Didonato v. GS Services Limited Partnership

Background

Francis DiDonato brought a proposed class action against GC Services Limited Partnership and Financial Asset Management Systems, Inc. He alleged that the defendants attempted to collect private student loans that had been discharged in bankruptcy and falsely represented that the loans were due and owing. He brought the claim under Section 1692e of the Fair Debt Collection Practices Act, which prohibits false or misleading statements about a debt’s character, amount, or legal status.

DiDonato sought certification of a class consisting generally of people who had filed for bankruptcy, received discharge orders, obtained certain private education loans, and were later subjected to collection efforts on those loans. He sought certification under Federal Rule of Civil Procedure 23(b)(1)(A) and Rule 23(b)(3).

The proposed representative’s loans

The court explained that whether a private student loan was discharged depends on the Bankruptcy Code’s exceptions for certain educational debts. Among other things, a private loan may be excepted from discharge if the student attended an eligible institution and the loan funded only qualified higher-education expenses. The creditor bears the burden of showing that a debt falls within an exception to discharge.

DiDonato attended Temple University and received two Tuition Answer Loans. The loan applications and promissory notes stated that the loans were solely for qualified higher-education expenses at an eligible institution. DiDonato also certified that one loan was a qualified educational loan and agreed to repay funds not used for qualified education expenses.

The court noted that DiDonato made conflicting assertions about whether the loans exceeded the cost of attendance. His declaration compared the loan amounts with federal loans, while his briefing asserted that scholarships covered tuition and compared the loan amounts with different remaining educational expenses. The court also noted that he had kept the full loan amounts.

Rule 23(a) and typicality

Rule 23(a)(3) requires the claims of the proposed class representative to be typical of the class. The court held that this requirement was not met. It found serious questions about whether DiDonato was actually a member of the proposed class because the stated purpose of his loans and his certifications could support treating them as qualified education loans that were not discharged.

The court stated that the loan documents, DiDonato’s agreement to repay amounts not used for education expenses, his retention of the full loan amounts, and his conflicting statements created issues unique to him. Those issues could lead to defenses that would become the focus of the case. The court therefore found that DiDonato was not a typical class member. The court stated that numerosity, commonality, and ascertainability did not independently prevent certification.

Rule 23(b)(1)(A)

The court denied certification under Rule 23(b)(1)(A). That rule concerns situations in which separate lawsuits could lead to incompatible standards of conduct. The court reasoned that the proposed class sought individualized monetary damages. Because a class under Rule 23(b)(1)(A) is mandatory and class members generally cannot opt out, certifying this proposed class could deny members the opportunity to litigate their individual entitlement to damages and the amount of those damages.

Rule 23(b)(3)

The court also denied certification under Rule 23(b)(3), which requires common questions to predominate over individual questions and requires a class action to be superior to other methods of resolving the dispute.

The court identified common questions, including whether the defendants were debt collectors and whether their statements that the loans were due amounted to misrepresentations about the loans’ character or legal status. But it held that individual issues predominated because each borrower’s loan would require a separate determination of dischargeability.

Those individual determinations could involve the cost of attendance, whether the school was a Title IV institution when the loan originated, whether a government or nonprofit institution funded part of the loan program, whether the borrower filed bankruptcy, what happened in that bankruptcy case, and whether the loan documents and certifications showed that the loan was a qualified education loan. The court described these inquiries as requiring a separate “mini-hearing” for each potential class member.

The court also discussed problems with a spreadsheet produced by Navient. According to the defendants, the spreadsheet did not account for changing loan information, could associate bankruptcy information with loans rather than the correct parties, and sometimes indicated that a discharge order existed when the bankruptcy case had actually ended in dismissal. The court concluded that investigating these issues for each borrower would overwhelm the common questions.

Fail-safe class

The court separately held that the proposed class was a “fail-safe” class. A fail-safe class is defined so that a person’s membership depends on whether that person ultimately has a valid claim. The court found that the proposed definition created fairness and manageability problems because contested issues—especially whether each loan was discharged—would have to be resolved before determining who belonged in the class.

Disposition

Judge Lorna G. Schofield denied DiDonato’s motion for class certification under Rule 23(b)(1)(A) and Rule 23(b)(3), and denied certification for the additional reason that the proposed class was a fail-safe class. The Clerk of Court was directed to close the motion. The opinion did not decide whether the defendants were ultimately liable under the Fair Debt Collection Practices Act.