On Nov. 1, 2017, the CFPB filed a comprehensive response to all of the interventions in the Delaware case. In it, the Bureau argues that the Court should deny the motions to intervene filed by TSI, PHEAA, GSS, the Objecting Noteholders, and Wilmington Trust Company (WTC) because they have failed to satisfy the requirements of Federal Rule of Civil Procedure 24, and that the Court should limit the intervenors’ participation to objecting to the entry of the Proposed Consent Judgment if the intervenors are permitted to proceed.
The Bureau did not object to the participation of the Indenture Trustee, U.S. Bank National Association, a bank that looks out for the interests of the holders of the notes issued by the Trusts and handles the distributions of the cash flow provided by the payments and collections from the students obligors. Presumably because the Bureau anticipated that the Court would allow the intervention since the noteholder have an obvious interest in what happens with the current cash flow, which - pursuant to the proposed consent judgment - would be diverted into an escrow account, at least temporarily, and because the payment of fines to the U.S. Treasury from the revenue stream would reduce the amount available for distribution to the noteholders.
U.S. Bank argued that the Proposed Consent would significantly affect the interests and rights of
U.S. Bank in its capacity as Indenture Trustee for the benefit of the Noteholders, and would impair its perfected security interests in the NCSLTs’ student loans, related collections and contractual agreements. See excerpt from its filing below:
The Bureau also did not oppose the motions to intervene filed by Ambac, the insurer for some of noteholders as well as an investor.
U.S. Bank argued that the Proposed Consent would significantly affect the interests and rights of
U.S. Bank in its capacity as Indenture Trustee for the benefit of the Noteholders, and would impair its perfected security interests in the NCSLTs’ student loans, related collections and contractual agreements. See excerpt from its filing below:
The Bureau also did not oppose the motions to intervene filed by Ambac, the insurer for some of noteholders as well as an investor.
Below is the text of the Bureau’s motion response in opposition (admittedly not very reader-friendly since the cut-and-paste from pdf does not work well with footnotes and formatting).
The Bureau's 33-page filing contains a wealth of background information on the complex web of entities involved in the National Collegiate Student Loan Conglomerate, and the distinct roles played by different servicers. As is well known by know, the Trusts do not have any employees. They act through agents, all of which are entities, rather than individuals, and the issue of who is legitimately in control of the Trusts, and entitled to speak for them, and enter into agreements on their behalf, is the subject of litigation in multiple courts.
The CFPB filing also summarizes the findings of the CFPB regarding illegal practices in collection lawsuits prosecuted on behalf of the Trust around the country, and the nature of the remedies devised for the benefit of borrower/consumers. Several of the putative intervenors argue that the consent judgment violates the governing documents and trust-related agreements, and challenge the validity of the execution of the proposed consent judgment, which was signed by a lawyer purporting to represent the Trusts, but not by the Owner Trustee. The Owner Trustee refused to sign and is one of the intervenors in the case.
The Bureau's 33-page filing contains a wealth of background information on the complex web of entities involved in the National Collegiate Student Loan Conglomerate, and the distinct roles played by different servicers. As is well known by know, the Trusts do not have any employees. They act through agents, all of which are entities, rather than individuals, and the issue of who is legitimately in control of the Trusts, and entitled to speak for them, and enter into agreements on their behalf, is the subject of litigation in multiple courts.
The CFPB filing also summarizes the findings of the CFPB regarding illegal practices in collection lawsuits prosecuted on behalf of the Trust around the country, and the nature of the remedies devised for the benefit of borrower/consumers. Several of the putative intervenors argue that the consent judgment violates the governing documents and trust-related agreements, and challenge the validity of the execution of the proposed consent judgment, which was signed by a lawyer purporting to represent the Trusts, but not by the Owner Trustee. The Owner Trustee refused to sign and is one of the intervenors in the case.
A copy of the pdf version of the CFPB's response that is located outside the PACER paywall can be found here.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
CONSUMER FINANCIAL PROTECTION BUREAU
Plaintiff,
v.
THE NATIONAL COLLEGIATE MASTER STUDENT LOAN TRUST, et al.
Defendants.
C.A. No. 17-cv-01323 (GMS)
PLAINTIFF CONSUMER FINANCIAL PROTECTION BUREAU’S
CONSOLIDATED RESPONSE TO MOTIONS TO INTERVENE
Plaintiff Consumer Financial Protection Bureau (“Bureau”)
hereby responds to the motions to intervene filed by Ambac Assurance
Corporation (“Ambac”) (D.I. 4); Transworld Systems Inc. (“TSI”) (D.I. 9);
Objecting Noteholders (D.I. 11); GSS Data Services, Inc. (“GSS”) (D.I. 12); the
Pennsylvania Higher Education Assistance Agency d/b/a American Education
Services (“PHEAA”) (D.I. 20); Wilmington Trust Company (“WTC”) (D.I. 31); U.S.
Bank National Association (“U.S. Bank”) in its capacity as Successor Special
Servicer (D.I. 33 & 34); and U.S. Bank in its capacity as Indenture Trustee
(D.I. 35 & 36).
INTRODUCTION
The Consumer Financial Protection Bureau is a federal agency
charged with protecting consumers by enforcing Federal consumer financial laws.
Over the course of multiple years, the Bureau conducted an investigation into
fifteen (15) Delaware statutory trusts known as the
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National Collegiate Student Loan Trusts (“NCSLTs” or “the
Trusts”),
1 which own private student loans and hire third parties to
service those loans. The Bureau’s investigation developed extensive evidence
that the Trusts, acting through certain of their servicers, engaged in a
variety of illegal debt collection and litigation practices—practices which
caused substantial harm to thousands of consumers and unjustly enriched the
Trusts. After arms-length negotiations, the Bureau and the Trusts agreed to the
Proposed Consent Judgment that was filed with this Court on September 18, 2017.
See D.I. 3-1 (“Proposed Consent Judgment” or “PCJ”). The Proposed Consent
Judgment would, if approved, provide restitution to consumers harmed by the
Trusts’ illegal practices in debt collection lawsuits, and comprehensive
injunctive relief to prevent future harm. Of significance to the hundreds of
thousands of consumers with student loans acquired by the Trusts, the Proposed
Consent Judgment would require the Trusts to conduct an independent audit to
address serious questions raised by the Bureau’s investigation about whether
the Trusts possess documentation showing that consumers actually owe debts to
the Trusts.
Seven entities now seek to intervene in this action for the
purpose of opposing the Proposed Consent Judgment. None of the would-be
intervenors dispute the violations alleged in the Complaint. Nor do they
dispute that those violations caused harm to thousands of consumers. Nor do
they claim to be owners of the Trusts, or to have the power to settle
litigation on the Trusts’ behalf. Instead, the intervenors rely on various
trust-related agreements, and ongoing litigation between them and the Trusts to
present a litany of purported obstacles to the Trusts’ ability to enter into a
settlement with the Bureau to reform the Trusts’ servicing practices and
prevent future harm to consumers. There is no need for the Court to wade into
the labyrinth of
1 The NCSLTs include the National Collegiate Master Student
Loan Trust, NCSLT 2003-1, NCSLT 2004-1, NCSLT 2004-2, NCSLT 2005-1, NCSLT
2005-2, NCSLT 2005-3, NCSLT 2006-1, NCSLT 2006-2, NCSLT 2006-3, NCSLT 2006-4,
NCSLT 2007-1, NCSLT 2007-2, NCSLT 2007-3, and NCSLT 2007-4.
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trust-related agreements to determine whether to enter the
Proposed Consent Judgment. Moreover, to the extent the intervenors have
disputes with the Trusts, including with the determination of the Trusts’
owners to enter into a negotiated settlement with the Bureau, those disputes should
be resolved through private litigation and not intertwined with the Bureau’s
efforts to protect consumers.
No movant has articulated a valid reason for why the Bureau
should not be able to obtain the relief contained in the Proposed Consent
Judgment on behalf of consumers. Nonetheless, the Bureau does not oppose the
motions to intervene filed by Ambac, the insurer for some of noteholders as
well as an investor, and U.S. Bank in its capacity as Indenture Trustee and as
Successor Special Servicer. The Bureau respectfully requests that the Court
deny the motions to intervene filed by TSI, PHEAA, GSS, the Objecting
Noteholders, and WTC, because they have failed to meet their burden for
intervention under Rule 24(a)(2), or 24(b) of the Federal Rules of Civil Procedure.
To the extent the Court permits any entities to intervene it should be for the
limited purpose of objecting to the Bureau’s Motion to Approve the Proposed
Consent Judgment.2
BACKGROUND
A. The Trusts
Student loan debt is the second largest category of consumer
debt in the United States, just behind mortgages.3 More than 44 million
consumers across the country collectively owe
2 Consistent with the stipulated order extending the
Bureau’s time to respond to the various intervention motions, see D.I. 46 at
2-3, this response only addresses the pending motions to intervene, and does
not address movants’ objections to the Proposed Consent Judgment. The Bureau
requests that the Court set a schedule for briefing the Bureau’s motion for
approval of the Proposed Consent Judgment once the Court has resolved the
intervention motions.
3 Federal Reserve Bank of New York, Household Debt and
Credit Report: Q2 2017 (2017), https://www.newyorkfed.org/microeconomics/hhdc.
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over $1.4 trillion in student loan debt.
4 The student loans at issue in this matter are private
student loans purchased by the Trusts. This section provides a brief history of
the Trusts and their relationship with various third parties to provide
background as to how the Trusts operate and how the collections lawsuits at
issue came to be filed.
The Trusts are Delaware statutory trusts that were formed
between 2001 and 2007. Compl. ¶¶ 9, 11; see also 12 Del. Code § 3801, et seq.5
They were formed for the purpose of acquiring private student loans, collecting
payments from the student borrowers who entered into those loans, and then
distributing those payments to the holders of notes sold to investors pursuant
to certain agreements. Compl. ¶ 10. Under the Trust agreements, the Owners are
those entities that acquire a beneficial interest in the Trusts. Significantly,
the beneficial interest includes not only an equity interest in the Trusts, but
also the “right to direct or consent to the actions of the Owner Trustee and
otherwise participate in the management of and control the affairs of the
Trust.” D.I. 13-1, Butcher Decl. Ex. A § 1.01 (Trust Agreement for National
Collegiate Student Loan Trust 2006-4 (“Trust Agreement”)). The Trusts have no
employees, and instead conduct their operations through various third parties.
Compl. ¶¶ 12, 15.
Those third parties have various roles, which are set out in
a series of agreements. The Owner Trustee, a position currently held by movant
WTC,6 has certain ministerial obligations, such as executing documents. For non-ministerial
matters, the Owner Trustee generally must
4 Consumer Financial Protection Bureau, Prepared Remarks of
Seth Frotman at 1 (March 22, 2017)
http://files.consumerfinance.gov/f/documents/201703_cfpb_Frotman-Testimony-CA-Senate-Banking-Committee.pdf.
5 A June 2015 Report issued by the Bureau on complaints
regarding the servicing of private student loans included a simple graphical
depiction of the structure of one of the National Collegiate Student Loan
Trusts at the time. See Consumer Financial Protection Bureau, Mid-Year Update
on Student Loan Complaints 13-14 (2015),
http://files.consumerfinance.gov/f/201506_cfpb_mid-year-update-on-student-loan-complaints.pdf.
6 Wilmington Trust Company is seeking to resign its role as
the Owner Trustee in an action pending in the Delaware Court of Chancery.
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follow the directions of the Trusts’ Owners. See infra
Section V. The Administrator, a position held by movant GSS, performs various
ministerial functions for the Trusts delineated in the Administration
Agreement. See infra Section IV. The Indenture Trustee, one of the roles played
by movant U.S. Bank, is responsible under indenture agreements for preserving
the assets of the Trusts, including the payments obtained from student
borrowers, for the benefit of the investors. Those investors include movants
Ambac and the Objecting Noteholders; Ambac also serves as an insurer for
certain of the Trusts.
The Trusts disperse responsibility for servicing and
collecting on student loans across another group of third parties, who act as
the Trusts’ agents. The role of the Primary Servicer, a position held by movant
PHEAA, principally involves servicing and collection activities for student loans
that are either current or no more than thirty days delinquent. See infra
Section III. The Special Servicer, a position originally held by an affiliate
of First Marblehead Corporation (“First Marblehead”), is responsible for
collection activities for past-due and defaulted student loans, including
collections litigation, pursuant to Special Servicing Agreements. In 2012,
movant U.S. Bank assumed the role of Successor Special Servicer upon First
Marblehead’s resignation. U.S. Bank, in turn, entered into Special
Sub-Servicing Agreements with Subservicers, which were responsible for
conducting collections, and if those efforts were unsuccessful, overseeing
various law firms that file collection lawsuits against borrowers in the name
of the Trusts. Movant TSI has been a Subservicer of the Trusts since November
1, 2014. Compl. ¶ 16; see also infra Section II.
This dispersion of servicing responsibility across a
shifting group of agents and sub-agents of the Trusts created predictable risks
for consumers, including the risk that collections Case 1:17-cv-01323-GMS
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lawsuits would be filed without proper ownership records.
7
B. The Bureau’s Investigation and Complaint
The Bureau’s investigation of the Trusts focused on
collections lawsuits filed on behalf of the Trusts since 2012 against borrowers
who allegedly had defaulted on their student loans. As alleged in the
Complaint, the Bureau found that the Trusts, acting through certain of their
servicers, engaged in several deceptive and unfair acts or practices in
violation of the Consumer Financial Protection Act. Those practices included:
the filing of false and misleading affidavits, see Compl. ¶¶ 24-42; the filing
of improperly notarized affidavits, see id. ¶¶ 43-51; the filing of collections
lawsuits against consumers even where the Trusts lacked documents necessary to
prove that a debt was owed to the Trusts, see id. ¶¶ 52-57; and the filing of
collections lawsuits outside the applicable statutes of limitations, see id. ¶
58. These illegal practices caused substantial injury to thousands of
consumers, and resulted in the unjust enrichment of the Trusts. See id. ¶ 94.
Since the Trusts have no employees, in May 2016, the Bureau
contacted WTC inquiring whether the Trusts had counsel so the Bureau could
schedule a call to inform the Trusts of the potential legal violations it had
uncovered through its investigation. The Bureau was informed by WTC that the
law firm Chaitman LLP was counsel to the Trusts. WTC had hired Chaitman LLP as
counsel to coordinate representation for the Trusts in various lawsuits, and
Chaitman then brought on the law firm McCarter & English to represent the
Trusts in the Bureau’s investigation. WTC then notified the Bureau that an
attorney from McCarter & English would be representing the Trusts and would
participate in the call to discuss potential violations by the Trusts. After
the call, McCarter & English submitted a written response on behalf of the
Trusts.
7 See Stacey Cowen and Jessica Silver-Greenberg, As
Paperwork Goes Missing, Private Student Loan Debts May be Wiped Away, N.Y.
Times (July 17, 2017),
https://www.nytimes.com/2017/07/17/business/dealbook/student-loan-debt-collection.html.
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The Bureau then engaged in settlement negotiations with the
Trusts through counsel, McCarter & English. The Bureau was cognizant of
ongoing litigation regarding ownership of the Trusts. However, the Trust
Agreements explicitly give the Owners the authority to “compromise any claim or
lawsuit brought by or against the Trust,” with an exception for collection
lawsuits, see D.I. 13-1, Trust Agreement § 4.01(b)(i), and the Trusts provided
the Bureau with a legal opinion regarding the authority of the Owners to enter
into a settlement on behalf of the Trusts.
C. The Proposed Consent Judgment
The Proposed Consent Judgment, filed at the same time as the
Complaint, would provide redress to harmed consumers and injunctive relief to
ensure that the Trusts’ violations do not continue. During the course of its
investigation, the Bureau identified more than 2000 lawsuits filed by the
Trusts without paperwork demonstrating that that Trusts owned the subject
loans, and more than 400 lawsuits filed by the Trust past the applicable
statutes of limitations periods. PCJ ¶¶ 36, 37; Compl. ¶¶ 3, 58. Consumers
subjected to these lawsuits will receive redress under the Proposed Consent
Judgment. PCJ ¶¶ 34-37.
Moreover, in recognition that only a fraction of the
consumers harmed by the Trusts’ servicing practices may have been uncovered
during the Bureau’s investigation, the Proposed Consent Judgment requires the
Trusts to conduct an independent audit to determine, among other things,
whether the Trusts possess sufficient loan documentation, including signed
promissory notes and complete chain of assignment documentation “to support the
claim that a Debt is currently owed to a Trust.” PCJ ¶ 19. The audit will also
determine whether additional lawsuits were filed without documentation or past
the applicable statute of limitation. Id. One purpose of requiring the audit is
to identify additional consumers who should receive redress. Another is to
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prevent lawsuits from being filed in the future without
adequate documentation by requiring the Trusts to determine what documentation
they have for each loan before filing.
The Proposed Consent Judgment also provides additional
protections for consumers. It would require the Trusts to develop a
comprehensive compliance plan, see PCJ ¶¶ 28-30, and would require that a Board
ensure that the Trusts and their servicers comply with Federal consumer
financial law and the terms of the Proposed Consent Judgment, id. ¶¶ 31-33. The
Proposed Consent Judgment would also require the Trusts to suspend all
collection on defaulted debt “pending approval and implementation” of the
compliance plan. PCJ ¶ 16. The injunctive provisions of the Proposed Consent
judgment will protect consumers from ongoing and future harm resulting from the
illegal litigation practices alleged in the compliant. This brief description
of the relief contained in the Proposed Consent Judgment illustrates some of
the significant consequences to consumers if prolonged litigation delays entry
of the Proposed Consent Judgment.
ARGUMENT
I. LEGAL STANDARD
While in many cases “the disposition of the action will have
some impact on the interests of third parties,” Harris v. Pernsley, 820 F.2d
592, 596 (3d Cir. 1987), it is well-established that not all parties who may be
affected by a litigation are entitled to intervene. Under Federal Rule of Civil
Procedure 24(a)(2), a non-party seeking to intervene as of right has the burden
to show that “‘(1) the application for intervention is timely; (2) the
applicant has a sufficient interest in the litigation; (3) the interest may be
affected or impaired, as a practical matter by the disposition of the action;
and (4) the interest is not adequately represented by an existing party in the
litigation.’” United States v. Territory of Virgin Islands, 748 F.3d 514, 519
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(quoting Harris, 820 F.2d at 596). A potential intervenor
must satisfy each of these four requirements. See id.
Many of the pending motions to intervene hinge on the second
and third requirements, both of which are demanding. To satisfy the second
requirement, a would-be intervenor “must demonstrate that there is a tangible
threat to a legally cognizable interest.” Harris, 820 F.2d at 601. An interest
that is “general and indefinite” will not suffice. Liberty Mut. Ins. Co. v.
Treesdale, Inc., 419 F.3d 216, 220 (3d Cir. 2005) (internal citation omitted).
Nor will an interest that is “remote or attenuated.” Kleissler v. U.S. Forest
Service, 157 F.3d 964, 972 (3d Cir. 1998). Further, “a mere economic interest
in the outcome of the litigation is insufficient to support a motion to
intervene.” Mountain Top Condo. Ass’n v. Dave Stabbert Master Builder, Inc., 72
F.3d 361, 366 (3d Cir. 1995).
Even where a non-party has a legally sufficient interest in
the litigation, it must separately satisfy the third Rule 24(a)(2) requirement
by showing that that interest “will be directly affected in a substantially
concrete fashion by the relief sought.” Kleissler, 157 F.3d at 972. Thus, a motion
to intervene should be denied where the litigation “will not have an immediate,
adverse effect” on the potential intervenor, and instead will have only a
“collateral and … speculative” impact. Treesdale, 419 F.3d at 225; see also
Harris, 820 F.2d at 601 (would-be intervenor “must do more than show that his
or her interests may be affected in some incidental manner”).
Where a non-party fails to satisfy the requirements for
intervening as of right, Federal Rule of Civil Procedure 24(b) allows for
permissive intervention—but only under limited circumstances. As relevant here,
a would-be intervenor must demonstrate that it “has a claim or defense that
shares with the main action a common question of law or fact.” Fed. R. Civ. P.
24(b)(1)(B). The decision whether to allow permissive intervention is
discretionary, and in
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“exercising its discretion, the court must consider whether
the intervention will unduly delay or prejudice the adjudication of the
original parties’ rights.” Fed. R. Civ. P. 24(b)(3).
8
II. THE MOTION TO INTERVENE FILED BY TSI SHOULD BE DENIED
The Court should deny TSI’s motion to intervene. See D.I. 9.
TSI was responsible for overseeing a network of law firms that filed collection
lawsuits on behalf of the Trusts. On the same day the Bureau filed the
Complaint and Proposed Consent Judgment with this Court, the Bureau entered
into an administrative Consent Order with TSI (Consent Order) after a lengthy
investigation into its conduct and extensive settlement negotiations. See Pl.
Ex. A (Consent Order).9 TSI argues that it is entitled to intervene on the
grounds (1) that the Proposed Consent Judgment will “conflict” with the Consent
Order, and (2) that it has a “substantial economic interest in the matter.”
D.I. 9 at 4-6, 10. Neither argument has merit.10
A. TSI Cannot Intervene Based on the Purported Conflict
Between the Proposed Consent Judgment and the Administrative Consent Order
TSI argues that it has a right to intervene in this matter
because the Proposed Consent Judgment and the Consent Order “contemplate
different supervisory and reporting structures and … the implementation of
different policies, procedures, and relief.” D.I. 9 at 6. That is incorrect.
8 TSI, PHEAA, and WTC have not moved to intervene under Rule
24(b) in their motions, see generally D.I. 9, 20, 31, and may not do so for the
first time in their reply briefs, see D. Del. L.R. 7.1.3(c)(2).
9 Exhibits cited herein as “Pl. Ex.” are attached to the Declaration
of Carolyn Hahn, filed herewith.
10 TSI also claims that the Court lacks subject matter
jurisdiction because the Trusts are not “covered persons” under the Consumer
Financial Protection Act (CFPA). See D.I. 9 at 6-7. TSI’s assertion is simply
erroneous and contrary to the plain language of the CFPA. The Trusts engaged in
both “servicing loans, including acquiring, purchasing, selling [or] brokering”
and in collecting debt; they are therefore “covered persons.” 12 U.S.C. §
5481(15)(A)(i), (x). TSI suggests that the Trusts are exempt from these
provisions because they have no employees and hire third parties, but there is
no basis for such an exemption in the language of the CFPA. Nor does TSI
dispute that the Trusts engage in “acquiring” student loans. See Compl. ¶ 10
(alleging that the “basic purpose of each Trust is to acquire a pool of private
student loans”).
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The alleged “conflicts” between the two agreements that TSI
asserts are illusory and cannot provide a basis for intervention in this
matter.
First, TSI wrongly claims that there is a conflict between
the reporting structure established by its Consent Order and by the Proposed
Consent Judgment. It is true, as TSI notes, that its Consent Order requires it
to interact with and provide information to U.S. Bank as Successor Special
Servicer. D.I. 9 at 3-4. However, it is not the case that the Proposed Consent
Judgment “[c]ontemplates that the Trusts – and not the successor special
servicer – will interact with the Trusts’ servicers, including TSI, to
implement the injunctive relief.” Id. at 5. As TSI acknowledges, the Trusts
have no employees. Id. Indeed, the Proposed Consent Judgment’s injunctive
provisions take the existing loan servicing structure into account,11 including
U.S. Bank’s role as the successor Special Servicer, in requiring injunctive
relief. The Proposed Consent Judgment specifically states that “Defendants
shall take all actions necessary to comply with the terms of the Order,
including but not limited to ensuring that all of Defendants’ Servicers acting
as Defendants’ agents comply with the terms of the Order.” PCJ ¶ 9(a) (emphasis
added). TSI’s obligations to interact with, cooperate with, and provide information
to U.S. Bank pursuant to the Bureau’s Consent Order is not disturbed by the
Proposed Consent Judgment, and no conflicting requirement to interact with the
Trusts has been added.
Further, there is no conflict in the reporting structure
between the Proposed Consent Judgment and the Consent Order with respect to
pending and concluded lawsuits where misleading affidavits were filed. The
Proposed Consent Judgment requires that: “Defendants must instruct their
attorneys, Defendants’ Servicers, and their agents to either withdraw the
11 “Servicer” in the Proposed Consent Judgment is defined as
“any Servicer, Primary Servicer, Subservicer, Special Servicer, Administrator,
and any other individual or entity acting on behalf of Defendants with respect
to the Servicing of the student loans owned by Defendants, whether retained
directly by Defendants or retained by an individual or entity acting on behalf
of Defendants.” PCJ ¶ 7(q).
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pending Collections Lawsuit or notify the Court [that it is
withdrawing the affidavit pursuant to an agreement between the Bureau and the
Trusts]” and for concluded lawsuits “instruct their attorneys, Defendants’
Servicers, and their agents to cease post-judgment enforcement activities . . .
” PCJ ¶¶ 14, 15. In accordance with the existing structure, the Trusts would
instruct U.S. Bank as the Special Servicer responsible for default serving to
take the necessary steps, including authorizing TSI to withdraw misleading
affidavits and to cease post judgment enforcement activities, as required to
implement the injunctive relief in the Proposed Consent Judgment. Thus, nothing
in the Proposed Consent Judgment contemplates, let alone requires, that TSI
interact with the Trusts. Rather, consistent with the Consent Order, TSI is
obligated to work with U.S. Bank as the Successor Special Servicer to implement
the injunctive relief required by the Proposed Consent Judgment.
Second, comparison of the affidavit provisions in the
Consent Order and Proposed Consent Judgment demonstrates that TSI’s bald
assertion that the Proposed Consent Judgment “[c]ontemplates different
affidavit-related policies and procedures than those in the TSI Consent Order”
is erroneous. D.I. 9 at 5. Indeed, the conduct provisions related to affidavits
contained in the Consent Order and Proposed Consent Judgment are virtually
identical. Compare Consent Order ¶ 45(l) with PCJ ¶ 9(f). Similarly, the
Compliance Plan provisions of the Consent Order and the Proposed Consent
Judgment related to affidavits closely track one another. Compare Consent Order
¶ 52(c)-(e) with PCJ ¶ 28(c)(iii-v).
Third, TSI’s claim that its interests may be impaired “if it
submits its own Compliance Plan . . . but the Trusts submit a conflicting or
more onerous Compliance plan that affects the exact same activities” rests
entirely on speculation. D.I. 9 at 10. TSI hasn’t identified any actual
conflict between the plans. Nor has it identified any potential conflict.
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conclusory allegations that a conflict could hypothetically
exist. Moreover, TSI’s hypothetical concern about potentially conflicting
compliance plans fails to take into account that the Bureau must approve both
TSI’s and the Trusts’ Compliance Plans. See Consent Order ¶¶ 52-54; PCJ ¶¶
28-30. To ensure the expeditious implementation of the relief contained in both
agreements for the benefit of consumers, the Bureau has every incentive to
ensure that TSI is not subject to conflicting obligations.
12 TSI cannot establish a right to intervene based on such a
speculative concern about a purely hypothetical conflict between the two
compliance plans. See Treesdale, 419 F.3d at 225 (litigation must have “an
immediate, adverse effect” on an intervenor, rather than a “speculative”
impact, to support intervention under Rule 24(a)(2)).
Therefore, TSI has not satisfied its burden under Rule
24(a)(2) to demonstrate that it has a sufficient interest that would be
impaired by entry of the Proposed Consent Judgment based on alleged conflicts
between the Consent Order and the Proposed Judgment.
B. TSI Does Not Have a Sufficient Economic Interest That
Will be Impaired
TSI also asserts that it will suffer “substantial financial
loss” because the Proposed Consent Judgment requires the Trusts to stop
transferring debt to the Special Servicer (and presumably TSI) and to suspend
all collections efforts until a compliance plan is approved and implemented.
D.I. 9 at 10. TSI does not explain or quantify the financial loss it would
suffer as a result of this Court entering the Proposed Consent Judgment. It is
unclear whether TSI is even referring to some potential loss of fees, or
payments it receives resulting from its work overseeing law firms that file
collection lawsuits on behalf of the Trusts. Thus, TSI’s assertion
12 TSI’s reliance on EEOC v. AT&T, 506 F.2d. 735 (3d
Cir. 1974), is misplaced. In that case a union sought to intervene because
provisions of its collective bargaining agreement with the defendants in that
case “may well be modified or invalidated by the memorandum of agreement and
consent decree.” Id. at 742. Here TSI is not claiming that the Proposed Consent
Judgment conflicts with any agreement it has with the Trusts because it has no
contractual agreement with the Trusts. Rather it relies on the theoretical
possibility that there might be conflicts between the Consent Order and the
Proposed Consent Judgment.
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that it would suffer a “substantial financial loss” is at
best speculative. Kleissler, 157 F.3d at 976 (Becker, C.J., concurring)
(stating that a court must examine whether “the litigation pose[s] a “’tangible
threat’” to the applicant or simply a speculative one”).
Moreover, even assuming arguendo that TSI may incur a loss
of revenue should the Court enter the Proposed Judgment, that “mere economic
interest” does not support intervention as of right under Federal Rule of Civil
Procedure 24(a)(2). Mountain Top, 72 F.3d at 366; see also United States v.
Allegheny Cty. Sanitary Auth., Civ. A. No. 07-0737, 2008 WL 203378 at *3 (W.D.
Pa. Jan. 24, 2008) (denying intervention as of right where “petitioners’
interest in this action is purely an economic one”). The loss of revenue or
assumption of additional expenses by a nonparty are mere economic interests
insufficient to support intervention as of right. See, e.g., Curry v. Regents
of Minnesota, 167 F.3d 420, 423 (8th Cir. 1999) (potential intervenor’s
economic interest in “maintaining the quantum of their funding” and “upholding
the current fee system” did not “rise to the level of a legally protectable
interest necessary for mandatory intervention”); Se. Pa. Transp. Auth. v. Pa.
Pub. Util. Comm’n, 210 F. Supp. 2d 689, 704 (E.D. Pa. 2002) (denying
intervention where potential intervenor claimed that enforcement of a judgment
would require it to pay higher assessments). Thus, TSI has not shown it has a
sufficient interest based on a potential loss of revenue resulting from entry
of the Proposed Consent Judgment, and its motion under Rule 24(a)(2) should be
denied.13
13 Although this Court has not granted (and should not
grant) TSI’s intervention motion, TSI nevertheless proceeds in its motion to
argue the merits regarding entry of the Proposed Consent Judgment. D.I. 9 at
11-14. The Bureau is fully prepared to refute TSI’s arguments and all other
arguments concerning entry of the Proposed Consent Judgment once the Court
resolves the pending intervention motions.
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III. THE MOTION TO INTERVENE FILED BY PHEAA SHOULD BE DENIED
The Court should also deny PHEAA’s motion to intervene. See
D.I. 20. PHEAA’s role with respect to the Trusts is limited: it serves as the
“Primary Servicer,” which principally involves servicing and collection
activities for student loans that are either current or no more than thirty
days delinquent. See D.I. 20 at 3. When loans are delinquent for more than
thirty days, they are transferred to other agents of the Trusts for additional
collection efforts. Thus, as PHEAA acknowledges, it does not file the debt
collection lawsuits that are the subject of the Bureau’s Complaint and much of
the injunctive relief contained in the Proposed Consent Judgment. Id.
Notwithstanding its tangential relationship to the subject of this lawsuit,
PHEAA seeks to intervene to protect two interests that are purportedly
threatened by the Proposed Consent Decree – its reputation and its contractual
rights. Neither of PHEAA’s asserted grounds for intervention under Rule
24(a)(2) is sufficient.
A. PHEAA Cannot Intervene Based on Its Alleged Reputational
Interest
PHEAA claims that it is entitled to intervene because the
Bureau’s Complaint and the Proposed Consent Judgment might “harm[] PHEAA’s
reputation by improperly implicating PHEAA in wrongful conduct.” D.I. 20 at 5;
see also id. at 6-7. As an initial matter, PHEAA “has cited no legal authority
to support the argument that its interest in protecting its reputation is
sufficient for intervention,” and many courts have held such an interest is not
sufficient. EEOC v. Farmer’s Pride, Inc., No. 12-MC-148, 2014 WL 1053482, at *3
(E.D. Pa. Mar. 18, 2014) (collecting cases); see also Veasey v. Perry, 577 F.
App’x 261, 263 (5th Cir. 2014) (“True the Vote claims it needs to intervene to
defend its reputation. Nothing in the caselaw, however, recognizes such an
abstractly defined interest.”). PHEAA’s attempt to intervene based upon a
purported reputational interest thus fails as a matter of law.
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Further, even if a non-party’s interest in its reputation
could in theory serve as a legally sufficient basis to intervene (which it
cannot), PHEAA has not demonstrated that this litigation poses any actual harm
to its reputation. Neither the Complaint nor the Proposed Consent Judgment ever
identify PHEAA by name – not once. See generally D.I. 1; D.I. 3-1. And the
Complaint contains only a single reference to the Primary Servicer (i.e.,
PHEAA). That reference appears in a paragraph that broadly defines “Servicers”
to include “any Servicer, Primary Servicer, Subservicer, Special Servicer,
Administrator, and any other individual or entity acting on behalf of the
Trusts with respect to the servicing and collection of the student loans owned
by the Trusts.” Compl. ¶ 13. Although the Complaint contains only that single
indirect reference to it as the Primary Servicer, PHEAA asserts that it faces
significant reputational harm from being “erroneously group[ed] … with other
entities that allegedly participated in improper conduct.” D.I. 20 at 6.
This argument rests on an inaccurate reading of the
Complaint, and on a speculative and unsupported theory of reputational harm.
Contrary to PHEAA’s suggestion, see D.I. 20 at 7 & n.3, the Complaint makes
clear that the Special Servicer and the Subservicer (not the Primary Servicer)
are the parties responsible for litigation filed on behalf of the Trusts. See
Compl. ¶¶ 21-23 (describing 2009 and 2012 agreements with the Special Servicer,
which was required to hire Subservicers); id. at ¶ 24 (“Subservicers, acting
through Defendants’ Special Servicer … initiated 94,046 collections lawsuits”).
In any event, it is unduly speculative to suppose that a single reference to
the “Primary Servicer” in the Complaint could (1) lead to the incorrect
identification of PHEAA as an entity responsible for filing collection lawsuits
and (2) thereby cause any meaningful harm to PHEAA’s reputation. PHEAA has
presented no actual evidence of such harm, and its motion should therefore be
denied. See Floyd v. City of New York, 770 F.3d
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33 PageID #: 594
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1051, 1061 (2d Cir. 2014) (affirming denial of police
unions’ motion to intervene in civil rights lawsuit where “unions had submitted
no evidence to substantiate their claims of reputational harm”).
B. PHEAA Cannot Intervene Based on the Alleged Impairment of
its Contractual Rights
PHEAA also claims that it is entitled to intervene “to
protect its contractual rights” under the September 28, 2006 Amended and
Restated Private Student Loan Servicing Agreement (the “Servicing Agreement”)
that sets forth its duties and obligations as the Primary Servicer. D.I. 20 at
8. As noted above, PHEAA has at best only a tangential relationship to the main
subject of this lawsuit. As the Primary Servicer, PHEAA had no responsibility
for filing (or overseeing law firms that file) the collections lawsuits that
are the focus of the Bureau’s Complaint. Id. at 3. Most of the injunctive provisions
of the Proposed Consent Judgment impose obligations on the Trusts relating to
those collections lawsuits. See, e.g., PCJ ¶¶ 9(c)-(f), 11, 14, 15. Only a few
provisions in the Proposed Consent Judgment relate to PHEAA as the Primary
Servicer. Those provisions neither “reform the terms of the Servicing
Agreement” nor impose “new, onerous, and extremely expensive obligations” on
PHEAA. D.I. 20 at 8. PHEAA’s arguments to the contrary rest on
mischaracterizations of both the Proposed Consent Judgment and its own
Servicing Agreement.
For example, PHEAA complains that it will have to submit to
an independent audit of students’ loans and suggests that that obligation is
not included in the Servicing Agreement. D.I. 20 at 5-6 (citing PCJ ¶ 19).
However, the Proposed Consent Judgment requires the Trusts—not the Primary
Servicer—to hire and pay the auditors who will conduct the compliance audit.
See PCJ ¶ 19. And the Servicing Agreement (which PHEAA does not attach to its
motion) expressly contemplates such an audit. Specifically, Section 7.01 of the
Servicing Agreement grants First
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Marblehead (the predecessor to the current Owners), its
agents, and any federal governmental officials with regulatory authority over
FMC:
the absolute right, at FMC’s expense … at any time during
the term hereof:
(i) to audit or examine all books, records, documents, other
writings, information, whether in hard copies, electronic form or otherwise,
relating to Services to be provided by Servicer [i.e., PHEAA] under this
Agreement at the location(s) where Servicer maintains such books, records,
documents writings and information….
Pl. Ex. B § 7.01 (Servicing Agreement); see also id. § 7.04
(requiring PHEAA to provide access to its personnel, facilities, and records
for operational audits to evaluate its performance); id. § 7.09 (requiring
PHEAA to “fully cooperate” with audits conducted by FMC). PHEAA cannot credibly
argue that the Bureau’s settlement with the Trusts involves a compliance audit
that it “did not bargain for” (D.I. 20 at 8) when its own contract gives the
Trusts the absolute right to conduct such an audit.
Other provisions in the Proposed Consent Judgment are
consistent with the Servicing Agreement or at most incidentally affect PHEAA as
part of remedying the Trusts’ practices relating to collections lawsuits. For
example:
• Paragraph 16(1) requires the Trusts to direct the Primary
Servicer to temporarily cease transferring student loans to the Special
Servicer and any Subservicer. PHEAA does not identify any provision of the
Servicing Agreement that conflicts with this requirement or identify any actual
burden that ceasing such transfers poses. See D.I. 20 at 5-6.
• Paragraph 16(4) requires the Trusts to direct the “Primary
Servicer to instruct the Special Servicer and all Subservicers” to return
certain loans to the Primary Servicer’s possession “that are completed and the
subject of each monthly Compliance Audit Report” required under the Compliance
Audit section of the Proposed Consent Judgment. PHEAA does not identify any
provision of the Servicing Agreement that conflicts with this requirement or
any actual burden this provision would pose. See D.I. 20 at 5-6. Indeed, this
requirement is consistent with the Servicing Agreement’s requirement that PHEAA
maintain custody of credit agreements and related documents. See Pl. Ex. B at §
4.04.
• Paragraph 17(1) requires that payments from consumers be
placed in an escrow account. PHEAA already transfers money that it receives
from consumers to other agents of the Trusts. Under the Proposed Consent
Judgment, PHEAA would merely be required to
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19
temporarily redirect those funds into a new account
designated by the Trusts in order to provide the relief contemplated.
• Paragraph 28 requires the Trusts to develop a compliance
plan designed to ensure that the Trusts and its servicers comply with
applicable Federal consumer financial laws and the terms of the Proposed
Consent Judgment. While PHEAA implies that the compliance plan was not
contemplated by the Servicing Agreement, D.I. 20 at 6, that agreement requires
PHEAA to conduct servicing “in full compliance with … all federal and state
laws and regulations” applicable to PHEAA or to any Owner of the Trusts, Pl.
Ex. B at § 4.01. Further, while PHEAA speculates that the compliance plan will
be “onerous,” D.I. 20 at 6, the Trusts (not PHEAA) are responsible for
developing the compliance plan and most of the contemplated contents of the
plan relate to collections lawsuits (which are filed by other agents of the
Trusts, not PHEAA). See PCJ ¶ 28(c)(iii)-(vi).
As these examples illustrate, none of PHEAA’s conclusory
allegations about the allegedly “massive” obligations imposed upon it hold up
upon inspection of the Proposed Consent Judgment and the Servicing Agreement.
D.I. 20 at 5. Similarly, there is no basis for PHEAA’s suggestion that the
Proposed Consent Judgment attempts to “reform” the Servicing Agreement or
interferes with PHEAA’s contractual rights. Id. at 2.14 PHEAA’s allegations
therefore should be disregarded. See Floyd v. City of New York, 302 F.R.D. 69,
110 (S.D.N.Y. 2014), aff’d in relevant part, 770 F.3d 1051 (“[C]onclusory
allegations ... do not entitle [a movant] to intervention as of right under
Rule 24.” (citation omitted)).
Indeed, it is telling that while PHEAA claims that it needs
to “protect its contractual rights,” D.I. 20 at 8, its motion does not cite any
provision of the Servicing Agreement or even attach that agreement. In similar
circumstances, courts have not hesitated to deny motions to intervene. See
Sheppard v. Phoenix, No. 91 Civ. 4148(RPP), 1998 WL 397846, at *5 (S.D.N.Y.
July 16, 1998) (denying intervention where movants, who alleged that their
collective bargaining rights were harmed, “neither refer to any specific
provision of their labor contract with the City
14 Nor is there any legal basis for PHEAA’s suggestion that
approval of the Proposed Consent Judgment—which seeks to remedy violations of
Federal consumer financial law—should hinge on whether the Bureau and the
Trusts satisfy the Delaware state law standards for reformation of a written
agreement. See D.I. 20 at 8-9.
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nor attach a copy of the contract, or any portions of it, to
their papers”). This Court can and should do the same.
Ultimately, PHEAA’s various arguments about its reputation
and the Servicing Agreement at most suggest that its “interests may be affected
in some incidental manner” by implementation of the Proposed Consent Judgment,
Harris, 820 F.2d at 601, including its “mere economic interest” as the Trusts’
Primary Servicer, Mountain Top, 72 F.3d at 366. That is simply not enough to
intervene as of right under Rule 24(a)(2), and PHEAA’s motion should be denied.
IV. THE MOTION TO INTERVENE FILED BY GSS SHOULD BE DENIED
GSS Data Services’ motion to intervene fails to identify
specific interests that the company possesses that would be affected in direct,
concrete ways by the Proposed Consent Judgment. Because the interests that GSS
asserts are, at best, “general and indefinite,” and because the asserted
impacts on these purported interests are “collateral and … speculative,” its
motion to intervene under Rule 24(a)(2) should be denied. See Treesdale, 419
F.3d at 220, 225.
GSS performs a limited role in the operation of the Trusts.
Namely, it is the Trusts’ "Administrator,” and, as the company
acknowledges in its motion, its duties and responsibilities are exclusively
defined in its contract with the Trusts. See D.I. 12 at 1, 9; D.I. 13-2,
Butcher Decl. Ex. B at § 1 (“Administration Agreement”). These duties are
primarily ministerial, and consist mostly of preparing and filing “all such
documents, reports, filings, instruments, certificates and opinions” that the
Trusts must prepare and file under its various agreements and applicable law.
See D.I. 13-2, Administration Agreement § 1(a)(i). Indeed, in the case of
non-ministerial matters—which includes the compromising of lawsuits brought
against the Trusts—GSS is explicitly forbidden from taking any action at all unless
directed by the Indenture Trustee, Owner Trustee, or Owners. See id. at §§
1(d)(i), 1(d)(i)(B). Significantly, GSS has no role in the Case
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servicing of the delinquent loans at issue, let alone the
filing of collection lawsuits. In contrast, the Complaint and the Proposed
Consent Judgment in this action primarily address the loan servicing, debt
collection, and litigation practices of the Trusts’ servicers responsible for
these activities. See, e.g., Compl. ¶¶ 2-3; PCJ ¶ 4. Any overlap between the
conduct addressed by the Proposed Consent Judgment and the duties assigned to
GSS by the Administration Agreement is minimal at best, and GSS’s motion has
not shown otherwise.
A. GSS Has Failed to Demonstrate That Any Legally Sufficient
Interest Will be Impaired
GSS argues in conclusory fashion that it has a right to
intervene because the Proposed Consent Judgment “conflicts with the Trust
Related Agreements concerning the ongoing operation of the Trusts” and because
the Trust Related Agreements “appear to be superseded” by the Proposed Consent
Judgment. See D.I. 12 at 9-10. However, the company’s motion does not identify
any contractual interest that it possesses that would be directly and
concretely affected by the Proposed Consent Judgment. See Kleissler, 157 F.3d
at 972. Rather, GSS makes categorical and unsupported assertions regarding the
effect of the Proposed Consent Judgment on control of the Trusts. See D.I. 12
at 9.
In the only case GSS has cited to support its motion, a
union sought to intervene in the entry of a consent judgment between several
federal agencies and AT&T. See D.I. 12 at 7 (citing EEOC v. AT&T, 506
F.2d 735 (3d Cir. 1974)). There, the court found that the union could intervene
because its collective bargaining agreement with the company was directly
“impaired or impeded” by the consent judgment. See AT&T, 506 F.2d at
741-42; see also EEOC v. AT&T, 365 F. Supp. 1105, 1111 (E.D. Pa. 1973)
(finding that the consent judgment made “unilateral revisions [to the union’s]
current contracts.”) Case 1:17-cv-01323-GMS Document 54 Filed 11/01/17 Page 21
of 33 PageID #: 599
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Here, by contrast, GSS does not point to a single provision
of the Proposed Consent Judgment that would directly revise or impair the
Administration Agreement or any other agreement to which GSS is a party. This
is unsurprising because the injunctive provisions in the Proposed Consent
Judgment primarily relate to the default servicing of the loans – for which GSS
has no responsibility. Similarly, the Compliance Audit required by the Proposed
Consent Judgment does not anticipate the participation of GSS. Thus, GSS
resorts to vague claims that the Proposed Consent Judgment “appears” to
supersede Trust Related Agreements, and that it “appears to vest” authority
over the Trusts with the Board. See D.I. 12 at 9-10. These vague assertions are
unsupported by any concrete explanation as to how the Proposed Consent Judgment
impacts the Administration Agreement, and therefore cannot carry GSS’s burden
under Rule 24(a)(2) to demonstrate that it has a sufficient, protectable legal
interest that would be concretely impaired by the Proposed Consent Judgment.
See Virgin Islands, 748 F.3d at 519; Treesdale, 419 F.3d at 220.
B. GSS’s Remaining Arguments Are Unpersuasive and Inaccurate
GSS also makes two additional arguments for intervention
under Rule 24(a)(2), neither of which establish that it has a right to
intervene here.
First, GSS argues that it should be permitted to intervene
because the Trusts moved in the action in the Delaware Court of Chancery to
have a notice of default entered as to GSS as administrator of the Trusts. See
D.I. 12 at 7-8. But, as GSS admits, the Court of Chancery denied this motion,
rendering it irrelevant to this motion to intervene. See id. at 8. Any
anticipated future actions by the Trusts regarding GSS are entirely
speculative. Further, the Proposed Consent Judgment contains no provisions
concerning the Administrator’s position in the Trusts’ structure (or any
provisions suggesting that the Administrator should be replaced). GSS’s concern
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Proposed Consent Judgment will result in its removal from
its position does not constitute a sufficient basis for intervention under Rule
24(a).
Second, GSS argues that the Proposed Consent Judgment
identifies the company as a “Servicer” and speculates that the definition may
create a conflict with the Administration Agreement or make the company’s
obligations “unclear.” See D.I 12. at 8-9. This hypothetical concern lacks an
actual basis in the Proposed Consent Judgment. The conduct provisions in the
Proposed Consent Judgment do obligate the Trusts to require that their
servicers, including GSS as the Administrator, agree to abide by its provisions
and refrain from taking certain actions. See PCJ ¶ 9. However, these conduct provisions
predominantly address the filing of collection lawsuits. Id. As discussed
above, GSS has no role in the default servicing of the Trusts’ student loans,
let alone in the filing of collection lawsuits. See D.I. 13-2, Administration
Agreement § 1. Therefore, GSS has not demonstrated that the Proposed Consent
Judgment’s conduct provisions relating to servicers conflict with or make
unclear any of GSS’s existing contractual obligations or duties.
Finally, GSS also moves in the alternative for permissive
intervention under Rule 24(b)(1)(B). See D.I. 12 at 6-7. That request should be
denied. GSS’s presence in this lawsuit—given its largely ministerial role and
its lack of involvement in the Trusts’ collections suits—will add little, and
risks unduly delaying these proceedings. See Fed. R. Civ. P. 24(b)(3). Further,
its motion makes no claims or arguments in support of permissive intervention.
Anspach ex rel. Anspach v. City of Philadelphia, Dep't of Pub. Health, 503 F.3d
256, 258 n.1 (3d Cir. 2007) (“[F]ailure to raise an argument in one's opening
brief waives it.” (citation omitted)).
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V. THE MOTION TO INTERVENE FILED BY WILMINGTON TRUST COMPANY
SHOULD BE DENIED
The Court should deny WTC’s motion for intervention. As the
company acknowledges in its motion, WTC plays a limited, non-discretionary role
in the Trusts’ operations. See D.I. 31 at 2.15 Its responsibilities are
delineated in the Trust Agreements, and consist principally of ministerial
duties such as executing and signing trust documents and tax returns. See D.I.
13-1, Trust Agreement §§ 8.02, 8.05, 8.07. As WTC also acknowledges, it can be
directed by the Owners or, in some cases, the Administrator. D.I. 31 at 2. In
the event that WTC takes or refrains from taking any action at the direction or
instruction of the Owners, it is protected from personal liability for that
action or restraint and is fully indemnified by the Owners. See D.I. 13-1,
Trust Agreement §§ 8.06, 10.02. Additionally, WTC has no role in the servicing
or default servicing of the student loans at issue. WTC thus has a tangential
relationship to the Proposed Consent Judgment, which aims to end illegal debt
collection and loan servicing activities conducted on behalf of the Trusts. WTC
nonetheless argues that it is entitled to intervene as of right under Rule
24(a), but its motion fails to satisfy its burden of demonstrating that it has
a sufficient interest in this litigation and that that interest will be impaired.
A. WTC Has Not Shown That It Has a Specific Protectable
Interest in This Litigation
WTC cannot meet its burden of showing that it has a right to
intervene in this litigation because it has no specific and definite interest
in this litigation’s subject matter. See Treesdale, 419 F.3d at 220. Indeed,
WTC admits that it “does not have discretionary management or regulatory
responsibilities” in the Trusts, that it serves merely as an “accommodation
party,” and that it receives “de-minimus annual compensation” for performing
this role. See D.I. 31 at 2. In
15 The Bureau initially dealt with WTC, as it is the
designated agent for service of process for the Trusts, with respect to
procedural issues regarding service of administrative subpoenas on the Trusts.
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fact, the sole argument that WTC makes to support its claim
to a legally protectable right is the statement that it is “indisputably the
Owner Trustee of the Trusts.” See id. at 5. However, the company provides no
explanation of how its limited role in the Trusts’ structure, and nothing more,
gives it a right to intervene here. Nor does it cite to a single authority in
support of its position. Moreover, as discussed above, this litigation
addresses the loan servicing, debt collection, and litigation practices of the
Trusts’ servicers. See, e.g., Compl. ¶¶ 2-3; PCJ ¶ 4. Nothing in WTC’s motion
or the Trust Agreement shows that WTC has any meaningful connection with these
activities or servicers.
B. WTC Has Not Shown That Any Interest That It Has Will be
Concretely Affected by This Litigation
Even if WTC’s role as the current Owner Trustee provides it
with a sufficient protectable interest in this litigation (which it does not),
WTC fails to satisfy its burden to demonstrate that this interest will be
affected in an immediate and adverse way. See Treesdale, 419 F.3d at 225.
Although WTC claims that the Proposed Consent Judgment will require it to take
actions “in violation of the Trust Agreements and the Trust Related Agreements”
it neither cites to any offending provision of the Proposed Consent Judgment,
or even explains these claimed violations. D.I. 31 at 6. On the contrary, the
Trust-Related Agreements grant the Owners the right to compromise lawsuits
brought against the Trusts, and here, a Proposed Consent Judgment was
negotiated and agreed to by the Owners (with counsel appointed with the
participation of WTC) pursuant to that authority.
Elsewhere in its motion, WTC asserts that it received an
opinion from counsel advising it that the Proposed Consent Judgment would
“contravene the Trusts’ Indentures.” D.I. 31 at 3. But it does not attach or
quote this purported advice, or even explain the content of counsel’s Case
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advice.
16 WTC cannot intervene based on such conclusory assertions
that the Proposed Consent Judgment is contrary to the Trust Agreements. See
Floyd, 302 F.R.D. at 110 (noting that conclusory allegations cannot support
intervention as of right under Rule 24); Sheppard, 1998 WL 397846, at *5
(denying motion to intervene where union claimed that a settlement was contrary
to its labor agreement but failed to cite specific provisions of the labor
agreement that would be impaired).
Moreover, as noted above, WTC is fully indemnified by the
Owners for taking or refraining to take any action at the direction of the
Owners. Thus, even assuming arguendo that the Proposed Consent Judgment does
violate the Trusts Agreements and Related Trust Agreements (which it does not),
WTC would not appear to incur any liability. See D.I. 13-1, Trust Agreement §§
8.06, 10.02. In light of this fact, and WTC’s failure to put forth more than
conclusory assertions about the consequences of the Proposed Consent Judgment,
it has not even identified how its interests might be affected, let alone
demonstrated that they will be.
VI. THE MOTION TO INTERVENE FILED BY THE OBJECTING
NOTEHOLDERS SHOULD BE DENIED
A. The Objecting Noteholders and U.S. Bank as Indenture
Trustee Seek to Intervene to Protect the Same Interest
In the event the Court grants U.S. Bank’s motion to
intervene in its capacity as Indenture Trustee (which the Bureau does not
oppose), the Court should deny the motion to intervene filed by the Objecting
Noteholders, whose interests will be adequately represented by U.S. Bank. See
16 WTC and some of the other intervenors appear prepared to
argue that the Trusts cannot be ordered to pay penalties, or even to return
amounts collected unlawfully from consumers whose loans the Trusts cannot
demonstrate they own. In essence, they are arguing that—although the Trusts
profit directly from the unlawful collections—they cannot be held liable
because of the securitization contracts.
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Virgin Islands, 748 F.3d at 519 (denying motion to intervene
where movant’s interests were adequately represented).
Various entities that own approximately $1.4 billion in
notes issued by the Trusts (Objecting Noteholders) filed a motion to intervene
for the limited purpose of opposing the Proposed Consent Judgment. D.I. 11 at
1. The Objecting Noteholders seek to intervene based on their possession of
notes issued by the Trusts. See id. The Objecting Noteholders claim that entry
of the Proposed Consent Judgment “would impose a substantial – and potentially
irreparable injury” because of the dilution of the Trusts’ assets that would
occur if the Trusts had to pay $19.1 million to the Bureau and implement the
required injunctive provisions. Id. at 2. It is the Trusts’ assets that back
and guarantee the payments owed to the Objecting Noteholders. Id. In addition,
the Objecting Noteholders argue that certain provisions in the Proposed Consent
Judgment (ceasing collections, establishing an escrow account for monies
collected by the Trusts, and altering the Indenture to permit a Board to
determine what if any amounts are paid to the noteholders) would “threaten to
vitiate” their rights to obtain payment of interest and principal due to them
under agreements governing the Trusts. Id. at 3. Thus, the Noteholders’ purpose
in intervening is clearly to oppose entry of the Proposed Consent Judgment in
order to protect their right to receive payments under the various Trust
agreements.
U.S. Bank’s interests are the same or substantially overlap
with the interests of the Objecting Noteholders. U.S. Bank states in its
Opening Brief supporting its motion to intervene that it “holds as trustee for
the benefit of the holders’ of the debt issued by the Trusts (the
‘Noteholders’) a perfected security interest in the student loans . . .
including payments collected by servicers and paid out as principal and
interest to the debt holders.” D.I. 36 at 1. U.S. Bank goes on to claim that
the “Proposed Consent [Judgment] imposes a lengthy moratorium on
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collection activity, which will inevitably reduce the funds
available to pay the Noteholders.” Id. at 2. In arguing that as Indenture
Trustee it has a sufficient interest in the litigation, U.S. Bank claims that
the Proposed Consent Judgment “will directly and adversely affect the security
and other contractual interests of the Noteholders, and therefore affect the
Indenture Trustee.” Id. at 8. Indeed, U.S. Bank acknowledges that it “has consulted
with Noteholders and has the authority under the Indentures to act for
Noteholders in legal proceedings, such as this matter.” Id. (emphasis added).
Therefore, U.S. Bank as Indenture Trustee is seeking to intervene in this
matter for the same purpose as the Noteholders—to oppose entry of the Proposed
Consent Judgment in order to protect the interest of Noteholders as investors
in the Trusts to receive payments under the various Trust agreements.
B. U.S. Bank as Indenture Trustee Would Adequately Represent
the Interests of the Noteholders
“Representation will be considered inadequate on any of the
following three grounds: (1) that although the applicant's interests are
similar to those of a party, they diverge sufficiently that the existing party
cannot devote proper attention to the applicant's interests; (2) that there is
collusion between the representative party and the opposing party; or (3) that
the representative party is not diligently prosecuting the suit.” Brody By and
Through Sugzdinis v. Sprang, 657 F.2d 1108, 1123 (3d Cir. 1992) (citation
omitted); Nat’l Collegiate Athletic Ass'n v. Corbett, 296 F.R.D. 342, 349 (M.D.
Pa. 2013). The Noteholders do not and cannot credibly argue that there is any
collusion between U.S. Bank and either the Bureau or the Trusts, or that U.S.
Bank would not diligently oppose entry of the Proposed Consent Judgment should
the Court grant its intervention motion as Indenture Trustee.
Thus the only possible grounds for determining that the
Noteholders’ interests are not adequately represented would be that its
interests in this litigation diverge from those of U.S.
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Bank as Indenture Trustee. However, as articulated supra, a
plain reading of the Noteholders’ Motion and U.S. Bank’s Opening Brief as
Indenture Trustee reveals that both entities are seeking to intervene in this
matter for the purpose of protecting the Noteholders’ right to receive payments
under the various Trust agreements. Where an entity seeking to intervene shares
the same or substantially overlapping interests with another party, then that
entity is adequately represented and cannot intervene under Rule 24. See
Pennsylvania Gen. Energy Co., LLC v. Grant Twp., 658 F. App’x 37, 41 (3d Cir.
2016) (“Fatal to the Appellant’s request to intervention is the substantial
overlap between their interests and those of the Township.”);
U.S. ex rel. Frank M. Sheesley Co. v. St. Paul Fire and
Marine Ins. Co., 239 F.R.D. 404, 414 (W.D. Pa. 2006) (denying intervention as
of right where intervenor “made no contention that the [Defendants’] interests
are different from its own”); In re Camden Police Cases, No. 11–1315 RBK/JS,
2012 WL 4442415 at *3 (D.N.J. Sep. 24, 2012) (denying intervention where proposed
intervenor and existing party both shared interest in maximizing insurance
coverage).
Given U.S. Bank’s representation that it has contractual
obligation to act on behalf of the noteholders, and its shared objective of
maximizing payments to the noteholders, it adequately represents the interests
of the Objecting Noteholders. Therefore, if the Court grants U.S. Bank’s motion
to intervene in its capacity as Indenture Trustee, the Objecting Noteholders’
motion to intervene should be denied.17
VII. THE COURT SHOULD LIMIT INTERVENORS’ PARTICIPATION IN
THIS LAWSUIT
To the extent the Court grants any of the pending motions to
intervene, it should limit intervenors’ participation in this lawsuit to
objecting to entry of the Proposed Consent Judgment.
17 If the Court find that U.S. Bank as Indenture Trustee
lacks a sufficient interest to intervene in this action, the Objecting
Noteholders also clearly do not have a sufficient interest.
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It is well established that intervention under Rule 24(a)(2)
“may be subject to appropriate conditions or restrictions responsive, among
other things, to the requirements of efficient conduct of the proceedings.”
Fed. R. Civ. P. 24 Adv. Comm. Notes (1966); see also Beauregard, Inc. v. Sword
Servs. L.L.C., 107 F.3d 351, 353 (5th Cir. 1997) (“[R]easonable conditions may
be imposed even upon one who intervenes as of right”). The Third Circuit has
thus recognized that it can be appropriate to limit an intervenor’s
participation to a “discrete phase[] of an action”—such as the “remedial
stage”—because an intervenor “may have a sufficient interest to intervene as to
certain issues in an action without having an interest in the litigation as a
whole.” Harris, 820 F.2d at 599.
Here, the movants generally acknowledge that their reason
for seeking to intervene is for the purpose of opposing the Proposed Consent
Judgment. See, e.g., D.I. 11 at 1 (Objecting Noteholders “move to intervene for
the limited purpose of objecting to the Proposed Consent Judgment”). None of
the movants claim to intervene for the purpose of disputing the Trusts’
liability for the debt collection misconduct alleged in the Complaint.
Accordingly, if the Court grants any of the intervention motions, it should be
for the limited purpose of presenting briefing on their positions regarding the
remedies ordered by the Proposed Consent Judgment. Such a limitation will
ensure that the presence of additional parties does not unduly delay this action—which
seeks urgently needed relief on behalf of consumers for Defendants’ ongoing
violations of Federal consumer financial law. See F.T.C. v. Mercury Mktg. of
Delaware, Inc., No. CIV.A.00-3281, 2004 WL 2110686, at *2 (E.D. Pa. Aug. 25,
2004) (allowing entities to intervene “for the limited purpose of advancing
their interest as to the appropriate remedy as it relates to all parties, on
condition that they do not attempt to delay or continue the proceedings
presently scheduled”). To further avoid such delay, the Bureau respectfully
requests that the Court set a schedule for
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briefing the Bureau’s motion for entry of the Proposed
Consent Judgment once the Court has ruled on the pending intervention motions.
CONCLUSION
For the reasons set forth above, the Court should deny the
motions to intervene filed by TSI, PHEAA, GSS, the Objecting Noteholders, and
WTC because they have failed to satisfy the requirements of Federal Rule of
Civil Procedure 24. In addition, should the Court grant any of the pending
motions to intervene, it should limit intervenors’ participation in this action
to objecting to the entry of the Proposed Consent Judgment.
Dated: November 1, 2017
Respectfully submitted,
ANTHONY ALEXIS
Enforcement Director
DEBORAH MORRIS
Deputy Enforcement Director
CRAIG COWIE
Assistant Litigation Deputy
/s/ Carolyn Hahn
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(E-mail: Carolyn.Hahn@cfpb.gov)
(Phone: 202-435-7250
Colin Reardon
(E-mail Colin.Reardon@cfpb.gov)
(Phone: 202-435-9668)
Gabriel Hopkins
(E-mail Gabriel.Hopkins@cfpb.gov)
(Phone: 202-435-7842)
Enforcement Attorneys
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552
Facsimile: (202) 435-7722
For the Consumer Financial Protection Bureau
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Certificate of Service
I hereby certify that on November 1, 2017, a copy of
foregoing Plaintiff Consumer Financial Protection Bureau’s Consolidated
Response to Motions to Intervene was filed electronically. Notice of this
filing will be sent by operation of the Court’s electronic filing system to all
parties indicated on the electronic filing receipt. Parties may access this
filing through the Court’s system.
/s/ Carolyn Hahn
Carolyn Hahn
1700 G Street NW
Washington, DC 20552
E-mail: Carolyn.Hahn@cfpb.gov
Phone: 202-435-7250
Case 1:17-cv-01323-GMS Document 54 Filed 11/01/17 Page 33 of
33 PageID #: 611
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