good morning judge wharton and i are very pleased to welcome our colleague judge greg capsis from the district of columbia circuit to help us with our work today pleasure judge katz this is had a distinguished career and particularly one in public service having served both in the department of justice and in the white house  clarence thomas both at the district of columbia circuit and on the supreme court of the united states so i guess it's fitting that we would have him come visit with us this week is so thanks for being here kid gets was so we have four cases to hear this morning we're familiar with your cases we've read your briefs the authority cited in your brief senate at least portions of the record so in the you should feel free to get straight to the heart of your argument you don't need to film oh your eyes us with a lot of background we probably will have some questions off and the reason we set a case for all argument is because we think that a conversation with counsel will assist us in the resolution of the case so when the questions  come we need your help but do pay attention to our traffic light system and when the red light shines and it's time to finish if you're answering a question from the court of course you can feel free to finish your answer but do be mindful of the red light which our former chief larry adamant in used to say you should not treat as aspiration so our st case this morning is there are sol versus pennsylvania higher education assistants agency mr hill would you please come and speak with us because it was acting pursuant to a bona fide fiduciary obligation because the complaint plausibly allege that there was no federally guaranteed loan at issue from which such a fiduciary obligation could arise let me get to the heart of one thing that concerns me about this and that is as i read your complaint your complaint appears to me to allege that the failure to it here to proper kinds of procedures do you does that do you contend that the complaint alleges that the agency not only was trying to collect a nonexistent debt but they in fact knew that it was nonexistent and one is nevertheless trying to collect it from your client because i don't read the complaint that way but i wanted to make sure i understand what your position is about it sure your honor i would say it's not entirely clear from the complaint whether it directly alleges that the defendant had knowledge that i was attempting to collect a nonexistent debt but it does allege that the debt was nonexistent and i'm not sure that the complaint needs to allege the state of mind of the defendant  had is about the bona fide requirement that that's the reason i raised this and it seemed to me that whether the complaint alleges that or not could make a big difference well your honor i don't think it makes a difference in the sense that if there is no loan no bona fide fiduciary obligation can arise at all and so in that sense it wouldn't matter whether or not the defendant was aware that it had no loan and therefore no bona fide fiduciary obligation or whether potentially it was mistaken but either way no fiduciary obligation would arise and so in that sense it wouldn't matter and again this is all information that would be within the knowledge of the defendant if it had been required to put on evidence the district court's key error here was in deciding this on a motion to dismiss where rather than take the allegations in the complaint as true and assume based on those plausible allegations that there was no loan at issue here it essentially took the defendant's assertions in its brief as true which is not propri dismiss your your so your position is that the bona fide element means that whenever there can fact it's not a debt the fiduciary exception cannot that's correct your honor so doesn't that make nonsensical the separate element of the statute which covers not just debts that are owed but debts that are asserted to be i think it does not your honor and i think that the work that that language is doing in the statute is that if the guarantee agency or some other entity attempting to collect debt is incorrect that the debt is actually owed for some reason for example there is a loan and the entity is attempting to collect it but is in error because the debt is in deferment or i'm sorry it is what is in deferment or because the borrower has already paid it off that would mean entity would still qualify for the exemption because he did have a bona fide fiduciary obligation arising from the loan in the st place even though it was in error it was incorrect that the loan was actually and again that's it's clear from the statute here that the those seem to be instances where that the debt collector was acting in good faith right which would make a bona fide but but was mistaken right well so the assertion there could be in good faith right but whether or not it's pursuant to an actual bona fide fiduciary obligation again the statute doesn't say that the defendant may simply assert a bona fide fiduciary obligation the defendant must be maybe asserting that a debt is due or a debt may actually do but in either be able to simply say not only do we think this is due but we don't have to provide any evidence of an actual federally guaranteed loan here and that we have any kind of obligation arising from such a federally guaranteed loan we can just assert that in a brief and if we have asserted that we don't need to come in and prove that there's an actual loan they were acting in our capacity as federal guarantee agency because that's another critical point here which is that federal guarantee agencies act in other capacities as well and the department of education's made that clear in its one thousand nine hundred and six notice of proposed rule making which in fact was directed at the fact that federal guaranty agencies may act in multiple capacities in some of those capacities a federal guarantee agency will not have a bona fide fiduciary obligation to the federal government because no federally backed loan is at issue and in other cases it may not be entirely clear yet if they're doing things other than trying to collect on federally guaranteed loans correct your are well and i'm assuming that there maybe there could be an instance in which a federal guarantee agents agency were attempting to collect on a federally guaranteed loan but not in its capacity as a guarantee agency for example it could have a separate business in which it acts soley as a debt collector and therefore as a rd party debt collector for another guarantor but your honor is correct that assuming that the federal guarantee agency is acting in its capacity as a federal guarantee agency benefit to syria obligation w federal guarantee agency and therefore that it has a bona fide fiduciary obligation to protect the federal funds that are at issue here here's the problem i had your comply to your client's complaint alleges that the debt the agency sought to collect was signed to her your client and error either on the part of the lender the department of education or the agency the complaint alleges that the agency was negligent failed to validate the debt growth allegations do not to make a bad faith your honor i would concede that the complaint is not the paragon of clarity but i think taken in the light most favorable to the plaintiff especially in light of the fact that the plaintiff was proceeding pro se below y the complaint should be read to allege that there is no evidence that there was a loan at issue in the st place now the fact that the defendant was attempting to collect such a loan i mean that that's very that's contrary to what i just read that there was no debt to say that as the complaint alleges that the debt was assigned to her in error and that they were negligent about it does not suggest to me that there was no debt it only it suggests that it wasn't her debt your honor st of all i would say that i'm not sure that the complaint used a sign in the technical sense of the word and that there would be a and it would be a side it generated in a technical sense so ok thank you your honor and so it may be that the that the plaintiff simply intended to say you should not have been asking me to pay this debt and that that was not a concession that the debt existed in the st place now again the defendant could come into court on a motion that was weird elect i mean but there's nothing in the complaint that seems to me to allege that anything facts from which he could plausibly and further that this was not only had not a debt of your client but it was not it was a nonexistent debt at all and they they knew that and therefore acting in bad faith it seems like to me at least you'd have to have some kind of allegation of bad faith your honor i don't think you do have to have an allegation bad faith for the complaint to survive in this case and the key allegations here are st of all that she had no knowledge whatsoever of what the debt was that was referred to in these letters or where it might have come from and that she called the company so she has a good faith belie certainly that the debt has nothing to do with her and she has no idea where it came from and that she called the defendant and the defendant said we have no record of your name we don't know why in effect we don't know why you would have received these letters we have no record of such a debt now i want to cut you off if there's something else you want to say to complete your answer just like just wanted to say that there there certainly are potentially conflicting allegations in the complaint but that the complaint the actions that the debt collector took in this case were incidental to a bona fide fiduciary relationship other than the assertions of the defendant i don't believe there was any evidence in the record that would suggest that the defendant's actions were incidental to a bona fide fiduciary relationship and again this gets back to the point that a federal guaranty agency may be acting in multiple capacities and therefore that even if there was no bad faith and that there was some kind of negligence issue it's not necessarily true that that there was a fiduciary obligation because the defendant was acting  you agree that the district court should not have dismissed it i believe that the record that was before the district court on the motion to dismiss less let's take my question if the i want you to assume for a moment i pathetically that the complaint alleged bad faith on the part of your client the complaint alleged that not only was this a nonexistent debt that the agency knew it was a non existant but nevertheless was trying to shake down somebody for a nonexistent debt that would that would not be something the district court should dismiss should it if that was the allegation i think my client would have something some more serious concerns than an f t p c p a claimed that they were just manufacturing loans and shaking down clients but they would follow if it would fall outside of this bona fide incidental to a bona fide fiduciary obligation language right if that if that if that's what the complaint alleged if there were allegations in the complaint that that my client was manufacturing but i do think that this is an important point of clarification concerning the record because that paragraph that you just read from the complaint a moment ago from the bench says that however as in this complaint there are debts or alleged debts that are assigned to an individual in error and on paragraph twenty of the complaint she says you know when she originally received the notices from thea she didn't respond because she didn't believe the loans belonged to her and so the allegations in the complaint  ding arguments we've heard on appeal just simply don't support an allegation that no debt ever existed the allegation from miss dare saw below was that there was a way of a loan that was out there and that they had simply made a mistake that they come after the wrong and of course you know fia disagrees with that but even accepting that allegation it it reflects that there was a mistake that was still and that was the purpose of the fiduciary exemption was to protect entities that are acting in their capacity as guaranty agencies from being subject to at d c p a liability when they make mistakes mr hatton and in your view for a debt collector to travel under this relationship under the statute is is there any burden on the debt collector at the motion to dismiss staged to show how they were acting actions incidental to this for additional relationship well so i hope this isn't if i may answer it slightly differently and then if i need to come back please stop me oh no i do believe that the documents that are in the record that include the documents that miss dare saw attached to her complaint  created in the higher education act that gives guarantee agencies the right to garnish wages so guarantee agency i mean a traditional debt collector that is not a guarantee agency can't just garnish wages if borrowers in default you can't go to their employer and garnish their wages you have to have this special statutory right that is given to guarantee agencies to go directly to the employer because of the nature of the relationship and appendix page forty four is to the next page is the letter from the department of education that it denys eyes fia as a guarantee agency that is entitled to pursue wage garnishment and so it is very clear from these documents that field was acting in its capacity as a funds in reserve for the department of education and let me just a follow up on your visit is it your position that if a debt collector has a single not and i don't believe that i know that their parent has made the organ that that's the import of the district court's decision in this case but that is not our argument and i don't believe that that is the import of the district court decision fia for example has a acknowledge that the fiduciary relationship has to be and sidenote to the debt that that you're trying to collect in order to have this protection are exemption under the fair debt collection practices act i would agree with that and i would have  you know belief fairly reading mr sauce complaint she has alleged that there is a debt and that they have come after the wrong person to collect that debt and that the documents that she attached her complaint shows that fia said we made a default and we made a claim on a default that guaranteed student loan they went to her employer and they said we're traveling is a guarantee agency we otherwise wouldn't have the right to garnish your wages but here's the letter from the department of education that shows that we have the right to garnish his wages here's the statutory authority that gives us when we're acting in our capacity as a guarantee agency the right to go to garcia's wages and it's also important that when when he acts in that capacity as a guarantee agency it also comes underneath the oversight and supervision of the an eighty two g gives the secretary of the department of education the right to bring an important action that would include fines of up to twenty five thousand dollars per violation they can be stripped of their rights to act as guaranty agencies that deal was acting in that case and that is just so i'm clear on what you're arguing that is on these pages appendix forty three dollars forty four cents the reference to the statute the reference to the statute the copy of the department of education's letter but it just even the statute itself i mean fear it was not acting as a guarantee agency fia could not have garnishments their cells wages so the the record i mean he wouldn't be charged with knowledge that that's the only way you could be perceiving against mysterious saw he's got to work at the record back to the exhibits as its pages forty three  but i mean what i would say but again what you're saying is they're referring to the statute they're not saying they're not spell and now we're acting as a guarantor for the federal government so if it is true that the motion dismissed h p has not proved up that it paid a claim that one my question i mean i think you've answered i just want to make sure i know everything you are relying on and the record sure yeah i mean because she attached these documents to the complaint and incorporated them in the complaint let's let's list pin down which documents you're talking about so i look at attachment to not just attachment for right and i believe they are the agency says that this is now a federal debt right that means that a partner defaulted loan is now a federal debt attachment three if you're given notice that pennsylvania higher education assistants agency pursuant to federal law cites a statute will order your employer to immediately withhold money appears to be acting in at least in some capacity some federal capacity is that right and that is that part of the argument or not is that is the letter that was sent to her employer attachment to your correct is the notice where they have identified to her that her default claim for the deep her default has been paid by the department of education and so therefore is now a federal debt and that it is seeking to recover on that debt which it would only do in its capacity as a guarantee agency and just most importantly you know that that miss dare saw allegations do not believe contradicts what these documents show what she says is that the debt was wrongly assigned to her but there is not a dispute that there was a debt you know and one thing that i would add they think that is important here is when we think about how the higher education act was set up i mean the goal of the higher education act and i know this is an f t c p a claim that these two statutes are working in harmony here and the goal was to help students fact get financial aid to go to college and that met helping lenders  be able to issue loans and they need to guarantees and that meant they needed private guarantee agencies to step in and so there actually would be a very high cost to suggesting that a plaintiff can plead their way around the fiduciary exemption in a case like this because it would mean that guaranty agencies would be subject to litigating through summary judgment at the c p a claims any time a plaintiff wants to raise a factual dispute about whether or not the debt belongs to her which is what mr saw is done in this case  that would be a high cost on the guaranty agency system because that is a very common dispute in cases like this and so what congress did in the h g a is they set up an administrative process for these type disputes to be resolved sick to go to the guaranteed and see all the documents it would be necessary to if we were to litigate this case through summary judgment to prove up the claim mr saw as a statutory right to demand copies of that information through this administrative process at the set up through the hearing requesting the documents that she's able to submit back when she receives these letters as a we didn't discuss it just  ago but one of the arguments that mr saul said in her reply was that it required her to give confidential information to an organization that she doesn't you know believe is legitimate at the time but if you actually look at the  expected forty all it asked for her signature her name her address and her account number it all of that is on the front page of the document and so she it's not asking her to turn over and she just has to sign the form and return it to sensually and say i dispute this debt and then we engage in that in the process to prove this thing up and the point of that is to to not subject guaranty agencies to litigating these cases  judgment which would be very costly would discourage guaranty agencies from participating in this process and would ultimately result in students having a harder time securing financing to go to college the court has no further thank you i'd like to make four quick points st of all i think the strongest allegation in the complaint is in paragraph twenty four of the complaint says that the plaintiffs consider these letters to be a fake collection scam i great that is the strongest allegation the problem i had with it was it sed it's an allegation about your client state of mind it's not an allegation and it does not appear to me to allege that's that's why she thought this this is got to be a scam because i don't know this right correct and when she called in they said you don't know is this debt yes exactly and and so you read in tandem with these other allegations that there was no basis to believe that this debt existed and even after she called not on her part not on her part or at all based on the allegations in the complaint now again the defendant may have strong evidence that it's entitle to this exemption and it's entitle to bring in that evidence at the summary judgment stage and i would point out my nd point is that that's not a tremendous burden and what happened in the bennett case explains what the district  wrong in this case which is in the bennett case the defendant moved for summary judgment excuse me moved to dismiss the complaint and the district court said that's not appropriate summary judgment is appropriate put your evidence in and the specifically noting that there was a factual dispute about whether the debt was so good and without resolving that factual dispute that with that would seem to come against you well so again this get back to your earlier questions your honor which is to say a dispute over whether the debt is merely asserted to be owed or is actually owed is not sufficient to take the defendant outside of this exception a dispute about whether there is a bona fide fiduciary obligation in the st place requires resolution on summary judgment that requires evidence the defendant has to come in and not only with evidence that is alone at issue but that alone at issue is a federally guaranteed loan as to which the defendant is acting  those issues were factually disputed in band i don't think the nd issue was factually disputed your honor i don't think once the evidence was in it was clear from the evidence that there was a federally backed loan and that the defendant was acting in  make maybe yes maybe no but the theory of the opinion seems to be that all of that is just immaterial to the question of whether the exception plus your honor i think the theory of the opinion is based on what was disputed before this court in that case and what was disputed was whether or not the defendant was a guarantee agency at all and so when the court was resolving that question there was no need to get into this subsidiary question necessarily federally guaranteed and so the fact that the defendant is asserting one thousand and ninety five dollars in asserting that it's tempting to collect a federal debt does not necessarily prove that even if there is a debt it is doing so and my last point is simply about exhaustion and that's that these two statutes work in tandem the plaintiff has no private right of action under the higher education act but does have this additional protection that congress created and there's no evidence that that additional protection was intended to take away the plaintiffs or create an obstacle to the point of private right of action under the federal debt collection practices act ok thank you thank you we'll take the next case