David M. Warren, United States Bankruptcy Judge.
This matter comes before the court upon the Complaint of Kyle K. Ryan ("Plaintiff") filed on August 7, 2015, seeking the determination that an alleged debt owed by the Plaintiff to Defense Finance and Accounting Service ("Defendant") is discharged pursuant to 11 U.S.C. § 727 and objecting to the allowance of the Defendant's claim for this debt. The court conducted a trial on October 12, 2016 in Raleigh, North Carolina. J.M. Cook, Esq. appeared for the Plaintiff, and C. Michael Anderson, Esq. appeared for the Defendant. At the conclusion of the trial, the court took the matters under advisement. On March 31, 2017, the court entered Judgment in favor of the Defendant, ruling that the Defendant has a non-dischargeable claim against the Plaintiff in the amount of $8,989.64. Pursuant to Rule 52(a)(1) of the Federal Rules of Civil Procedure, incorporated by Rule 7052 of the Federal Rules of Bankruptcy Procedure, this Opinion sets forth the court's findings of fact and conclusions of law in support of the Judgment.
At the trial, the Plaintiff testified on his own behalf and introduced eleven exhibits which the court admitted into evidence. Master Sergeant Bradley M. Hallum, Senior Career Counselor in the United States Army ("Army"), and Alton L. Campbell, Chief of the Defendant's Claims Management Division, testified on behalf of the Defendant, and the Defendant introduced ten exhibits which the court admitted into evidence.
1. The Plaintiff is a citizen and resident of Johnston County, North Carolina.
3. On or about March 21, 2007, the Plaintiff enlisted in the Army. After completion of basic training at Fort Benning, Georgia, the Plaintiff entered into a six-year contract with the Army to be a field artilleryman in the 13 Bravo regiment. He completed his Advanced Individual Training at Fort Sill, Oklahoma and received his MOS
4. While serving in MOS 13B, the Plaintiff was deployed to Iraq in 2008 for a twelve-month tour. Upon his return to Fort Sill, the Plaintiff declined consideration of a promotion within 13 Bravo, because he wanted to reclassify into the 15 Whiskey regiment of unmanned aircraft systems operators. After completing MOS 15W training at Fort Huachuca, Arizona, during 2012, the Plaintiff became stationed at Fort Wainwright, Alaska.
5. During 2012, Master Sergeant Hallum was stationed at Fort Wainwright as a Career Counselor. As the Plaintiff neared the completion of his contract with the Army, he began meeting with Master Sergeant Hallum about a reenlistment contract. On August 23, 2012, the Plaintiff requested authorization to reenlist in the Army, and the Plaintiff's commander approved this request, determining the Plaintiff fully qualified for reenlistment.
6. On August 27, 2012, the Plaintiff and Master Sergeant Hallum executed an Enlistment/Reenlistment Document (DD Form 4/1) and a Statements for Enlistment (DA Form 3286) (collectively "Reenlistment Contracts").
The Statements of Enlistment contains the following statement with which the Plaintiff agreed:
8. In connection with the Plaintiff's execution of the Bonus Contract, Master Sergeant Hallum counseled the Plaintiff about the technical qualifications for service in MOS 15W. Those qualifications are specifically recited in the Department of the Army Pamphlet 611-21, commonly known as the "MOS Smartbook." Master Sergeant Hallum did not provide the Plaintiff with a copy of this pamphlet, but the parties agree that the Plaintiff was generally familiar with the technical qualifications for MOS 15W, and that these qualifications include possession of an "upslip," which is a medical recommendation that the service member is fit for flight duty.
9. In or around September, 2012, the Plaintiff received net payment from the Army in the amount of $12,558.00, which represented the Bonus in the gross amount of $18,200.00 less withholdings for
10. Around May, 2013, the Plaintiff ingested Vicodin, an opiate painkiller containing a combination of hydrocodone and acetaminophen, which was prescribed to his wife. The Plaintiff testified that he took the Vicodin to relieve pain from a neck injury sustained during a training exercise and did not want to report the injury due to fear of losing his upslip to fly military drones. The day after the Plaintiff ingested the Vicodin, the Army administered a random urinalysis screening to the Plaintiff.
11. On August 21, 2013, the Plaintiff learned that his urinalysis was positive for hydrocodone. On August 22, 2013, the Plaintiff participated in event-oriented counseling with Sergeant Paul Boyer regarding the positive urinalysis. The Plaintiff received a temporary "downslip," removing him from flight status and was directed to enroll in the Army Substance Abuse Program ("ASAP"). Sergeant Boyer advised the Plaintiff that the Army was in the process of separating the Plaintiff from military service pending court-martial, and the Plaintiff may not be allowed to continue his military career as an unmanned aerial systems operator due to the potential loss of security pending court-martial.
12. After the Plaintiff's event-oriented counseling, the Plaintiff received a memorandum
13. Brian T. Gordon, Senior Counselor with ASAP, conducted an initial intake assessment of the Plaintiff on September 4, 2013. Mr. Gordon consulted with First Sergeant Richard Phebus, and they agreed not to enroll the Plaintiff in ASAP, because the Plaintiff had two prior enrollments.
14. On October 3, 2013, Captain Stevens issued a Request for Preparation of a Legal Action
15. As part of the Army's separation process and procedures, the Plaintiff received a medical examination and assessment at Kamish Health Clinic at Fort Wainwright on October 8, 2013. A Report of Medical Assessment (DD Form 2697)
16. The Plaintiff appealed Captain Stevens' recommendation for his separation from the Army. The Plaintiff appeared at a hearing before an administrative board, which denied the appeal.
17. On March 26, 2014, the Plaintiff received a discharge ("Military Discharge") from active duty with the Army under honorable conditions. A Certificate of Release or Discharge from Active Duty (DD Form 214)
18. At the time of the Military Discharge, the Plaintiff had served nineteen months of his six-year reenlistment period, leaving fifty-three months unserved. The Defendant determined that the unearned portion of the Bonus attributable to the unserved months ("Unearned Bonus") was $13,397.23.
19. At the time of the Military Discharge, the Plaintiff had accrued thirty-four
20. The Defendant withheld $4,407.59 from the Plaintiff's final pay and applied it to the amount of the Unearned Bonus, leaving a balance of $8,989.64. Subsequently, the Defendant began billing the Plaintiff for this amount, including interest. The Defendant also billed the Plaintiff for the amount of $669.51 for government property allegedly lost by the Plaintiff.
21. On May 12, 2015, the Plaintiff filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code ("Bankruptcy Code"). In his Schedule F-Creditors Holding Unsecured Nonpriority Claims, the Plaintiff scheduled the Defendant as a creditor with a "disputed" claim ("Claim") in the amount of $9,667.21. On August 7, 2015, the Plaintiff filed a Proof of Claim on behalf of the Defendant for the amount of $9,667.21.
22. On August 7, 2015, the Plaintiff initiated this adversary proceeding by filing a Complaint against the Defendant. In the Complaint, the Plaintiff first requests the court to determine that the Claim is not excepted from a Chapter 7 discharge ("Dischargeability Determination"). The Plaintiff next objects to the Claim as being unsubstantiated ("Claim Objection").
23. On October 7, 2015, the Defendant filed an Answer of the Defense Finance and Accounting Service. The Defendant asserts that the Claim is excepted from a Chapter 7 discharge pursuant to 37 U.S.C. § 303a(e)(4), a federal statute not included within the Bankruptcy Code. In addition, the Answer provides an accounting of the Defendant's Claim.
24. On November 9, 2015, the Plaintiff received his Chapter 7 discharge ("Bankruptcy Discharge") pursuant to 11 U.S.C. § 727(a).
25. On January 28, 2016, the Defendant filed a Motion for Summary Judgment in Adversary Proceeding.
26. On February 17, 2016, the Plaintiff filed an Objection to Defendant's Motion for Summary Judgment and Plaintiff's Cross Motion for Summary Judgment. On April 8, 2016, the court entered an Order Denying Motions for Summary Judgment, in which it held that:
Ryan v. U.S. Fin. and Accounting Serv., Adversary Proceeding No. 15-00081 (Bankr. E.D.N.C. April 8, 2016).
27. At the trial, the Defendant amended orally its Claim to the amount of $8,989.64, conceding that the Plaintiff's alleged indebtedness for property loss is dischargeable and waiving any right to interest on the Unearned Bonus. The Plaintiff, while maintaining its position that the entire Claim is dischargeable, asserted that the Claim should only be allowed for the amount of $3,815.31.
This matter is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(B) and (I), and the court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157, and 1334. See, e.g., Kelly v. U.S. Dept. of Educ. (In re Kelly), 548 B.R. 99, 101 (Bankr. E.D.N.C. 2016) (citation omitted) (noting action to determine dischargeability of a debt is a core proceeding); Reed v. Zwick (In re Reed), 559 B.R. 194, 201 (Bankr. N.D. Ohio 2016) (holding that even in a no-asset Chapter 7 proceeding, the court has jurisdiction to determine the allowance of a claim against the estate when directly related to dischargeability). The court has the authority to hear this matter pursuant to the General Order of Reference entered on August 3, 1984 by the United States District Court for the Eastern District of North Carolina.
The court will begin by addressing the Claim Objection, because if the Defendant's Claim is disallowed, then the Dischargeability Determination becomes unnecessary. The Plaintiff first asserts that the contracts between the Plaintiff and the Army, coupled with applicable laws and regulations, do not support recoupment of the Unearned Bonus. Alternatively, the Plaintiff argues that even if the Defendant is entitled to repayment, the Defendant did not properly calculate the amount of the Unearned Bonus, and the amount of the Claim should be reduced to $3,815.31.
On August 27, 2012, the Plaintiff entered into three separate written contracts with the Army: the two Reenlistment Contracts and the Bonus Contract. The court agrees with the Plaintiff that the Plaintiff's obligation to repay the Unearned Bonus is principally a matter of contract law; however, the court acknowledges that laws concerning payment of military bonuses are codified in 37 U.S.C. § 301 et seq. entitled "Special and Incentive Pay."
The Bonus Contract cites 37 U.S.C. § 308 as the controlling authority for that contract. This section authorizes payments of a reenlistment bonus and provides that —
37 U.S.C. § 308(d) (emphasis added). The Bonus Contract essentially mirrors 37 U.S.C. § 308(d) with the Plaintiff agreeing as follows (emphasis added):
The use of the word or in both the Bonus Contract and 37 U.S.C. § 308(d) establishes that the conditions of retaining the Bonus are disjunctive, and the Plaintiff's failure to complete the term of reenlistment alone obligates him to repay the Unearned Bonus. A determination of whether the Plaintiff is not technically qualified in MOS 15W becomes relevant only if he is continuing to serve under the terms of the Reenlistment Contracts and the Bonus Contract.
Despite the unambiguous language of the Bonus Contract and of the applicable statutory provision, the Plaintiff proffers that he did not voluntarily breach the Bonus Contract, because only the Army's unilateral decision to issue the Military Discharge prevented him from completing service under the Reenlistment Contracts. The Reenlistment Contracts did not require the Plaintiff's service in MOS 15W but obligated the Plaintiff to serve in the Regular Army in accordance with the Army's needs. The Plaintiff contends, and Master Sergeant Hallum agrees, that in response to the Plaintiff's misconduct, the Army could have chosen to reclassify the Plaintiff from MOS 15W to another position rather than discharging him from the Army, thereby enabling him to fulfill his six-year service obligation under the Reenlistment Contracts. The Plaintiff further argues that despite the issuance of the temporary downslip from flight status, which was could have been withdrawn, the Plaintiff remained technically qualified and willing to serve in MOS 15W. In support of the contention that he was technically qualified for MOS 15W, the Plaintiff emphasizes that the results of his medical assessments performed during the discharge proceedings established that he was fit for duty.
The court rejects the Plaintiff's position that the involuntary nature of the Military Discharge prevents him from being in breach of the Bonus Contract. Although the Army could have reclassified the Plaintiff within the Regular Army, it was not obligated to do so. The Army's discharge proceedings against the Plaintiff for what the Army considers a serious misconduct are well-documented, and the Plaintiff was allowed an administrative appeal. The Plaintiff did not present evidence that he requested reclassification at any time during the discharge proceedings.
Even if the Army had reclassified the Plaintiff, the Bonus is specifically conditioned upon the Plaintiff's service in MOS 15W. In the Bonus Contract, the Plaintiff agrees as follows (emphasis added): "I Kyle Kenneth Ryan understand that I am getting a selective reenlistment bonus in return for my reenlistment in MOS 15W for a period of 6 years." The Bonus Contract was purposefully separate from the Reenlistment Contracts, and payment of the Bonus was conditioned upon the Plaintiff serving for six years in MOS 15W. The Plaintiff did not complete the contracted six years in MOS 15W, and regardless of the reason for the Plaintiff's failure to serve, the Plaintiff is contractually obligated to repay the Unearned Bonus. Although it is not necessary for the court to decide whether the Plaintiff remained technically qualified in MOS 15W, the court suspects that he did not. The Plaintiff's voluntary ingestion of Vicodin is likely a misconduct that a caused a condition, specifically the removal of the Plaintiff's upslip, which interfered with effective performance in MOS 15W within the meaning of the Bonus Contract.
As directed in 37 U.S.C. § 308(d), repayment of unearned portions of military
37 U.S.C. § 303a(e)(1) (emphasis added). Paragraphs (2) and (3) of 37 U.S.C. § 303a(e) provide respectively that the Secretary concerned shall not require repayment of an unearned bonus from a military service member who receives a "soul survivor discharge," as that term is defined within the statute, or who dies or is retired or separated with a combat-related disability. Neither of these exceptions applies to the Defendant's ability to seek repayment of the Unearned Bonus.
The applicable regulations ("Regulations") for the administration of 37 U.S.C. § 303a(e) are set forth in the Department of Defense's Financial Management Regulation (DoD 7000.14), specifically Volume 7A, Chapter 2 titled "Repayment of Unearned Portion of Bonuses and Other Benefits." The Regulations, as they existed at the time of the Plaintiff's Military Discharge, describe a service member's entitlement to a bonus or benefit as follows:
DoD 7000.14-R, Volume 7A, Chap. 2 § 020101 (July 2013) (emphasis added).
DoD 7000.14-R, Volume 7A, Chap. 2 § 020203 (July 2013) (emphases added). This section lists numerous conditions under which repayment of an unearned bonus will not be sought, including death of the service member, separation due to a combat-related disability, transfer to another military department for which no bonus is paid, or one of the following four conditions:
Id.
Beyond the specific conditions under which repayment of an unearned bonus will not be sought, the Regulations allow broad discretion to waive collection of an unearned bonus:
Id.
Mr. Campbell testified that the applicable military department, not the Defendant, makes the determination under the guidance of the Regulations of whether a service member's obligation to repay the unearned portion of a bonus should be waived or forgiven under 37 U.S.C. § 303a(e)(1). In the Plaintiff's case, the Army could have considered forgiveness of his obligation to repay the Unearned Bonus in connection with the discharge proceedings. While there is no record of the Army making a deliberate choice not to waive repayment of the Unearned Bonus, Mr. Campbell stated that the referral of the Unearned Bonus to the Defendant for collection evidences that the Army chose not to waive the obligation. This action is consistent with the Regulations providing that "the Secretary of the Military Department concerned will advise the Defense Finance and Accounting Service of the disposition of any unearned portion of a pay or benefit." DoD 7000.14-R, Volume 7A, Chap. 2 § 020201 (July 2013).
Mr. Campbell further testified that upon receipt of a request to collect an unearned bonus from a service member, the Defendant uses Table 2-1 of the Regulations to audit the repayment obligation. Table 2-1 is a flowchart-type guide to "Disposition of
DoD 7000.14-R, Volume 7A, Chap. 2, Table 2-1 (July 2013) (emphasis added).
The Plaintiff, focusing on the subjective language contained within the statutes and the Regulations as emphasized supra, overcomplicates the court's analysis by arguing that no clear guidance exists for making proper and consistent determinations of what type of conduct warrants a waiver or forgiveness of a service member's obligation to repay an unearned bonus. The Plaintiff urges the court to find that the Plaintiff's breach of the Bonus Contract resulted from a substance abuse problem which was reasonably beyond the Plaintiff's control, thereby justifying waiver of its his obligation to repay the Unearned Bonus. The Plaintiff attempted to draw an analogy between unspecified incidences where homosexuality is considered beyond a service member's control. The court initially found this analogy logical and persuasive; however, as explained infra, the Regulations suggest that personal situations are not the intended types of circumstances beyond a service member's control that would support waiving collection of an unearned bonus.
Judicial review of a regulatory decision made by an agency of the United States is allowed pursuant to the Administrative Procedure Act ("APA"), 5 U.S.C. § 500 et seq. Although the Plaintiff's Complaint did not specifically seek relief under the APA, and this court's jurisdiction under the APA is questionable,
Hoffler v. Hagel, 122 F.Supp.3d 438, 446 (E.D.N.C. 2015).
The Regulations' examples of conditions under which repayment of an unearned bonus will not be sought are situations that are clearly beyond a service member's control and do not involve any type of misconduct by the service member. None of these conditions exists in connection with the Plaintiff's Military Discharge. Certainly, the Department of Defense did not envision substance abuse, a serious misconduct which is cause for discharge, to qualify as a condition reasonably beyond a service member's control within the meaning of the Regulations. The court notes that the Plaintiff's suggestion that he had a substance abuse problem which was beyond his control is inconsistent with his testimony that he took his wife's Vicodin in response to a specific injury causing him pain. The court can find no evidence that the Army abused its discretion in declining to make an exception for the Plaintiff who was admittedly discharged from the Army for a misconduct. The Plaintiff has not produced sufficient grounds to warrant the court overruling the Army's failure to waive collection of the Unearned Bonus.
The Regulations set forth the following procedure for determining the amount of an unearned bonus to be repaid:
DoD 7000.14-R, Volume 7A, Chap. 9 § 090210 (August 2012). In accordance with this provision, the Defendant calculated the amount of the Unearned Bonus and Claim as follows:
Gross Reenlistment Bonus $18,200.00 Divided by (÷) 2,160 days of reenlistment period Equals (=) Reenlistment Bonus daily rate $8.42593 Times (x) 1,590 unserved days Equals (=) Unearned Bonus $13,397.23 Minus (-) Earnings Setoff ($4,407.59) Equals (=) Claim $8,989.64
The Plaintiff disputes multiple portions of the Defendant's calculation of the Unearned Bonus and the Claim and asserts that they should be computed as follows:
Net Reenlistment Bonus $12,558.00 Divided by (÷) 2,190 days of reenlistment period Equals (=) Reenlistment Bonus daily rate $5.73424 Times (x) 1,434 unearned days (1,614 days unserved less 180 leave days) Equals (=) Unearned Bonus $ 8,222.90 Minus (-) Earnings Setoff ($4,407.59) Equals (=) Claim $3,815.31
The Plaintiff first submits that computation of the amount of the Unearned Bonus to be repaid should be based upon the net amount of $12,558.00 directly paid to the Plaintiff rather than the gross amount of $18,200.00. In support of this theory, the Plaintiff focuses on the use of the word "receive," in its various forms, within 37 U.S.C. § 303a(e) and argues that the Plaintiff only received $12,558.00. The Defendant counters that regardless of the amount paid directly to the Plaintiff, the Plaintiff received the benefit of the entire amount of the Bonus, and it would be a windfall for the Plaintiff to only be required to repay the unearned portion of the net amount of the Bonus.
The amount of the Bonus withheld from payment to the Plaintiff was paid by the Defendant toward the Plaintiff's income taxes and FICA contributions. With respect to the income taxes, this exact issue was long-ago settled by the United States Supreme Court in United States v. Lewis, 340 U.S. 590, 71 S.Ct. 522, 95 S.Ct. 560 (1951). In Lewis, the respondent reported on his 1944 income tax return approximately $22,000.00 received as a bonus from his employer. In 1946, the respondent returned $11,000.00 to his employer after a state court entered judgment finding that the amount of the bonus had been improperly computed. The respondent sued the United States of America for a refund of the amount of overpayment of his 1944 income tax resulting from the bonus. The government countered that the respondent's 1944 tax liability should not be recomputed. Rather, the respondent should have deducted the $11,000.00 repayment as a loss in his 1946 tax return.
The Supreme Court agreed with the government, reiterating its prior holding that "[i]f a taxpayer receives earnings under a claim of right and without restriction as to its disposition, he has received income which he is required to return, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent." Id. at 591, 71 S.Ct. at 523, 95 S.Ct. 560 (quoting North American Oil Consolidated v. Burnet, 286 U.S. 417, 424, 52 S.Ct. 613, 615, 76 S.Ct. 1197 (1932)). In Lewis, the Court found no exception merely because a taxpayer is "mistaken" as to the validity of his claim. The Court concluded that "[i]ncome taxes must be paid on income received (or accrued) during an annual accounting period. The `claim of right' interpretation of the tax laws has long been used to give finality to that period, and is now deeply rooted in the federal tax system." Id. at 592, 71 S.Ct. at 523, 95 S.Ct. 560 (citations omitted).
In response to Lewis, Congress enacted a statute within the United States Tax Code which allows taxpayers who have to pay back income paid during a previous tax year to either take a deduction in the year the money was repaid or take a tax credit equal to the amount of the taxes originally paid on that amount:
26 U.S.C. § 1341. This law is referenced in the Defendant's DFAS Form 705 issued to a service member who receives an overpayment and is succinctly summarized in the Internal Revenue Service's annual Publication 525 for use in preparing tax returns titled "Taxable and Nontaxable Income" as follows:
Internal Revenue Service, Publication 525, p. 34 (2016).
Both Lewis and 26 U.S.C. § 1341 support the Defendant's position that in computing the Unearned Bonus, the Plaintiff is not entitled to a credit for the amount of income taxes paid on the Bonus. The Plaintiff should also not receive a credit for any other withholdings such as FICA or insurance as the Plaintiff has or will in the future receive these benefits, and repayment of the gross amount of the Unearned Bonus will not result in a deduction of funds available in the Plaintiff's Social Security and Medicare accounts.
The Plaintiff disputes the Defendant's computation of the per diem rate of the Bonus based upon a six-year period calculated to be 2,160 days rather than 2,190 days. At the time of the Military Discharge, the Plaintiff had served nineteen months of his six-year reenlistment period, leaving fifty-three months unserved. Mr. Campbell testified that for accounting purposes, the Defendant assigns thirty days per each month or 360 days per calendar year; therefore, six years equals 2,160 days. The Plaintiff instead multiplied the standard 365 days in a year by six which equals 2,190 days.
Following the specific language of the Regulations, the Unearned Bonus should actually be computed based upon a per month rather than a per diem rate, which yields a result that is only one cent less than the Defendant's per diem calculation:
Gross Reenlistment Bonus $18,200.00 Divided by (÷) 72 Months of Reenlisted Period Equals (=) Reenlistment Bonus Monthly Rate $252.77778 Times (×) 53 Unserved Months Equals (=) Unearned Bonus $13,397.22
Finally, the Plaintiff makes the equitable argument that he should be credited for 180 days of service as a result of unused leave. The Plaintiff testified that he was entitled to thirty days paid leave per calendar year or 180 days for the six-year enlistment period. The Plaintiff did not use any of his leave prior to the Military Discharge and requests that 180 days of service not be included in the computation of the Unearned Bonus. The Defendant countered that the annual leave was not pre-earned. The Plaintiff only had thirty-four days of available leave at the time of the Military Discharge, and as reflected in the Plaintiff's final leave and earnings statement, this leave was paid as part of the Plaintiff's final compensation. The Plaintiff provided no evidence to support his claim that he should be credited for additional leave in the calculation of the Unearned Bonus.
Pursuant to 11 U.S.C. § 502(a) and Rule 3001(f) of the Federal Rules of Bankruptcy Procedure, a proof of claim is presumed valid unless objected to by a party in interest. The United States Court of Appeals for the Fourth Circuit explained the burden-shifting effect of a claim objection as follows:
In re Nussman, 501 B.R. 297, 300-01 (Bankr. E.D.N.C. 2013) (quoting Stancill v. Harford Sands Inc. (In re Harford Sands Inc.), 372 F.3d 637, 640 (4th Cir. 2004) (citations omitted)).
The Plaintiff raised sufficient arguments to question the Plaintiff's obligation to repay the Unearned Bonus; however, the Defendant proved by a preponderance of the evidence that the Plaintiff is contractually and statutorily obligated to repay the Unearned Bonus, and that the Defendant properly computed the amount of the Unearned Bonus and the Claim in accordance with the Regulations. The court overrules the Claim Objection and allows the Defendant's Claim for the amount of $8,989.64. The court must now determine whether this Claim is non-dischargeable pursuant to 37 U.S.C. § 303a(e)(4).
Bankruptcy courts are frequently requested to adjudicate issues related to a bankruptcy case which are based upon "applicable nonbankruptcy law," a phrase that appears numerous times throughout the Bankruptcy Code. In core proceedings, as that term is defined by 28 U.S.C. § 157(b), the court relies predominantly upon the Bankruptcy Code and interpretive case law for guidance. Very few bankruptcy matters, if any, are more core than determinations of entitlement to a discharge and dischargeability of an indebtedness, as these determinations are fundamental to a debtor's "fresh start." While it would be more convenient and better conceived if Congress included all exceptions to discharge in the designated provisions of the Bankruptcy Code, other non-dischargeability provisions live outside of Title 11.
The Bankruptcy Code provides that "[e]xcept as provided in section 523... [a Chapter 7 discharge] discharges the debtor from all debts that arose before the date of the order for relief...." 11 U.S.C. § 727(b) (emphasis added). Section 523
37 U.S.C. § 303a(e)(4). The court must examine whether the list of non-dischargeable debts set forth in 11 U.S.C. § 523(a) is exclusive, as argued by the Plaintiff, or whether if it can be supplemented by non-bankruptcy law such as 37 U.S.C. § 303a(e)(4) upon which the Defendant relies.
On January 6, 2006, Congress enacted 37 U.S.C. § 303a(e) as part of the National Defense Act for Fiscal Year 2006. The legislative history for this act provides that its amendments to 37 U.S.C. § 303a "shall apply to any case commenced under title 11, United States Code, after March 30, 2006." National Defense Authorization Act for Fiscal Year 2006, Pub.L. No. 109-163, § 687, 119 Stat. 3136. Significantly, Congress passed this act after the most recent major amendment to the Bankruptcy Code, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The court is aware of three opinions addressing 37 U.S.C. § 303a(e), and in each case, the issuing bankruptcy court found that the statute was indeed effective to except obligations to repay a military bonus from a debtor's Chapter 7 discharge. This court agrees.
In both In re Dickinson, Case No. 11-62340 (Bankr. S.D. Ohio Aug. 7, 2013) and In re Fagan, 559 B.R. 718 (Bankr. E.D. Cal. 2016), the courts began their analyses by finding that when possible, two seemingly conflicting statutes
Applying this principle to the conflict between 11 U.S.C. § 727(b) and 37 U.S.C. § 303a(e), both the Dickinson court and the Fagan court found the latter to be more specific. In Fagan, the court interpreted 11 U.S.C. § 303a(e) as well as the similar 37 U.S.C. § 373(c)
Id. at 721-22.
The Dickinson court recognized that the Bankruptcy Code does not expressly preclude consideration of other Federal law governing dischargeability of debts:
Dickinson, Case No. 11-62340, at 9-10.
The court follows Dickinson and Fagan in holding that 11 U.S.C. § 727(b)
Applying 37 U.S.C. § 303a(e)(4) to the specifics of this case, the Plaintiff's obligation to repay the Unearned Bonus is non-dischargeable if the Bankruptcy Discharge was entered less than five years after the date of the termination of the agreement upon which the debt is based, that agreement being the Bonus Contract. Master Sergeant Hallum testified that the Military Discharge effectively terminated the Reenlistment Contracts and the Bonus Contract; however, the Plaintiff contended that he never received any formal notice of termination or understood that being discharged from the Army would operate as a termination of these contracts.
"A `discharge,' in military terms, is generally understood to be a `complete termination' of military service...." Willenbring v. United States, 559 F.3d 225, 231 (4th Cir. 2009) (citations omitted). Termination of military service inherently includes termination of all enlistment and other contracts between the applicable military branch and the discharged service member. The court finds that the Bonus Contract was terminated for purposes of 37 U.S.C. § 303a(e)(4) on March 26, 2014, the date of the Military Discharge. This date is less than five years prior to the Plaintiff's Bankruptcy Discharge on November 9, 2015; therefore, the Defendant's Claim is non-dischargeable.
The Defendant is allowed its Claim against the Defendant in the amount of $8,989.64, representing the Plaintiff's contractual obligation to repay the Unearned Bonus, and this indebtedness is excepted from the Plaintiff's Bankruptcy Discharge pursuant to 37 U.S.C. § 303a(e)(4). In accordance with Rule 58(a) of the Federal Rules of Civil Procedure, incorporated by Rule 7058 of the Federal Rules of Bankruptcy Procedure, the court entered Judgment in favor of the Defendant on March 31, 2017.
(2) neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit—
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
(5) for a domestic support obligation;
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity;
(7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty—
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for—
(9) for death or personal injury caused by the debtor's operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance;
(10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act;
(11) provided in any final judgment, unreviewable order, or consent order or decree entered in any court of the United States or of any State, issued by a Federal depository institutions regulatory agency, or contained in any settlement agreement entered into by the debtor, arising from any act of fraud or defalcation while acting in a fiduciary capacity committed with respect to any depository institution or insured credit union;
(12) for malicious or reckless failure to fulfill any commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured depository institution, except that this paragraph shall not extend any such commitment which would otherwise be terminated due to any act of such agency;
(13) for any payment of an order of restitution issued under title 18, United States Code;
(14) incurred to pay a tax to the United States that would be nondischargeable pursuant to paragraph (1);
(14A) incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under paragraph (1);
(14B) incurred to pay fines or penalties imposed under Federal election law;
(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit;
(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case;
(17) for a fee imposed on a prisoner by any court for the filing of a case, motion, complaint, or appeal, or for other costs and expenses assessed with respect to such filing, regardless of an assertion of poverty by the debtor under subsection (b) or (f)(2) of section 1915 of title 28 (or a similar non-Federal law), or the debtor's status as a prisoner, as defined in section 1915(h) of title 28 (or a similar non-Federal law);
(18) owed to a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, under—
but nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under this title; or
(19) that—
11 U.S.C. § 523(a).
37 U.S.C. § 373(c).
