The opinion of the court was delivered by: LAMBERTH
This matter comes before the court on remand from the Court of Appeals, Armstrong v. Accrediting Council for Continuing Education and Training, Inc., 318 U.S. App. D.C. 78, 84 F.3d 1452 (D.C. Cir. 1996) (unpublished table decision), and on defendants' renewed motions to dismiss plaintiff's remaining claims pursuant to Fed. R. Civ. P. 12(b)(2) and (6). In the alternative, defendants seek summary judgment on these claims. For the reasons stated below, defendants Bank of America, California Student Loan Finance Corporation, Higher Education Assistance Foundation and the Secretary of Education's motions to dismiss are granted in full in accordance with this opinion.
As this motion comes before the court under Fed. R. Civ. P. 12(b)(2) and (6), defendants must prove that there is no set of facts upon which plaintiff is entitled to relief as a matter of law. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957) All allegations set forth in the complaint must be accepted as true and liberally construed in favor of plaintiff and all reasonable inferences must be drawn in favor of plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). The complaint should be dismissed only if it appears beyond doubt that there is no set of facts proffered in support of plaintiff's claim that would entitle her to relief. Conley, 355 U.S. at 45-46; Haynesworth v. Miller, 261 U.S. App. D.C. 66, 820 F.2d 1245, 1254 (D.C. Cir. 1987).
Plaintiff Vanessa Armstrong enrolled in the Washington, D.C. campus of NBS Automotive School ("NBS"), a for-profit vocational school, in June 1988. At the time of her enrollment, NBS informed plaintiff that tuition for the program would exceed $ 5,000 but that the school could arrange a guaranteed student loan ("GSL") to pay most of the charges. According to plaintiff's amended complaint, NBS represented to her that its program was accredited by the Accrediting Council for Continuing Education and Training ("ACCET"), approved by the D.C. Educational Licensure Commission and certified by the Department of Education ("DOE" or "Department") as an "eligible institution" under the GSL program and the Higher Education Act of 1965, 20 U.S.C. §§ 1070 et seq. ("HEA"). Plaintiff Armstrong paid $ 1,317.91 directly to NBS, and NBS presented her with a loan application and promissory note for a GSL loan of $ 4,000, representing the balance of the tuition and fees.
According to the amended complaint, NBS "prepared the loan application and promissory note presented to plaintiff Armstrong, selected the lender and guarantee agency, specified the type of loan, determined the loan amount, made disclosures concerning the terms of the GSL loan, had plaintiff sign the promissory note, and disbursed the loan proceeds." Plaintiff's Amended Complaint at 8. The note provided that the loan was to be issued by First Independent Trust Company of California ("FITCO"), with the Higher Education Assistance Foundation ("HEAF") acting as guarantor. Plaintiff signed the application and the note on July 19, 1988. NBS certified that plaintiff met eligibility requirements for the loan, at which time FITCO and HEAF approved the loan and paid the proceeds to NBS.
Bank of America ("BA"), an eligible lender under 20 U.S.C. § 1085(d), subsequently purchased the plaintiff's GSL as trustee for the California Student Loan Finance Corporation ("CSLFC"), a corporation which acquires student loans under the HEA. BA is the current "holder" of the note. See 20 U.S.C. § 1085(i). FITCO, the original lender, was not named as a defendant in this action.
In or about December 1989, NBS closed its school in the District of Columbia. At the time of the filing of her amended complaint, plaintiff had made payments on her GSL loan of over $ 1,500. Over the ten year repayment period of the loan, the total of the monthly payments and interest is $ 7,565.76.
The gravamen of plaintiff's complaint is that she was defrauded by NBS, that the school was "a sham because it did not meet the standards for accreditation and failed to provide the educational training it promised," Plaintiff's Amended Complaint at 1-2, and that she should not be required to repay her creditors for an education she never received. She claims that NBS was falsely accredited, and that she reasonably relied on NBS's representations concerning its program in deciding to enroll. Plaintiff initially filed a four-claim complaint, naming as defendants CSLFC, BA, HEAF, the Secretary of Education ("the Secretary") (as ultimate guarantor of all GSLs) and ACCET, the agency that granted accreditation to NBS, allowing the school to qualify for federal funds under the HEA. Plaintiff filed her amended complaint in October 1993 pursuant to this court's order in Armstrong v. Accrediting Council for Continuing Education & Training, Inc., 832 F. Supp. 419, 435 (D.D.C. 1993) ("Armstrong I "), revising her claims against the Secretary and ACCET. Significantly, NBS has never been a party to this action.
In Armstrong I, this court held first that plaintiff could not assert a cause of action against defendants CSLFC/BA
, HEAF, or the Secretary on common-law contract grounds of mistake or illegality.
Armstrong I, 832 F. Supp. at 426-27. Second, the court dismissed claims asserted under various sections of the D.C. Code, including §§ 28-3807, 3809 and 3813(f), concluding that although the HEA does not explicitly or implicitly preempt all state law, the particular statutory claims asserted by plaintiff were preempted because it was either impossible for an individual to abide by both the state law and the HEA, or enforcement of the D.C. statutory claims would preclude execution of the purposes and objectives of the HEA. See id. at 427-31. Third, the court dismissed both federal law and D.C. statutory/regulatory claims purportedly arising under the FTC Holder Rule, 16 C.F.R. § 433.2. See id. at 431-33. Finally, this court dismissed plaintiff's claims based on the existence of an "origination relationship" under 34 C.F.R. § 682.200 between the school and the initial lender against all defendants except the Secretary. See id. at 433-34.
On appeal, the D.C. Circuit vacated the above ruling and remanded the matter for further consideration. Armstrong v. Accrediting Council for Continuing Education & Training, Inc., 318 U.S. App. D.C. 78, 84 F.3d 1452 (D.C. Cir. 1996) ("Armstrong II ") (unpublished table decision). The Court of Appeals directed this court to consider first whether, in the absence of any remaining federal law claims, jurisdiction should be maintained under 28 U.S.C. § 1367(C)(3). After reviewing the written submissions and oral arguments of all parties, the court decided to exercise jurisdiction and reach the merits of plaintiff's case, and further determined that declaratory relief was appropriate as to the pendent state claims. Armstrong v. Accrediting Council for Continuing Education & Training, Inc., 950 F. Supp. 1 (D.D.C. 1996) ("Armstrong III ").
Having decided to exercise its jurisdiction, this court must now consider the remaining questions presented to it by the Court of Appeals. Specifically, this court is called upon to: 1. determine applicable state law under contemporary choice of law principles; 2. consider whether that law is preempted by the federal Higher Education Act; and, 3. if the state law is not preempted, review the application of the relevant law to plaintiff's claims.
Second, the Secretary has now moved to dismiss the claims against him based upon an alleged "origination relationship" between NBS and FITCO. This court will address that question pursuant to the Secretary's and HEAF's Renewed Motion to Dismiss.
Finally, in plaintiff's amended complaint, her second claim for relief alleges a cause of action against the Secretary under 20 U.S.C. §§ 1087(c)(1),(5) which directs the Secretary to discharge a borrower's liability by repaying the amount owed on the loan on all GSLs received on or after January 1, 1986 and report such discharge to credit bureaus if the student's eligibility under the HEA was falsely certified by the institution or if the student was unable to complete the program due to closure of the institution. Plaintiff alleges that she has been injured by the failure of the Secretary to perform these statutory obligations, and asks for relief in the form of a declaratory judgment and a writ of mandamus compelling the Secretary to perform his duties.
In her complaint, plaintiff asserted a number of causes of action under District of Columbia law, including, inter alia, D.C. Code §§ 28-3809(a)(1), 28-3904(a),(b),(e),(f),(r); 28-3807; and 16 D.C. Mun. Regs. § 1212.1. However, the Supplemental Loan for Students (SLS) Application/Promissory Note signed by plaintiff included the following provision:
To the extent not governed by federal law, this note shall be governed by the laws of the jurisdiction where the lender is located.
The original lender, FITCO, was located in Sacramento, California; BA/CSLFC are also California based. If the contractual choice of law provision is held operative and binding, California law would govern this case, thereby rendering all of plaintiff's District of Columbia claims invalid, with the exception of her claims based upon common-law principles of mistake and illegality, which, as discussed below, have previously been considered and dismissed by this court. See Armstrong I, 832 F. Supp. at 426-27. Whether a choice of law clause in a student loan contract is enforceable is a matter of first impression in this jurisdiction.
A federal court is directed to apply the choice of law rules for the forum in which it sits. See A.I. Trade Finance, Inc. v. Petra International Banking Corp., 314 U.S. App. D.C. 122, 62 F.3d 1454, 1463-64 (D.C. Cir. 1995) ("In other settings in which a federal court must rule upon an issue regulated only by state law, it applies the forum state's choice of law rules . . . ."). See also Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941) ("It is not for the federal courts to thwart such local policies by enforcing an independent "general law" of conflict of laws."). Consequently, this court will apply choice of law doctrine from the District of Columbia.
Before addressing the applicability of the choice of law clause in the loan contract, there exists a threshold question as to which jurisdiction's law would apply absent the clause. To determine controlling law, the District of Columbia follows an "interest analysis" approach. The law governing the case is the law of the jurisdiction with the most "significant relationship" to the matter at issue. Trout Unlimited v. United States Dep't of Agriculture, 944 F. Supp. 13, 19 (D.D.C. 1996) (citing Church of Scientology Int'l v. Eli Lilly & Co., 848 F. Supp. 1018, 1026 (D.D.C. 1994)); see also Greycoat Hanover F. Street Limited Partnership v. Liberty Mutual Insurance Co., 657 A.2d 764, 767-68 (D.C. App. 1995) (noting that the fact that an incident occurred in D.C. is not independently sufficient to require the application of D.C. law). Plaintiff Armstrong is a Maryland resident and NBS is a Maryland corporation. The initial lender, FITCO, was a California corporation that made the loan from California. Plaintiff's loan payments were mailed to CSLFC in California; BA, the current holder of the note, is also located in California. Finally, the NBS branch plaintiff attended was located in the District of Columbia, and the loan that is the subject of this action was negotiated and signed by plaintiff at NBS' facilities in the District of Columbia. Consequently, any of one of three jurisdictions has a substantial nexus to this transaction, and an argument could be made under D.C.'s prevailing "interest analysis" choice of law doctrine that its law should apply.
As among these three options, this court holds that District of Columbia law would govern this action absent the choice of law clause from the loan contract. First, there is authority for the proposition that when a consumer purchases goods and services in the District, the law of the District governs the contract. McCrossin v. Hicks Chevrolet, Inc., 248 A.2d 917, 920-21 (D.C. App. 1969). Here, the purchase of the services -- the signing of the loan agreement -- occurred in D.C. In addition to being the place of contracting, D.C. was also the place of performance and the location of the subject matter of the contract, NBS. These factors tip the balance in favor of recognizing D.C. law as the relevant law but for the choice of law clause.
District of Columbia choice of law doctrine recognizes the ability of parties to select the operative law they wish to govern a transaction as part of their freedom of contract, provided that the jurisdiction selected has a "substantial relationship" to the parties or the transaction. Norris v. Norris, 419 A.2d 982, 984 (D.C. App. 1980). A recent enunciation of this "substantial relation" test, recognizing the validity of a choice of law clause, is found in Ekstrom v. Value Health Inc., 314 U.S. App. D.C. 340, 68 F.3d 1391, 1394 (D.C. Cir. 1995), in which the court cited Norris and upheld the selection of Connecticut law on contracts and arbitrability because the surviving entity in a merger operated principally in Connecticut. See also Gray v. American Express Co., 240 U.S. App. D.C. 10, 743 F.2d 10, 17 (D.C. Cir. 1984) (applying Maryland choice of law principles in upholding the contractual selection of New York law because one of the parties was a New York corporation and the choice bore some substantial relation to the parties or their transaction); cf. Milanovich v. Costa Crociere, 293 U.S. App. D.C. 332, 954 F.2d 763, 767 (D.C. Cir. 1992) (noting that under American law, choice of law provisions are usually honored); Restatement (Second) of Conflict of Laws § 187 (1971).
There is little question that California has a substantial relation to the loan transaction at issue. FITCO, the initial lender, was a California based corporation (as are BA and CSLFC) located in Sacramento. The location of one of the two parties to the loan contract in California creates the critical nexus between the transaction and the jurisdiction indicated in the choice of law clause such that this court is compelled to apply that forum's law. See Gray, 743 F.2d at 17 (holding that because American Express was a New York corporation, there was a sufficient basis to defer to the clause calling for the application of New York law). Also contributing to California's "substantial relation" is the fact that the loan was approved by FITCO in California, and the plaintiff made her payments to CSLFC in California.
Plaintiff's opposition to the validity of the choice of law clause does not take issue with this application of the "substantial relation" test. Rather, she seeks to avoid the effects of the choice of law provision by claiming that the purpose of the clause was to frustrate the protections afforded by D.C.'s consumer protection laws. See Plaintiff's Opening Memorandum on Resolution of the Merits on Remand at 17 ("Plaintiff's Opening Memorandum"). It is a general principle of choice of law doctrine that if a party or parties stipulate to a given forum's law, that stipulation will not be given effect if it is included for the express purpose of evading otherwise applicable law or is contrary to either public policy or a statute enacted for the protection of that state's citizens. See, e.g., Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir. 1996) (outlining situations under which choice of law and choice of forum provisions may be found unreasonable); 16 Am. Jur. 2d Conflict of Laws § 78 (1979).
However, the GSL loan contract under consideration here does not present the type of situation in which courts typically invalidate choice of law provisions. FITCO did not deliberately or willfully select California law with the nefarious purpose of avoiding the effect of District of Columbia consumer protection laws. Nor did FITCO endeavor to select a state with particularly relaxed consumer protection laws. The forum selection clause in question is boilerplate language which calls for the application of "the laws of the jurisdiction where the lender is located." It does not specify the selection of any one particular state. Under this clause, had the lender been a District of Columbia bank, the loan contract would have called for the application of District of Columbia law. Had the lender been a Texas bank, the choice of law clause would have directed this court to apply Texas law. In the instant case, because the lender was a California bank, the choice of law clause mandates the application of California law. It may very well be the case that California has a more generous body of consumer protection law than does the District of Columbia. The purpose of this clause had nothing to do with avoiding the District's laws or its public policies. It is both rational and reasonable for a lender to operate consistently under laws of its home state, rather than be forced to operate under 51 different laws depending upon the location of the "object of the loan contract," which is the result that plaintiff's argument would compel.
Furthermore, this is not a case, as plaintiff characterizes it, where a lender seeks to "evade these statutes by making his own laws applicable." Plaintiff's Opening Memorandum at 17 (citing A. Ehrenzweig, A Treatise on Conflict of Laws § 204, at 523 (1962)). The choice of law clause was not inserted by FITCO. FITCO was utilizing HEAF's standard form promissory note, as it was required to do by law. The note in question, with its boilerplate choice of law clause, was approved by DOE for use throughout the United States. See 34 C.F.R. § 682.401(d)(1)(1990) ("The guaranty agency shall submit to the Secretary its application forms, promissory notes and write-off criteria and procedures. The agency shall not use these materials until the Secretary approves them."). This is hardly the paradigmatic situation in which lenders are trying to "frustrate statutes designed to regulate their conduct." Plaintiff's Opening Memorandum at 18. Rather, FITCO was using the loan form that ...