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Fantetti v. Access Group

April 5, 2007

JAMES P. FANTETTI, PLAINTIFF,
v.
ACCESS GROUP, INC., DEFENDANT.



The opinion of the court was delivered by: Sandra S. Beckwith, Chief Judge United States District Court

ORDER

This matter is before the Court upon Defendant Access Group Inc.'s Motion to Dismiss Plaintiff James Fantetti's Complaint on the ground that it fails to state a claim upon which relief can be granted. Doc. no. 4. For the reasons stated below, the motion is GRANTED.

I. Background

Plaintiff brings this action on behalf of himself and all others similarly situated for breach of contract against Defendant. Plaintiff makes the following allegations in the amended complaint: Plaintiff is an individual and a resident of Hamilton County, Ohio. Defendant is a Delaware corporation engaged in the business of originating private and federal Stafford student loans throughout the nation, and particularly in Ohio.

At some time prior to August 3, 2001, Defendant entered into a binding agreement with the Untied States Department of Education, whereby Defendant became an authorized originator and servicer of federal Stafford Loans pursuant to the Higher Education Act ("HEA"). On August 3, 2001, Plaintiff, who was a student at the University of Cincinnati College of Law at the time, signed a Master Promissory Note (Complaint, exh. A) and entered into a contract with Defendant, under which Defendant agreed to originate and service federal Stafford Loans to Plaintiff and Plaintiff agreed to repay those loans. The terms of the Note incorporate by reference a document entitled "Borrower's Rights and Responsibilities." (Complaint, exh. B). The Note states that interest rate information is presented in the "Borrower's Rights and Responsibilities."

With respect to the interest rate for all loans disbursed by Defendant to Plaintiff, the "Borrower's Rights and Responsibilities" states the following:

For Stafford Loans first disbursed on or after July 1, 1998, the interest rate will be a variable rate, adjusted annually on July 1, not to exceed 8.25%.

The interest rate formula and the actual interest rate applicable to each of my loans will be disclosed to me.

Beginning in August 2001 and continuing through January 2004, Defendant disbursed loans to Plaintiff and serviced them in conjunction with the Note. As the loans were disbursed each academic year, Defendant sent Plaintiff disclosure documents which stated Plaintiff's interest was a variable rate that could change each July 1. The disclosure documents did not include the interest rate formula applicable to the loans as required by the Note. On July 1, 2004, the variable interest rate on Plaintiff's loans was adjusted to 2.82%. On or about November 15, 2004, Defendant unlawfully raised the interest rate on Plaintiff's student loans from 2.82% to 3.37%.

Plaintiff brings this action on behalf of himself and a class consisting of: All student loan borrowers who (1) obtained Federal Stafford student loans from [Access Group] at any time within fifteen years prior to the filing of this Complaint, (2) whose promissory notes state that Access Group will only adjust the variable rate on their Stafford loans once a year on July 1, and whose promissory notes and interest rate disclosure documents did not include the interest rate formula applicable to their loans, and (3) whose interest rates Access Group increased at any time other than on July 1.

Plaintiff presents causes of action for (1) breach of contract and (2) injunctive relief. First, Plaintiff claims that he and Defendant were parties to a loan contract/promissory note that required Defendant to adjust the variable interest rate on the loans only once a year on July 1 and to disclose the interest rate formula applicable to Plaintiff's loans; Defendant breached its contract with Plaintiff by unilaterally raising the interest rate on the loans on or about November 15, 2004, and failing to disclose the interest rate formula applicable to the loans; and Plaintiff has been damaged by the breach in that Defendant unjustifiably charged Plaintiff a higher interest rate on his loans for a period of time prohibited by the loan contract. Second, Plaintiff claims that Defendant should be enjoined from continuing to (1) fail to disclose to students in its disclosure documents the interest rate formula applicable to Stafford Loans, (2) state in its promissory notes and disclosure documents that it will adjust the rate on students' Stafford Loans only once a year on July 1, and (3) raise the interest rates of federal Stafford Loan student borrowers at times other than on July 1 of each year.

II. Motion to Dismiss 3

Defendant moves to dismiss the complaint on three grounds. First, Defendant contends that the complaint seeks to enforce the HEA, for which there is no private right of action. Second, Defendant argues that the HEA preempts the complaint because by asking the Court to find illegal what federal law expressly provides, the suit would interfere with the Congressional objective of increasing student loan availability. Third, Defendant asserts that the complaint does not state a claim for breach of contract.

In response, Plaintiff contends that he does not bring this suit as a private cause of action under the HEA. Plaintiff alleges that the amended complaint mentions the HEA in the jurisdiction and venue section only because the Note states that it must be interpreted in accordance with the HEA. Plaintiff avers that his claims are not preempted by the express preemption provision of the HEA, 20 U.S.C. § 1083, or any other provision of the HEA. Plaintiff further argues that even if his claim for breach of contract were based in part on § 1083 or any other provision of the HEA, his claim is not preempted because he is pursuing a garden-variety state law contract claim, even though it may implicate the HEA and some of its regulations. Plaintiff ...


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