Veal v. First American Savings Bank

The appellants (plaintiffs below), former students at the Gary, Indiana, branch of the Adelphi Business College ("Adelphi") ("the students"), seek rescission of their guaranteed student loans, reinstatement of their eligibility for Pell Grants, and damages. The appellees (defendants below) are First American Savings Bank and Security Savings and Loan Association (the "Lenders"), which issued their student loans, the Higher Education Assistance Foundation ("HEAF"), which guaranteed the loans, the United States Department of Education ("DOE"), which reinsured the loans, the California Student Loan Finance Corporation ("CSLFC") and the Western Loan Marketing Association ("WLMA") (collectively referred to as "the defendants"), which subsequently bought some of the loans in the secondary market. The gravamen of the students complaint is that Adelphi fraudulently induced them to enroll at the school, made arrangements for them to obtain guaranteed student loans through the defendant Lenders, and then failed to provide them with an education. The students, however, do not name Adelphi as a defendant in their complaint. (Adelphi filed for bankruptcy prior to the commencement of this lawsuit.) Rather, they allege that because of the "close connection" between Adelphi and the Lenders, the defendants stand in the position of Adelphi. The students complaint therefore charges the defendants with numerous violations of state law and violations of the Higher Education Act of 1965 (the "HEA"), 20 U.S.C. §§ 1070 et seq. The district court was unimpressed by the students "close connection" argument and granted the defendants motion to dismiss for failure to state a claim. 125 F.R.D. 687. The district court also found that remedies under the HEA were limited to those enumerated in the statute and that the HEA preempted the students state law remedies. We agree that the students have failed to state a claim for relief against the defendants, and therefore affirm on this ground alone.