A Delaware federal judge on Wednesday gave class plaintiffs a second chance to file a complaint accusing Navient Corp. of underreporting to investors the number of delinquent accounts in its student loan portfolio, after tossing the first one for faulty pleading.
In an eight-page memorandum, U.S. District Judge Gregory M. Sleet of the District of Delaware said that mutual fund manager Lord Abbett Affiliated Fund Inc.’s has until Nov. 5 to correct deficiencies in its 135-page complaint against the Wilmington-based spin off of Sallie Mae. The original filing, Sleet said, relied on “puzzle pleading” that at times made the document “very difficult” to follow.
Several times the complaint detailed at length alleged misstatements Navient and its officers had made regarding the company’s business, only to follow with one paragraph explaining why the representations were false or misleading for investors, Sleet said.
“As a result, plaintiffs have failed to set forth a ‘short and plain’ statement of their claims and make each allegation ‘simple, concise and direct,’” the judge wrote.
“At the same time, in contravention of the Private Securities Litigation Reform Act, plaintiffs have failed to craft a complaint in such a way that a reader can determine precisely which statements (or portions of statements) are alleged to be false or misleading, and the reason why each statement is false or misleading.”
Lord Abbett and its Lieff Cabraser Heimann & Bernstein attorneys took control of the case after allegations that Navient had violated consumer protection laws that prompted investors to file at least four class action complaints against the firm. The plaintiffs agreed last June that Lord Abbett, which claimed to have lost more than $13.6 million in Navient stock value, would serve as lead plaintiff in the case.
The complaint, filed in September 2016, targeted a disclosure related to Navient’s handling of private education loans, its compliance culture and borrow. Specifically, Lord Abbett said that Navient had manipulated its loan forbearances, allowing the company to report lower levels of delinquent accounts and, ultimately, to claim artificially high net interest income.
“In short, defendants portrayed Navient as a safe, prudent loan servicer that engaged in a careful assessment of the risk level of its private education loan portfolio, employed systematized risk-management procedures and complied with laws and regulations governing the loan-servicing industry,” Lord Abbett said. “The reality, however, was far different.”
Navient last November asked Sleet to dismiss the suit with prejudice, arguing that the complaint fell well short of meeting pleading standards for securities fraud.
“The complaint does not allege facts showing which specific statements were false or misleading—or how, why or in what manner those statements were false or misleading,” Navient said. “Instead, plaintiffs trot out a parade of lengthy quotes from public statements made by defendants during the class period, and summarily assert that these statements as a group were false or misleading for one of five or more reasons, without linking those reasons to individual statements.”
Sleet, however, granted the motion with prejudice and gave Lord Abbett leave to amend its complaint.
Lord Abbett’s attorneys were not immediately available to comment on Thursday. The firm is also represented by Morris & Morris.
Navient is represented by attorneys from Latham & Watkins and Richards, Layton & Finger.
The case is captioned Lord Abbett Affiliated Fund v. Navient.