April Brannan v. United Student Aid Funds, Inc.

94 F.3d 1260, 96 Cal. Daily Op. Serv. 6478, 96 Daily Journal DAR 10685, 1996 U.S. App. LEXIS 22405, 1996 WL 492703

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 30, 1996
• Docket: 93-35555
• Status: Published

Opinions

D.W. NELSON, Circuit Judge:

Appellant April Brannan seeks damages from appellee United Student Aid Funds, Inc. (“USA Funds”), claiming abusive collection practices in violation of the federal Fair Debt Collection Practices Act of 1977 (“FDCPA”), Pub.L. No. 95-109, 91 Stat. 874, codified as amended at 15 U.S.C. § 1692 et seq., and in violation of the Oregon Unfair Debt Collection Practices Act (“Oregon UDCPA”), Or.Rev.Stat. §§ 646.639, 646.641. The district court granted summary judgment in favor of USA Funds on all claims, holding that USA Funds is exempt from liability under the “government actor” exemption to the FDCPA, 15 U.S.C. § 1692a(6)(C), and that the Higher Education Act (“HEA”), 20 U.S.C. § 1071-99, preempts the Oregon UDCPA Brannan appeals both these rulings. On appeal, USA Funds raises the affirmative defense of FDCPA preemption of the Oregon UDCPA for the first time. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part and reverse and remand in part.

FACTUAL AND PROCEDURAL BACKGROUND

On June 15, 1988, appellant April Brannan executed a promissory note with the Bank of Horton for a loan of $2,625 under the former Guaranteed Student Loan (“GSL”) program¹ established by the HEA. USA Funds, a private guaranty agency² subject to the HEA and applicable regulations pursuant to its contracts with the United States Department of Education, guaranteed the loan. The Department of Education, in turn, insured the guaranty agency. After the lender’s assignee declared Brannan in default and filed a default claim with USA Funds on May 24, 1991, USA Funds paid the loan in accord with its guarantee commitment³ and began collection efforts, including mailing collection notices to Brannan and contacting her by telephone.

Brannan filed suit on September 1, 1992, alleging, inter alia, that USA Funds had violated the FDCPA and the Oregon UDC-PA by threatening to cause her to lose her job, by communicating with third parties about the debt, and by refusing to communicate about the debt through her attorney. USA Funds counterclaimed on the underlying debt, claiming collection costs and attorney fees under the provisions of the promissory note.⁴

The district court granted summary judgment to USA Funds on all counts of Bran-nan’s complaint and on USA Funds’ counterclaim. It held that USA Funds is exempt from the FDCPA pursuant to the “government actor” exclusion, 15 U.S.C. § 1692a(6)(C). It also held that the HEA completely preempts the Oregon UDCPA.

STANDARD OF REVIEW

A grant of summary judgment is reviewed de novo. Stevens v. Moore Business Forms, Inc., 18 F.3d 1443, 1446 (9th Cir.1994). This case involves statutory construction, which is a question of law that we review de novo. Hellon & Assoc., Inc. v. Phoenix Resort Corp., 958 F.2d 295, 297 (9th Cir.1992). Preemption is also a matter of law subject to de novo review. Galvez v. Kuhn, 933 F.2d 773, 776 (9th Cir.1991).

DISCUSSION

I. APPLICABILITY OF THE FAIR DEBT COLLECTION PRACTICES ACT

USA Funds concedes for the purposes of this appeal that it is a “debt collector” under the FDCPA. 15 U.S.C. § 1692a(6). However, USA Funds asserts that Congress did not intend for the FDCPA to apply to GSL guaranty agencies.

We hold that USA Funds is subject to the FDCPA. The FDCPA proscribes abusive collection practices by “any person ... who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Id. The FDCPA does not provide an exemption for guaranty agencies that acquire a student loan after default in order to pursue its collection. See § 1692 et seq. The Secretary of Education has also explicitly stated that GSL third party collectors and their collection activity “remain subject to the FDCPA.” 55 Fed.Reg. 40120, 40121 (1990).

USA FUNDS AND THE GOVERNMENT ACTOR EXEMPTION

USA Funds contends and the district court held that a GSL guaranty agency is exempt from the FDCPA under § 1692a(6)(C), which exempts “any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties.”

Reversing the district court, we hold that USA Funds is not a government actor exempt from the FDCPA under § 1692a(6)(C). “[W]here a statute names the parties which come within its provisions, other unnamed parties are excluded.” Foxgord v. Hischemoeller, 820 F.2d 1030, 1034 (9th Cir.), cert. denied, 484 U.S. 986, 108 S.Ct. 503, 98 L.Ed.2d 502 (1987). This exemption applies only to an individual government official or employee who collects debts as part of his government employment responsibilities. USA Funds is a private nonprofit organization with a government contract; it is not a government agency or employee.

II. HEA PREEMPTION OF THE OREGON UDCPA

USA Funds contends and the district court held that the HEA preempts the application of the Oregon UDCPA. Or.Rev.Stat. § 646.639. We agree. Although the HEA does not preempt all state law governing lenders and guarantors of student loans, it does preempt state law inconsistent with the GSL regulations governing a third-party debt collector’s pre-litigation collection activities. See 55 Fed.Reg. at 40121-2.

A PREEMPTION AND DEFERENCE TO AGENCY INTERPRETATION

“The Supremacy Clause of Article VI of the Constitution provides Congress with the power to preempt state law.” Independent Energy Producers Ass’n, Inc. v. California Pub. Util. Comm’n, 36 F.3d 848, 853 (9th Cir.1994). Preemption can occur in a number of circumstances, including “ “where the state law stands as an obstacle to the accomplishment and execution of the full objectives of Congress.’ ” Id. (quoting Louisiana Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 368-69, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986)). “ ‘Preemption may result not only from action taken by Congress itself; a federal agency acting within the scope of its congressionally delegated authority may pre-empt state regulation.’” Id. (quoting Louisiana Pub. Serv. Comm’n, 476 U.S. at 369, 106 S.Ct. at 1898-99).

The Secretary of Education has promulgated an official interpretation stating that regulations issued under 20 U.S.C. § 1082(a) preempt inconsistent state law governing pre-litigation collection activities by third-party debt collectors. We defer to the specific policy decisions of an administrative agency unless they are arbitrary, capricious or manifestly contrary to statute. United States v. Strong, 79 F.3d 925, 928 (9th Cir.1996) (citation omitted). We “must give substantial deference to an agency’s interpretation of its own regulations.” Thomas Jefferson Univ. v. Shalala, — U.S. -, -, 114 S.Ct. 2381, 2386, 129 L.Ed.2d 405 (1994) (citations omitted). “Our task is not to decide which among several competing interpretations best serves the regulatory purpose. Rather, the agency’s interpretation must be given ‘controlling weight unless it is plainly erroneous or inconsistent with the regulation.’” Id.

B. THE GSL REGULATIONS AND STATE LAW

The Secretary concludes that the GSL regulations governing pre-litigation collection activity preempt all inconsistent state law, including case law, statutes and regulations. 55 Fed.Reg. at 40120-21 (citing 20 U.S.C. §§ 1078(c), 1080(a),(b); 34 C.F.R. §§ 682.410(b)(4)(i)-(vi), (xü), 682.411(c)-(h)). According to the Secretary, state law is inconsistent with the GSL regulations when it “would prohibit, restrict, or impose burdens” on pre-litigation collection activity by third parties. Thus, the scope of preemption extends to “any State law that would hinder or prohibit any activity taken by these third parties.” Id. at 40121 (emph. added).

The Secretary notes that preemption in this area expressly serves “the congressional intention implemented in these regulations:” that the Secretary establish an effective due diligence standard for collection activity. Id. Subjecting lenders and loan collectors to state law restrictions on pre-litigation collection activity would make GSL loan holders reluctant to exercise due diligence in loan collection. Id. In fact, the Secretary adds, exposure to lawsuits under fifty separate sets of laws and court systems could make lenders reluctant to make new federally-guaranteed student loans. Id.

The Secretary emphasizes that this narrow sphere of preemption has disadvantaged neither the states nor the public interest. The preemption of state law restrictions on pre-litigation collection activity “imposed no added costs on States” and did not infringe on state sovereignty in the conduct of litigation or the enforcement of judgments. Id. The subject of regulation-GSL loan collection-did not intrude into transactions in which the Federal Government had no direct involvement, but was instead “narrowly tailored” to apply to situations in which the federal government alone had already given financial benefits to borrowers and was in a position to incur even greater costs because of default. Id. Moreover, preemption did not leave borrowers without remedy should debt collectors engage in improper loan collection activity; while the GSL regulations preclude liability under inconsistent state law, “significant Federal protection for GSL debtors remains under the FDCPA.” Id.

The Secretary recognizes that there are some competing state interests, but he makes clear that in accordance with the congressional intent embodied in the HEA, the public interest in having a stable student loan program is greater. For years, high default rates have been a serious threat to the continued viability of the GSL program. The interpretation concludes that

[gjiven the strength of the public interest in preventing the need for Federal payments on defaulted loans, and in recovering those amounts after, payment has been made, the Secretary believed at the time these regulations were promulgated, and continues to believe, that any balancing of interests between appropriate State regulation of collection actions on private debts and the need for a uniform minimum national standard of collection action on publicly-financed loan debts tips decidedly in favor of diligent student loan collection. Id.

C. THE VALIDITY OF THE SECRETARY’S INTERPRETATION

One of the HEA’s express purposes was to stabilize the GSL program by cutting the significant losses to the U.S. Treasury due to the “costs and occurrences of defaults in the program.” H.R.Rep. No. 383, 99th Cong., 2nd Sess. 4, reprinted in 1986 U.S.C.C.A.N. 2606. To this end, Congress directed the Secretary to establish minimum uniform due diligence requirements for loan collection, 20 U.S.C. § 1078, and authorized the Secretary to “prescribe such regulations as may be necessary to carry out the purposes” of the GSL program. 20 U.S.C. § 1082(a)(1). Because Congress has delegated to the Secretary its authority to implement the provisions of the HEA, the Secretary

“is uniquely qualified to determine whether a particular form of state law ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,’ ... and therefore, whether it should be preempted.” Medtronic, Inc. v. Lora Lohr, — U.S. -, -, 116 S.Ct. 2240, 2255, 135 L.Ed.2d 700 (1996) (citation omitted).

The Secretary’s implementation of congressional intent is not arbitrary, capricious, or manifestly contrary to statute. The Secretary’s regulations and interpretation ensure that loan collectors will be governed by one uniform standard for pre-litigation loan collection. If student loan guarantors were exposed to liability under fifty different sets of statutes, regulations and case law, conducting diligent pre-litigation collection activity could be an extremely uncertain and risky enterprise. Exposure to liability under state law would provide a significant disincentive to pursue loan collection, and the cost advantages gained by concentrating GSL loan collection in a centrally-administered system would be lost. Preemption does deprive some defaulters of the ability to receive damages under state law; however, the congressional purpose in enacting the HEA was not to make it easier for defaulters to get money from loan collectors, but to protect the millions of students who would suffer irremediable loss if Congress had to shut down the GSL program.

Subsequent developments in the GSL program have shown the full force of the government’s commitment to stabilize the GSL program by strengthening loan collection activity. In 1992, Congress amended § 1082(a)(1) to make its stated purpose even more explicit in the law-the Secretary’s power to prescribe necessary regulations now expressly “includ[es] regulations applicable to third party servicers.” Then, after years of “hemorraghing,” see, “Stopping Loan Defaults,” Wash. Post, at A22 (quoting the Secretary), in 1993 the government credited “tougher collection methods” as a main reason for a rapid decline in loan defaults. “Student Loan Defaults Down Due to Collection Methods,” Portland Oregonian, July 20, 1993, at A6; see also “College Loan Defaults are Down,” Chicago Tribune, July 20, 1993, at 8. Collection rates have continued to improve as the government has taken even stronger collection measures against defaulters. “Stopping Loan Defaults,” Wash. Post, at A22. Clearly, maximizing the potential liability of loan collectors has not been a significant purpose behind GSL reform.

Upholding the Secretary’s interpretation of congressional intent and the GSL regulations is not inconsistent with our holding in Keams v. Tempe Technical Institute, Inc., 39 F.3d 222 (9th Cir.1994). The issue in Kearns was whether the HEA preempted state tort suits against accrediting agencies. The Secretary’s regulations with respect to accreditors were far more limited in scope than those governing loan collectors; the accreditor regulations merely provided a procedure for “determining whether to place an accrediting agency on the approved list.” Id. at 226. The Secretary had not been charged with establishing minimum standards for how accrediting agencies conduct their activity, and the Secretary had not issued any interpretation stating that the accreditor regulations preempt state law. Accordingly, we reasoned that state lawsuits could assist the Secretary in evaluating particular accrediting agencies, which would be operating under state law standards. Because state law did not stand “ ‘as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress’ ”, it was not preempted by the HEA Id. (quoting California v. ARC America Corp., 490 U.S. 93, 101, 109 S.Ct. 1661, 1665, 104 L.Ed.2d 86 (1989)).

The present case concerns a different set of circumstances. Here, Congress has explicitly authorized the Secretary to “prescribe such regulations as may be necessary” to establish a uniform national standard for debt collection activity. 20 U.S.C. § 1082(a)(1). Consistent with the congressional charge, the Secretary has issued a regulatory framework for pre-litigation loan collection and has explained why recognizing liability under inconsistent state law “would thwart the congressional intention implemented in [the GSL] regulations.” 55 Fed. Reg. at 40121. Because the Secretary’s regulations and interpretation are reasonable and not inconsistent with the statute, we defer to the Secretary’s policy determinations.

The Supreme Court’s recent Medtronic holding also does not preclude preemption. See — U.S. at -, 116 S.Ct. at 2257 (statutory and regulatory language at issue in Medtronic do not preclude general state requirements from ever being preempted). Like the GSL regulations, the FDA regulations were issued in accordance with the congressional grant of authority under the relevant statute. See id. at -, 116 S.Ct. at 2255. In contrast, however, the FDA regulations expressly state that they do ‘“not preempt State or local requirements that are equal to, or substantially identical to, requirements imposed by or under the act.’” Id. at -, 116 S.Ct. at 2256 (citing 21 C.F.R. § 808.1(d)(2)(1995)). The FDA regulations also expressly provide that the coordinate statute does not preempt State unfair trade practices law. Id. at -, 116 S.Ct. at 2257.

The interests addressed by the FDA regulations differ substantially from those of the GSL regulations. The GSL regulations con-cem a federal student loan program which requires uniformly administered collection standards in order to remain viable. In contrast, the FDA regulations touch upon purely private interests: the liability of manufacturers for defects in privately-produced goods.

D. THE GSL REGULATIONS AND OREGON LAW

Whereas the GSL regulations establish what the loan collector must do in order to show due diligence, the Oregon UDCPA consists entirely of restrictions and prohibitions on collection activity. 34 C.F.R. §§ 682.410(b)(4)(i)-(vi),(xn), 682.411(e)-(h); Or.Rev.Stat. § 646.639(2). For example, the GSL regulations establish that the debt collector shall diligently attempt to collect the loan by telephone and in writing throughout the first three forty-five day periods after default. 34 C.F.R. § 682.410(b)(4)(i)-(v). Then, in the fourth forty-five day period, the agency must send a written notice “forcefully” demanding payment. 34 C.F.R. § 682.410(b)(4)(vi). In contrast, the Oregon UDCPA consists of a list of collection practices that “[i]t shall be unlawful” for a debt collector to do. Or.Rev.Stat. § 646.639(2).

The preemptive effect of the GSL regulations is clear. The GSL regulations preempt “State law that would prohibit, restrict, or impose burdens” on the sequence of pre-litigation contacts required by the GSL regulations; thus, “preemption includes any State law that would hinder or prohibit any activity” taken by third-party debt collectors prior to litigation. 55 Fed.Reg. at 41021 (emph. added). Because the Oregon UDCPA consists of nothing but prohibitions, restrictions and burdens on collection activity, it is preempted. If a student loan defaulter in Oregon believes that a third-party debt collector has engaged in unfair pre-litigation debt collection activity, her remedy lies in the FDCPA, not the Oregon UDCPA. Id. (“while the GSL regulations preempt inconsistent State laws regarding pre-litigation collection activity, significant Federal protection for GSL debtors remains under the FDCPA”).

III. FDCPA PREEMPTION OF THE OREGON UDCPA

On appeal, USA Funds raises for the first time its claim that the FDCPA itself preempts application of the Oregon UDCPA This is a choice-of-law claim for avoidance of liability, rather than a choice-of-forum claim. See Fed.R.Civ.P. 8(c); Piekarski v. Home Owners Savings Bank, 956 F.2d 1484, 1489 (8th Cir.), cert. denied, 506 U.S. 872, 113 S.Ct. 206, 121 L.Ed.2d 147 (1992). Failure to raise an affirmative defense below results in waiver. See, e.g., Harbeson v. Parke Davis, Inc., 746 F.2d 517, 520 (9th Cir.1984); Santos v. Alaska Bar Ass’n, 618 F.2d 575, 576-77 (9th Cir.1980). In particular, a choice-of-law preemption defense is waived if not raised below: only preemption issues affecting the choice of forum and thus raising questions of the court’s jurisdiction may be raised for the first time on appeal. Johnson v. Armored Transport of California, Inc., 813 F.2d 1041, 1043 (9th Cir.1987); Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488, 1497 (9th Cir.1986). For these reasons, we decline to address this issue.

CONCLUSION

We hold that USA Funds, as a private guaranty agency under contract with the federal Department of Education to guarantee student loans, is subject to the FDCPA We also hold that the HEA and the GSL regulations preempt the Oregon UDCPA. Therefore, we AFFIRM in part, REVERSE in part, and REMAND for further proceedings consistent with this Opinion.

1 . The former GSL program is now the Federal Family Education Loan program, see 34 C.F.R. § 682.100(a) (1994), whereas the current GSL program encompasses loans guaranteed directly by the Department of Education, see 34 C.F.R. § 682.500 (1994).

2 . The Department of Education regulations define a guarantee agency as "[a] State or private nonprofit organization that has an agreement with the Secretary to administer a loan guarantee program under the [Higher Education] Act.” 34 C.F.R. § 682.200(b) (1991).

3 . "If a borrower defaults on a loan, the guarantee agency or the Secretary reimburses the lender for its loss. The guarantee agency or the Secretary then collects the amount owed from the borrower.” 34 C.F.R. § 682.102(c)(4) (1991).

4 .Brannan also sought a declaratory judgment regarding USA Funds’ ability to recover collection costs that were calculated as a percentage of the debt. After USA Funds withdrew its claim for those costs, the district court ruled that paragraph VI of Brannan’s promissory note entitles USA Funds to recover all actual collection costs. Brannan does not appeal this ruling.