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U.S. Bank National Association v. National Collegiate Student Loan Trust 2003-1

United States District Court, D. Delaware

September 17, 2018

U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee, Petitioner,
v.
NATIONAL COLLEGIATE STUDENT LOAN TRUST 2003-1, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2004-1, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2004-2, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-1, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-2, NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-3 Defendants.

          MEMORANDUM AND ORDER

          Joseph F. Bataillon Senior United States District Judge

         This matter is before the court on defendants' motion for summary judgment, D.I. 55; petitioner's motion for summary judgment, D.I. 57; the report and recommendation of the magistrate regarding D.I.'s 57 and 55, D.I. 79; and Transworld Systems Inc.'s (hereinafter “TSI”) statement of interest, D.I. 89; petitioner's objections, D.I. 90; objections filed by OWS ABS Fund II, L.P., OWS COF I Master, L.P., OWS Credit Opportunity I, LLC, One William Street Capital Master Fund, Ltd., Waterfall Asset Management, LLC., D.I. 91; Declaration of Andrew D. Cordo in support of interested noteholder's objection, D.I. 92; Letter by petitioner, D.I. 93; response to objections, D.I.'s 97 and 98 and 99 and 107; and petitioner's reply brief, 106. This case involves a “Trust Instructional Proceeding” which is a Minnesota statutory action “initiated for the purpose of seeking instruction concerning trust administration relating to the appointment and payment of a loan servicer for transactions relating to loans held by the trusts.” D.I. 79, at 1. The magistrate judge recommends that the court grant the Trusts' motion for summary judgment and deny the Trustee's motion for summary judgment. This court reviews this case de novo.

         The case involves six Delaware statutory trusts, known as National Collegiate Student Loan Trusts 2003-1. On May 2, 2017, interested parties, and holders of notes in the trusts that are subject to this action, Waterfall Asset Management, LLC, OWS ABS Fund II, L.P., OWS COF I Master, L.P., OWS Credit Opportunity I, LLC, and One William Street Capital Master Fund, Ltd. informed the court in advance of the May 11, 2017 oral argument that they support the Indenture Trustee's position and motion for summary judgment. (D.I. 69). Case 2003-1, 2004-1, 2004-2, 2005-1, 2005-2, and 2005-3 (the “Issuers” or the “Trusts”), were created between 2003 and 2005 to acquire pools of student loans, facilitate the issuance and sale of notes (the “Notes”). They were backed by private student loans to investors and who serviced the loans. The current trustee is Wilmington Trust Company. The trusts are “owner directed.”

         Eventually, U.S. Bank became the back-up Special Servicer, and Odyssey Education Resources became the servicer of defaulted loans and loans eligible for sale. Thereafter, as stated by the magistrate judge:

On February 18, 2016, the Indenture Trustee filed a “Petition for Instructions in the Administration of Trusts Pursuant to Minnesota Statute § 501C.0201” in Minnesota's Second Judicial District Court, in the County of Ramsey. (D.I. 1-1) The Indenture Trustee sought the state court's instruction regarding VCG's “attempt to appoint Odyssey as a servicer or special servicer for each Trust under the Odyssey Agreement.” (Id. at ¶ 2) Specifically, the Indenture Trustee sought the court's instruction on three issues: (1) whether, under the governing agreements, Odyssey was properly appointed as a servicer or special servicer and whether the Odyssey Agreement was valid and binding, such that the Indenture Trustee should release funds necessary to compensate Odyssey for any future services performed; (2) to the extent Odyssey was properly appointed as servicer or special servicer and the Odyssey Agreement is valid and binding, how to resolve certain conflicts between the Odyssey Agreement and the governing agreements; and (3) to the extent Odyssey was properly appointed, whether to release the funds necessary to pay the Odyssey Invoices. (Id. at ¶¶ 5-7)

D.I. 79, at 4-5.

         STANDARD OF REVIEW

         The standard of review is governed by 28 U.S.C. § 636(b)(1)(C) and Federal Rule of Civil Procedure 72(b). The district court “shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made” and “may also receive further evidence or recommit the matter to the magistrate judge with instructions.” 28 U.S.C. § 636(b)(1)(C). Similarly, Rule 72(b)(3) requires de novo review of any recommendation that is dispositive of a claim or defense of a party.

         The Supreme Court has construed the statutory grant of authority conferred on magistrate judges under 28 U.S.C. § 636 to mean that nondispositive pretrial matters are governed by § 636(b)(1)(A) and dispositive matters are covered by § 636(b)(1)(B). Gomez v. United States, 490 U.S. 858, 873-74 (1989); see also Fed. R. Civ. P. 72(a). Under subparagraph (B), a district court may refer a dispositive motion to a magistrate judge “to conduct hearings, including evidentiary hearings, and to submit to a judge of the court proposed findings of fact and recommendations for the disposition.” 28 U.S.C. § 636(b)(1)(B); see EEOC v. City of Long Branch, 866 F.3d 93, 99-100 (3d Cir. 2017). The product of a magistrate judge, following a referral of a dispositive matter, is often called a “report and recommendation.” Id.“Parties ‘may serve and file specific written objections to the proposed findings and recommendations' within 14 days of being served with a copy of the magistrate judge's report and recommendation.” Id. (quoting Fed.R.Civ.P. 72(b)(2)). “If a party objects timely to a magistrate judge's report and recommendation, the district court must ‘make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made.'” EEOC, 866 F.3d at 99 (quoting 28 U.S.C. § 636(b)(1)).

         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Material facts are those that could affect the outcome of the proceeding, and “a dispute about a material fact is ‘genuine' if the evidence is sufficient to permit a reasonable jury to return a verdict for the nonmoving party.” Lamont v. New Jersey, 637 F.3d 177, 181 (3d Cir. 2011) (quoting Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986)). Pursuant to Rule 56(c)(1), a party asserting that a fact is genuinely disputed must support its contention either by citing to “particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for the purposes of the motion only), admissions, interrogatory answers, or other materials, ” or by “showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c)(1)(A) & (B).

         Courts considering cross-motions for summary judgment will treat each motion independently. T-Mobile, Ne., LLC v. City of Wilmington, 2018 WL 1472526, at *2 (D. Del. Mar. 26, 2018) (citing Rains v. Cascades Industries, Inc., 402 F.2d 241, 245 (3d Cir. 1968)). The moving party bears the initial burden of proving the absence of a genuinely disputed material fact. See Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The burden then shifts to the non-movant to demonstrate the existence of a genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Williams v. Borough of West Chester, Pa., 891 F.2d 458, 460-61 (3d Cir. 1989). When determining whether a genuine issue of material fact exists, the court must view the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. See Scott v. Harris, 550 U.S. 372, 380 (2007); Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir. 2007). However, the existence of some evidence in support of the nonmoving party may not be sufficient to deny a motion for summary judgment. Rather, there must be enough evidence to enable a jury reasonably to find for the nonmoving party on the issue. See Anderson, 477 U.S. at 249. If the nonmoving party fails to make a sufficient showing on an essential element of its case on which it bears the burden of proof, the moving party is entitled to judgment as a matter of law. See Celotex Corp., 477 U.S. at 322.

         DISCUSSION

         Indenture Trustee first inquired whether Odyssey was validly appointed to act as a Servicer. The magistrate judge found that “because the Indentures and other Basic Documents do not expressly restrict the rights of the Trusts to hire other servicers, the Trusts retained the right to hire Odyssey.” D.I. 79 at 9-10. She further determined that “Odyssey's right pursuant to the Odyssey Agreement to purchase Loans does not ‘waive, amend, modify, supplement, or terminate' the Special Servicing Agreement or other Basic Documents, triggering Indenture Trustee and Noteholder approval.” Id. at 17-18. She likewise decided that Noteholder consent was not required for Odyssey's appointment as a Servicer. Id. at 19. She determined that the Odyssey Agreement does not change the provisions of the Special Servicing Agreement. Id. at 20. She also found the rating agency complied with the condition in the Special Servicing Agreement § 6E. Id. at 21. Last, the magistrate judge determined that the Odyssey Invoices should be paid. She based that finding on her decision that “the Trusts provided the rating agencies with a copy of the Odyssey Agreement, which sets forth the fees Odyssey would receive, such as the 10% commission on sales of loans. (Id. at TA619-40).” Id. at 24. This was sufficient notice, found the magistrate judge.

         Transworld Systems filed a statement of interest. D.I. 89. In it, TSI indicates it is the sub-servicer of defaulted loans for which U.S. Bank is the Indenture Trustee and successor Special Servicer. TSI disagrees with the Magistrate Judge's recommendation granting the Trusts' Motion for Summary ...


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