On February 28, 2017, a federal judge in California dismissed a putative Telephone Consumer Protection Act (TCPA) class action against United Student Aid Funds (USAF) by determining that USAF was not vicariously liable for the acts of collectors that were hired by an independent contractor/servicer. The case is Henderson v. United Student Aid Funds, (Case No. 13-cv-1845, U.S. District Court, ND CA).

A copy of the Order granting Defendant’s Motion for Summary Judgment can be found here.


Plaintiff first took out a student loan in January of 1993. The loan became delinquent in 2002, went into default in 2003, and was rehabilitated in 2004. Plaintiff took out a second student loan in 2007 on which she later defaulted. Plaintiff owed $6,100 across both loans. 

Defendant USAF is a non-profit guaranty agency working in the Federal Family Education Loan Program (FFELP). Defendant was the guaranty agency for Plaintiff’s loans and purchased the claims to the defaulted loans in 2010. Defendant then hired Navient Solutions, Inc. (NSI) to service and collect on the defaulted loans. 

The agreement between Defendant and NSI states that the parties will act “in independent capacities and not as agents and permitted NSI to hire subcontractors (Collectors) independent of any objections or recommendations Defendant might have. This includes NSI’s ability to terminate Collectors, an ability the Service Agreement does not explicitly provide to Defendant, and an action Defendant had never taken.

Separate agreements between NSI and various Collectors govern the relationships between the organizations. As the NSI-Collector relationships relate to USAF, “once the Collectors collect on a defaulted loan, they transfer the collected monies to NSI, which then remits the payment to USAF. USAF, in return, pays NSI a monthly portfolio management fee for its role in servicing the loans and managing the Collectors."

Plaintiff received “a number of unsolicited phone calls, featuring artificial or prerecorded voices, to her wireless phone” attempting to collect on the defaulted loans. Plaintiff never gave Defendant nor any relevant entity prior express consent to call her cellular telephone with the use of an automatic telephone dialing system (ATDS) or prerecorded message.

Plaintiff filed suit against Defendant on August 8, 2013 in the form of a putative class action for damages and injunctive relief under the TCPA, 47 U.S.C. §§ 227 et seq. Plaintiff subsequently amended her complaint, adding as Defendants NSI and several other collectors who contracted with NSI. Several months later, the newly added Defendants were dismissed for lack of jurisdiction.

Discovery proceeded for over a year, at which point Plaintiff filed a Motion for Class Certification, and Defendant filed a Motion for Summary Judgment. The parties jointly moved for one consolidated hearing date for both motions, which the Court granted. It is these motions that the court considered.

Editor’s note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial. 

The Court’s Opinion 

Defendant moved for summary judgment on two grounds:

  1. The Bipartisan Budget Amendment Act of 2015 created an exception to the TCPA which applies to Defendant in the present case, and
  2. There is no basis here to impose vicarious liability on Defendant. 

The Court addressed each argument. 

The TCPA, the Bipartisan Budget Amendment Act of 2015, and the Subsequent FCC Rulemaking 

Defendant argued that the loans which are the subject of Plaintiff’s TCPA complaint constitute debt “owed to or guaranteed by the United States” such that they fall into a newly added exception to the general TCPA ATDS and artificial or prerecorded voice prohibitions. Plaintiff did not dispute that the new exception may be retroactively applied to the loans here at issue, but instead argued that the loans are merely insured by the United States and therefore do not fall within the newly added exception.

The court agreed with the Plaintiff on this first issue. The Court concluded that “the new exception to the TCPA created by the Budget Act Amendment applies solely when the calls are made during a period in which the United States’ obligations as the ultimate guarantor or debtee have been triggered and are active.” 

Vicarious Liability  

Defendant argued that it may not be held liable under any theory of vicarious liability. Plaintiff argued that Defendant may be held liable under three theories of vicarious liability: (a) “classical” agency via subagency; (b) implied actual authority; and (c) ratification. 

Generally, under the classical agency theory of liability an entity may be liable for actions it did not itself take when the unlawful acts were performed by an agent of the entity. Plaintiff asserted that NSI was Defendant’s agent for purposes of hiring contractors, and that pursuant to that agency relationship “NSI had actual authority from USAF to hire the Collectors as subagents.” Defendant argued that NSI is merely an independent contractor: “USAF contracts with NSI to handle its collection efforts, and NSI is permitted to retain subcontrators . . . to assist. The Court agreed with the Defendant. 

In discussing the “classical agency” relationship, the court wrote:

“To succeed in proving an agency relationship a party must show an alleged principal’s right to control more than just the result of an alleged agent’s work, “specifically, the manner and means of the [activities] they conducted. 

In the present case, the evidence indicates that Defendant controlled only the outcome of NSI’s work, rather than the manner and means by which it was accomplished. Defendant and NSI structured their relationship “as independent contractors” without “any right to make commitments of any kind or to create any obligation for or on behalf of the other without the prior written consent of the other party,” except in limited circumstances.

This evidence strongly suggests that Defendant did not maintain sufficient control over NSI’s activities to constitute an agency relationship.”

The court then addressed Plaintiff’s “implied actual authority” argument: 

“Plaintiff has not produced sufficient evidence to create a triable issue of fact as to an implied actual authority theory of vicarious liability. 

The unremarkable fact that the NSI-hired Collectors were permitted to perform their jobs pursuant to their exclusive contracts with NSI—i.e., accept payments satisfying the debtors’ underlying debts as instructed by NSI—does not confer implied actual authority for the Collectors to act as agents for Defendant, nor to breach the TCPA in so doing.

Plaintiff’s argument that when Defendant’s yearly audit indicated no problems with a NSI-hired Collector Defendant therefore “approve[d]” of the Collector’s processes, procedures, and collection efforts is similarly unavailing. 

There is no indication that Defendant’s audits even encompassed TCPA compliance. And even if they did, the fact that Defendant’s audits of particular collectors did not reveal any violations even though they allegedly were, in fact, occurring, is insufficient to establish a reasonable belief on the part of those NSI-hired Collectors that Defendant impliedly granted them actual authority to breach the TCPA.” 

Finally, the court addressed Plaintiff’s “ratification” argument. Again, the court agreed with Defendant. 

“Plaintiff’s final argument is that “even if the Collectors were not in an agency relationship with USAF (or were acting outside its scope), a jury could easily find that USAF ratified their conduct nonetheless. 

However, Plaintiff’s argument directly ignores controlling Ninth Circuit authority: “Although a principal is liable when it ratifies an originally unauthorized tort, the principal-agent relationship is still a requisite, and ratification can have no meaning without it.

Defendant did not exercise sufficient control over the NSI-hired collectors to establish an agency relationship and a corresponding grant of either express or implied actual authority. And because there is no principal-agent relationship established between Defendant and NSI, there can be no corresponding principal-agent relationship established between Defendant and the NSI- hired contractors via subagency. Accordingly, on these facts there can be no ratification.

insideARM Perspective 

This decision is interesting to the ARM community for a couple of reasons. 

First of all, the court clearly and succinctly determined that the new exception to the TCPA created by the Budget Act Amendment did not apply to Guarantor Agencies such as USAF.

Second, the vicarious liability argument raised by Plaintiff was clever, but the documentation between USAF and NSI and the facts surrounding the relationship between the parties defeated that argument.  The decision should be reviewed by any credit grantor or third party servicer.  Agreements need to be clear about the relationship between parties. Then the actions of the parties must be consistent with the contractual provisions.

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