March 1, 2018
MEMORANDUM AND ORDER DENYING DEFENDANTâS MOTION TO
Kenneth W. Salinger, Justice
Commonwealth of Massachusetts has sued the Pennsylvania
Higher Education Assistance Agency (PHEAA) for engaging in
allegedly unfair and deceptive acts and practices against
Massachusetts student loan borrowers. It appears to be
undisputed that PHEAA, although originally established to
help provide student loans and grants for Pennsylvania
residents, has become one of the largest student loan
servicers in the country and now manages the federal student
loan accounts of hundreds of thousands of Massachusetts
residents under a contract with the United States Department
of Education. The Commonwealth claims that PHEAA violated the
federal Consumer Financial Protection Act and G.L. c. 93A by
charging and collecting amounts not owed by borrowers,
failing to process borrowersâ applications for income driven
repayment plans in a timely and accurate manner, and failing
to properly count borrowersâ qualifying payments under the
Public Service Loan Forgiveness program.
has moved to dismiss this action on several grounds. The
Court will DENY this motion because it is not convinced that
PHEAA is an arm of the Commonwealth of Pennsylvania and
shares in its sovereign immunity, that PHEAA cannot be sued
under G.L. c. 93A or that its alleged misconduct is exempt
from c. 93A because it is affirmatively permitted by federal
law, or that the United States Department of Education is an
Background- PHEAAâs Enabling Act.
Certain aspects of the enabling act that created PHEAA
provide background relevant to PHEAAâs claims that it is
entitled to invoke the Commonwealth of Pennsylvaniaâs
sovereign immunity and that it cannot be sued under G.L. c.
93A because it is a public entity.
was established by the Pennsylvania Legislature as " a
public corporation and government instrumentality." 24
Pa. Stat. Â§ 5101. It is authorized to make, guarantee, and
service student loans. Id. Â§ 5104(3).
statute, PHEAA has substantial financial and operational
independence from the Commonwealth of Pennsylvania. PHEAA can
spend money " for any of its purposes" without
needing any legislative appropriation. Id. Â§
5104(3). Although PHEAA must deposit its revenues " in
the State Treasury, " it may use its funds whenever it
wants " at the discretion of the board of directors for
carrying out any of the corporate purposes of the
agency." Id.; see also id. Â§ 5105.10
(PHEAAâs loan servicing, loan repayment, and other revenues
are held within State Treasury in a segregated "
Educational Loan Assistance Fund, " are all "
appropriated to [PHEAAâs] board, " and " may be
applied and reapplied as the board shall direct and shall not
be subject to lapsing"). And PHEAA may borrow money,
enter into contracts, and exercise most other powers of an
independent corporate entity without needing approval from
the Commonwealth of Pennsylvania. Id. Â§ 5104.
by law Pennsylvania cannot be held liable for any of PHEAAâs
debts or other obligations. Id. Â§ 5014(3) (" no
obligation of the agency shall be a debt of the State and it
shall have no power to pledge the credit or taxing power of
the State nor to make its debts payable out of any moneys
except those of the corporation").
PHEAA Does Not Share Pennsylvaniaâs Sovereign
PHEAA urges the Court to dismiss this action as a matter of
comity, out of respect for the sovereign immunity of the
Commonwealth of Pennsylvania.
courts have repeatedly rejected PHEAAâs assertion that it
shares Pennsylvaniaâs sovereign immunity from suit. See
United States ex rel. Oberg v. Pennsylvania Higher Educ.
Asst. Agency, 804 F.3d 646, 676-677 (4th Cir. 2015)
(PHEAA not immune from suit under federal False Claims Act),
cert. denied, 137 S.Ct. 617 (2017); Pele v. Pennsylvania
Higher Educ. Asst. Agency, 13 F.Supp.3d 518 (E.D. Va.
2014), affâd, 628 Fed.Appx. 870 (4th Cir. 2015) (PHEAA not
immune from suit under federal Fair Credit Act), cert.
denied, 137 S.Ct. 617 (2017); Lang v. Pennsylvania Higher
Educ. Asst. Agency, 201 F.Supp.3d 613 (M.D. Pa. 2016)
(PHEAA not immune from suit under federal Fair Labor
doctrine of issue preclusion bars PHEAA from relitigating
this issue yet again. See Lang, supra, at
621-628 (issue preclusion barred PHEAA from relitigating
whether it was arm of state for Eleventh Amendment immunity
purposes, even though Third Circuitâs arm-of-the-state test
differs somewhat from test applied by Fourth Circuit in
Oberg); Pennsylvania Higher Educ. Asst. Agency
v. NC Owners, LLC, No. 1:16-CV-1826, 2017 WL 2506397
(M.D. Pa. 2017) (issue preclusion barred PHEAA from
relitigating whether it was arm of state for purposes of
diversity jurisdiction, even though issue was litigated in
Oberg in context of Eleventh Amendment assertion of
Ultimately, â[f]airness is the " decisive
consideration" in determining whether to apply offensive
issue preclusionâ " against a defendant in a civil
action, based on a decision in a prior lawsuit that did not
involve the current plaintiff. Pierce v. Morrison Mahoney
LLP, 452 Mass. 718, 730 (2008), quoting Matter of
Goldstone, 445 Mass. 551, 559 (2005), quoting in
turn Matter of Cohen, 435 Mass. 7, 16 (2001). A trial
court judge has " âwide discretion in determining
whetherâ applying offensive collateral estoppel âwould be
fair to the defendant.â " Pierce,
supra, at 731, quoting Bar Counsel v. Board of
Bar Overseers, 420 Mass. 6, 11 (1995). For the reasons
discussed below, the Court concludes in the exercise of its
discretion that PHEAA should be bound by the Fourth Circuitâs
resolution of essentially identical sovereign immunity issues
in Oberg and that applying offensive issue
preclusion against PHEAA is completely fair and appropriate
in these circumstances.
Question of Comity.
When one State is sued in the courts of another State, any
application of the defendantâs sovereign immunity is a
discretionary matter of comity, not something mandated by
in the United States Constitution requires the courts of one
State to recognize the sovereign immunity of another State.
Neither the Eleventh Amendment (which restricts the power of
federal courts to entertain suits against a State), nor the
Full Faith and Credit Clause, nor the federal structure of
the Constitution requires one state to treat others as immune
from suit. Nevada v. Hall, 440 U.S. 410, 418-427
(1979); see also Franchise Tax Bd. of Cal. v. Hyatt,
136 S.Ct. 1277, 1279 (2016) (Franchise Tax Bd. II)
(equally divided Supreme Court declined to overrule
Hall). All that the Full Faith and Credit Clause
requires in this context is that, if the courts of one State
entertain a suit against a second State, then the forum State
is bound to provide at least the same extent of immunity that
it would afford its own government. Franchise Tax Bd.
II, 136 S.Ct. at 1281. In other words, the forum State
may not, acting under its own law, award damages against
agencies of the second State " that are greater than it
could award against [its own] agencies in similar
It may be wise policy, as a matter of harmonious interstate
relations, for States to accord each other immunity or to
respect any established limits on liability."
Hall, 440 U.S. at 426. But it is up to each State to
decide whether and to what extent to recognize and apply such
a voluntary principle of interstate comity. Id.
Supreme Judicial Court has not decided whether it "
should create an exception to our rule of asserting
jurisdiction to the fullest possible extent where the
nonresident defendant is another State, " or is some
other entity that " could properly be considered part of
the State government." Carlson Corp. v. University
of Vermont, 380 Mass. 102, 103 n.3 (1980).
even though it is not " constitutionally mandated ...,
this court retains the discretion to decline the exercise of
jurisdiction as a matter of comity" out of respect for
the sovereign immunity of other States. Mejia-Cabral v.
Eagleton School, Inc., 10 Mass.L.Rptr. 1999 WL 791957,
*3 (Mass. S.Ct. 1999) (Sosman, J.).
Rules that Apply as a matter of Comity.
The principle of comity will be satisfied here if the Court
applies to PHEAA the same sovereign immunity rules that would
apply to an otherwise identical authority created under
Massachusetts law. See Franchise Tax Bd. II, 136
S.Ct. at 1281-1282; Franchise Tax Bd. of Cal. v.
Hyatt, 538 U.S. 488, 499 (2003) (" Franchise
Tax Bd. I "); see also Mejia-Cabral,
supra, (comity required Massachusetts court to
respect sovereign immunity of State of Connecticut, where
Commonwealth would be immune from similar claim under
Massachusetts law). This approach, of " relying on the
contours of [the forum Stateâs] own sovereign immunity from
suit as a benchmark for [the] analysis, " allows the
forum State court to " sensitively appl[y] principles of
comity with a healthy regard for [the other Stateâs]
sovereign status." Franchise Tax Bd. I., 538
U.S. at 499.
courts apply this principle. They will not recognize the
sovereign immunity of agencies created by other States if
similarly situated Pennsylvania agencies would not be immune
from suit under Pennsylvania law. See Laconis v.
Burlington County Bridge Commân,583 A.2d 1218,
1221-1222 (Pa. Supr. Ct. 1990) (declining to recognize
immunity of New Jersey public commission that was " not
funded by tax money" with respect to injuries sustained
by Pennsylvania resident at Pennsylvania end of bridge,
because similarly situated Pennsylvania commission would have
no sovereign immunity under Pennsylvania law); see also
Flamer v. New Jersey Transit Bus Operations, Inc.,607 A.2d 260 (Pa. S.Ct. 1992) (applying limited waiver of
sovereign immunity under New ...