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Litigation

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Firm Successfully Opposes Entry of Unauthorized Consent Judgment in Student Loan Trusts Enforcement Action

June 4, 2020

On May 31, 2020, the Firm secured a significant victory for our client, a financial guaranty insurer of student-loan trusts, when the U.S. District Court for the District of Delaware denied the Consumer Financial Protection Bureau’s motion to approve a proposed consent judgment that the Bureau negotiated with a law firm purporting to act on the trusts’ behalf.  The proposed consent judgment would have imposed significant penalties on the trusts, which own billions of dollars of student loans, and altered the trusts’ governance to afford control to affiliates of a hedge fund owning residual equity interests in the trust.  The district court ruled that the law firm that had executed the proposed consent judgment on behalf of the trusts—which took direction from the residual equity interest owners—lacked the authority to bind the trusts.

The proposed consent judgment had been submitted to the district court for approval in October 2017.  In October 2018, the district court allowed the Firm’s client and several other stakeholders in the trusts, who had all been excluded from negotiation of the proposed consent judgment, to intervene in the Delaware action to oppose entry of the proposed consent judgment.

To read the decision, click here.

To read press on the decision, click here.