% to 7% rate. The other plaintiffs did not show that the negative information had been disseminated to potential creditors or otherwise caused reputational or financial harm. Their alleged risk of future harm was insufficient.

The court rejected the defendants’ argument that the state-court judgments barred the federal claims under the Rooker-Feldman doctrine, which generally prevents lower federal courts from reviewing or rejecting state-court judgments. The court held that the plaintiffs’ claims challenged the alleged fraudulent course of conduct used to obtain the judgments, rather than asking the federal court to overturn those judgments. The alleged wrongful lawsuits, default judgments, wage garnishments, and related costs were sufficient at this stage to support standing for claims based on the broader alleged scheme.

The court applied the same standing analysis to the Judiciary Law § 487 claims. It held that claims based on specific false or misleading statements lacked standing, while claims based on the alleged sham-lawsuit scheme could proceed. The defendants’ motion to dismiss the Judiciary Law claims was therefore granted in part and denied in part. The court also denied the plaintiffs’ request for leave to amend the dismissed claims and for additional discovery concerning credit reporting, finding that the proposed amendment would not establish standing.

Class Certification

The court certified one class under Federal Rule of Civil Procedure 23(b)(3). The class covers people who were sued in New York State debt-collection lawsuits from November 1, 2012, through February 27, 2018, where one of the trust defendants was the plaintiff, Transworld Systems or related entities acted as servicing agent, Forster & Garbus acted as counsel, and a default judgment was obtained. The class excludes people who appeared to defend themselves and against whom the trust named as plaintiff obtained a judgment on the merits.

The court found that the proposed class satisfied the requirements of numerosity, common questions, typical claims, adequate representation, and the predominance and superiority requirements for a Rule 23(b)(3) class. It accepted the view that the alleged injuries arose from a common, coordinated course of conduct involving standardized complaints, affidavits, procedures, and training materials. The court also rejected the argument that differences in the asserted causes of action or whether particular plaintiffs owed the debts created a fundamental conflict among the class representatives.

The court declined to divide the class into four classes, one for each trust. It reasoned that the plaintiffs alleged one common scheme carried out by the same servicing entities, affiants, outside counsel, and procedures, and that separate classes were not justified by the trusts’ separate legal identities.

The court did not certify a class seeking prospective injunctive relief concerning negative credit reporting. It held that the plaintiffs had not shown a real and immediate threat of future injury. General assertions that class members might later apply for housing, loans, utilities, or other services requiring credit checks were too speculative. The court therefore adopted the report and recommendation in part, granted in part and denied in part the defendants’ motion to dismiss, and granted in part the plaintiffs’ motion for class certification. Judge Gardephe also directed the clerk to close the related member case, Bifulco, No. 18 Civ. 7692.