A District Court judge in North Carolina has granted a defendant’s motion for judgment on the pleadings in a lawsuit accusing a student loan guarantor and servicer of running a decades-long fraud scheme around a 1995 loan consolidation, ruling that a bankruptcy court settled the loan’s existence more than 20 years ago and that anything left over was filed years too late.
The background: The plaintiff, a law school graduate representing herself, borrowed for law school in the early 1990s through a loan program the defendant marketed to law students nationwide. After graduating, she consolidated the loans in 1995, signing a promissory note for $44,205.46. Within months she asked to rescind the consolidation, was denied, and then requested and received several forbearances.
- In 2003, the plaintiff filed for Chapter 7 bankruptcy and sought to discharge the loans, arguing the consolidation had never actually happened. The bankruptcy court granted summary judgment to the defendant on that question in 2004 and later found no undue hardship. The plaintiff did not appeal.
- The defendant garnished the plaintiff’s wages in 2005 and 2006, then assigned the loan to the Department of Education in 2008. The Department intercepted her federal tax refund in 2016.
- The plaintiff kept digging, obtaining an audit report from the defendant in 2014 and a Freedom of Information Act response from the Department in 2015 that she says confirmed her suspicions.
- Four years ago, the plaintiff filed a 325-page complaint laying out 21 fraud theories, all centered on what she called a fake consolidation check, and asserting 22 claims including Fair Debt Collection Practices Act, civil racketeering, North Carolina unfair and deceptive trade practices, and fraud theories. By her own count, the complaint identified “181 bluffs; 99 computer overrides; bank federal identity thefts; conflicts of interest; unauthorized branding; poor document imaging; mismatched state and federal records; missing documents; 1,035 blind spots; numerous aliases; a silence scheme; document destruction; an accumulation of 1,078 missing requirements; and more.”
- After the Department was dismissed last year, the defendant moved for judgment on the pleadings, arguing collateral estoppel and the statute of limitations. The plaintiff argued the bankruptcy judgment was void because it rested on fraud and was “merely advisory.”
The ruling: Judge William L. Osteen Jr. of the District Court for the Middle District of North Carolina held that all five elements of collateral estoppel were met, because the plaintiff argued then and argues now that the same loan from the same defendant never existed, the bankruptcy court decided that exact question after discovery, and the plaintiff had a full and fair chance to litigate it.
- The plaintiff admitted she learned of the alleged fraud during 2004 discovery and argued it to that court, so any challenge now “would be more than twenty years too late” and belonged in the original case, not a collateral suit, the judge ruled.
- For claims not tied to the consolidation, even a six-year limitations period with a discovery rule had expired, because the complaint says the plaintiff considered the fraud “confirmed” by July 2015.
- Equitable tolling applies only when the delay is not attributable to the defendant, and the plaintiff could not claim that “while simultaneously alleging that Defendant ‘polluted the judicial machinery.'” The judge agreed she had been making the same arguments “ad nauseam.”
