Sallie Mae 2007 Annual Report Download - page 33

None of the Company’s facilities is encumbered by a mortgage. The Company believes that its
headquarters, loan servicing centers data center, back-up facility and data management and collections centers
are generally adequate to meet its long-term student loan and business goals. The Company’s principal office
is currently in owned space at 12061 Bluemont Way, Reston, Virginia, 20190.
Item 3. Legal Proceedings
On April 6, 2007, the Company was served with a putative class action suit by several borrowers in
federal court in the Central District of California (Anne Chae et. al., v. SLM Corporation et. al.). The
complaint, which was amended on April 12, 2007, alleges violations of California Business & Professions
Code 17200, breach of contract, breach of covenant of good faith and fair dealing, violation of consumer legal
remedies act and unjust enrichment. The complaint challenges the Company’s FFELP billing practices as they
relate to use of the simple daily interest method for calculating interest. On June 19, 2007, the Company filed
the Company’s Motion to Dismiss the amended complaint. On September 14, 2007, the court entered an order
denying Sallie Mae’s Motion to Dismiss. The court did not comment on the merits of the allegations or the
plaintiffs’ case but instead merely determined that the allegations stated a claim sufficient under the Federal
Rules of Civil Procedure. The Company filed an answer on September 28, 2007 and on November 26, 2007
filed a motion for judgment on the pleadings. On January 4, 2008, the court entered an order denying the
Company’s motion without ruling on the merits of plaintiffs’ claims. On September 17, 2007, the court entered
a scheduling order that set July 8, 2008, as the start date for the trial. Discovery has commenced and is
scheduled to continue through May 30, 2008. The Company believes these allegations lack merit and will
continue to vigorously defend itself in this case, and notes that ED and the applicable guarantor of plaintiffs’
loans have confirmed that simple daily interest is the proper method for calculating interest under the FFELP.
On September 11, 2007, the Office of the Inspector General (“OIG”), of ED, confirmed that they planned
to conduct an audit to determine if the Company billed for special allowance payments, under the 9.5 percent
floor calculation, in compliance with the Higher Education Act, regulations and guidance issued by ED. The
audit covers the period from 2003 through 2006, and is currently confined to the Company’s Nellie Mae
subsidiaries. We ceased billing under the 9.5 percent floor calculation at the end of 2006. We believe that our
billing practices were consistent with longstanding ED guidance, but there can be no assurance that the OIG
will not advocate an interpretation that differs from the ED’s previous guidance. The OIG has audited other
industry participants who billed for 9.5 percent SAP and in certain cases ED has disagreed with the OIG’s
recommendation.
In August 2005, Rhonda Salmeron (the “Plaintiff”) filed a qui tam whistleblower case under the False
Claims Act against collection company Enterprise Recovery Systems, Inc., or ERS. In the fall of 2006, Plaintiff
amended her complaint and added USA Funds, as a defendant. On September 17, 2007, Plaintiff filed a second
amended complaint adding USA Group Guarantee Services Inc., USA Servicing Corp., Sallie Mae Servicing
L.P. and Scott J. Nicholson, an officer and employee of ERS as defendants. On February 5, 2008, Plaintiff filed
a Third Amended Complaint. Plaintiff alleges that the various defendants submitted false claims and/or created
false records to support claims in connection with collection activity on federally guaranteed student loans. The
allegations against USA Funds and Sallie Mae are that they allowed the creation of false records and the
submission of false claims by failing to take adequate measures in connection with audits of ERS. At this time,
we intend to vigorously defend the case. Plaintiff claims that the U.S. government has been damaged in an
amount greater than $12 million. The False Claims Act provides for the award of treble damages and $5,500 to
$11,000 per false claim in successful qui tam lawsuits. We intend to vigorously defend this action.
On December 17, 2007, Sasha Rodriguez and Cathelyn Gregoire filed a putative class action claim on
behalf of themselves and persons similarly situated against us in the United States District Court for the
District of Connecticut, alleging an intentional violation of civil rights laws (42 U.S.C. § 1981, 1982), the
Equal Credit Opportunity Act and the Truth in Lending Act. Plaintiffs allege that we engaged in underwriting
practices on private loans which resulted, among other things, in certain applicants being directed into
substandard and more expensive student loans on the basis of race. No amount in controversy is stated in the
complaint. We intend to vigorously defend this action.
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