NEW YORK (Legal Newsline) – A troubled class action lawsuit against the nation’s largest student loan servicer could soon become a troubled settlement.
William Yeatman, an objector represented by the watchdog Hamilton Lincoln Law Institute Center for Class Action Fairness, on Nov. 2 appealed approval of a strange settlement to the U.S. Court of Appeals for the Second Circuit.
Since it was filed on behalf of teachers who struggled with their student loans, a federal judge has dismissed nearly every claim the lawsuit made then told plaintiffs lawyers they will receive nothing in a settlement.
Instead, more than $2 million is going to create a support center for public employees with student loan debt, while nothing is going to actual class members.
It is that kind of cy pres award that the CCAF has spent years fighting in other cases. It called this settlement “the worst form of cy pres relief.”
“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,” attorneys at the CCAF wrote when objecting to the settlement.
The lawsuit is 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).
On Oct. 9, Judge Cote denied the fees request of Selendy & Gay and Phillips, Richard & Rind, finding the lawyers' papers seeking preliminary approval, and therefore the class notice, did not clearly disclose AFT’s role in funding the litigation.
Those firms have claimed to have spent almost $6 million on the case and said their $500,000 fees request was a bargain. She added the $500K to $1.75 million earmarked to create the support center.
The firms are pursuing a class action on behalf of teachers who say Navient failed to recommend they use a loan forgiveness program designed for public employees with student debt.
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 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.
Left standing was a claim for violation of New York Consumer Protection From Deceptive Acts and Practices Law. Ultimately, the only parties recovering anything from the settlement would be the named plaintiffs, who each will receive $15,000 service awards.