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EDUCATIONAL CREDIT MGMT. CORP. v. FRONT PORCH TELEMARKETING

December 8, 2005.

EDUCATIONAL CREDIT MANAGEMENT CORPORATION, Plaintiff,
v.
THE FRONT PORCH TELEMARKETING a/k/a THE FRONT PORCH INC., Defendant.



The opinion of the court was delivered by: WILLIAM ALSUP, District Judge

ORDER GRANTING DEFAULT JUDGMENT

INTRODUCTION

Plaintiff Educational Credit Management Corporation ("ECMC") moves for default judgment against defendant The Front Porch Telemarketing ("Front Porch"). Front Porch has never appeared in this action and did not appear at the hearing on this motion. Review of the Eitel factors favors entry of default judgment. Accordingly, plaintiff's application is GRANTED.

  STATEMENT

  Plaintiff ECMC is a guaranty agency covered under the Federal Family Education Loan Program ("FFELP"), a federal-government program designed to encourage private lenders to finance students' post-secondary education (First Amd. Compl. ¶¶ 5,8). See 20 U.S.C. 1071(a)(1)(A). Such guaranty agencies assist implementation of FFELP by paying loans made by eligible lenders and paying the holders of the loan if a student defaults (First Amd. Compl. ¶ 6). As a means of collecting defaulted loans, guaranty agencies have the authority to issue withholding orders to employers of borrowers in default. 20 U.S.C. 1095a. These orders may require the employers to garnish and remit up to ten percent of the borrowers' disposable income, except as otherwise limited by federal law. Ibid.; 15 U.S.C. 1673.

  Karl W. Redmon owes student-loan debt to ECMC that is in default (First Amd. Compl. ¶ 9). Mr. Redmon's debt consists of three separate loans, with the balance of the debt at $11,624.55 as of October 23, 2005 and a daily-interest accrual of $1.25 (Gunderman Decl. ¶ 9). ECMC issued a notice to Mr. Redmon of default and he made no request for a hearing as permitted by statute (First Amd. Compl. at ¶¶ 10-11). On June 29, 2004, ECMC issued a withholding order to Mr. Redmon's employer, Front Porch, requesting that ECMC garnish Mr. Redmon's wages to the full amount permitted by statute (Gunderman Decl. at ¶ 6 & Exh. B). ECMC issued a subsequent notice to Front Porch after it failed to comply with the order (id. at ¶ 7 & Exh. C). Front Porch has yet to remit any of Mr. Redmon's wages in accordance with the order (id. at ¶ 8; First Amd. Compl at ¶ 13).

  On June 28, 2005, ECMC filed an amended complaint against Front Porch demanding injunctive relief for it's failure to comply with the withholding order in violation of 20 U.S.C. 1095a and damages in the amount that defendant should have withheld from Mr. Redmon's wages. ECMC served the summons and first amended complaint on Front Porch on July 25, 2005 (Hiser Decl. ¶ 3). After Front Porch failed to respond, ECMC sought an entry of default. The Clerk entered default on September 28, 2005 (id. at ¶ 4). ECMC now moves for default judgment, seeking relief for Front Porch's alleged violation of 20 U.S.C. 1095a.

  ANALYSIS

  Under Federal Rule of Civil Procedure 55(b)(2), a party can apply to the court for entry of judgment by default. "The district court's decision whether to enter a default judgment is a discretionary one." Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The following factors are considered:
(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute concerning the material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). For the following reasons, these factors favor entry of default judgment in this case.
  1. MERITS OF SUBSTANTIVE CLAIMS AND SUFFICIENCY OF THE COMPLAINT.

  After entry of default, well-pleaded factual allegations in the complaint are taken as true, except as to the amount of damages. Fair Hous. of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). The merits of plaintiff's substantive claims and the sufficiency of the complaint are thus considered in tandem.

  Plaintiff seeks relief under 20 U.S.C. 1095a, which provides that guaranty agencies may garnish up to ten percent of the earnings from a borrower who has defaulted on a student loan, except as reduced by 15 U.S.C. 1673. Guaranty agencies garnish the wages by issuance of a withholding order to the borrower's employer. 20 U.S.C. 1095a. When an employer fails to pay the guaranty agency as directed in the withholding order, the guaranty agency may seek relief in federal court. 20 U.S.C. 1095a(a)(6).

  Plaintiff's allegations of liability are sufficient. Front Porch is alleged to have "refused to comply with the Withholding Order" (First Amd. Compl. ¶ 13). No Ninth Circuit authority exists interpreting the garnishment provisions. The statute, however, makes clear that compliance or non-compliance with a withholding order is the sole question with respect to an employer's liability under 20 U.S.C. 1095a(a)(6). See, e.g., Educ. Credit Management Corp. v. Cherish Prods., Inc., 247 F. Supp. 2d 1132, 1134 (D. Minn. 2003) (finding the defendant "liable because it was obligated to withhold wages . . . and failed to do so"). No defenses are available under the statute for an employer that fails to so comply. 20 U.S.C. 1095a(a)(6); see also Educ. Credit Management Corp. v. Cherish Prods., Inc., 312 F. Supp. 2d 1183, 1186 (D. Minn. 2004) (holding that only defense provided in statute extends to defaulting borrower, not the borrower's employer). Plaintiff, therefore, has stated a claim under the statute. This weighs in favor of default judgment.

  2. THE REMAINING EITEL FACTORS.

  This order finds that the remaining Eitel factors likewise favor entry of default judgment. To deny plaintiff's application would leave plaintiff without a remedy. Morever, defendant has refused to litigate this action here after being properly served with the complaint and summons. Since Front Porch never filed an answer to the complaint or appeared at the hearing, it is unclear whether there is a possibility of dispute concerning the material facts. There is no evidence that Front Porch's failure to respond was the result of excusable neglect. Although federal policy may favor a decision on the merits, FRCP 55(b) permits entry of default ...


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