Walsh v. Nelnet, Inc.

Background

Adriana Walsh’s amended complaint alleges that Nelnet Servicing, LLC violated the Fair Credit Reporting Act by reporting inaccurate student-loan balances to consumer reporting agencies. According to the allegations, Nelnet transferred some borrowers’ loans to other servicers but continued reporting balances on those loans. The new servicers also reported balances, allegedly making it appear that borrowers owed twice the amount of their loans. Walsh brought the case as a proposed class action.

Nelnet filed a motion to dismiss the amended complaint under Rule 12 of the Federal Rules of Civil Procedure and the Second Circuit’s first-to-file rule. Nelnet also moved to stay discovery while the dismissal motion was pending. Walsh opposed dismissal and argued that, if the first-to-file rule applied, transfer—not dismissal or a stay—was the appropriate remedy.

The Earlier Case and the First-to-File Rule

The earlier related proceeding, pending in the District of New Jersey, is a Fair Credit Reporting Act class action against the same defendant. That case concerns allegations that Nelnet continued reporting outstanding balances after borrowers’ loans had been transferred and forgiven. The proposed class in Walsh’s case instead concerns borrowers whose loans were transferred but not forgiven.

The first-to-file rule generally gives priority to the lawsuit filed first when two cases involve substantially similar parties and claims. The court held that the rule applied because both cases asserted one Fair Credit Reporting Act claim against Nelnet based on substantially the same alleged failure to correct inaccurate student-loan information. The court found that the differences between the proposed classes did not defeat the rule because the cases involved overlapping theories of liability and nearly identical complaints.

Convenience and Special Circumstances

The court concluded that the balance of convenience did not favor keeping the case in the Southern District of New York. Although Walsh’s choice of forum weighed against transfer, the court found no meaningful difference for the proposed class members or witnesses between New York and New Jersey. It also noted that the earlier proceeding was further along and that judicial efficiency favored having related litigation proceed in the same district.

The court found no special circumstance requiring priority for Walsh’s case. It noted that Walsh’s counsel had filed two nearly identical federal cases in adjacent districts days apart, but concluded that any indication of forum shopping did not justify applying an exception to the first-to-file rule.

Rulings

The court denied Nelnet’s motion to dismiss. It denied Nelnet’s motion to stay discovery as moot because the court had resolved the dismissal motion. The court then ordered the case transferred to the United States District Court for the District of New Jersey under 28 U.S.C. § 1404(a), based on the parties’ consent and the interests of justice and convenience. The order did not decide the merits of Walsh’s Fair Credit Reporting Act allegations.