Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-14-01806/USCOURTS-ca7-14-01806-1/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 

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In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

No. 14‐1806

BRYANA BIBLE, Individually and on Behalf of the

Proposed Class,

Plaintiff‐Appellant,

v.

UNITED STUDENT AID FUNDS, INC.,

Defendant‐Appellee.

____________________

Appeal from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

No. 13‐CV‐00575‐TWP‐TAB — Tanya Walton Pratt, Judge.

_____________________

DECIDED OCTOBER 5, 2015

______________________

Before FLAUM, MANION, and HAMILTON, Circuit Judges.

On consideration of appellee’s petition for rehearing and

rehearing en banc, filed on September 1, 2015, no judge in

active service has requested a vote on the petition for rehear‐

ing en banc, and all judges on the original panel have voted

to deny the petition. Accordingly, the petition for rehearing

is DENIED.

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2 No. 14‐1806

EASTERBROOK, Circuit Judge, concurring in the denial of

rehearing en banc. If default on a student loan causes the

lender to collect on a federal guaranty, the borrower must

pay “reasonable collection costs” to curtail the expense to the

Treasury. 20 U.S.C. §1091a(b)(1). A federal regulation none‐

theless provides that a borrower who signs (and complies

with) a “repayment agreement,” thus reimbursing the guar‐

antor, need not add collection costs to the debt. 34 C.F.R.

§682.410(b)(5)(ii)(D).

Bryana Bible stopped paying her student loan but later

agreed to a rehabilitation program, governed by 34 C.F.R.

§682.405, under which she paid $50 a month (not enough to

cover even half of the monthly interest) in anticipation that

she would eventually resume making full payments, after

which the note would be sold to a new private lender. When

signing the rehabilitation contract, Bible promised to pay

collection costs that could not exceed 18.5% of her loan.†

But when the holder of her note sought to recover those

costs, Bible replied with this suit characterizing the effort as

a form of mail or wire fraud and seeking millions of dollars

in damages under RICO, even though the guaranty funds

                                                  † Two paragraphs of the rehabilitation agreement address collection

costs. One reads: “Once rehabilitation is complete, collection costs that

have been added will be reduced to 18.5% of the unpaid principal and

accrued interest outstanding at the time of Loan Rehabilitation. Collec‐

tion costs may be capitalized at the time of the Loan Rehabilitation by

your new lender, along with outstanding accrued interest, to form one

new principal amount.” The other, appearing immediately above the

signature block, reads: “By signing below, I understand and agree that

the lender may capitalize collection costs of 18.5% of the outstanding

principal and accrued interest upon rehabilitation of my loan(s).”

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No. 14‐1806 3

have not been repaid and the premise of §682.410(b)(5)(ii)(D)

has not been fulfilled. She contends that a rehabilitation

agreement under §682.405 must be treated the same as a re‐

payment agreement under §682.410 and that, by treating

these two programs differently, United Student Aid Funds

has committed thousands of federal felonies—at least one

per borrower. Bible also contends that United Student Aid

Funds must pay damages for breach of contract, even

though her original loan agreement and her rehabilitation

agreement permit the lender to assess collection costs. Re‐

versing the district court, the panel held that Bible’s suit may

proceed on both the RICO and contract claims.

Each member of the panel wrote separately. The lead

opinion, by Judge Hamilton, concludes that the addition of

collection costs to a loan in rehabilitation is forbidden be‐

cause every “rehabilitation agreement” is a “repayment

agreement.” Judge Manion, in dissent, concludes that a “re‐

habilitation agreement” is not a “repayment agreement.”

The two kinds of agreements are governed by separate regu‐

lations, and “rehabilitation” does not produce “repayment”

when it doesn’t even cover ongoing interest. Judge Flaum

saw merit in both of these views and wrote that:

Judge Manion, in his dissent, makes a strong

case for the proposition that the two concepts

are separate and distinct, and thus, that the re‐

payment agreement provisions of [34 C.F.R.]

§682.410(b)(5)(ii) do not apply to the loan reha‐

bilitation program described in 34 C.F.R.

§682.405. Indeed, the Department of Educa‐

tion’s website lists “Loan Repayment” and

“Loan Rehabilitation” as independent options

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for “getting your loan out of default.” [Citation

omitted.] Moreover, there is no cross‐reference

or other textual indication in the regulations

suggesting that the rehabilitation agreements

described in §682.405 constitute repayment

agreements “on terms satisfactory to the agen‐

cy” under §682.410(b)(5)(ii), such that a reha‐

bilitation agreement might fall within the

scope of §682.410(b)(5)(ii)’s exception to the

general rule that collection costs will be as‐

sessed against borrowers in default. Rather, the

sole reference to collection costs in §682.405

appears to assume the assessment of collection

costs in the rehabilitation context. See

§682.405(b)(1)(vi)(B) (explaining that the guar‐

anty agency must inform a borrower entering

into a rehabilitation agreement “[o]f the

amount of any collection costs to be added to

the unpaid principal of the loan when the loan

is sold to an eligible lender, which may not ex‐

ceed 18.5 percent of the unpaid principal and

accrued interest on the loan at the time of the

sale”).

Slip op. 50–51. But Judge Flaum thought that the court is re‐

quired by Auer v. Robbins, 519 U.S. 452 (1997), to accept the

agency’s view that collection costs may not be assessed

against borrowers who sign rehabilitation agreements—even

though this view was announced in a brief filed as amicus

curiae in this suit and contradicts some earlier statements by

the Department of Education (although it is arguably con‐

sistent with the position taken in one filing in one district

court in 2004 but never laid out in the Federal Register or

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No. 14‐1806 5

another place the regulated industry might access; compare

Judge Hamilton’s conclusion, slip op. 28–29, with Judge

Manion’s, slip op. 66–70).

The petition for rehearing en banc asks the court to con‐

sider whether Auer supports the Secretary’s current position,

when applied to conduct that predates the Secretary’s amicus

brief. That is a substantial and potentially important ques‐

tion, but an antecedent issue is whether Auer is sound. In

concurring opinions to Perez v. Mortgage Bankers Association,

135 S. Ct. 1199 (2015), three Justices (including Auer’s author)

expressed deep reservations about deferring to the position

an agency adopts through means other than rulemaking. See

also Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156

(2012); John F. Manning, Constitutional Structure and Judicial

Deference to Agency Interpretations of Agency Rules, 96 Colum.

L. Rev. 612 (1996).

I do not think that it would be a prudent use of this

court’s resources to have all nine judges consider how Auer

applies to rehabilitation agreements, when Auer may not be

long for this world. The positions taken by the three mem‐

bers of the panel show that this is one of those situations in

which the precise nature of deference (if any) to an agency’s

views may well control the outcome.

The petition for rehearing does not contend that this liti‐

gation meets the standards for en banc review independent

of the Auer question. None of the other circuits has consid‐

ered whether repayment and rehabilitation agreements

should be treated the same for the purpose of collection costs

under §1091a(b)(1). Indeed, legal issues about the student‐

loan program rarely arise in any circuit outside of bankrupt‐

cy litigation. But an agency’s (or litigant’s) invocation of Auer

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deference is a frequent occurrence, and one whose effects

this litigation illuminates—for deference has set the stage for

a conclusion that conduct, in compliance with agency advice

when undertaken (and consistent with the district judge’s

view of the regulations’ text), is now a federal felony and the

basis of severe penalties in light of the Department’s revised

interpretation announced while the case was on appeal.

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