NEW YORK (Legal Newsline) – A federal appeals court has rejected objections to a $2.2 million class action settlement that provided no money to class members or their lawyers.
On Sept. 7, the U.S. Court of Appeals gave its thumbs up to an agreement that resolved allegations Navient failed to steer teachers with student loans toward loan-forgiveness programs.
The settlement provided $2.2 million for a phone hotline, no money for the lawyers (despite their request of $500,000) and $15,000 in service awards for the named plaintiffs. Objecting to those terms were William Yeatman and Richard Estle Carson III.
The Hamilton Lincoln Law Institute's Center for Class Action Fairness represented Yeatman. It criticized much of the settlement, including the fact class members received no money while all funds - characterized as a "cy pres" award - will be used to set up the Public Service Promise helpline.
"This argument, however, misconstrues the settlement fund as a damages award that was redistributed to Public Service Promise through the cy pres doctrine," the decision says.
"But the settlement fund never belonged to class members as damages (indeed, the class members expressly reserved their individual right to later sue Navient for money damages), and there is no evidence to suggest that Navient would have otherwise agreed to distribute the funds to the class."
When the settlement was first approved in October 2020, New York federal judge Denise 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 the American Federation of Teachers' role in funding the litigation.
The AFT paid the legal bills for the plaintiffs, and Cote refused to award $500,000 in fees to the firms that would end up back in the hands of the union.
Yeatman argued AFT's role in driving the litigation suggests "the interests of the class were not adequately represented," but the Second Circuit disagreed. The objector couldn't show AFT's motives were suspect, it ruled.
It also affirmed the service awards to the named plaintiffs who "opened their lives to scrutiny" and "suffered personal attacks," according to Judge Cote.
The case claimed Navient gave the teacher-plaintiffs bad advice regarding the Public Service Loan Forgiveness program. The law firms 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. 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.