NEW YORK (Legal Newsline) – There is more trouble for a class action settlement that gives no money to class members and $500,000 to lawyers who have mostly failed to make a case against the defendant.
The Hamilton Lincoln Law Institute’s Center for Class Action Fairness objected on Sept. 11 to an agreement between teacher-plaintiffs and Navient, the nation’s largest student debt servicer. The CCAF is representing one of a growing number of class members who have written a New York federal judge their concerns about the agreement.
That agreement resolves allegations Navient failed to steer eligible debtors toward a debt-forgiveness program designed for public employees. The company defeated 14 of the 15 claims in a lawsuit that sought to represent teachers nationwide.
Navient would pay a $1.75 million cy pres award to create a counseling service for public employees with student loan debt, $650,000 combined to named plaintiffs and lawyers who claim they worked 12,000 hours on the case and nothing to class members.
Cy pres awards are controversial payments to organizations deemed to be tied to the case in some way. While it seems noble, it can also be used to boost the perceived value of a settlement and, in turn, increase the amount of fees lawyers can request.
The CCAF calls this settlement “the worst form of cy pres relief.”
“The settlement directs the full $1.75 million to a new organization without making any effort to compensate class members,” CCAF’s brief says.
“Public Service Promise purportedly will provide education and student loan counseling to borrowers employed in the public sector, but that mission provides no restitution or other appropriate relief for class members, including for the unjust enrichment claims on which the settlement is based, to class members no longer eligible for (Public Service Loan Forgiveness), or for those who already understand the program terms.”
The docket shows several, less formal objections from class members who claim Navient is not being punished enough by the settlement. But the lawyers pushing the case were probably happy to get anything, given its history.
The lawsuit was the brainchild of the American Federation of Teachers and private law firms, as well as the Student Borrower Protection Network – a group started by former federal officials who helped the Consumer Financial Protection Bureau bring litigation against Navient a year earlier (it is still pending).
The case claimed Navient gave the teacher-plaintiffs bad advice regarding the Public Service Loan Forgiveness program. The law firms have also sued the Department of Education.
After 120 qualifying payments, student debt is forgiven for public service workers like teachers who are working full-time under the PSLF.
Navient, which is contracted by the Department of Education to advise borrowers struggling with payments, is alleged to have confused those borrowers as to whether PSLF debt-forgiveness would be available to them.
For instance, Navient judges its employees on how long they take to resolve a borrower’s concerns – a practice that allegedly steers its reps from suggesting complicated relief programs like PSLF.
The lawsuit was ambitious, seeking class certification nationwide of people who were eligible for PSLF and contacted Navient, as well as four sub-classes of the same in Maryland, Florida, New York and California.
But less than a year after it was filed, Judge Denise Cote pared all of that down to only the proposed New York class. Out of 15 causes of action, just one based on New York law survived Navient’s motion to dismiss.
“It is not enough that the borrowers incidentally benefit from Navient’s performance under the Servicing Contracts,” Cote wrote. “Such incidental benefit does not rise to the level of intent to permit enforcement.”
Cote used words like “meritless” and “puzzlingly” to describe some of the plaintiffs’ claims. The argument for breach of an implied warranty of authority “makes little sense,” Cote wrote.
She also found certain allegations weren’t made specifically enough to meet standards for fraud claims. Most plaintiffs could only narrow the timeframe of their calls with Navient to within a year, and even though plaintiffs said Navient’s records could show the specific instances, Cote said, “It is of little consequence to this motion to dismiss that Navient may have maintained better records of these conversations than the plaintiffs did.”
A California plaintiff actually specified her calls down to the month, but the state law under which her claims arose does not cover loan servicers, Cote ruled.
Left standing was a claim for violation of New York Consumer Protection From Deceptive Acts and Practices Law.
The settlement admitted the plaintiffs saw difficulty in getting a class certified and that Navient would “vigorously” contest any motion for class certification outside of the settlement context.
The nine proposed class representatives will each get $15,000, if the settlement is approved. Lawyers want $500,000 and claim they performed nearly $6 million worth of work on the case.
Attorneys at Selendy & Gay in New York and Phillips, Richard & Rind in Miami say they initially interviewed more than 200 prospective class members.
As the case progressed, more than 350 people contacted the firms about participating. The firms also hired three experts to testify on the student loan industry as it battled the motion to dismiss that ultimately doomed most of the lawsuit.
The CCAF found fault with the role played by the American Federation of Teachers, which would take part in Public Service Promise – the entity created by the cy pres award.
“Class counsel and the two PSP individuals have an ongoing client relationship with AFT,” CCAF wrote.
“And, the settlement class is composed of student borrowers, while AFT has long been criticized for favoring teachers at the expense of students. The new PSP will perform work AFT already undertakes, in addition to lobbying an advocacy work, suggesting a complementary mission that will expand the work of AFT or at least free up resources.”