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Wellisch v. Pennsylvania Higher Education Assistance Agency

United States District Court, N.D. California, San Jose Division

June 2, 2017



          BETH LABSON FREEMAN United States District Judge

         Plaintiff Christian Wellisch brings this suit, which was originally filed in state court, against Defendants Pennsylvania Higher Education Assistance Agency (“PHEAA”) and James L. Preston (collectively, “Defendants”), claiming that Defendants failed to comply with the California Military and Veterans Code (“CMVC”) and the Federal Servicemembers Civil Relief Act (“SCRA”). See generally Ex. B to Notice of Removal (“Compl.”), ECF 1-2. Captain Wellisch's claims arise out of issues related to PHEAA's servicing of his student loans while he was on active duty as a commissioned officer in the California Army National Guard (“CAARNG”). Id. ¶¶ 8-9, 11.

         Presently before the Court is Defendants' motions to dismiss all of the claims against them. See generally PHEAA Mot., ECF 9; Preston Mot., ECF 10. Pursuant to Civ. L.R. 7-1(b), the Court finds Defendants' motions suitable for submission without oral argument and hereby VACATES the hearing scheduled for June 8, 2017. For the reasons stated herein, the Court GRANTS Defendants' motion to dismiss WITH LEAVE TO AMEND.

         I. BACKGROUND

         Wellisch is a Captain in the California Army National Guard, and was called up to active duty overseas on two occasions between 2015 and 2016, the first from February to September of 2015, and the second from February to October 2016. Compl. ¶¶ 9, 10. During this time, Wellisch lost his eligibility for Income-Based Repayment (“IBR”) of his student loans. Id. ¶¶ 8, 11-15, 17. IBR is an income-driven repayment (“IDR”) plan for federal student loans provided for in the College Cost Reduction and Access Act, pursuant to which monthly payments are calculated based on the borrower's annual income. See 34 C.F.R. § 682.215; Compl. ¶ 8. Eligibility for IBR requires the existence of partial financial hardship, as defined in 34 C.F.R. § 682.215(a)(4). Partial financial hardship must be certified annually. 34 C.F.R. § 682.215(e). A qualifying person obtains substantial reduction in monthly repayment obligations.

         Wellisch's student loans were disbursed between August 2010 and September 2012, before he was called to active duty service. Compl. ¶ 8. PHEAA is Plaintiff's loan servicer, and Preston is the President and Chief Executive Officer (“CEO”) of PHEAA. Id. ¶¶ 4, 5. Wellisch alleges that despite concerted efforts to ensure continuation of his IBR payment plan without interruption, PHEAA determined that Wellisch no longer had a partial financial hardship, rendering him ineligible for the IBR plan. Id. ¶17. This determination triggered capitalization of interest on his loans and resulted in increased monthly payment amounts. Id.

         Wellisch filed this action in Monterey County Superior Court on December 28, 2016, alleging that Defendants failed to comply with the CMVC and SCRA. See generally Compl. Defendants subsequently removed the action to this Court. ECF 1. Wellisch seeks relief from fine or penalty, pursuant to CMVC § 403 and relief from pre-service liability, pursuant to CMVC § 409, and brings claims for unfair business practices under Cal. Bus. & Prof. Code § 17200 et seq., the SCRA, and suppression of fact under Cal. Civ. Code § 1710(3). See generally Id. On April 24, 2017, the Court remanded Plaintiff's MIL 010 Petition to the Monterey County Superior Court and stayed his claim under CMVC § 409.3 pending the result of his equivalent claim in the state court proceeding.[1] ECF 40. Defendants now move to dismiss Plaintiff's claims.


         “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted ‘tests the legal sufficiency of a claim.'” Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts as true all well-pled factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not “accept as true allegations that contradict matters properly subject to judicial notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations omitted). While a complaint need not contain detailed factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.


         A. PHEAA's Motion to Dismiss

         PHEAA contends that Wellisch's motion relies on statutory requirements that do not exist or do not apply, and thus, he fails to state a claim for relief pursuant to Rule 12(b)(6). See generally PHEAA Mot. Captain Wellisch opposes PHEAA's motion. See Opp'n to PHEAA Mot., ECF 12.

         As a preliminary matter, the Court first addresses an issue raised in Wellisch's opposition to Preston's motion to dismiss that was also raised in his prior motion to remand: whether PHEAA may litigate this matter. Opp'n to Preston Mot. 3. Specifically, Captain Wellisch claims that PHEAA was and continues to be legally barred from taking any litigation action as a suspended corporation. Id. The Court rejected this argument in its initial order denying Plaintiff's motion to remand, and does so here for the same reasons previously enunciated. See ECF 40. Finding that PHEAA can properly litigate this action, the Court next addresses the adequacy of Plaintiff's allegations under the SCRA, which provides the basis for this Court's jurisdiction.

         i. The ...

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