Metropolitan News-Enterprise


Wednesday, December 3, 2008


Page 3


C.A. Rules Attorney Cannot Sue to Defer Repaying Law School Loans


By a MetNews Staff Writer


A Eureka attorney cannot use the federal Higher Education Act to sue his lenders for declining to grant him an economic hardship deferral of student loan repayments, the First District Court of Appeal has ruled.

Explaining that the act’s regulations do not provide a private right of action, Div. Four upheld a trial court’s order sustaining demurrers by lenders Sallie Mae Inc. and EdFund to Steven T. Davies’ complaint without leave to amend, in an opinion ordered published Monday.

Davies obtained federal Stafford student loans from Sallie Mae Inc. and EdFund to fund his education between 1993 and 1997, but sought—and received—deferment of his repayment obligations on economic hardship grounds for seven years following graduation from the New College of California School of Law in 1998.

In connection with his deferment requests, the lenders requested, and Davies provided, verification of his income and economic hardship status for three years in the form of letters from his employer.

However, in 2005 the lenders placed Davies’s loans in default and commenced collection activities, so he filed suit, alleging breach of a contract formed between his employers and the lenders as a result of the letters, to which he was a third-party beneficiary.

Davies further alleged breach of the terms of a promissory note governing the loans with respect to default and acceleration, which stated that the note was to be interpreted “in accordance with the Higher Education Act of 1965…, other applicable federal statutes and regulations, and the guarantor’s policies.”

A Humboldt Superior Court judge sustained the lenders’ demurrers for failure to state a claim, and Davies appealed, but the panel—in an opinion by Presiding Justice Ignazio J. Ruvolo—upheld the trial trial court, noting first that the letters failed to meet the definition of a contract.

Ruvolo rejected Davies’s claim for breach of the promissory note because the claim necessarily required litigation on the federal act, which contains no private right of action.

Citing the Ninth U.S. Circuit Court of Appeals’ decision in Parks School of Business, Inc., v. Symington (1995) 51 F.3d 1480, he wrote that Congress intended an action by the Secretary of Education to be the exclusive means for ensuring a lender’s compliance with the act.

“By alleging misconduct for refusing to grant Davies a continued deference or forbearance of loan repayment, Davies seeks to litigate the issue of whether he should have been granted a forbearance or deferment,” Ruvolo wrote.

“This he cannot do, since the Code of Federal Regulations governs forbearances or deferments, and enforcement of the same is left to the Secretary.” 

Davies, who unsuccessfully ran for a seat on Humboldt Bay Municipal Water District this year, could not be reached for comment.

Justices Patricia K. Sepulveda and Maria P. Rivera joined Ruvolo in his opinion.

The case is Davies v. Sallie Mae, Inc., 08 S.O.S. 6503.


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