Court allows student loan offset, rules on lawyer fees
on Dec 7, 2005 at 10:03 am
The Supreme Court on Wednesday uphold the federal government’s use of a major legal weapon to help collect at least a part of the rising debt owed on college student loans. The Court ruled that the government may offset Social Security benefits to collect a debt on a student loan if the debt has been owed for more than ten years. The decision, written by Justice Sandra Day O’Connor, was unanimous, although Justice Antonin Scalia filed a concurring opinion in the case of Lockhart v. U.S. (docket 04-881).
In the only other decision of the day, the Court — in the first opinion by Chief Justice John G. Roberts, Jr., since he joined the Court — ruled unanimously that attorneys’ fees ordinarily should not be awarded when a case originally filed in state court has been wrongly transferred to federal court and then sent back, if there had been a reasonable basis for taking the case to federal court. The opinion stressed, however, that District Court judges retain discretion to consider whether unusual circumstances justified a departure in a given case from that general rule. The decision came in the case of Martin v. Franklin Capital Corp. (04-1140).
In the student loan case, the Court interpreted a 1996 federal law that, for the first time, authorized reductions in Social Security benefits as a way to collect delinquent college student loans. That law specifically removed protection that federal law had formerly given recipients of Social Security benefits, generally barring benefits from being attached or otherwise “alienated” after ten years had passed.
The 1996 amendment was challenged by a Washington State man, James Lockhart, who is disabled. He had been receiving $874 a month in Social Security disability benefits and $10 a month in food stamps. When he turned 65, he began receiving old-age benefits, replacing his disability check. He had attended four colleges, paying for the education with federally guaranteed student loans. He was unable to repay the majority of those loans. The Treasury began withholding $93 a month from his benefits, and the offset was raised later when he qualified for higher benefits, ultimately reaching $143.10 a month.
All told, the government estimates, Lockhart has had to forfeit $3,555 in benefits, while still owing debts including interest and other fees of $76,415.
The issue in the case was of considerable significance, because the government estimates that there are now outstanding about $7.4 billion in delinquent student loans, with as much as $5.7 billion of that outstanding for more than ten years.
The attorneys’ fees case decided Wednesday began when a New Mexico couple filed a class action lawsuit in New Mexico state court, based on state law, claiming that Franklin Capital Corp. and Century-National Insurance Co. had acted illegally in financing autos and in selling insurance contracts. The two companies removed the case to federal court, based on diversity of citizenship of the parties. Later, the Martins contended that the federal court lacked jurisdiction becdause there was not enough money at issue.
The companies argued that, when a punitive damages claim was taken into account, the amount in controversy would exceed the minimum required for federal jurisdiction. The Tenth Circuit barred the consideration of the punitive damages claim, found there was no federal jurisdiction, and returned the case to state court. The Martins sought attorneys’ fees for the time their case was in federal court. Both the District Court and the Tenth Circuit denied the fee claim.
The Supreme Court took on the case because lower courts had taken widely varying positions on the standards to be used on attorneys’ fees claims in the situation at issue.
Chief Justice Roberts’ opinion laid down the rule that, if the party that shifted the case to federal court had an “objectively reasonable basis” for that transfer, attorneys’ fees should ordinarily not be awarded to the party opposed to the removal. But, where no objectively reasonable basis existed for the removal, Roberts stressed, “fees should be awarded.”
The Martins did not dispute that the arguments made for removal of their case to federal court were reasonable, so the Supreme Court upheld the denial of their fee claim. The Chief Justice disposed of the case in eight and a half pages, with a single footnote.
