F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

C H A R L E S S T E P H A

N L I M A , Plaintiff-Appellant
,

v.

U N I T E D S T A T E S D E P A R T M E N T O F E D U C A T I O N , D efendant
,

and

E D U C A T I O N

A L C R E D I T M A N A G E M E N T C O R P O R A T I O N , Defendant-Appellee

. No. 17-16299

D.C. No. 1:15-cv-00242-KSC

ORDER AND AMENDED OPI

NI ON

A ppeal from the United States District Court for the District of Hawaii Kevin S. Chang , Mag istrate J udg e, Presiding

Arg ued and Submitted October 22, 2019

Honolulu, Hawaii

F iled December 18, 2019 A mended J anuary

13, 2020L I M A V

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B efore: Susan P. Graber, Milan D. Smith, J r., and

Paul J . W atford, Circuit J udg e s.

Order; Opinion by

J udg e Graber

SUMMARY *

Debt Collection

The panel affirmed the district c ourt’s summary judg ment in favor of the defendant on claims under the F air Debt Collection Practices Act and the Due Process Clause.

Defendant, a nonprofit g u aranty ag ency , caused an offset
ag ainst plainti f

f ’s Social Security benefits, to recover on a judg ment it h ad obtained by assig nment after p laintiff defaulted on h is student loans. U nder the Hig her Educ ation Act, student loans a

re g uaranteed by g uaranty ag encies, which receive g

uarantees from the United States.

The panel held that, under the F DCPA’s defi n i tion of a debt collector, defendant r eg ularly collected or attempted to collect debts asserted to be owed or due another. Defendant was not collecting a debt for its own account, but rather was collecting a d ebt for the United States. Nonetheless, defendant fulfilled the c ri teria of the fiduciary ex c eption be c a use it had a broader fiduciary role w ith respect to plaintif f ’ s debt than merely collecting the debt, and its

* T h is su m m ary co n stitu

tes n o p art o f th e o pin io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.L I M A V

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collection activity w as incidental to its fiduciary oblig ation to the D epartment of Education. According ly
, d e fendant was not a debt collector under the F DCPA.

Assuming with o u t deciding that defendant was a state actor, the panel held that defendant d id not violate plaintiff’s procedural due proc e s s rig hts because it provided p laintiff with notice of t h e debt, of defendant’s intention to seek a Tr ea sury offset ag ainst plaintiff’s Social Security benefits, and of the means by

which plaintiff could respond.

COUNSEL

Amani S. F loy d (arg

ued) and Georg e C. Harris, Morrison & F oerster L L P, San F rancisco, Calif o r n ia, for PlaintiffAppellant.

Troy A. G underman (arg u ed), EC M C Shared Services Comp., L L C, Minneapolis, Minnesota; Theodore D

. C. Y o u ng , Cades Schutte L L P, H onolulu, H a waii; fo r Defendant-Appellee.L I M A V

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ORDER

The opinion file d o n December 18, 2 019, and published
at 2019 W L 6885506, is amended b y t h e opinion filed concurrently

with this order.

W ith these amendments, Appe llant’s petition for rehearing is D ENI ED. No further petitions for p a n el rehearing or rehearing

en banc may be filed.

OP INION

GRAB ER, Circuit J udg e:

Defendant Education Manag ement Credit Corporation caused an offset ag ainst Plaintiff Charl e s L ima’s Social Security benefits, to recover on a judg ment obt a ined a fter Plaintiff defaulted on his student loans. Plaintiff filed a civil action alleg ing
, among other thing s, violations of the F air Debt Collection Practices Act and the F ifth Amendment’s Due Proce s s C l ause. The district court g r anted summary judg ment to Defendant. W e affirm.

B ACKGROUND

A. Statutory Framework

The Hig h er Education A ct of 1965 (“Act”) established the F ederal F amily Education L oan Prog ram (“L oan Prog r am”), which the D epartment of Educat i on (“DOE”) administers. Rowe v. Educ. Credit Mgmt. Corp.
, 559 F .3d 1028, 1030 (9thL I M A V

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Cir. 2009). Under the Act, lenders provide loans to students

or their parents to help finance hig her education. Ty p ically
, t h o s e loans are g uaranteed by g uaranty ag encies, which a r e “[ s] tate or private nonprofit o rg aniz ation[ s] ” tha t have
ag reements with the Secretary of Education to administer the L oan Prog ram. 34 C.F .R. §§ 682. 2 0 0
, 682.401(a). Those
ag encies, in turn, receive g uarantees from the United States. Guaranty ag encies, therefore, operate as i n t e r mediaries between the student-loan lender and the United States. R o we , 559 F .3d at 1030.

I f a borrower defaults on a stu d e n t loan, the lender must try to obtain rep a y

m en t from the b orrower. I f the lender is unsuccessful, it can f

ile a claim with the g uaranty ag ency a nd be repaid the outstand i ng balance of the loan. I n that si t u a tion, the g uaranty ag ency is assig ned the loan f r om the lender. The g uaranty ag ency , in turn, is r epaid by the DOE in

ex c h a ng e f o r u n d e r t aking “due dilig e nce” activities to attempt to collect the debt from the borrower. Id

. T h o s e “due dilig ence” activities include “locating the defaulting borrower, offsetting f

e d eral and state t a x r e f u nds

. . ., initiating administrative g arnis h m e nt proceeding s

. . ., a nd filing suit ag ainst the borrower.” Id. (c iting 34 C.F .R. § 682.410(b)(6)(i)–(iv)).

B

. Factual Background

Plaintiff obtained three student loans, totaling $8,500, in the 1970s. T h e N ew York State H ig her Education Services Corporati o n ( “ N e w York Corporation”) acted as g uarantor for those loans under the Act. Plaintiff d efaulted on the loans in 1980. I n 1991, New York Corporation obtained a judg mentL I M A V

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ag ainst Plaintiff f

or approx imately $14

, 0 0 0
, r e p r e senting both principal and interest.

Defendant is a nonprof

i t g uaranty ag ency under the Act. I n 2008, the DO E and D efendant a g reed that Defendant would take assig nment of certain L oan Prog ram accounts in which judg ments had b e e n obtained by other g uaranty ag encies.

Pursuant to that ag reement, New York Corpora t i on assig ned its judg ment ag a inst Plaintiff to Defendant in 2009. 1 Throug h that assig nment, Defendant a ssumed all r ig ht, title, and interest in the judg ment, a nd D efendant became oblig ated
to satisfy any g uaranty responsib i l ities remaining o n the underly ing debt. I n A u g u st 2009, Defendant notified Plaintiff, by mail, that the DOE h eld a cl a i m a ga i nst him, which it intended to collect by h a v i n g the United States Department of the Treasury (“Treasury ”) offset “ all pay

ment streams authoriz ed b y law,” including h is Social Security benefits. Plaintiff did not respond.

I n Aug ust 2012, Treasury b ega n o ffsetting Plaintiff’s Social Security b enefits by a b o u t $200 p er month. Plaintiff then contacted Defendant and asserted that he d id not receive the 2009 let t e r and that the d ebt already had been satisfied.

1 P l ain tif f alleg es an d arg u es th at su ch an assig n m en t d id n o t o ccu r, b u t th e p resen t rec o rd co n tain s n o su p p o rtin g ev id en ce to co n trad ict th e

ev id en ce in tro d u ced b y

Def en d an t.L I M A V

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B etween Aug ust 2012 and J une 2015, Treasury g arnished
approx i mately $6,900 from Plaintiff’s Social Security benefits.

I n 2 015, Plaintiff filed this action a g ainst Defendant. 2 A s relevant here, Plaintiff claimed violations of the Fa i r Debt Collection Practices Act (“F DCPA”), 15 U.S.C. § 1692; the F ifth Amendment’s Due Process Clause; and state law. The district court g ranted summary judg ment to Defendant o n all federal claims. T he c o u rt held that D efendant is not su b j ect to the F DCPA because D efendant i s not a “debt collector.” The court then held th at Defendant is not subject to the Due Proce s s C l a use because Defendant is not a state actor. F inally
, the district court d e c lined to ex ercise supplemental jurisdiction over the state-law c l a i m s

. Plaintiff timely appealed.

STANDARDS OF REVI EW

W e review de novo the district court’s g rant of summary judg ment, a

nd we may affirm on any g round supported b y the record. Chemehuevi I

ndian Tribe v. Newsom
, 919 F .3d 1148, 1150–51 (9th Cir. 2019). W e review for abuse of discretion the district court’s decision to decline suppl e m en tal jurisdiction. Oliver v. Ralphs G rocery Co.
, 654 F

. 3 d 903, 911 (9th Cir. 2011).

2 P lain t i f

f also n am ed th e DOE as a d ef en d an t, b u t th e p arties d ism issed th e DOE b y

stip u latio n

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D I SCUSSI ON

A. Fair Debt Collection Practices Act 3

The F DCPA “authoriz es private civil actions ag ainst d ebt collectors who eng ag e in certain p ro hibited practices.” Rotkiske v

. Klemm
, N o

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- 3 28, slip op. at 1 (U.S. Dec. 10, 2019). Plaintiff seeks statutory d amag es under § 1692k(a) o f the F D CPA. To o btain damag es, Plaintiff first must establish that Defendant is a “debt collector.” As r elevant here, the F DCPA defines a “debt collecto r” as “any person

. . . w ho
reg ularly collects or a ttempts to c ollect, directly o r indirectly
, debts owed or d

ue o r asserted to b e o w ed or due a nother.” 15 U.S.C. § 1692a(6). Defendant asserts that it is not a de bt collector under that d efinition. Defendant also arg ues that,

even if it meets that statutory definition, it is not a d ebt collector because it fulfills the criteria of th e f i d u c iary

ex c e ption, § 1692a(6)(F ).

W e hold that Defendant “reg u larly collects or attempts to collect” debts “ asserted to be ow e d or due another.” Nonetheless, we affirm the district court’s g rant of summary judg men t because Defendant’s c ollection activities were “incidental to a bona f

ide fiduciary oblig ation.” 15 U .S.C. § 1692a(6)(F ) (i).

1. Defendant “regularly” at tempts to collect debts “owed” to another.

I n Henson v. Santander Consu mer USA Inc.
, 137 S. Ct. 1718 (2017), the Su p r eme Court held that a d efendant w ho purchased a d efaulted loan and soug ht to collect the debt was

3 T h e relev an t p ro v isio n s o f th e FDCP A are in clu d ed in A p p en d ix A

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not a “ d e b t c o llector.” The Court ex plained that, when apply in g the “reg

ularly collects” definition of “debt collect o r , ” “ [ a ] ll that matters is w hether the targ et o f the lawsuit reg ularly seeks to collect debts f or its o w n account o r does so for ‘another.’” I d

. a t 1 721. B ecause the Henson defendant “purchased defaulted debt for its own account,” the Court held that the defendant was not a “debt collector.” Id. at 1724 (emphasis added).

W h ether a lender in Defendant’s positi o n is seeking to collect a debt for its “ o w n account” is a question o f first impr e s s i o n in our circuit. To a n swer that question, Henson requires us to focus o n who ultimately would receive the
pay ments o n t h e d ebt being collected. See, e.g. , Infante v

. Law Office of Joseph On w u t eaka, P.C.
, 735 F

. App’x 839, 842–43 (5th Cir. 2018) (per curiam) (unpub lished) (holding that, because a limited liability corporation has a distinct leg al identity
, a lawy er who was collecting d e b t on b e half of an L L C that he owned was a debt collector) ; 4 B a nk o f N.Y

. Mellon Tr. Co. N.A. v. H

enderson
, 862 F .3d 29, 34 (D.C. Cir. 2017) (holding that a bank was n ot a d e b t c ollector because the debt was owed to the bank).

Here, Plaintiff’s d ebt is owed, or asserted to be owed, to the United States. The monies obtained from Plaintiff’s Social Security benefits throug h Treasury offset belong to the Treasury
, not to Def

e n d an t

. I n stead, the money moves between f

ederal ag encies, and D e fendant is notified of the transfers only for record-keeping purposes. A nd
, even if Plaintiff h a d p a i d the d ebt, or part of it, the money would

4 Fed eral Ru le o f A

p pellate P r o ced u

re 3 2 .1 (a) an d Un ited States Co u rt o f A

p p eals fo r t h e Fif

t h Circu it R

u le o f A p p ellate Pro ced u re 2 8 .7
p erm i t th e citatio n

o f u n p u blish ed j u d i cial d ecisio n s

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constitute p roperty of the United States and w ould e nd up in

an account owned and c o n t rolled by the United States. 20 U.S.C. § 1072(g )( 1); 34 C.F .R. § 682.410(a)(1). Thoug h Defendant possesses all r i gh t, title, and interest in the judg ment a g ainst Plaintiff, Defendant w as not collect ing a debt f or its “own account.” I nstead, Defendant was collecting a debt for the United States.

The record evidences that Defendant “reg ularly ” attempts to collect debts owed, o r assert e d t o be owed, to the United States. Under the applicable a g reement, Defe n d ant was oblig ated to receive accounts like Plainti f f ’ s f or a o n e-y e ar period, and D efen d a n t received a long list of such accounts. See Garrett v. Derbes
, 110 F .3d 3 17, 318 (5th Cir. 1997) (per curiam) (holding that “a person who, during a s i n g le ninemonth period, attempts to collect d ebts owed another b y 639 different individuals ‘reg ularly ’ attempts to co l lect debts owed another, and thus is a ‘debt collector’ under § 1692a(6)”).

2. Defendant’s c ollection activity is incidental to a bona fide fiduciary obligation.

The F DCPA e x empts from the definition of debt collector “any pers o n c o llecting or attempting to collect any debt

. . . owed or due another to the extent such activity

. . . is incidental to a bo n a fide fiduciary obligation .” 15 U .S.C. § 1692a(6)(F ) (emphasis added). F or the fiduciary ex c eption
to apply
, Defendant must have a “ f iduciary oblig ation” a

nd Defendant’s collection activity must be “incidental t o ” t hat fiduciary oblig ation. Rowe
, 559 F .3d at 1032. Pl a i n t i ff

c oncedes, and we ag ree, that Defendant owes a fiduci a r y oblig ation to the DOE.L I M A V

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The “incidental to” re q u irement p revents f iduciaries “whose sole or primary f

unction is to collect a debt on behalf of the entity to whom the fiduciary oblig ation is owed” from escaping F D CPA coverage

. Id. a t 1034. According ly
, to qualify for the fiduciary ex ception, Defendant’s collection activity “must not be ‘central to’ [ its] f iduciary relationship.” Id.

I n Rowe
, we rever s e d t h e d ismissal of a complaint for failure to state a claim under the F DCPA. The p laintiff claimed t h at the defendant g uaranty ag ency ’s “ sole function

was to take assig nment of the loan from [ another ag e ncy ] a nd
to act as a collection ag ent.” Id. at 1035 (emphasis added). W e held that, because th e o n l y r ole alleg ed to have been play ed b y the g uaranty ag ency was to c ollec t t h e debt, the fiduciary ex ception did not apply

. W e disting uished b etween that alleg e d collection-only activity and cases i n w h ich an ag ency g uarantees a loan and then attempts to collect on the loan, holding that the former ty pe of c ollection activity “is not ‘incidental to’ [ the defendant] ’s fiduciary duty to the DOE.” Id.

This c ase differs from R o w e because Defendant had a broader role than merely collecting a debt. W hen Defendant took the assig nment of Plaintiff’s judg ment account, Defendant took on a ll outstanding g u aranty oblig ations. F o r

ex a mple, Defendant is oblig ated to release its judg ment aga inst Plaintiff if Plaintiff’s debt is consolidated, rehabilitated, or repaid. Defendant also is obl i gated to maintain r ecords, report to the N ational Student L o an Database Sy stem, and properly administer its operating fund. Those oblig ations are not illusory
, even if Defendant has not had to perform some of them. A fiduciary relationship is not characteriz ed only by what activity h as happened to d a te.L I M A V

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Fi d u ciary relationshi p s n a t u r a l l y i n c l u d e r e as o n ab l y foreseeable responsibilities that may arise in the f u t u re. 5 DOE’s reg ulations place Defendant on standby sh ould such fiduciary activities b ec ome necessary

. According ly
, we conclude that Defendant h a d a broader fiduciary r o le with respect to Plaintiff’s debt than merely collecting t h e d ebt. Therefore, Defendant’s collection activity was “incidental to” its fiduciary

oblig ation to the DOE.

B

. Due Process

Plaintiff alleg es that Defendant violated his procedural due process rig hts b y “arbitrarily and maliciously ” g arnishing his b enefits

. Plaintiff seeks a declaratory judg ment, injunctive relief, and damag e s.

To obtain d eclarative and injunctive r elief, 6 Plaintiff must establish: (1) that he suffered a “constitutional deprivation” that was “ caused by the ex ercise of some r i gh t or privileg e created by the State or by a r ule of co n d u c t i m p osed by the [ S] tate or by a person for whom the State is responsible,” a nd (2) that “the party

charg ed with the deprivation [ is] a person

5 B y w ay o f an alo g y , law

y ers o w e v ario u s f

id u ciary d u ties t

h at m ay b e do rm an t d u

rin g t h e i r r e presen tatio n o f clien t s. Fo r ex am p le, law y ers

m u st in f orm th eir clien ts o f settlem en t o f f ers. If an o p p o sin g p arty n ev er ten ders a settlem en t o f

f er, a law y er ca n n o t ap p rise th e clien t of an of f er. Yet, ev en if th e l aw

y er h as n o t receiv ed a settlem en t o f f er, th e law

y er h as a p resen t f

id u ciary o b lig atio n

to th e clien t

.

6 P lain tif f ca n n o t reco v er d am ag es becau s e Def en d an t is a p riv ate

co rp o ratio n , an d actio n s u n der Biven s v. S ix Un kn o wn Na med Ag en ts o f Fed era l Bu rea u o

f Na rco t ics
, 4 0 3 U.S. 3 8 8 (1 9 71 ), can n o t p ro ceed ag a i n s t p riv ate en tities. C

o r r

. S e rvs. Co rp

. v. Ma lesko
, 5 34 U.S. 6 1
, 6 6
, 7 4 (2 0 0 1).L I M A V

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who may f

airly be said to be a s t a t e a ctor.” Lugar v

. Edmond s o n Oil Co.
, 457 U .S. 9 22, 937 (1982). Here, Plaintiff challeng es only the district court’s conclusion that Defendant is not a state actor.

Assuming
, without deciding
, that Defendant is a state actor, w e affirm the summary judg ment in Defendant’s favor because Defendant d id not v i o l a te Plaintiff’s due process rig hts. Defendant provided Plaintiff with notice of the debt, of Defendant’s intention to seek a Treasury offs e t ag ainst Plaintiff’s Social Security benefits, and the means by which Plaintiff could respond. See United States v. Alisal W ater Corp.
, 431 F .3d 643, 657 (9th Cir. 2005) (“At its c ore, d ue process requ i r e s that a p arty have adequate n otice a nd opportunity to be heard.”). The n otice was sent to the proper address and w as, therefore, “reasonably c alculated” to ensure that Plaintiff received it. Poursina v. U.S. Ci t izenship & Immigration Servs.
, 936 F

. 3d 868, 876 (9th Cir. 2 019) (quoting Farhoud v. INS
, 122 F

. 3d 794, 796 (9th Cir. 1 997);

see also Mullane v. Cent. Hanover Bank & Trust C o

. , 339 U.S. 306, 318 (1950) (“[ W ] ithin the l imits of practicability notice must b e such a s is reasonably calculated t o reach interested parties.”). And D efenda n t ’ s misstatement, that Plaintiff’s debt arose from a sing le loan worth $8,500 rather than three loans totaling $ 8,500, does not violate due process. See Bank of

America, NT & SA v. PENGW IN
, 175 F

. 3d 1109, 1119 (9th Cir. 1999) (holding that a f oreclosure notice that stated the w r o n g l ocation of a vessel and that failed to mention f ishing r ig hts did not v iolate due process because the notice was nonetheless “reasonably calculated” to apprise interested parties of the action and afford them an opportunity to object).L I M A V

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C. Supplemental jurisdiction

B e cause no federal claims remain, the district co u r t did
not abuse its discretion by d eclining to ex ercise supplemental jurisdiction over Plaintiff’s s tate-law claim. See W h alen v

. McMullen
, 9 07 F .3d 1139, 1153 (9th Cir. 2018) ( holding that the district c ourt did not abuse its discretion when it declined
to ex ercise supplemental jurisdiction over a state-law claim when the plaintiff’s only federal claim was dismissed on summary judg ment).

AF F IRMED.L I M A V

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APPENDI X A

Relevant provisions of the F DCPA.

15 U.S.C. § 1692a(6):

The term “debt co l l e c tor” means any person

w h o uses a

ny instrumentality o f interstate

commerce or the ma i l s in any business the principal purpose of which is the collection o f
any debts, or w h o reg ularly collects o r attempts to collect, d irectly or ind i rectly
, debts owed or du e or asserted to be owed o r due a nother. Notwithstanding the ex clusion provided by clause (F ) o f the last sentence o f this parag raph, the term includes any creditor who, in the p r ocess of collecting his o w n d e b t s , uses any name o ther than his own which would indicate t h at a third person is collecting or a ttempting to collect such debts. F or the p urpose of section 1692f( 6) of this title, such term also includes any person who

u s e s a n y i n s t ru m ent a l i t y o f i n t e r s t a t e

comm er ce o r the mails in a ny business the principal purpose of which is the enforcement of security interests. T he term does not include--

(A) any o f

f i c e r or e mploy ee of a creditor while, i n t h e name of the creditor, collecting debts for such creditor;L I M A V

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(B ) any p erson while a cting as a d e b t

collec t o r for a

nother person, both o f whom are related by common ownership

or affiliated by corporate control, if t he
person acting as a debt collector d o e s so only for persons to whom it i s so r elated

or a ffiliated and if the principal business of such person i s not the collection o f debts;

(C) any officer or employ ee of the United States or a

ny State to the ex tent that colle c ting or a ttempting to collect any debt is in t h e performance of his official duties;

(D) any person whil e serving o r attempting to serve le ga l p rocess on any other p erson in c o nnection w i th the judicial enforcement of any debt;

(E) any nonprofit org aniz ation which, at the request of consumers , performs b o na fide consumer credit counseling a nd assists consumers in the liquidation o f their debts by receiving pay ments f rom such consumers and distributing such amounts to creditors; and

(F ) any person collecting or attempting to collect a ny debt owed or due or asserted to be owed or due another to the ex tent such activity (i) is i n ci d ental to a bona fide fiduciary oblig a tion or a bona fide escrowL I M A V

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arrang ement; (ii) concerns a d e b t which

was orig inated by s uch p erson; (iii)

concerns a debt w h ich was not in default
at the time it was o btained by such person;

or (iv) c o n cerns a d ebt obtained by such
person as a secured party in a commercial credit transaction involving the creditor.

15 U.S.C. § 1692k(a):

Ex cept as otherwise provided by this section,
any debt collector who fails t o comply with
any provision of t h i s subchapter with respect to a ny person is lia b l e to such p erson in an amount equal to the sum of--

(1) any actual d amag e sustained by such person as a result of such failure;

(2)(A) in the c ase o f a n y action by an individual, such additional damag es as the

co u r t may allow, but not ex ceeding $1,000; or

(B ) in the case of a class action, (i) such
amount for each n amed p l aintiff as could be r ecovered under subparag r aph (A), a nd (ii) such amou n t a s the court may allow for all other class members
, without
reg ard to a minimum individual r ecovery , not to ex c eed the lesser of $500, 0 0 0 or 1
per ce n t u m of the net worth of the debt collector; andL I M A V

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(3) in the case of any successful action to

enforce the foreg oing liability
, the costs o f the action, tog ether with a reasonable attorney ’s fee as determined by the court. On a fi n d i ng by the court that an action under this section was broug ht in bad faith

a n d for the purpose of harassment, the
court may award to the defendant
atto r ney ’s f

ees r easonable in relation to the work ex pended and costs.