United States District Court, D. Delaware
LORD ABBETT AFFILIATED FUND, INC., et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
NAVIENT CORPORATION, et al, Defendants.
Plaintiffs, referred to collectively as the Lord Abbett
Funds, filed a consolidated amended class action complaint
(the "complaint") alleging violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Sections 11, 12(a)(2), and 15
of the Securities Act of 1933 (the "Securities
Act"). (D.I. 36). Defendant Navient Corporation
("Navient") and the Individual Defendants have
moved to dismiss the complaint pursuant to Fed.R.Civ.P. 9(b)
and 12(b)(6), and the Private Securities Litigation Reform
Act of 1995 (the "PSLRA"). (D.I. 38). The Underwriter
Defendants have joined in the motion to
dismiss. (D.I. 42, D.I. 48). Navient, the
Individual Defendants, and the Underwriter Defendants are
referred to herein collectively as the
"Defendants." The court has subject matter
jurisdiction over this action pursuant to 28 U.S.C. §
1331 (federal question jurisdiction), 15 U.S.C. § 78aa
(jurisdiction for violations of the Exchange Act), and 15
U.S.C. § 77v (jurisdiction for violations of the
Securities Act). For the following reasons, the motion to
dismiss is granted and the complaint is dismissed with leave
is one of the country's largest servicers of student
loans. (D.I. 43 at 3). The company was formed in April 2014
through a spin-off from Sallie Mae. (D.I. 39 at 2; D.I. 36
¶ 81). The complaint is based on various disclosures
Navient made between April 17, 2014 and December 28, 2015,
which Defendants have helpfully grouped into three
categories: (1) Navient's allowance for loan losses and
related financial metrics, (2) Navient's compliance
culture, and (3) Navient's credit facilities.
(D.I. 36 ¶ 1; D.I. 39
Allowance for Loan Losses
holds a significant portfolio of private education loans
("PELs") on which it earns net interest income.
(D.I. 36 ¶ 12; D.I. 39 at 2). When Navient concludes
that a PEL is uncollectible, the unrecoverable portion of the
loan is charged against an allowance for loan losses. (D.I.
36 ¶ 89). Navient estimates and maintains an allowance
for loan losses at a level sufficient to cover charge-offs
expected over the next two years. (Id.). The
complaint alleges that Navient manipulated loan
forbearances-temporary reprieves of distressed borrowers'
payment obligations-to avoid having to classify loans as
delinquent. (Id. at ¶ 1)- Reporting
artificially low delinquency rates allowed Navient to report
artificially low loan loss provisions. (Id.).
Because loan loss provisions were recorded as expenses
against income, Navient was consequently able to report
artificially high net interest income. (Id.). In
July 2015, Navient disclosed that it increased its loan loss
provision for its PEL segment of business 31.7%.
(Id. at ¶ 177).
made several disclosures during the class period regarding
its interactions with federal regulators. For example, on May
9, 2014, Navient disclosed that its wholly-owned subsidiary
Navient Solutions, Inc. ("NSI") had received a
civil investigative demand from the Consumer Financial
Protection Bureau ("CFPB") related to its
disclosure and assessment of late fees. (D.I. 36 ¶ 98).
On May 13, 2014, the Department of Justice issued apress
release announcing a $60 million settlement of allegations
that NSI, Navient, and Sallie Mae charged military service
members excessive rates on student loans, in violation of the
Servicemembers Civil Relief Act ("SCRA").
(Id. at ¶ 100). In November 2014, Navient
disclosed that its wholly-owned subsidiary Pioneer received a
civil investigative demand from the CFPB relating to the
rehabilitation of loans and collection of defaulted student
debt. (Id. at ¶ 142). On February 27, 2015, the
Department of Education announced that it was terminating its
contracts with Pioneer and four other private collection
agencies following a review by the Department's Federal
Student Aid office, which "found that agents of [the
five entities] made materially inaccurate representations to
borrowers about the loan rehabilitation program."
(Id. at ¶¶ 42, 156). On August 24, 2015,
Navient disclosed that NSI received a notice from the CFPB
that its Office of Enforcement was considering taking legal
action against NSI regarding its disclosure and assessment of
late fees. (Id. at ¶ 186). There are several
other allegations scattered throughout the. complaint
regarding other regulations governing Navient, compliance,
and the SCRA. (See, e.g., Id. at ¶¶ 19,
99, 146, 192, 221). For the reasons explained below, it is
difficult to grasp the entirety of the story the complaint is
trying to tell with respect to Navient's compliance
culture, other than the conclusory allegation that it was not
as good as claimed.
made several disclosures regarding its credit facilities. For
example, on October 20, 2015, Navient disclosed that its
borrowing capacity under credit facilities not identified in
the complaint had been reduced. (D.I. 36 ¶ 60). On
December 28, 2015, Navient disclosed that the Federal Home
Loan Bank of Des Moines ("FHLB-DM") was reducing
the borrowing capacity available to Navient's
wholly-owned subsidiary HICA Education Loan Corporation.
(Id. at ¶ 61). The complaint alleges that these
credit facilities were a source of low-cost borrowing and,
therefore, the reduction in aggregate borrowing capacity, had
a material impact on Navient's liquidity. (Id.
at ¶ 62).
STANDARD OF REVIEW
Rule 8(a), a complaint must contain "a short and plain
statement of the claim showing that the pleader is entitled
to relief." Fed.R.Civ.P. 8(a)(2). Each allegation
"must be simple, concise, and direct." Fed.R.Civ.P.
8(d)(1). To survive a motion to dismiss under Rule 12(b)(6),
a plaintiff must plead facts sufficient to "state a
claim to relief that is plausible on its face."
Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). Courts must accept all well-pleaded factual
allegations in the complaint as true and draw all reasonable
inferences in favor of the plaintiff. In re Rockefeller
Ctr. Prop., Inc. Sec. Litig., 311 F.3d 198, 215 (3d Cir.
2002). The court's review is limited to the allegations
in the complaint, exhibits attached to the complaint,
documents incorporated by reference, and items subject to
judicial notice. Siwulec v. J.M. Adjustment Serv.,
LLC, 465 Fed.App'x 200, 202 (3d Cir. 2012).
Rule 9(b) ...