Magistrate Judge Frank Maas
Kotlyarov executed two Health Education Assistance Loan (HEAL) promissory notes payable to Chase Manhattan Bank (Chase). After he defaulted the Secretary of the Health and Human Services Department (HHS) repaid Chase, which then assigned the notes to HICA Education Loan Corp. Asserting jurisdiction under 28 USC §1331 only, HICA sought to collect the unpaid amounts on the loans. Discussing HICA Ed. Loan Corp. v. Danziger and the Supreme Court's 1986 decision in Merrell Dow Pharm. v. Thompson, the magistrate judge recommended dismissal of HICA's case for lack of subject matter jurisdiction. The magistrate rejected HICA's assertion that the case arose under federal law because its claims were "founded upon" promissory notes executed pursuant to the HEAL program, the terms of which are governed by federal regulations. Quoting HICA Ed. Loan Corp. v. Mittelstedt, the magistrate noted that "neither HEAL nor the federal regulations create a federal cause of action for nonpayment of a HEAL loan." Under Danziger, the federal government's interest in HICA's collection of a defaulted student loan does not transform HICA's common law-contract breach claim into one raising a disputed and substantial federal issue.
