On April 10, 2020, a panel of the Eleventh Circuit Court of Appeals unanimously held in Lawson-Ross v. Great Lakes Higher Ed. Corp. that the Higher Education Act’s (HEA) disclosure requirements do not preempt misrepresentation claims furnished by applicable state law.[1] Ultimately, the court’s holding rests on a common-sense conclusion: An affirmative misrepresentation is not the same thing as a failure to disclose.
Background and Procedural History
In Lawson-Ross, the plaintiffs, student loan borrowers, alleged that their student loan servicer, Great Lakes, made affirmative misrepresentations — as opposed to allegations of failures to disclose.[2] Specifically, the plaintiffs alleged that Great Lakes representatives “told them they were eligible for forgiveness of their loans through the [Public Service Loan Forgiveness (PSLF) Program], and only later did they discover they were not eligible — after they had already made payments that could not then be counted toward the PSLF Program.”[3]
According to the plaintiffs, Great Lakes had informed them that they were eligible for the PSLF Program and would qualify for loan forgiveness after making 120 payments, when the majority of the loans for each borrower were not federal direct loans and thus were not eligible for forgiveness under the PSLF Program.[4] The plaintiffs claimed that they were damaged by these misrepresentations because they lost the opportunity to consolidate their student loans into a form that would have been eligible for forgiveness, so they made payments that they would not otherwise have been required to make.
On the basis of these allegations, the plaintiffs filed a class action, asserting claims for breach of fiduciary duty, negligence, unjust enrichment, breach of an implied contract and violation of Florida’s Consumer Collection Practices Act, all premised on the allegation that they had spent years making payments they believed would qualify for the PSLF Program, in reasonable reliance on affirmative misrepresentations by Great Lakes representatives.[5] Great Lakes moved to dismiss, contending that the claims were expressly preempted by § 1098g of the HEA, which preempts “any disclosure requirements of any State law.”[6] According to Great Lakes, all the claims were preempted as nondisclosure claims based on the alleged failure to disclose information about the PSLF Program.
Notably, after Great Lakes filed its motion to dismiss, on March 12, 2018, the Department of Education issued a notice announcing that “Congress intended § 1098g to preempt any State law requiring lenders to reveal facts or information not required by Federal law,” and that any state laws imposing “new prohibitions on misrepresentation or omission of material information” violated § 1098g’s express preemption provision.[7] Great Lakes maintained that the borrowers’ claims were only restyled nondisclosure claims, and the federal district court in Florida agreed, construing the alleged misrepresentations as a “failure to provide accurate information.”[8] The plaintiffs appealed.
The Eleventh Circuit’s Holding: No Preemption
The Eleventh Circuit vacated and remanded the district court’s order dismissing the plaintiffs’ case. Although § 1098g expressly preempts state laws that require additional disclosures, the Eleventh Circuit held that “state law causes of action arising out of affirmative misrepresentations a servicer voluntarily made that d[o] not concern the subject matter of required disclosures impose no disclosure requirements.”[9] Thus, § 1098g of the HEA does not expressly, by conflict or by encompassing the field of regulating student loans, preempt state laws that create a cause of action against student loan servicers for affirmative misrepresentations to borrowers.[10]
The court focused on the required disclosures for repayment options under the HEA § 1083(e). It concluded that the affirmative misrepresentation-based claims were different in kind from the disclosure-based claims. According to the allegations in the complaint, Great Lakes voluntarily gave the borrowers false information about their eligibility for the PSLF Program, thus giving rise to a non-preempted claim. Unlike the allegations of the plaintiff in Chae v. SLM Corp.,[11] the Lawson-Ross plaintiffs alleged that Great Lakes chose to make affirmative misrepresentations about matters that were unrelated to their required disclosures under the HEA. The court explained that this was not modifying existing disclosure requirements or imposing new disclosure requirements on student loan servicers:
[T]he Borrowers alleged that when Great Lakes chose to provide them with information it was not required to disclose — about their eligibility for the PSLF Program — it gave false information. If instead the Borrowers had alleged that Great Lakes had a duty to inform them whether they qualified for the PSLF Program, such a claim might well be preempted. But here, Great Lakes was not required to say anything about loan forgiveness. It could have remained silent instead of giving the Borrowers advice. Holding Great Lakes liable for offering false information would therefore neither impose nor equate to imposing on servicers a duty to disclose information. It would simply require Great Lakes and other servicers to speak truthfully when they choose to speak about a borrower’s qualification for the PSLF Program or any other topic on which servicers have no duty to disclose.[12]
Thus, the Court drew a sharp line between mandatory disclosures and voluntary statements alleged in this case.
Conclusion
The Eleventh Circuit’s clear distinction between mandatory disclosures and voluntary statements will likely be the subject of future litigation. Should student loan servicers refuse to advise student borrowers on the PSLF and other student loan forgiveness programs simply because they are not required to provide disclosure? In any event, student loan servicers should pay careful attention as courts around the country address the preemption issues raised in Lawson-Ross.[13]
[1] 955 F.3d 908 (11th Cir. 2020).
[2] See id. at 912–14.
[3] Id. at 912–13.
[4] See id. at 913–14.
[5] Id. at 914.
[6] Id.
[7] Id. at 915 (quoting Federal Preemption and State Regulation of the Department of Education’s Federal Student Loans Programs and Federal Student Loan Servicers, 83 Fed. Reg. 10619 (Mar. 12, 2018)).
[8] Id.
[9] Id. at 917.
[10] Id.
[11]593 F.3d 936 (9th Cir. 2010).
[12] Lawson-Ross, 955 F.3d at 918.
[13] See, e.g., Penn. v. Navient Corp., 967 F.3d 273 (3d Cir. 2020) (HEA preemption of state claims regarding covered loans does not extend to claims of affirmative misrepresentation).