                                                                                          07/14/2020


                                     DA 19-0510
                                                                                     Case Number: DA 19-0510

         IN THE SUPREME COURT OF THE STATE OF MONTANA
                                     2020 MT 181



JAMES REAVIS,

          Plaintiff and Appellant,

    v.

PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
d/b/a FEDLOAN SERVICING,

          Defendant and Appellee.


APPEAL FROM:      District Court of the First Judicial District,
                  In and For the County of Lewis and Clark, Cause No. BDV 2018-833
                  Honorable Michael F. McMahon, Presiding Judge


COUNSEL OF RECORD:

           For Appellant:

                  Robert M. Farris-Olsen (argued), David K.W. Wilson, Morrison,
                  Sherwood, Wilson & Deola, PLLP, Helena, Montana

           For Appellee:

                  Kenneth K. Lay (argued), Brett P. Clark, Crowley Fleck, PLLP, Helena,
                  Montana

           For Amicus Curiae Timothy C. Fox, Montana Attorney General:

                  Timothy C. Fox, Montana Attorney General, Matthew T. Cochenour,
                  Acting Solicitor General, Jon Bennion, Deputy Attorney General, Helena,
                  Montana

                  Mark W. Mattioli, Bureau Chief, Chuck R. Munson, Assistant Attorney
                  General, Office of Consumer Protection, Helena, Montana

           For Amicus Curiae Montana Federation of Public Employees:

                  Jonathan McDonald, McDonald Law Office, PLLC, Helena, Montana
         For Amicus Curiae Veteran’s Education Success:

               Keif Storrar, Doubek, Pyfer & Storrar, Helena, Montana

         For Amici Curiae Montana Legal Services Association, National Consumer Law
         Center, and Student Borrower Protection Center

               John Heenan, Heenan & Cook, PLLC, Billings, Montana



                                                      Argued : May 20, 2020
                                                    Submitted: May 26, 2020
                                                     Decided: July 14, 2020


Filed:
                         c.,.--.6--4(
               __________________________________________
                                 Clerk




                                       2
Justice Ingrid Gustafson delivered the Opinion of the Court.

¶1     James Reavis appeals from the order of First Judicial District Court, Lewis and

Clark County, dismissing his complaint against his student loan servicer Pennsylvania

Higher Education Assistance Agency (PHEAA) as expressly preempted by the Higher

Education Act (HEA), 20 U.S.C. § 1098g. We address the following issues on appeal:

       Whether Reavis’s state law claims against PHEAA are expressly or implicitly
       preempted by the HEA.

¶2     We conclude they are not. We reverse the District Court’s order dismissing

Reavis’s claims and remand the case for further proceedings.

                 PROCEDURAL AND FACTUAL BACKGROUND

¶3     This case involves the administration of student loans by a private loan servicer in

the federal student loan system established by the HEA. “The HEA was originally passed

in 1965 ‘[t]o strengthen the educational resources of our colleges and universities and to

provide financial assistance for students in postsecondary and higher education.’” Leveski

v. ITT Educ. Servs., Inc., 719 F.3d 818, 819 (7th Cir. 2013) (quoting Higher Education Act

of 1965, Pub. L. No. 89-329, 79 Stat. 1219, 1219 (1965)) (alterations in original). Congress

passed the HEA “to keep the college door open to all students of ability, regardless of

socioeconomic background.” Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1030

(9th Cir. 2009) (internal quotations omitted) (citing 20 U.S.C. § 1070(a)).

¶4     Originally, the HEA provided for the United States Department of Education to act

as a guarantor of loans made to student borrowers by private lenders. See 20 U.S.C. § 1071.

However, since 2010, the Department of Education has exclusively loaned money directly
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to student borrowers and contracts with private entities to service those loans. See

20 U.S.C. §§ 1071(d), 1087a, 1087f. The Department of Education issues a variety of

loans directly to student borrowers through the William D. Ford Direct Loan Program

under Title IV of the HEA. See generally, 20 U.S.C. §§ 1087a-1087j. Student borrowers

rarely interact with the actual holder of their debt. Rather, borrowers communicate with

their federal loan servicer. A servicer “contract[s] with a lender or guaranty agency to

administer . . . any aspect of the lender’s or guaranty agency’s” programs. 34 C.F.R.

§ 682.200.    The functions of a student loan servicer include an array of acts and

responsibilities, including receiving and applying payments to a borrower’s account,

maintaining account records, and other “[i]nteractions with a borrower, including activities

to help prevent default on obligations arising from post-secondary education loans

conducted to facilitate” repayment. 12 C.F.R. § 1090.106.

¶5     In 2007, Congress created the Public Service Loan Forgiveness program (PSLF) to

encourage students to enter public service careers by promising student loan forgiveness.

See College Cost Reduction and Access Act, Pub. L. No. 110-84, § 401, 121 Stat. 784, 800

(2007), codified as amended at 20 U.S.C. § 1087e(m). Through PLSF, a borrower with

direct loans from the Department of Education may have his or her loan balances forgiven

after meeting certain requirements: The borrower must make 120 on-time monthly

payments on direct loans under a qualifying repayment program while working for a

qualifying public service employer. PHEAA has the exclusive contract to administer loans




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for which forgiveness is sought under the PSLF and is the loan servicer contracted to

service Reavis’ student loans.

¶6     Because the District Court dismissed this case on a motion to dismiss, the following

facts are drawn from Reavis’s complaint and accepted as true.

¶7     Reavis attended the University of Montana School of Law from 2007 to 2010 and

obtained a juris doctorate degree.      He then went on to the Monterey Institute of

International Studies for an additional two years of study and ultimately obtained a master’s

degree in Public Administration in 2012. While pursuing his masters, Reavis also took

language courses in the summers of 2010 and 2011. He funded these graduate studies with

student loans.

¶8     In 2012, Reavis consolidated his loans into federal direct loans to ensure all of his

loans would qualify for forgiveness under PSLF. Reavis began working for the Montana

Office of the Public Defender (OPD) in May 2012 and continues to work as an appellate

defender. OPD is a qualifying employer under PSLF. Reavis has consistently made his

payments on time and in the correct amount under a qualifying repayment program. Reavis

alleges PHEAA, however, has consistently failed to accurately account for his payments.

¶9     PHEAA has broken Reavis’s loans into a series of loan sequences. Reavis maintains

all of his loans came out of their respective grace periods at the same time, the first

payments for all of the loan sequences should have started on the same day, and thus each

loan sequence should have the same number of qualifying payments made on it. He alleges

that between June 2012 and the filing of his complaint he had made 65 qualifying

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payments. But according to PHEAA’s accounting, Reavis has not made the same number

of qualifying payments on each loan sequence. PHEAA reported to Reavis he has made

between 34 and 54 qualifying payments on the different loan sequences.

¶10   In addition, Reavis alleged PHEAA provided him with conflicting information

regarding the amount that was due during particular pay periods. Reavis alleges he would

often call PHEAA to determine the amount of payment due during a particular pay period,

but the payment amount he was told over the phone would not match the amount on the

written statement he would receive later.

¶11   Further, Reavis alleges inconsistencies in PHEAA’s administration of his income-

based repayment plan. The income-based payment plan required Reavis to update his

employment information regularly. From 2012 to 2017, Reavis reported this information

annually each May to PHEAA. In 2017, PHEAA changed the length of the review period

and only qualified Reavis through October 2017, rather than through May 2018 as

expected. PHEAA did not inform Reavis he was only qualified through October 2017.

PHEAA’s records also show an additional consolidation of Reavis’ loans in March 2014,

but Reavis does not recall signing any consolidation other than the one in 2012. In another

instance, PHEAA advised Reavis to switch payment plans from income-based repayment

to Revised Pay As You Earn (REPAYE), which he did. Finally, PHEAA’s online system

would not accept a payment made on a Saturday until the following Monday.

¶12   Reavis filed suit against PHEAA on August 8, 2018, raising claims that PHEAA

violated the Consumer Protection Act; was negligent in its accounting of his payments;

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engaged in deceit, negligent misrepresentation, or constructive fraud; and breached the

implied covenant of good faith and fair dealing. Additionally, Reavis sought declaratory

relief with respect to the number of qualifying payments he has made under the PSLF

program. All of these claims arise under state law. PHEAA moved to dismiss the case

under M. R. Civ. P. 12(b)(1) on the grounds that Reavis’s claims were not ripe and therefore

not justiciable, because Reavis is not yet eligible to apply for PSLF loan forgiveness.

PHEAA filed a second motion to dismiss under M R. Civ. P. 12(b)(6) on the grounds that

all of Reavis’s claims were preempted by the HEA and otherwise failed to state a claim for

relief. The District Court determined the HEA expressly preempted Reavis’s claims and

granted PHEAA’s Rule 12(b)(6) motion to dismiss. The District Court did not address the

other grounds for dismissal set forth in the Rule 12(b)(6) motion or Rule 12(b)(1) motion.

                                STANDARD OF REVIEW

¶13    We review de novo a district court’s ruling on a M. R. Civ. P. 12(b)(6) motion to

dismiss. Hein v. Sott, 2015 MT 196, ¶ 7, 380 Mont. 85, 353 P.3d 494. We construe the

complaint in the light most favorable to the plaintiff and all allegations of fact are taken as

true. Hein, ¶ 7.

                                       DISCUSSION

¶14    Whether Reavis’s state law claims against PHEAA are expressly or implicitly
       preempted by the HEA.

¶15    The District Court determined the HEA expressly preempted Reavis’s claims based

on the statutory language of 20 U.S.C. § 1098g, which preempts any state law disclosure

requirements on federal loan servicers. The District Court concluded Reavis’ claims all
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arose from or related to alleged disclosures or non-disclosures made by PHEAA to him

and that a claim that a servicer misrepresented a business practice is merely the converse

of a state law requirement to make alternate disclosures, which is expressly preempted.

¶16    Under the United States Constitution’s Supremacy Clause, federal law is “the

supreme Law of the Land; . . . any Thing in the Constitution of Laws of any State to the

Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. When applying the Supremacy

Clause, we start “with the assumption that the historic police powers of the States are not

to be superseded by Federal Act unless that is the clear and manifest purpose of Congress.”

Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516, 112 S. Ct. 2608, 2617 (1992) (quotation

omitted). The “ultimate touchstone” of preemption analysis is the purpose of Congress.

Retail Clerks Int’l Ass’n v. Schermerhorn, 375 U.S. 96, 103, 84 S. Ct. 219, 223 (1963). To

determine Congress’s purpose, we look to the “text and structure of the statute at issue.”

CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 664, 113 S. Ct. 1732, 1737 (1993).

Congress’s intent to preempt state law may be stated expressly in a statute or implied by

the statute’s structure and purpose. Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S. Ct.

1305, 1309 (1977).

¶17    Preemption can occur in three different ways: express, conflict, and field. English

v. Gen. Elec. Co., 496 U.S. 72, 78-79, 110 S. Ct. 2270, 2275 (1990). Express preemption

applies when Congress clearly declares its intention to preempt state law through explicit

statutory language. See English, 496 U.S. at 78-79, 110 S. Ct. at 2275. Conflict preemption

applies when there is an actual conflict between state and federal law such that it is

                                             8
impossible to obey both or when state law stands as an obstacle to fully accomplishing the

objectives of Congress. English, 496 U.S. at 79, 110 S. Ct. at 2275. Field preemption

applies to only a few fields of law when federal law so thoroughly occupies a legislative

field as to make it reasonable to infer Congress left no room for the states to act. English,

496 U.S. at 79, 110 S. Ct. at 2275. PHEAA argues Reavis’s state law actions are expressly

preempted under the HEA or in the alternative, the claims are preempted under conflict

preemption.

Express Preemption

¶18    The District Court concluded and PHEAA argues on appeal that Congress expressly

preempted state law claims such as Reavis’s with 20 U.S.C. § 1098g, because Reavis’s

claims are properly characterized as improper disclosure claims. Reavis maintains he is

not alleging PHEAA has a duty to disclose certain information, but rather it has a duty to

speak truthfully when it does disclose information and a duty to accurately account for his

payments.

¶19    Express preemption is a question of statutory interpretation. Medtronic, Inc. v.

Lohr, 518 U.S. 470, 484, 116 S. Ct. 2240, 2250 (1996). “[T]he words of a statute must be

read in their context and with a view to their place in the overall statutory scheme.” Home

Depot U.S.A., Inc. v. Jackson, ___ U.S. ___, 139 S. Ct. 1743, 1748 (2019) (quotation

omitted). While § 1098g indicates Congress “intended the [HEA] to preempt at least some

state law, we must nonetheless ‘identify the domain expressly preempted’ by that




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language.” Lohr, 518 U.S. at 484, 116 S. Ct. at 2250 (quoting Cipollone, 505 U.S. at 517,

112 S. Ct. at 2618) (citation omitted).

¶20    20 U.S.C. § 1098g provides: “Loans made, insured, or guaranteed pursuant to a

program authorized by title IV of the Higher Education Act of 1965 (20 U.S.C. § 1070 et

seq.) shall not be subject to any disclosure requirements of any State law.” The HEA does

not define “disclosure requirements,” but the statute does require that loan servicers make

certain disclosure to borrowers at particular points in time. 20 U.S.C. § 1083(a)-(b), (e).

Section 1083 mandates certain disclosures of information during various stages of the loan,

such as at or before a lender disburses a loan or at or before the start of the repayment

period.   20 U.S.C. § 1083(a)-(b).        The statute requires the servicer provide certain

information with each bill or statement sent to the borrower, including the original principal

amount of the loan, the borrower’s current outstanding loan balance, the loan’s interest

rate, and the total amount the borrower has paid in interest and in the aggregate. 20 U.S.C.

§ 1083(e)(1). The servicer must provide additional information when the borrower either

has provided notice that he is having difficulty making payments or is 60 days delinquent

in making payments. 20 U.S.C. § 1083(e)(2)-(3). Viewed in its statutory context, the term

“disclosure requirements” of 20 U.S.C. § 1098g “refers to the HEA’s requirements that

certain information be communicated to borrowers during the various stages of the loan,

as laid out in § 1083 of the statute. Thus, the domain § 1098g preempts is the type of

disclosures to borrowers that § 1083 requires.” Lawson-Ross v. Great Lakes Higher Educ.

Corp., 955 F.3d 908, 917 (11th Cir. 2020).

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¶21    Reavis alleges PHEAA (1) violated Montana’s Consumer Protection Act by failing

to accurately account for his payments and misleading him regarding the number of

payments he had made; (2) acted negligently through breaching its duty to account for his

payments and to determine whether his payments were “qualifying payments” under PSLF;

(3) engaged in willful deceit, negligent misrepresentation or constructive fraud by making

false statements that it had accurately collected and classified his payments; and

(4) breached the implied covenant of good faith and fair dealing by interfering with his

justified expectation that PHEAA would accept and apply his payments in a timely manner.

Finally, Reavis sought a declaration from the court of the number of qualifying payments

he had made on his loans. In each of these claims, Reavis challenges actions taken by

PHEAA, not merely improper disclosures. He is not seeking additional or alternative

disclosures from PHEAA, but rather is challenging PHEAA’s accounting practices. While

Reavis learned of PHEAA’s inaccurate accounting through its disclosures to him, it is

PHEAA’s failure to accurately account for Reavis’s payments that forms the basis of his

claims.

¶22    PHEAA relies on the Ninth Circuit case Chae v. SLM Corp., 593 F.3d 936 (9th Cir.

2010), to support its argument that § 1098g preempts Reavis’s claims. At issue in Chae

were state law claims challenging how a federal student loan servicer communicated its

methods of calculating interest, assessing late fees, and setting the first repayment date.

Chae, 593 F.3d at 940-41. The borrowers in Chae claimed the servicer violated California

state law by failing to disclose certain information about these methods in billing

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statements and coupon books. Chae, 593 F.3d at 942. The claims in Chae challenged how

the servicer communicated information. Chae, 593 F.3d at 642-43. The Ninth Circuit

explained that the servicer in Chae had disclosed the information about practices permitted

by federal law in ways permitted by federal law and thus, state law claims that would

require the information to be disclosed in a different way were preempted by § 1098g.

Chae, 593 F.3d at 643. Unlike the claims at issue in Chae, Reavis does not allege that

disclosures and practices approved under federal law are misleading under state law.

Rather, the crux of Reavis’s claims are that PHEAA failed to accurately account for the

payments he made. The HEA does not permit PHEAA to inaccurately account for Reavis’s

payments. Reavis’s allegations of failure to accurately account for payments does not rest

on a disclosure requirement from PHEAA.

¶23   Finally, unlike the District Court, we decline to give special deference to the U.S.

Department of Education’s 2018 informal guidance, entitled “Federal Preemption and

State Regulation of the Department of Education’s Federal Student Loan Programs and

Federal Student Loan Servers.” 83 Fed. Reg. 10619 (Mar. 12, 2018). In the informal

guidance, the Department expressed its view that the HEA preempts all state regulations

that impact federal loan servicing. We agree with most federal courts that have reached

the issue that under Skidmore v. Swift & Co., 323 U.S. 134, 65 S. Ct. 161 (1944), the

Department’s guidance has little persuasive value and should be given little weight. See

Lawson-Ross, 955 F.3d at 921 n.13; Nelson v. Great Lakes Educ. Loan Servs., Inc.,

928 F.3d 639, 651 n.2 (7th Cir. 2019); Travis v. Navient Corp., No. 17-CV-4885 (RRM)

                                            12
(ST), 2020 U.S. Dist. LEXIS 87112, at *23-26 (E.D.N.Y. May 18, 2020); New York v. Pa.

Higher Educ. Assistance Agency, No. 19 Civ. 9155 (ER), 2020 U.S. Dist. LEXIS 77655,

at *46 n.14 (S.D.N.Y. May 1, 2020); Hyland v. Navient Corp., No. 18cv9031 (DLC), 2019

U.S. Dist. LEXIS 113038, at *19-21 (S.D.N.Y. July 8, 2019); Pennsylvania v. Navient

Corp., 354 F. Supp. 3d 529, 552-53 (M.D. Pa. 2018); Student Loan Servicing All. v. District

of Columbia, 351 F. Supp. 3d 26, 48-51 (D.D.C. 2018).             The U.S. Department of

Education’s 2018 informal guidance is not particularly thorough and “represents a stark,

unexplained change” in the Department’s position.            Student Loan Servicing All.,

351 F. Supp. 3d at 50.

¶24    Pursuant to the standards for M. R. Civ. P. 12(b)(6), Reavis’s claims as pleaded are

not expressly preempted by 20 U.S.C. § 1098g and survive dismissal.

Conflict Preemption

¶25    The District Court did not reach whether conflict preemption barred Reavis’s

claims, but this Court should. Conflict preemption is a question of law that we can address

at the pleading stage. State laws are barred under conflict preemption if it would be

impossible to comply with both state and federal law or that state law constitutes an

obstacle to satisfying the objectives of Congress. English, 496 U.S. at 79, 110 S. Ct.

at 2275. PHEAA maintains the application of state law would be an obstacle to the

operation of federal student loan programs because subjecting PHEAA to the disparate

laws of fifty states would frustrate Congress’s objective of uniformity in the federal student

loan regime.

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¶26    The structure of the HEA does not support PHEAA’s arguments that Reavis’s

claims are preempted under a theory of conflict preemption. The HEA contains several

express preemption provisions: 20 U.S.C. § 1078(d) (usury laws), § 1091a(a)(2) (statute of

limitations); § 1091a(b) (collections costs and infancy defenses); § 1095a(a) (garnishment

requirements), as well as § 1098g (disclosure requirements). These provisions show

Congress considered preemption issues and made choices about what state law claims

would be preempted under the HEA. Courts should enforce those provisions, but not add

to them.

¶27    Further, even if we were to agree with PHEAA that one of Congress’s objectives in

enacting the HEA was to ensure uniformity in the federal student loan system,1 we are not

convinced allowing Reavis’s claims to proceed would harm that goal or somehow make it

impossible for PHEAA to comply with both the HEA and Montana’s consumer protection

and tort laws as alleged by Reavis in his complaint. State law prohibitions against unfair,

deceptive, or negligent conduct not explicitly permitted by the HEA will not harm the

HEA’s uniform requirements for federal student loan programs. PHEAA essentially asks

this Court to find that the HEA imposes an expansive and unsupported level of preemption

that would reach the level of field preemption, which courts interpreting the HEA have

soundly rejected. See, e.g., Chae, 593 F.3d at 941-42. Pursuant to the standards for M. R.




1
  Recent decisions in several federal courts have questioned whether uniformity is an objective of
the HEA. See, e.g., Lawson-Ross, 955 F.3d at 921-22 (collecting cases); New York, 2020 U.S.
Dist. LEXIS at *44-45.

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Civ. P. 12(b)(6), Reavis’s state law claims as pleaded are not preempted under a theory of

conflict preemption and survive dismissal.

                                    CONCLUSION

¶28   The District Court’s order is reversed, and the case is remanded for further

proceedings consistent with this Opinion.


                                                  /S/ INGRID GUSTAFSON


We concur:

/S/ MIKE McGRATH
/S/ LAURIE McKINNON
/S/ BETH BAKER
/S/ JAMES JEREMIAH SHEA
/S/ DIRK M. SANDEFUR
/S/ JIM RICE




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