Johnson v. Sallie Mae Servicing Corp.

Citation: 102 F. App'x 484Docket: No. 03-3491

Court: Court of Appeals for the Seventh Circuit; May 26, 2004; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Sallie Mae Servicing Corporation declared Brad Johnson's federal student loans in default, prompting Johnson to sue Sallie Mae and two guarantors—Oregon Student Assistance Commission and Texas Guaranteed Student Loan Corporation. His eleven-count complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Fair Debt Collection Practices Act (FDCPA), as well as state-law torts including intentional infliction of emotional distress, breach of contract, and defamation, seeking over $10 million in damages. The district court granted summary judgment to the defendants, a decision Johnson appealed.

Johnson's case centered on a purported agreement from September 1997, where he was told by a Sallie Mae employee that he could pay $232 monthly after settling an $880 arrearage until April 2001, after which payments would increase to $348. However, in October 1998, Sallie Mae adjusted the required monthly payment to $345.44 to comply with federal regulations, leading Johnson to refuse this amount, resulting in the loans being declared in default and reported to credit bureaus.

Johnson, representing himself, argued that Sallie Mae's actions constituted mail and wire fraud under RICO and claimed that the company formed an enterprise with the guarantors to engage in fraudulent schemes. He also argued that Sallie Mae violated the FDCPA and committed torts by declaring him in default. The district court found that Johnson could not prove RICO violations as the defendants' collection efforts did not constitute criminal acts nor show a pattern of racketeering. It concluded Sallie Mae was not a “debt collector” under the FDCPA and deemed the state law claims frivolous and preempted by federal regulations. Johnson's subsequent motion to alter the judgment was denied. On appeal, he maintained that evidence of repeated demands for higher payments constituted a valid RICO claim, requiring proof of a pattern of racketeering involving at least two predicate acts.

Mail fraud (18 U.S.C. § 1341) and wire fraud (18 U.S.C. § 1343) can serve as predicate acts for RICO violations under 18 U.S.C. § 1961(1)(B). However, Johnson has not provided evidence to demonstrate that Sallie Mae or the guarantors committed fraud, as both types of fraud require a materially false statement or the concealment of a material fact, which Johnson has failed to prove. He has not shown that they lied or concealed facts regarding his debt, which he acknowledges he owed. Claims of extortion under 18 U.S.C. § 1951 also fall short, as Johnson's assertion that Sallie Mae sent him threatening letters does not meet the legal standard of using actual or threatened force to induce payment.

Johnson cannot classify Sallie Mae as a "debt collector" under the Fair Debt Collection Practices Act (FDCPA) because the FDCPA exempts debts not in default at the time of acquisition. His argument that Sallie Mae should be viewed as collecting on a defaulted debt is unsubstantiated, as it is clear his loans were not in default when acquired. State-law claims brought by Johnson are likely preempted by federal regulations governing student loans, but the district court did not provide a clear explanation of this preemption. Nonetheless, Johnson’s claims are deemed frivolous, as he has not established a contractual breach despite alleging that Sallie Mae reduced his payment obligations. He provided no evidence of consideration for his claims and failed to demonstrate that Sallie Mae's conduct met the high threshold for intentional infliction of emotional distress.

Finally, Johnson's appeal regarding the denial of his motion to compel discovery was rejected because he waived the issue by not objecting to the magistrate's initial denial. The district court's decision was affirmed.