Cosigner liable to National Collegiate Student Loan Trust on private student loan after no-asset bankruptcy discharge, based on TERI guaranty

Indiana Court of Appeals holds that loan on which Defendant in collection suit by National Collegiate Student Loan Trust was co-signer was not discharged in Defendant's bankruptcy because it had been guaranteed by TERI, a nonprofit entity; reverses trial court's grant of summary judgment in the cosignor's favor. National Collegiate Student Loan Trust 2006-4 v. Debra Vance (Bock), No. 18A-CC-1061, Court of Appeals of Indiana, Oct. 29, 2018) (nonprecedental mem. op.). Undue hardship had not been raised and was not an issue. In its opinion, the court equated the securitization Trust with the lender and referred to it as such. As usual, the Trust's affidavit in support of its debt claim was provided by an employee of Transworld Systems, Inc. (TSI), a collection agency. 

But see: ---> Did TERI guaranty make private student loan nondischargeable? In re Page v. NCSLT 2006-1, No. 18-6011 (8th Cir. Nov. 20, 2018) 
--> Bankruptcy court in New York denies arbitration of dispute over whether private student loan debt was discharged  

National Collegiate Student Loan Trust 2006-4, Appellant-Plaintiff,
v.
Debra Vance (Bock), Appellee-Defendant.

No. 18A-CC-1061.

Court of Appeals of Indiana.

October 29, 2018.    

Appeal from the Fulton Superior Court, Trial Court Cause No. 25D01-1601-CC-50 The Honorable Wayne E. Steele, Judge.

Seth Row, Daniel Bogatz, Cleveland, Ohio, Attorneys for Appellant.

T. Andrew Perkins, Rochester, Indiana, Attorney for appellee.

Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision shall not be regarded as precedent or cited before any court except for the purpose of establishing the defense of res judicata, collateral estoppel, or the law of the case.

MEMORANDUM DECISION

ALTICE, Judge.

Debra Vance, now known as Debra Bock,^[1] co-signed on a student loan for another individual, who never made payments on the loan. National Collegiate Student Loan Trust 2006-4 (Lender) filed a complaint against Vance to collect on the delinquent loan. Lender filed a motion for summary judgment, and Vance filed her own motion for summary judgment. Following a hearing, the trial court granted summary judgment in favor of Vance, and Lender now appeals, raising three issues that we consolidate and restate as: whether the trial court erred when it determined that Vance's debt on the student loan had been discharged in her Chapter 7 bankruptcy.

We reverse and remand.

Facts and Procedural History

On October 22, 2006, Vance co-signed a student loan promissory note with Charter One Bank, N.A. (Charter One) for an Astrive Education Loan for Sean P. Dehoney (Student) to attend Axia College. The principal amount of the loan including a prepaid finance charge was $19,398.91, which funds were disbursed to Student pursuant to the contract on November 9, 2006. In December 2006, the loan was assigned by Charter One to National Collegiate Funding, LLC through a 2006-4 Pool Supplement, and on that same date, National Collegiate Funding, LLC assigned the account to Lender through a Deposit and Sale Agreement, assigning all right, title, and interest. No payment was ever made on the student loan.

In June 2013, Vance filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Code. According to Vance, she listed the student loan as a scheduled debt, but its dischargeability was not expressly litigated in the bankruptcy proceeding. In September 2013, Vance received a general discharge pursuant to 11 U.S.C. § 727 (Section 727), and the bankruptcy case was closed in June 2014.

In January 2016, Lender filed a Complaint in the Fulton Superior Court against Vance to collect on the student loan debt, stating that the total amount due at that time including accrued interest was $34,597.78. Lender attached to its Complaint the Loan Credit Agreement and the Note Disclosure Statement. Vance by counsel filed an Answer, asserting as an affirmative defense that,"[w]hile the Complaint appears to reference a student loan, which under certain circumstances would be excepted from a discharge in a Chapter 7 case, the type of student loan contained in the Complaint is not the type of student loan excepted from a discharge in a Chapter 7 Bankruptcy case," and "[a]ny claim . . . contained in the Complaint is barred from collection and was discharged in the Defendant's bankruptcy case pursuant to the discharge order." Appellant's Appendix Vol. 2 at 19. Vance attached to her Answer the Discharge of Debtor (Discharge) dated September 16, 2013. The Discharge directed the debtor to "SEE THE BACK OF THIS ORDER FOR IMPORTANT INFORMATION," and, on the reverse side was an "EXPLANATION OF BANKRUPTCY DISCHARGE IN A CHAPTER 7 CASE." Id. at 21. It stated, "Most, but not all, types of debts are discharged if the debt existed on the date the bankruptcy case was filed." Id. It continued:

Debts That are Not Discharged

Some of the common types of debts which are not discharged in a chapter 7 bankruptcy are:

d. Debts for most student loans[.]

Id. (emphasis in original).

In March 2017, Lender filed its Motion for Summary Judgment, arguing that Lender and Vance entered into a credit agreement, Vance failed to make required payments and is in default, no genuine issues of material fact existed, and Lender was entitled to judgment as matter of law. In its designation of evidence, Lender designated, in addition to the Complaint and Answer, the Affidavit of Dudley Turner, who was employed by Transworld Systems Inc. (TSI), the company that was "the Subservicer for [Lender] pertaining to the education loan" at issue. Id. at 38. According to Dudley's Affidavit, TSI maintained loan account records and documentation concerning the subject student loan. The Affidavit included seven attachments, one of which was the Credit Agreement that contained the following pertinent provision:

12. I understand and agree that this loan is an education loan and certify that it will be used only for costs of attendance at the School. I acknowledge that the requested loan is subject to the limitations on dischargeability in bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code because either or both of the following apply: (a) this loan was made pursuant to a program funded in whole or in part by The Education Resources Institute, Inc. ("TERI"), a non-profit institution, or (b) this is a qualified education loan as defined in the Internal Revenue Code. This means that if, in the event of bankruptcy, my other debts are discharged, I will probably still have to pay this loan in full.

Id. at 45 (emphasis in original).

In April 2017, Vance filed her Response to Lender's motion for summary judgment and, separately, filed her own Motion for Summary Judgment. Vance asserted that "either there are genuine issues of material fact in this case" and Lender's motion should be denied, "OR, in the alternative, that there are no genuine issues of material fact, and that [Vance] is entitled to judgment as a matter of law[.]" Id. at 89. In her Response, Vance initially argued, "clearly a genuine issue of material fact" existed as to whether the debt was discharged in her bankruptcy case, specifically, "whether the education loan that is the subject of [Lender]'s Complaint is the type of debt which is excepted from a discharge or not." Appellant's Appendix Vol. 2 at 90. Vance recognized that, under the Bankruptcy Code, certain student loans are not generally dischargeable but argued that the student loan in this case "was not a government loan, but a private loan" and, further, that the subject loan was not a "qualified education loan" as that term is defined by the Internal Revenue Service; therefore, she argued, "the type of loan in this case is not the type of loan excepted from discharge in a bankruptcy case." Id. at 92. Vance asserted in her Response that Lender "presented no evidence" that the loan qualified "for an exception to [her] bankruptcy discharge" and thus Lender "failed to satisfy its burden of proof." Id. at 93.

Alternatively, Vance asserted in her Response that she was entitled to summary judgment because the debt was listed on her bankruptcy schedules, and "even if this debt was not listed on her schedules, her case was a `no asset' case which . .. did not require debts to be listed on the . . . schedules for them to be discharged," and, in any event, she "provided proof" that the bankruptcy provision indicating that certain student loans are not discharged in bankruptcy "does not apply to the loan" in question. Id. at 93.

Vance filed a Designation of Evidence "relevant to the genuine issues of material fact," which designated, in addition to the pleadings and attachments, an Affidavit by Vance. Vance averred that (1) Student "is not my spouse or dependent," (2) "[t]he loan proceeds were paid to [him] . . . and they were spent by him for his own expenses," (3) she filed bankruptcy and "listed the loan that is the subject of [Lender]'s Complaint . . . on [her] bankruptcy schedules," (4) her bankruptcy was "a `no asset' case in that no assets were collected and distributed to creditors by the trustee," (5) she was granted a discharge in the bankruptcy case on September 16, 2013, as evidenced by the Discharge of Debtor form attached to her Affidavit, and (6) her bankruptcy case was closed on June 23, 2014, as evidenced by the Order Approving Final Account, Discharging Trustee and Closing Case, attached to her Affidavit. Id. at 78-79.

Lender timely filed a Reply, asserting that the student loan was excepted from discharge. Lender argued that pursuant to 11 U.S.C. § 523(a)(8) (Section 523), as well as federal case law, "[s]tudent loans are generally not dischargeable in bankruptcy unless the debtor proves that excluding the loans from discharge would impose an undue hardship on the debtor." Appellant's Appendix Vol. 2 at 96 (citing Tetzlaff v. Educ. Credit Mgmt. Corp., 794 F.3d 756, 758 (7th Cir. 2015)). It further asserted that Vance was incorrect in claiming that it was Lender's burden to establish that the debt was not discharged, as the burden was on her to establish that the educational loan was excluded from discharge, "typically [accomplished] by filing an adversary proceeding" in bankruptcy court. Id. at 95. In response to Vance's assertion that the loan in question did not qualify for the definition of a "qualified educational loan," Lender stated, first, that a determination of whether the loan was a "qualified educational loan" was unnecessary to the analysis based on other provisions of Section 523, and second, any such determination "could only properly be adjudicated by the Bankruptcy Court." Id. Lender maintained that it was entitled to judgment as a matter of law, but that, should the trial court disagree that Lender was entitled to judgment, Lender consented "to an indefinite stay . . . so as to permit [Vance] to seek a declaratory judgment from the bankruptcy court clarifying whether the instant loan was discharged." Id.

At the March 2018 hearing on the parties' motions for summary judgment, Lender argued that (1) typically student loans are not discharged unless the debtor presents evidence of undue hardship, and (2) the debtor or other party responsible for payment has the burden of proving that the student loan was discharged. Vance responded that it is the creditor's obligation to prove that the specific debt trying to be collected is excepted from discharge. Vance also clarified that she was not claiming undue hardship; rather, her position was that "this is not the kind of student loan that is accepted [sic] from discharge," arguing that Lender had not "made the required showing" that this student loan meets the "qualified education loan" definition and that she was thus entitled to summary judgment. Transcript at 6, 8. Alternatively, Vance asserted "there are multiple genuine issues of material fact." Id. at 9. Lender offered that Lender would be amenable to an indefinite stay "just to allow time for the Bankruptcy Court to determine whether or not this particular loan was discharged." Id. Vance maintained that a stay was not warranted, arguing that Lender should have asked for relief from discharge in the two years that the case had been pending. Following the hearing, the trial court issued an order summarily granting judgment in Vance's favor. Lender now appeals.

Discussion & Decision

There is no dispute that Vance co-signed on the student loan or that the claimed amount is due and owing to Lender. Vance's position is that the trial court correctly entered summary judgment in her favor because the debt was discharged in her Chapter 7 bankruptcy. Lender maintains, on the other hand, that the trial court should have granted summary judgment in its favor because the student loan debt was nondischargeable pursuant to Section 523 and no genuine issues of material fact remained as to whether Vance owed the debt on the defaulted student loan.

When reviewing a grant or denial of a motion for summary judgment, our standard of review is the same as it is for the trial court. McCullough v. CitiMortgage, Inc., 70 N.E.3d 820, 824 (Ind. 2017). "The moving party `bears the initial burden of making a prima facie showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law.'" Id. (quoting Gill v. Evansville Sheet Metal Works, Inc., 970 N.E.2d 633, 637 (Ind. 2012)). If the movant carries its burden, "`then the nonmoving party must come forward with evidence establishing the existence of a genuine issue of material fact.'" Id. In determining whether summary judgment is proper, the reviewing court considers only the evidentiary matter the parties have specifically designated to the trial court. Ind. Trial R. 56(C). We construe all factual inferences in the nonmoving party's favor and resolve all doubts as to the existence of a material issue against the moving party. McCullough, 70 N.E.3d at 824.

In determining whether Vance's debt on the student loan was discharged, as she claims, or nondischargeable, as Lender claims, we must examine relevant Bankruptcy Code provisions. We begin by examining Section 727, under which Vance received her Discharge. Section 727 provides in relevant part:

(b) Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter[.]

(Emphasis added). Section 523 states, in relevant part:

(a) A discharge under section 727 . . . does not discharge an individual debtor from any debt —

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for —

(A) (i) any educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual[.]

"`The legislative history of section 523(a)(8) indicates that the statute was meant to be self-executing so that the creditor would not be required to file a complaint to determine the dischargeability of a student loan.'" In re Clark, 341 B.R. 238, 248 (Bankr. N.D. Ill. 2006) (quoting United States v. Wood, 925 F.22d 1580, 1583 (7th Cir. 1991)). "Thus, it is the debtor who is required to file an adversary proceeding against the holder of a student loan debt in order to show that the debt should be discharged." Id. (citing In re Hanson,397 F.3d 482, 484 (7th Cir. 2005)).

The parties agree that Section 523(a)(8) has been interpreted to mean that four types of educational loans are not included in a Section 727 discharge, absent undue hardship on the debtor, and those four types are: (1) loans made, insured, or guaranteed by a governmental unit; (2) loans made under any program partially or fully funded by a government unit or nonprofit institution; (3) loans received as an educational benefit, scholarship, or stipend; and (4) any "qualified educational loan" as that term is defined in the Internal Revenue Code.

Vance, while focusing exclusively on the last of the four types, regarding any "qualified educational loan," contends that Section 523 does not apply to the student loan at issue. Specifically, she argues that the student loan does not meet the definition of a "qualified education loan" as that term is defined by the Internal Revenue Code in 26 U.S.C. § 221(d)(1), which states in relevant part:

(1) Qualified education loan. — The term "qualified education loan" means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses—

(A) which are incurred on behalf of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,

(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and

(C) which are attributable to education furnished during a period during which the recipient was an eligible student.

(Emphasis added). Vance's argument is that since the student loan in question was "not incurred on behalf of [Vance], or [Vance]'s spouse or dependent, then the loan is not a qualified education loan under 26 U.S.C. § 221(d)(1) and is not excepted from discharge under 11 U.S.C. § 523(a)(8)." Appellee's Brief at 15.

Lender, however, maintains that the "qualified education loan" exception — in Section 523(a)(8)(B) — is not the relevant subsection and thus it is unnecessary to determine whether the student loan at issue satisfies that definition.^[2] Lender explains that, instead, "the subject student loan was excepted from discharge under subsection (A)(i) because it was `an educational overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution.'" Appellant's Brief at 14 (quoting from and adding emphasis to 11 U.S.C. § 523(a)(8)(A)(i)).

Lender urges that "the record plainly establishes" that the student loan in question was an education loan that was funded in whole or in part by a non-profit institution. Appellant's Brief at 14. In doing so, Lender refers to the loan documents, including the Credit Agreement which states in bolded letters:

12. I understand and agree that this loan is an education loan and certify that it will be used only for costs of attendance at the School. I acknowledge that the requested loan is subject to the limitations on dischargeability in bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code because either or both of the following apply: (a) this loan was made pursuant to a program funded in whole or in part by The Education Resources Institute, Inc. ("TERI"), a non-profit institution, or (b) this is a qualified education loan as defined in the Internal Revenue Code. This means that if, in the event of bankruptcy, my other debts are discharged, I will probably still have to pay this loan in full.

Appellant's Appendix Vol. 2 at 45 (italics added). Other designated documents, namely the account's payment history and the 2006-4 Pool Supplement, which transferred and assigned the loan to National Collegiate Funding LLC, also reflect that TERI was a guarantor.^[3] Lender argues that it thereby designated evidence showing that the student loan was made pursuant to a program funded by a non-profit institution, TERI, and, absent undue hardship to the debtor, which Vance does not claim, the student loan was not discharged in Vance's Section 727 general discharge from bankruptcy. We agree.

Where, as here, Lender designated evidence that the loan was not discharged, the burden shifted to Vance to show that a genuine issue of material fact existed precluding summary judgment. Although Vance suggested that a question of fact remained as to whether the loan was a "qualified educational loan" under Section 523(a)(8)(B), we agree with Lender that such a determination is not warranted under the facts of this case, where the loan satisfied the parameters of Section 523(a)(8)(A).^[4]

Having found that Lender established, through Section 523 and the designated evidence, that the student loan at issue was not discharged in bankruptcy, and where there is no dispute as to the fact that Vance co-signed on the loan or as to the amount due and owing, Lender has established that it is entitled to judgment as a matter of law on its claim to collect the debt. Accordingly, we reverse the trial court's entry of summary judgment in favor of Vance and remand with instructions to enter judgment in Lender's favor on its Complaint against Vance.

Judgment reversed and remanded with instructions.

Brown, J. and Tavitas, J., concur.

[1] For the sake of simplicity and consistency, we will use the name Vance in this decision as that is the name that appears in the relevant loan documents.

[2] Lender states that, not only is it unnecessary to decide that issue, but also any such determination would need to be made by the bankruptcy court.

[3] As pointed out by Lender, case law provides that a TERI-guaranteed loan program, even if TERI did not fund the debtor's specific loan, meets the standard set forth in Section 523(a)(8)(A)(i). Appellant's Brief at 15-18 and Reply Brief at 11; see e.g., In re O'Brien, 419 F.3d 104, 106 (2nd Cir. 2005) (holding that Section 523(a)(8) was applicable where TERI "merely guaranteed, without funding" the debtor's particular loan, obtained through Key Bank, as 523(a)(8) requires only that loan was "made under any program funded in whole or in part by" a non-profit institution); Decker v. EduCap, Inc., 476 B.R. 463, 468 (W.D. Pa. 2012) (finding that Section 523(a)(8)(A)(i) was satisfied where non-profit entity guaranteed loan that was funded by Bank of America, noting "Congress' intentionally stringent limits on the dischargeability of educational loans"); In re Drumm, 329 B.R. 23, 35 (Bankr. W.D. Pa. 2005) (finding that a non-profit guarantee was enough and that meaningful financial contribution or meaningful financial risk are not required).

[4] Courts have determined Section 523(a)(8)(A)(i)'s discharge exception for government or non-profit-funded loans applies to non-related, non-student debtors, like Vance. See Corletta v. Texas Higher Educ. Coordinating Bd., 531 B.R. 647, 653 (W.D. Tex. 2015); Cockels v. Mae, 414 B.R. 149, 155 (E.D. Mich. 2009).  

US District Court in Delaware okays Odyssey's appointment as additional servicer of NCSLT private student loans, clearing way for sale of defaulted loans

Federal District Court Judge in Delaware recently approved and adopted magistrate's recommended grant of summary judgment against Indenture Trustee U.S. Bank N.A. in dispute over National Collegiate Student Loan Trust's appointment of a new servicer closely connected to current trust certificate holders (Odyssey Education Resources) and approved payment of new servicer's invoices. 

Specifically, the district court agreed with the magistrate judge that the granting clause in the Indenture does not preclude the Trusts from appointing new servicers and that the Trusts retained the right to hire Odyssey as an additional servicer. The court rejected objections to the magistrate's recommended resolution of the parties' cross-motion for summary judgment on the ground that they were not timely presented to the magistrate and should not be asserted for the first time before the district court. Sub-servicer Transworld Systems, Inc.(TSI), which signed a consent order with the CFPB to settle an enforcement action stemming from robosigning of affidavits and other debt-collection abuses in 2017, was among those who objected. 

U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee, Petitioner,

v.

NATIONAL COLLEGIATE STUDENT LOAN TRUST 2003-1, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2004-1, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2004-2, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-1, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-2, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-3, Defendants.

No. 1:16CV341.

United States District Court, D. Delaware.

September 18, 2018.

U.S. Bank National Association, as Indenture Trustee, Petitioner, represented by Jeffrey Thomas Castellano, Shaw Keller LLP, John W. Shaw, Shaw Keller LLP, Anthony M. Masero, Jones Day, pro hac vice, Keith M. Kollmeyer, Jones Day, pro hac vice, Michael A. Collyard, Robins Kaplan LLP, pro hac vice, Peter C. Ihrig, Robins Kaplan LLP, pro hac vice & Thomas F. Berndt, Robins Kaplan LLP, pro hac vice.

National Collegiate Student Loan Trust 2003-1, National Collegiate Student Loan Trust 2004-1, National Collegiate Student Loan Trust 2004-2, National Collegiate Student Loan Trust 2005-1, National Collegiate Student Loan Trust 2005-2 & National Collegiate Student Loan Trust 2005-3, Defendants, represented by Stuart M. Grant, Grant & Eisenhofer, P.A., Adam J. Levitt, DiCello Levitt & Casey, pro hac vice, James J. Sabella, Grant & Eisenhofer P.A., pro hac vice & Michael Thomas Manuel, Grant & Eisenhofer, P.A..

MEMORANDUM AND ORDER

JOSEPH F. BATAILLON, Senior District Judge.

This matter is before the court on defendants' motion for summary judgment, D.I. 55; petitioner's motion for summary judgment, D.I. 57; the report and recommendation of the magistrate regarding D.I.'s 57 and 55, D.I. 79; and Transworld Systems Inc.'s (hereinafter "TSI") statement of interest, D.I. 89; petitioner's objections, D.I. 90; objections filed by OWS ABS Fund II, L.P., OWS COF I Master, L.P., OWS Credit Opportunity I, LLC, One William Street Capital Master Fund, Ltd., Waterfall Asset Management, LLC., D.I. 91; Declaration of Andrew D. Cordo in support of interested noteholder's objection, D.I. 92; Letter by petitioner, D.I. 93; response to objections, D.I.'s 97 and 98 and 99 and 107; and petitioner's reply brief, 106.

This case involves a "Trust Instructional Proceeding" which is a Minnesota statutory action "initiated for the purpose of seeking instruction concerning trust administration relating to the appointment and payment of a loan servicer for transactions relating to loans held by the trusts." D.I. 79, at 1. The magistrate judge recommends that the court grant the Trusts' motion for summary judgment and deny the Trustee's motion for summary judgment. This court reviews this case de novo.

The case involves six Delaware statutory trusts, known as National Collegiate Student Loan Trusts. On May 2, 2017, interested parties, and holders of notes in the trusts that are subject to this action, Waterfall Asset Management, LLC, OWS ABS Fund II, L.P., OWS COF I Master, L.P., OWS Credit Opportunity I, LLC, and One William Street Capital Master Fund, Ltd. informed the court in advance of the May 11, 2017 oral argument that they support the Indenture Trustee's position and motion for summary judgment. (D.I. 69). NCSLT 2003-1, 2004-1, 2004-2, 2005-1, 2005-2, and 2005-3 (the "Issuers" or the "Trusts"), were created between 2003 and 2005 to acquire pools of student loans, facilitate the issuance and sale of notes (the "Notes"). They were backed by private student loans to investors and who serviced the loans. The current trustee is Wilmington Trust Company. The trusts are "owner directed."

Eventually, U.S. Bank became the back-up Special Servicer, and Odyssey Education Resources became the servicer of defaulted loans and loans eligible for sale. Thereafter, as stated by the magistrate judge:

On February 18, 2016, the Indenture Trustee filed a "Petition for Instructions in the Administration of Trusts Pursuant to Minnesota Statute § 501C.0201" in Minnesota's Second Judicial District Court, in the County of Ramsey. (D.I. 1-1) The Indenture Trustee sought the state court's instruction regarding VCG's "attempt to appoint Odyssey as a servicer or special servicer for each Trust under the Odyssey Agreement." (Id. at ¶ 2) Specifically, the Indenture Trustee sought the court's instruction on three issues: (1) whether, under the governing agreements, Odyssey was properly appointed as a servicer or special servicer and whether the Odyssey Agreement was valid and binding, such that the Indenture Trustee should release funds necessary to compensate Odyssey for any future services performed; (2) to the extent Odyssey was properly appointed as servicer or special servicer and the Odyssey Agreement is valid and binding, how to resolve certain conflicts between the Odyssey Agreement and the governing agreements; and (3) to the extent Odyssey was properly appointed, whether to release the funds necessary to pay the Odyssey Invoices. (Id. at ¶¶ 5-7)
D.I. 79, at 4-5.

STANDARD OF REVIEW

The standard of review is governed by 28 U.S.C. § 636(b)(1)(C) and Federal Rule of Civil Procedure 72(b). The district court "shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made" and "may also receive further evidence or recommit the matter to the magistrate judge with instructions." 28 U.S.C. § 636(b)(1)(C). Similarly, Rule 72(b)(3) requires de novo review of any recommendation that is dispositive of a claim or defense of a party.

The Supreme Court has construed the statutory grant of authority conferred on magistrate judges under 28 U.S.C. § 636 to mean that nondispositive pretrial matters are governed by § 636(b)(1)(A) and dispositive matters are covered by § 636(b)(1)(B). Gomez v. United States, 490 U.S. 858, 873-74 (1989); see also Fed. R. Civ. P. 72(a). Under subparagraph (B), a district court may refer a dispositive motion to a magistrate judge "to conduct hearings, including evidentiary hearings, and to submit to a judge of the court proposed findings of fact and recommendations for the disposition." 28 U.S.C. § 636(b)(1)(B); see EEOC v. City of Long Branch, 866 F.3d 93, 99-100 (3d Cir. 2017). The product of a magistrate judge, following a referral of a dispositive matter, is often called a "report and recommendation." Id. "Parties `may serve and file specific written objections to the proposed findings and recommendations' within 14 days of being served with a copy of the magistrate judge's report and recommendation." Id. (quoting Fed. R. Civ. P. 72(b)(2)). "If a party objects timely to a magistrate judge's report and recommendation, the district court must `make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made.'" EEOC, 866 F.3d at 99 (quoting 28 U.S.C. § 636(b)(1)).

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Material facts are those that could affect the outcome of the proceeding, and "a dispute about a material fact is `genuine' if the evidence is sufficient to permit a reasonable jury to return a verdict for the nonmoving party." Lamont v. New Jersey, 637 F.3d 177, 181 (3d Cir. 2011) (quoting Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986)). Pursuant to Rule 56(c)(1), a party asserting that a fact is genuinely disputed must support its contention either by citing to "particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for the purposes of the motion only), admissions, interrogatory answers, or other materials," or by "showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1)(A) & (B).

Courts considering cross-motions for summary judgment will treat each motion independently. T-Mobile, Ne., LLC v. City of Wilmington, 2018 WL 1472526, at *2 (D. Del. Mar. 26, 2018) (citing Rains v. Cascades Industries, Inc., 402 F.2d 241,245 (3d Cir. 1968)). The moving party bears the initial burden of proving the absence of a genuinely disputed material fact. See Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The burden then shifts to the non-movant to demonstrate the existence of a genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Williams v. Borough of West Chester, Pa., 891 F.2d 458, 460-61 (3d Cir. 1989). When determining whether a genuine issue of material fact exists, the court must view the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. See Scott v. Harris, 550 U.S. 372, 380 (2007); Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir. 2007).

However, the existence of some evidence in support of the nonmoving party may not be sufficient to deny a motion for summary judgment. Rather, there must be enough evidence to enable a jury reasonably to find for the nonmoving party on the issue. See Anderson, 477 U.S. at 249. If the nonmoving party fails to make a sufficient showing on an essential element of its case on which it bears the burden of proof, the moving party is entitled to judgment as a matter of law. See Celotex Corp., 477 U.S. at 322.

DISCUSSION

Indenture Trustee first inquired whether Odyssey was validly appointed to act as a Servicer. The magistrate judge found that "because the Indentures and other Basic Documents do not expressly restrict the rights of the Trusts to hire other servicers, the Trusts retained the right to hire Odyssey." D.I. 79 at 9-10. She further determined that "Odyssey's right pursuant to the Odyssey Agreement to purchase Loans does not `waive, amend, modify, supplement, or terminate' the Special Servicing Agreement or other Basic Documents, triggering Indenture Trustee and Noteholder approval." Id. at 17-18. She likewise decided that Noteholder consent was not required for Odyssey's appointment as a Servicer. Id. at 19. She determined that the Odyssey Agreement does not change the provisions of the Special Servicing Agreement. Id. at 20. She also found the rating agency complied with the condition in the Special Servicing Agreement § 6E. Id. at 21. Last, the magistrate judge determined that the Odyssey Invoices should be paid. She based that finding on her decision that "the Trusts provided the rating agencies with a copy of the Odyssey Agreement, which sets forth the fees Odyssey would receive, such as the 10% commission on sales of loans. (Id. at TA619-40)." Id. at 24. This was sufficient notice, found the magistrate judge.

Transworld Systems filed a statement of interest. D.I. 89. In it, TSI indicates it is the sub-servicer of defaulted loans for which U.S. Bank is the Indenture Trustee and successor Special Servicer. TSI disagrees with the Magistrate Judge's recommendation granting the Trusts' Motion for Summary Judgment. TSI views the appointment of Odyssey as a "back door" one which is invalid.

Likewise, U.S. Bank objects to part of the report and recommendation of the magistrate's order. D.I. 90. First, U.S. Banks argues that there is no authority for the appointment of Odyssey as a new, additional loan servicer. Next, even if such authority exists, the Odyssey Agreement is an impermissible amendment or modification of the Basic Documents. Third, Odyssey's requested fees are not payable as Odyssey was not correctly appointed.

The Noteholders also filed objections to the magistrate judge's recommendation and order. D.I. 91. The Noteholders contend that the R&R must be rejected, because the agreement is a sham, changing the language and breaching the Basic Documents. The Noteholders contend that "[t]he Trusts were created to acquire, service, and securitize thousands of student loans in five separate billion-dollar transactions." Id. at 4. The noteholders argue that the appointment of Odyssey violates crucial provisions of the Basic Agreement, requiring arm's length agreements between trusts and their service providers and permits self-dealing. According to the Noteholders, "Odyssey is staffed by VCG's employees, and VCG stands to receive the payments and reimbursements made under the Odyssey agreement, including the reimbursement of VCG's own employees' salaries and benefits." Id. at 12-13.

The Trusts responded arguing first that the Noteholders failed to comply with the standing order that states: "[P]arties objecting to a Magistrate Judge's report or order are required to adhere to the arguments, evidence, and issues they presented first to the Magistrate Judge." Masimo Corp. v. Philips Elec. N.A. Corp., 62 F. Supp. 3d 368, 377 (D. Del. 2014). "[I]ssues raised for the first time in objections to the magistrate judge's recommendation are deemed waived." Bukovinsky v. Pennsylvania, 455 Fed. App'x. 163, 165-66 (3d Cir. 2011) (internal quotation marks omitted). Paragraph 5 of the Standing Order requires that no new arguments are being presented. The language states:

Any party filing objections . . . to a Magistrate Judge's . . . recommended disposition must include, along with the objections, a written statement either certifying that the objections do not raise new legal/factual arguments, or identifying the new arguments and describing the good cause for failing to previously raise the new legal/factual arguments before the Magistrate Judge.

Standing Order ¶ 5, http://www.ded.uscourts.gov. The Trusts argue that the certification was late and the arguments are new to those argued before the magistrate judge. For example, the Trusts argue that "the Odyssey Agreement violates the Indentures' and the Trust Agreements' self-dealing prohibitions," Noteholder Obj. at 7, appears nowhere in the Interested Noteholders' submission to Magistrate Judge Fallon." D.I. 97 at 2. "Similarly, the Interested Noteholders' argument concerning the impact of the Granting Clause in the Indentures is also new." Id. at 3. Further, the Trusts argue these assertions are meritless in any event, and this court should adopt the report and recommendation of the magistrate judge.

In addition, the Trusts argue that Noteholders arguments regarding the granting clause are without merit. The Granting Clause does not support the argument made by Odyssey and such an interpretation runs contrary to this clause, contends the Trusts.

The Trusts also object to the arguments of TSI in its Statement of Interest. First, the Trusts note that TSI did not submit any statement of interest prior to when the report and recommendation was issued. Second, the certification was not timely. Third, TSI failed to specify the portions for the objection, supported by legal authority. Generalized objections are not sufficient. See, e.g., Masimo Corp. v. Philips Elec. N. Am. Corp., 62 F. Supp. 3d 368, 375-76 (D. Del. 2014) ("generalized objections" are insufficient). Fourth, the Trusts argue that TSI lacks standing on Odyssey's appointment, because TSI is one of the primary wrongdoers who caused the servicing fiasco, and yet collected tens of millions of dollars in fees. TSI, argues the Trusts, is not a third-party beneficiary or a party to the Indentures. It has no rights, and thus no standing.

The Trust responds to the Indentured Trustees contending: the court should not consider U.S. Bank's new argument that the granting clause in the indentures precludes the trusts from appointing new servicers, as this argument was not presented to the magistrate judge; second the granting clause in the indentures does not preclude the trusts from appointing new servicers; and third, the Odyssey Agreement does not amend, modify, waive, supplement, terminate or surrender any term of the basic documents; and fourth, the Odyssey invoices should be paid.

The court has reviewed the record de novo. First, the court agrees that new arguments, absent good cause, that have not been presented to the magistrate judge will be viewed as untimely and waived. "[P]arties objecting to a Magistrate Judge's report or order are required to adhere to the arguments, evidence, and issues they presented first to the Magistrate Judge." Masimo Corp. v. Philips Elec. N.A. Corp., 62 F. Supp. 3d 368, 377 (D. Del. 2014). "[I]ssues raised for the first time in objections to the magistrate judge's recommendations are deemed waived." Bukovinsky v. Pennsylvania, 455 Fed. App'x. 163, 165-66 (3d Cir. 2011); see also the Standing Order.

Next, the court agrees with the magistrate judge that the granting clause does not preclude the trusts from appointing new servicers. The Trust Agreements requires that the Trusts "provide for . . . the servicing of the Student Loans" (D.I. 61-13 at TA353, § 2.03(a)(ii)), and "to enter into such agreements that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith." Id. § 2.03(a)(iii). "Indentures are to be read strictly and to the extent they do not expressly restrict the rights of the issuer, the issuer is left with the freedom to act. . . ." San Antonio Fire & Police Pension Fund v. Amylin Pharm., Inc., 983 A.2d 304, 314 (Del. Ch.), aff'd, 981 A.2d 1173 (Del. 2009) (applying New York law). There is no language presented to the court that takes away this right to appoint servicers. The court reads the Trust Agreements and the Indentures together, so that one provision does not nullify the other. The granting rights clause does not use the language "sole" or "exclusive holder" when talking about the Indenture Trustee. Yet, when intended, the Indenture uses such words. See, e.g., Indenture § 6.10(b)(i) (D.I. 61-8 at TA93) (describing rights that "shall be exercised . . . solely at the direction of the Indenture Trustee"). The court agrees with the magistrate judge that the Trusts retained the right to hire Odyssey.

Further, the court agrees that the Odyssey Agreement does not appear to amend or modify or surrender any term of the basic documents. The magistrate judge analyzed each of these arguments in depth. She specifically found that "the Special Servicing Agreement does not prohibit the sale of non-performing Loans, and instead provides that U.S. Bank will perform its duties in accordance with the terms of the Indentures, which specifically allow the sale of Loans." D.I. 79 at 11. The magistrate judge also found, and this court agrees, that there is no provision in the Indentures or in the Special Servicing Agreement stating that each servicing agreement must mirror the others. Id. at 18. After a thorough review of the facts and law, the court finds the magistrate judge is correct in all respects.

U.S. Bank also contends that Boston Portfolio Advisors, Inc.'s resignation as a member of Odyssey should be addressed in terms of Odyssey's ability to continue as a servicer. The Trusts contend that the issue raised by U.S. Bank is irrelevant, as the trust can either appoint a receiver or not. It matters not that U.S. Bank thinks the servicer might be incapable, in terms of this lawsuit. The court finds that this argument is not relevant. The Trusts are correct regarding the basic issue before the court which is whether the Trusts can appoint or not. The court finds, as discussed herein, that the Trusts can appoint under the agreements in question.

Based on the considered reasoning of the magistrate judge and as discussed by the court herein, finding that Odyssey was properly appointed as a servicer, the court also agrees that the Odyssey invoices should be paid. It appears that Odyssey complied with the relevant agreement, sending invoices to the Administrator with its request for fees. Accordingly, Odyssey is entitled to payment.

THEREFORE, IT IS ORDERED THAT:

1. The report and recommendation of the magistrate judge, D.I. 79, is adopted in its entirety.
2. The objections of U.S. Bank National Association, D.I. 90, are overruled.
3. The statement/objections of U.S. Bank National Association, D.I. 89, are overruled.
4. The objections of OWS ABS Fund II, L.P., OWS COF I Master, L.P., OWS Credit Opportunity I, LLC, One William Street Capital Master Fund, Ltd., Waterfall Asset Management, LLC, D.I. 91, are overruled.
5. The defendants' motion for summary judgment, D.I. 55, is granted.
6. The petitioner's motion for summary judgment, D.I. 57, is denied.
7. The requests for oral argument, D.I.'s. 100 and 101, are denied.

Dated this 17th day of September, 2018.

Consumer Financial Protection Bureau vs. National Collegiate Student Loan Trusts: Numerous Interventions finally approved, but where are the parties to the Proposed Consent Judgment signed in September 2017?

A year has passed since multiple non-parties filed motions for leave to intervene in the CFPB’s enforcement action against the National Collegiate Student Loan Trusts over abusive servicing and litigation practices. On October 19, 2018, the U.S. District Court of Delaware finally granted the intervenors’ motions without placing any restrictions on them, finding that they have significant interests affected by the terms of the proposed consent judgment that was submitted when the CFPB filed its complaint in September 2017 in the U.S. District Court of Delaware. The intervenors include primary servicer PHEAA (AES), sub-servicer TSI, U.S. National Bank as indenture trustee and special servicers, GSS Data Service, Inc. as Administrator, Wilmington Trust Company as Owner Trustee, bond-insurer Ambac, and investors in the bonds issued by the Trusts. Additionally, a Wall Street industry group submitted an amicus brief.  

Some of the interventions were unopposed. Others demonstrated a sufficient interest to be entitled to intervene. The court found that all intervention filings were timely. See à Memorandum Opinion and Order of Judge Maryellen Noreika in CFPB v. The National Collegiate MasterStudent Trust et al, dated Oct. 19, 2018 (pdf).

Two significant events have occurred in the interim: The law firm that represented the Trusts, McCarter & English, has withdrawn and the CFPB has undergone a leadership change. Additionally, the deal struck by the CFPB under Richard Cordray and the new owner of the Trusts (Donald Uderitz), which had culminated in the proposed consent judgment (never approved by the court) has come under a barrage of criticism as a sweetheart deal for Uderitz at the expense of other affected parties. The Trusts are currently unrepresented and are listed as “pro se” of the docket. How the pending enforcement action against them will proceed is anyone’s guess.  

In a footnote the Court acknowledges that one of the intervenors, Transworld Systems, Inc. (TSI), has raised an issue of statutory interpretation as to whether the Defendant Trusts properly fall under the "covered person" definition embodied in the Consumer Financial Protection Act. The Court notes that this question implicates the Court’s jurisdiction and might require additional briefing. In 2017 TSI separately signed a consent order to resolve the CFPB's charges against it, which was not subject to court approval and required TSI to pay a civil penalty and implement certain measures to achieve compliance and provide remedies to student loan debtors that were affected by the collection/litigation practices that had brought the collection agency under the regulator's scrutiny.  

Also see prior posts on the CFPB v. Nat’l Collegiate Student Loan Trust and related litigation:

GSS Data Services, Inc. and Wilmington Trust Company win dismissal of law firm's suit brought against them in New York over NCSLT-related legal work (Sep. 21, 2018)

Update on Wrangle over NC Trust Asset Control: Delaware Magistrate okays Odyssey's designation as servicer of 6 Trusts in row between Indenture Trustee U.S. Bank and NCSLT trust certificate owners; overrules all of US Bank's objections (May 7, 2018)

CFPB Status Report on Enforcement Actions against NCSLT and TSI (April 3, 2018)

Securitization industry group files amicus brief, joins chorus of objectors to proposed CFPB-NCSLT Deal in Delaware federal court (Nov. 30, 2017)

The latest consumer advocate: Georgia Lawsuit Mill Operator Transworld Systems Inc. (Nov. 16, 2017)

Trust spat in Delaware Verbatim: CFPB's Opposition to Intervention of Interested Non-parties who want to block Consent Judgment between the Bureau and the National Collegiate Student Loan Trusts (Nov. 16, 2017)

CFPB: The Toxic Vegetable in the Beltway Alphabet Soup (Oct 5, 2017) 

Transworld Systems Inc.’s shady litigation-mill practices finally exposed for all the World to see (Sep. 19, 2017) 

CONSUMER FINANCIAL PROTECTION BUREAU, 

Plaintiff,

v.

THE NATIONAL COLLEGIATE MASTER STUDENT TRUST, et al., 

Defendants.

C.A. No. 17-1323 (MN).

United States District Court, D. Delaware.

October 19, 2018.

http://www.ded.uscourts.gov/sites/default/files/opinions/mn/2018/october/17-1323.pdf 

Consumer Financial Protection Bureau, Plaintiff, represented by Carolyn I. Hahn, Consumer Financial Protection Bureau, Colin T. Reardon, Consumer Financial Protection Bureau Office of Enforcement & Gabriel S.H. Hopkins, Consumer Financial Protection Bureau Office of Enforcement.

National Collegiate Master Student Loan Trust, Defendant, pro se.

National Collegiate Student Loan Trust 2003-1, Defendant, pro se.

National Collegiate Student Loan Trust 2004-1, Defendant, pro se.

National Collegiate Student Loan Trust 2004-2, Defendant, pro se.

National Collegiate Student Loan Trust 2005-1, Defendant, pro se.

National Collegiate Student Loan Trust 2005-2, Defendant, pro se.

National Collegiate Student Loan Trust 2005-3, Defendant, pro se.

National Collegiate Student Loan Trust 2006-1, Defendant, pro se.

National Collegiate Student Loan Trust 2006-2, Defendant, pro se.

National Collegiate Student Loan Trust 2006-3, Defendant, pro se.

National Collegiate Student Loan Trust 2006-4, Defendant, pro se.

National Collegiate Student Loan Trust 2007-1, Defendant, pro se.

National Collegiate Student Loan Trust 2007-2, Defendant, pro se.

National Collegiate Student Loan Trust 2007-3, Defendant, pro se.

National Collegiate Student Loan Trust 2007-4, Defendant, pro se.

Structured Finance Industry Group, Inc., Amicus, represented by A. Thompson Bayliss, Abrams & Bayliss LLP.

Raul Piombo, Movant, pro se.

U.S. Bank National Association, Trustee, represented by David M. Fry, Shaw Keller LLP & Keith M. Kollmeyer, Jones Day, pro hac vice.

Ambac Assurance Corporation, Intervenor, represented by Kurt M. Heyman, Heyman Enerio Gattuso & Hirzel LLP, Melissa N. Brochwicz Donimirski, Heyman Enerio Gattuso & Hirzel LLP, Erik Haas, Patterson Belknap Webb and Tyler LLP, pro hac vice, George A. LoBiondo, Patterson Belknap Webb and Tyler LLP, pro hac vice, Joshua Kipnees, Patterson Belknap Webb and Tyler LLP, pro hac vice & Peter W. Tomlinson, Patterson Belknap Webb and Tyler LLP, pro hac vice.

Transworld Systems Inc., Intervenor, represented by Allyson B. Baker, Venable LLP, pro hac vice, Jamie Lynne Edmonson, Venable LLP, Katherine M. Wright, Venable LLP, pro hac vice, Meredith L. Boylan, Venable LLP, pro hac vice & Sameer P. Sheikh, Venable LLP, ro hac vice.

Waterfall Eden Master Fund, Ltd., Intervenor, represented by Andrew Dieter Cordo, Ashby & Geddes, Michael Hanin, Kasowitz Benson Torres LLP, pro hac vice & Uri Itkin, Kasowitz Benson Torres LLP, pro hac vice.

Waterfall Delta Offshore Master Fund, LP, Waterfall Sandstone Fund, LP., Baldr Sherwood Fund, Inc., One William Street Capital Master Fund, Ltd., OWS ABS Master Fund II, L.P., OWS COF I Master, L.P., OWS Credit Opportunity I, LLC, OWS Global Fixed Income Fund (USD-Hedged), Ltd., LibreMax Master Fund, Ltd., LibreMax Value Master Fund, Ltd., LibreMax MSW Fund, Ltd., AG Mortgage Value Partners Master Fund, L.P., AG TCDRS, L.P., AG Pisgah, L.P., AG Super RMBS LLC & AG Opportunistic Whole Loan Select, L.P., Intervenors, represented by Andrew Dieter Cordo, Ashby & Geddes.

GSS Data Services, Inc., Intervenor, represented by Rebecca Lyn Butcher, Landis Rath & Cobb LLP.

The Pennsylvania Higher Education Assistance Agency, Intervenor, represented by Stacey A. Scrivani, Stevens & Lee, Elizabeth Ware, Stevens & Lee, pro hac vice & Nicholas H. Pennington, Stevens & Lee, pro hac vice.

Wilmington Trust Company, Intervenor, represented by Stephen B. Brauerman, Bayard, P.A..

MEMORANDUM OPINION

MARYELLEN NOREIKA, District Judge.

Before the Court are eight motions to intervene in the current litigation between the Consumer Financial Protection Bureau ("CFPB") and fifteen Delaware statutory trusts, called the National Collegiate Student Loan Trusts (collectively "the Trusts"). The motions have been filed by Ambac Assurance Corporation ("Ambac") (D.I. 4); Transworld Systems Inc. ("TSI") (D.I. 9); Objecting Noteholders ("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); and U.S. Bank in its capacity as Indenture Trustee (D.I. 35). For the reasons discussed below, the Court grants each of the motions to intervene and places no limitation on the intervenors' participation in this litigation.

I. BACKGROUND

The Trusts were created between 2001 and 2007 pursuant to the Delaware Statutory Trust Act, 12 Del. Code § 3801, et. seq., to acquire private student loans, collect payments from borrowers, and distribute gains to the holders of notes. (D.I. 54 at 4). The Trusts have no employees or internal management and rely on certain trust-related agreements to provide their operating structure. These agreements include trust agreements, administration agreements, servicing agreements, and indentures (collectively "Trust Related Agreements") and provide a structure that includes an Owner Trustee, Administrator, Indenture Trustee, Primary Servicer, Special Servicer, and Sub-servicers. (D.I. 54, 4-5).

WTC is the Owner Trustee of the Trusts. (D.I. 21 at 1). In this role, WTC "acts pursuant to the authority granted to it under Trust Related Agreements and can be directed by the equity owners of the Trust or the Administrator." (Id. at 2). Should a conflict arise between a directive by the equity owners and the terms of the Trust Related Agreements, the Trust Related Agreements control. (Id.).

GSS is the Administrator of the Trusts and is responsible for the administrative functions set forth in the Trust Related Agreements. (D.I. 12 at 1-2).

U.S. Bank serves as both the Indenture Trustee and Special Servicer. As Indenture Trustee, U.S. Bank is pledged all assets of the Trusts including, but not limited to, "the underlying student loans held by the Trusts, the collections from such loans, and the contractual agreements governing the Trusts' activities, including the servicing related agreements." (D.I. 36 at 4). As Special Servicer, U.S. Bank's role is to engage Sub-servicers. (D.I. 24 at 6).

PHEAA is the Primary Servicer for the Trusts and responsible for "customer service and correspondence, payment posting, and credit reporting duties" relating to student loans that are current in making payments or are no more than 30 days delinquent. (D.I. 20 at 2-3). PHEAA does not, however, file debt collection lawsuits against student loans on behalf of the Trusts. (Id.)

TSI is one of the Trusts' Sub-servicers and is responsible for the collection of delinquent debts and oversight of collection lawsuits against borrowers. (D.I. 54 at 5).

The Noteholders are a group of entities that collectively own approximately $1.4 billion in notes issued by the Trusts. (D.I. 11 at 1).

Lastly, Ambac is an insurance company that "has provided financial guarantee insurance with respect to securities in nine of the fifteen trusts." (D.I. 4 at 5). At times, Ambac is required to "pay policy beneficiaries the full amont of unpaid interest" as well as "unpaid principal at final maturity," which had accounted for payments of more than $350 million as of 2017. (Id.)

On September 18, 2017, following an investigation, the CFPB brought this action against the Trusts "to obtain permanent injunctive relief, restitution, refunds, disgorgement, damages, civil money penalties, and other appropriate relief for Defendants' violations of Federal consumer financial law in connection with Defendants' servicing and collection of private student loan debt." (D.I. 1 at 2). Despite alleging that the violations were the product of actions taken by Defendants' Sub-servicers and their agents and broadly blaming "Defendants' Servicers" as those at fault, the CFPB named only the Trusts as Defendants. (Id. at 2-6). The CFPB defined "Defendants' Servicers" as "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. . . ." (Id.).

On the same day it filed the Complaint, the CFPB filed a motion for approval of a Proposed Consent Judgment ("PCJ") creating obligations for the Trusts and their servicers. (D.I. 3-1). The PCJ was signed by the CFPB and attorneys for the McCarter & English law firm, purportedly on behalf of the Trusts. (Id.). Provisions of the PCJ include: the creation of a "Board" made up of a majority of the beneficial interests of each Trust and provides it oversight power with respect to all submissions and actions required by the Order, (Id. at 23); a requirement that the Trusts undertake an audit of all loans and create a compliance plan to be submitted to the CFPB Enforcement Director for review, (Id. at 15-23); and a requirement that the Trusts pay a fine, suspend certain collection activities, and redirect all payments to an escrow account controlled by Defendants. (Id. at 14, 24).

Running concurrently with this litigation are a number of state-court actions relating to whether the Trusts' equity owners could direct the WTC to sign the PCJ, whether the McCarter & English law firm had authority to act on behalf of the Trusts when it signed the PCJ, and whether McCarter & English is entitled to payment from Trust funds. See e.g. The National Collegiate Student Loan Master Trust, et al. v. Pennsylvania Higher Education Assistance Agency D/B/A American Educational Services, No. 12111-VCS (Del. Ch.); NCSLT v. PHEAA, C.A. No. 12111-VCS (Del. Ch.); NCSLT, et al., v. US. Bank National Association, et al., C.A. No. 2018-0167-VCS (Del. Ch.).

Movants filed their applications for intervention between September 20, 2017 and October 10, 2017. In response to the motions, the CFPB filed an omnibus opposition to five of the motions to intervene but did "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." (D.I. 54). The Trusts do not oppose the motions to intervene. (D.I. 55). On July 10, 2018, the Trusts' counsel of record, McCarter & English moved to withdraw, (D.I. 79). That motion was granted by the Court, (D.I. 80) and the Trusts remain unrepresented in this matter.

II. LEGAL STANDARD

Rule 24 of the Federal Rules of Civil Procedure provides that a court must permit a non-party to intervene as of right where that nonparty "claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest." Fed. R. Civ. P. 24(a)(2). The Third Circuit has "interpreted Rule 24(a)(2) to require proof of four elements from the applicant seeking intervention as of right: first, a timely application for leave to intervene; second, a sufficient interest in the litigation; third, a threat that the interest will be impaired or affected, as a practical matter, by the disposition of the action; and fourth, inadequate representation of the prospective intervenor's interest by existing parties to the litigation." Kleissler v. US. Forest Serv., 157 F.3d 964, 969 (3d Cir. 1998) (citing Mountain Top Condo. Ass'n. v. Dave Stabbert Master Builder, Inc., 72 F.3d 361, 365-66 (3d Cir. 1995); Development Fin. Corp. v. Alpha Haus. & Health Care, Inc., 54 F.3d 156, 161-62 (3d Cir. 1995); United States v. Alcan Alum., Inc., 25 F.3d 1174, 1181 (3d Cir. 1994); Brody v. Spang, 957 F.2d 1108, 1115 (3d Cir. 1992); Harris v. Pernsley, 820 F.2d 592, 596 (3d Cir. 1987)). The burden to establish a right to intervene falls squarely on the movant. Delaware Valley Citizens' Council for Clean Air v. Pennsylvania, 674 F.2d 970, 974 (3d Cir. 1982).

Alternatively, if a court does not find intervention proper as of right under Rule 24(a), Rule 24(b) provides the court discretion to permit intervention to any party that "has a claim or defense that shares with the main action a common question of law or fact," Fed. R. Civ. P. Rule 24(b)(1)(B), and where such an intervention will not "unduly delay or prejudice the adjudication of the original parties' rights." Fed. R. Civ. P. Rule 24(b)(3).

III. DISCUSSION

A. The Parties Do Not Oppose the Motions to Intervene Filed By Ambac, U.S. Bank as Indenture Trustee, and U.S. Bank as Successor Special Servicer.

The CFPB and the Trusts do not oppose the motions of Ambac (D.I. 4), U.S. Bank in its capacity as Successor Special Servicer (D.I. 33), and U.S. Bank in its capacity as Indenture Trustee (D.I. 35) to intervene in this action. In the absence of opposition, the Court will grant the motions of these entities to intervene.

B. The Remaining Entities, TSI, WTC, GSS, PHEAA, and Noteholders, Have A Right to Intervene Pursuant to Rule 24(a)(2).

1. Movants motions for intervention were timely.

Each of the remaining five movants ("Movants") has established that its application to intervene was timely.[1] In determining whether an application is timely, the Court must consider "(1) the stage of the proceeding; (2) the prejudice that delay may cause the parties; [and] (3) the reason for the delay." Mountain Top Condo., 72 F.3d at 369. Here, the Complaint and motion for approval of the PCJ were filed on September 18, 2017. (D.I. 1, D.I. 3). Each of the motions to intervene was submitted within thirty (30) days thereafter and before any additional substantive filings or actions in the case. The motions were filed at the earliest stages of this litigation. There was no delay. The Court concludes that the Movants have established the first element of the Kleissler test.

2. Movants each have a sufficient interest in the litigation, which may be affected or impaired by the disposition of the action.

A potential intervenor's interest is sufficient if it "is specific to them, is capable of definition, and will be directly affected in a substantially concrete fashion by the relief sought." Mountain Top, 72 F.3d at 972. When interests are merely economic, indefinite, remote, or attenuated, the interest is not sufficient. See Harris v. Pernsley, 820 F.2d 592, 601 (3d Cir. 1987); also Kleissler, 157 F.3d at 972; Mountain Top, 72 F.3d at 366. Non-parties do, however, have a sufficient interest in contesting the provisions of a consent order if the terms therein will impact their prior contractual obligations. EEOC v. AT&T, 506 F.2d 735, 739 (3d Cir. 1974).[2]

Once a potential intervenor establishes a sufficient interest, it bears the burden of establishing that that interest will be affected or impaired by disposition of the action. Brody, 957 F.2d at 1123. If a movant's interest will be impaired, the Court must consider "the practical consequences of the litigation and also consider any significant legal effect." Id. The Supreme Court has found that parties "may not impose duties or obligations on a third party, without that party's agreement." Local No. 93, Int'l Ass'n of Firefighters, AFL-CIO C.L.C. v. City of Cleveland, 478 U.S. 501,529 (1986). And in cases involving consent orders, the Third Circuit has found that "a consent decree affecting third party rights should not be entered without affording such parties an opportunity to be heard." Util. Contractors Ass'n of New Jersey, Inc. v. Toops, 507 F.2d 83, 86 n.2 (3d Cir. 1974).

Here, each of the Movants has contractual obligations related to the Trusts that would be impacted should this Court grant the PCJ. Moreover, each Movant has shown that it has interests in the Trust Related Agreements that are likely to be modified or invalidated or otherwise impacted by the PCJ.

As noted above, WTC, the Owner Trustee, is a party to certain Trust Related Agreements that provide WTC with ministerial responsibilities as well as discretion to act when a directive presented by the equity owners is contrary to those agreements. (D.I. 31 at 2-3). WTC argues that it has interests in ensuring compliance with the Trust Related Agreements, and those interests will be impaired if it is unable to intervene, because under the PCJ it will be forced to act contrary to contractual obligations. (D.I. 64 at 3-4). It argues that the PCJ provides the equity owners with the ability to act on behalf of the Trusts and engenders in the equity owners the authority to oversee and control compliance with the PCJ. This, WTC asserts, would impair its own contractual obligations that require WTC to prevent the Trusts from taking actions in violation of the Trust Related Agreements by the equity owners. (Id. at 5-6).

GSS, as the Administrator, is party to certain Trust Related Agreements with the Trusts that govern certain functions of the Trusts' day-to-day activities. (D.I. 11 at 1-2). GSS asserts that the approval of the PCJ will create conflicting or unclear obligations for it as the PCJ conflicts with its obligations under certain Trust Related Agreements with respect to payments to, collections by, and authority over the Trusts and its servicers. (Id. at 9-10). Specifically, GSS argues that the PCJ will prevent it "from carrying out certain of its duties [including payments to noteholders] under the Administration Agreements and other Trust Related Agreements" and take instructions from an entity contrary to its requirements under Trust Related Agreements. (D.I. 66 at 2-3). Moreover, GSS asserts that it falls under the broad definition of "Defendants' Servicer" in the PCJ and thus may improperly be forced to act or refrain from acting in accordance with the PCJ. (Id. at 4).

PHEAA, as the Primary Servicer for the Trusts, has obligations under Trust Related Agreements including "customer service and correspondence, payment posting, and credit reporting" duties. (D.I. 20 at 2-3). It is not responsible for collecting delinquent debts or pursuing related lawsuits. (Id. at 3). PHEAA asserts the PCJ would usurp its current contractual rights and responsibilities with new "massive obligations . . . that go well beyond PHEAA's duties under the Servicing Agreement." (Id. at 5). For example, PHEAA argues that the PCJ "imposes additional obligations that are beyond what PHEAA agreed in the Servicing Agreement," including additional extensive audits. (D.I. 65 at 2). According to PHEAA, these new obligations will cause increases in expenditures and employee time beyond what was contemplated and agreed to in the Trust Related Agreements. (Id. at 4).

TSI, as one of the Trusts Sub-servicers, has entered into Trust Related Agreements ("Special Sub-Servicing Agreements") with the Trusts' Special Servicer, U.S. Bank, which govern TSI's role in collections and collection lawsuits against borrowers. (D.I. 54 at 5). TSI asserts that the PCJ will interfere with its contractual obligations with the Special Servicer, U.S. Bank. (D.I. 9 at 2). Additionally, TSI has already entered a consent judgment with the CFPB and points out that the approval of the PCJ may create conflicting obligations relating to reporting structures and compliance programs. [3] (D.I. 72 at 7).

The Noteholders collectively own an aggregate of approximately $1.4 billion of notes issued by the Trusts and are subject to Indentures. (D.I. 11 at 1, 3). Pursuant to the Indentures, the Noteholders have rights to approve modifications of Indentures and to receive payments from trust principal and interest. (D.I. 67 at 2). The Noteholders assert that the PCJ would replace these rights in favor of the equity owners and thus Noteholders rights would be impacted. (Id. at 1-3).

Based upon the above, the Court finds that each of Movants has shown a significant interest in the litigation, in that each has shown that it is a party to certain Trust Related Agreements that will be impacted if the PCJ is approved. The Court finds that Movants have each shown that their interests are sufficiently specific and will be directly affected, and thus each has satisfied the second and third Kleissler factors.

3. Movants interests are not adequately represented by an existing party.

Movants have also shown that their interests in this litigation are not adequately represented by any existing party. "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, 957 F.2d at 1123 (citation omitted); Nat'l Collegiate Athletic Ass'n v. Corbett, 296 F.R.D. 342, 349 (M.D. Pa. 2013).

Here, the Trusts do not claim to be representing the interest of the Movants, and do not appear to be representing those interests. The Trusts have no employees and no legal representation.[4] This raises the question whether the Trusts interests are being represented — let alone the Movant's interests.

Additionally, the CFPB appears to acknowledge that there is no adequate representation for all but one of the Movants — the Noteholders. In addressing the fourth Kleissler factor, the CFPB asserts "[t]he 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." (D.I. 54 at 28). No rebuttal is offered with respect to the arguments raised by the other Movants.

The Noteholders, in reply, identify divergent interests from U.S. Bank that may arise during later negotiations or settlements. For example, the Noteholders assert that where the CFPB has claimed that U.S. Bank is among the parties responsible for the allegedly improper collections lawsuits filed on behalf of the Trusts, (D.I. 67 at 6), its misconduct creates a divergent interest that could prevent U.S. Bank from adequately representing the interests of the Noteholders in terms of a settlement. (Id.). The Court agrees that the interests of the Noteholders sufficiently diverge from U.S. Bank and that U.S. Bank cannot fully represent the Noteholders interests.

C. Intervention is Also Appropriate Under Rule 24(b)

Even if the Movants had failed to make the requisite showing under Rule 24(a), the Court finds that Movant's motions should be granted pursuant to Rule 24(b). Rule 24(b) provides the Court with broad discretion to allow intervention where a movant shows a "claim or defense that shares with the main action a common question of law or fact," and that such an intervention would not "unduly delay or prejudice the adjudication of the original parties' rights." See Brody, 957 F.2d at 1115-16 (describing the decision of whether to grant intervention under 24(b) as a "highly discretionary decision").

As discussed above, each of the Movants has issues that share a common question of law or fact with the underlying action — some have been blamed for the conduct underlying the lawsuit and some have contractual obligations that will be impacted by approval of the PCJ. With regard to prejudice and delay, the Court does not find that the participation of relevant parties in protecting their contractual rights, beginning at the very inception of this litigation, would create any undue delay or prejudice on the CFPB or the Trusts. Indeed, where, as here, the Trusts are unrepresented and significant questions exist regarding the authority of prior counsel to sign the PCJ on behalf of the Trusts, and over the objection of the Owner Trustee, WTC, the Court finds that allowing the participation of parties who have an interest in the litigation to have a say would be judicially expedient.

D. The Court Will Not Limit the lntervenors' Participation.

The CFPB asks that, if the Court grants the motions to intervene, "it should limit intervenors' participation in this lawsuit to objecting to entry of the Proposed Consent Judgment." (D.I. 54 at 29). It asserts that "it can be appropriate to limit an intervenor's participation to a `discrete phase[] of an action' — such as the `remedial stage' — because the 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." (Id. at 30) (citing Harris v. Pernsley, 820 F.2d 592, 599 (3d Cir. 1987)). The Court, however, is mindful of the Supreme Court's precedent that "of course, a court may not enter a consent decree that imposes obligations on a party that did not consent to the decree." Local No. 93, 478 U.S. at 529 (emphasis added). Here, based on the evidence provided, and a consideration of the PCJ in light of the Trust Related Agreements, the Court finds that a later-entered consent decree may well impose obligations on the intervenors that would require their approval. Thus, the Court will not limit the intervenors' participation in this litigation.

IV. CONCLUSION

For the foregoing reasons, the Motions to Intervene filed by Ambac (D.I. 4), TSI (D.I. 9), the Noteholders (D.I. 11), GSS (D.I. 12), PHEAA (D.I. 20), WTC (D.I. 31), U.S. Bank (D.I. 33, 35) will be GRANTED and the Court will place no limitation on the Intervenors' right to participate in this action. An appropriate order will follow.

[1] The CFPB opposes the remaining motions to intervene, but it has not asserted that the motions are untimely.

[2] In EEOC, a union sought to intervene as a plaintiff to challenge a consent decree negotiated by the EEOC and AT&T, which would affect the union's contractual rights as established in a collective bargaining agreement with AT&T. Id. at 741. Though the Court found that intervention as a plaintiff under Rule 24(a) was not proper, it found the union would be entitled to intervention as a party defendant because the movant "has an interest in the provisions of its collective bargaining agreements . . . which may well be modified or invalidated by the . . . consent decree . . . made in its absence and, equally clearly, its continuing ability to protect and enforce those contract provisions will be impaired or impeded by the consent decree." Id. at 741-42.

[3] TSI also has raised an issue of statutory interpretation questioning whether the Defendant Trusts properly fall under the "covered person" definition embodied in the Consumer Financial Protection Act, a question that might require further briefing to determine the Court's jurisdiction over this matter. (Id. at 2).

[4] The law firm representing the Defendants, McCarter & English, has recently withdrawn, leaving the Trusts unrepresented in this litigation.