St. Louis Record

Wednesday, October 23, 2019

Judge: Loan servicer Navient can't force borrower to arbitration in excessive interest rate suit

Federal Court

By Charmaine Little | Sep 13, 2019

JEFFERSON CITY – A borrower who sued student loan servicer Navient won’t have to go through arbitration in a suit over allegations that his student loan interest amount was higher than what was stated in loan documents.

The U.S. District Court for the Western District of Missouri’s Central Division denied a motion to compel from defendants Navient Corp., Navient Finance Corp., Navient Private Loan Trust and Navient Solutions LLC on Aug. 12. U.S. District Judge Nanette K. Laughrey ruled on the case.

Trey Neal sued Navient over allegations of breach of contract “claiming that interest on his student loans exceeded the limitation stated in the loans’ disclosures,” according to the ruling.

U.S. District Judge Nanette K. Laughrey

He obtained a loan through JPMorgan Chase Bank NA, who then sold it to Navient Solutions LLC (NSL). Chase and other defendants were dismissed while Neal continued his complaint against NSL and the rest of the current defendants.

Now, the Navient defendants allege that Neal is subject to an arbitration clause based on a credit agreement he signed. NSL pointed out that it’s a successor of Chase via its connection to Jamestown Funding Trust, which previously held the loan. It also said NSL is an agent to the successor as it serviced the loan.

Laughrey noted that the agreement explains two different groups of entities. The first is described in the agreement that says, “If either you or us chooses to arbitrate," and a second portion that reads, “[a]ny claim or dispute… between you and us or our employees, agents, successors or assigns, which arise out of or relate to this agreement, your loan application, or any resulting or related transaction or relationship ... shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”

Laughrey wrote that based on both provisions, “it is apparent that disputes with a broad array of entities are covered by the arbitration agreement, but only a subset of those entities are empowered to choose to arbitrate.”

Ultimately, only Chase and its successors and other agreement holders can call for Neal to go to arbitration, the judge said.

While NSL said it can compel Neal because it’s a servicer, Laughrey said that agents are not included in the list of entities listed as “us” or “our” when it comes to parties that can force arbitration.

Even though Navient Credit Finance Corp. is a successor of Chase via its relationship with the trust company, which is the holder of the loan, Laughrey added that the defendants have failed to show that any of them is a successor “based on a separate entity’s status as successor.”

In attempt to plead their case that Neal is bound by arbitration since Navient Credit Finance bought the loan, the defendants also stated Neal’s allegations are true. Still, without the explanation of how defendant is a successor, assignor or other holder of the agreement, the Laughrey said the court doesn’t have enough to work with.

"Without additional explanation as to how the declaration is consistent with Neal’s allegations or otherwise establishes that a defendant is a successor, assign or other holder of the agreement, the declaration, on its face, prevents the court from concluding that the defendants are empowered under the terms of the agreement to 'choose' to arbitrate," she wrote.

Laughrey also shut down the Navient defendants’ claims that alternate estoppel should allow it to order arbitration considering Neal’s lawsuit is surrounded by the terms of the loan agreement. The judge wrote since Neal is asking for protections via the loan agreements and damages for an alleged interest rate cap breach, the estoppel explanation would call for Neal to follow the arbitration clause, which the judge has said he’s not currently ordered to do.

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