Jeff Bohm, United States Bankruptcy Judge.
On or about December 4, 2002, Tabitha Renee Kelly ("Defendant") executed a promissory note (the "
On the Note, Mary A.V. De La Rosa ("
On April 13, 2017, the Defendant, along with her husband, filed a Chapter 13 petition, thereby initiating the main Chapter 13 case. [Case 17-32295, Doc. No. 1]. On May 11, 2017, the Plaintiff filed a proof of claim in the main case, identifying the sum paid in the State Court Lawsuit on the Note as an outstanding debt owed to her by the Defendant (the "
The Plaintiff initiated this Adversary Proceeding by filing a complaint on July 30, 2017, seeking a determination that the Debt is nondischargeable. [Adv. Doc. No. 1, ¶ 7, p. 2 of 6]. The Plaintiff's Complaint requests a judgment declaring that the Debt is nondischargeable under 11 U.S.C. § 523(a)(2), (4), (6), and/or (8).
This Court has jurisdiction over this dispute pursuant to 28 U.S.C. §§ 157(a) and 1334(b). Section 1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 [the Bankruptcy Code], or arising in or related to cases under title 11." District courts may, in turn, refer these proceedings to the bankruptcy judges for that district. 28 U.S.C. § 157(a). In the Southern District of Texas, General Order 2012-6 (entitled General Order of Reference) automatically refers all eligible cases and proceedings to the bankruptcy courts.
This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) and by Rule 7001(b). This suit is also a core proceeding under the general "catch-all" language of 28 U.S.C. § 157(b)(2) because such a suit is the type of proceeding that can only arise in the context of a bankruptcy case. See Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 930 (5th Cir. 1999) ("[A] proceeding is core under § 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.") (citation omitted). Preventing the discharge of a specific debt — here, the Debt — can only occur in a bankruptcy court. There is no state law equivalent of this action.
Venue is proper in this Court pursuant to 28 U.S.C. § 1409(a). 28 U.S.C. § 1409(a) provides that "a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending." The Debtor's main Chapter 13 case is presently pending in this Court; therefore, venue of this adversary proceeding is proper.
The Supreme Court's decision in Stern v. Marshall recognized certain limitations on bankruptcy courts' authority to enter final orders. 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Therefore, this Court has a duty to question its constitutional authority to enter a final order for any matter brought before it. The Court concludes that the facts in the pending suit are distinguishable from those in Stern, and that this Court has the authority to enter a final order in this suit.
In Stern, the debtor filed a counterclaim based solely on state law, and the resolution of this counterclaim did not resolve the validity, or invalidity, of the claim held by the defendant. Id. Here, the matter before the Court is not a counterclaim by the Debtor or the estate brought pursuant to state law, but rather is an adversary proceeding brought by a judgment creditor (i.e., the Plaintiff) against the Debtor to determine the nondischargeability of a specific debt pursuant to § 523(a)(8)(A)(ii) — an express provision of the Code. "Determining the scope of the debtor's discharge is a fundamental part of the bankruptcy process[,]" and was unchanged by the decision in Stern. Farooqi
In the alternative, this Court has the constitutional authority to enter a final order because the Plaintiff and the Defendant have expressly consented to adjudication of this dispute by this Court. Wellness Int'l Network, Ltd. v. Sharif, ___ U.S. ___, 135 S.Ct. 1932, 1947, 191 L.Ed.2d 911 (2015) ("Sharif contends that to the extent litigants may validly consent to adjudication by a bankruptcy court, such consent must be expressed. We disagree. Nothing in the Constitution requires that consent to adjudication by a bankruptcy court be expressed. Nor does the relevant statute, 28 U.S.C. § 157, mandate express consent...."). Indeed, the Plaintiff explicitly stated in her Original Complaint that "Plaintiff consents to the entry of a final order or a final judgment by this Court." [Adv. Doc. No. 1, ¶ 6, p. 2 of 6]. Approximately a month later, the Defendant filed her Original Answer to Complaint, and explicitly stated that "Defendant consents to the entry of a final order or a final judgment by this Court." [Adv. Doc. No. 7, ¶ 6, p. 1 of 3]. If this language does not constitute consent, then nothing does.
Federal Rule of Civil Procedure 56(c) applies to this proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056(c). Rule 56(c) provides that summary judgment is appropriate when the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party carries the burden of proof and must therefore show the absence of genuine material issues. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All reasonable inferences are to be drawn in the non-moving party's favor. See Baton Rouge Bldg. & Constr. Trades Council v. Jacobs Constructors, Inc., 804 F.2d 879, 881 (5th Cir. 1986) (per curiam) (holding that courts "must review the evidence and any inferences to be drawn therefrom in the light most favorable to the non-moving party").
Despite alleging several claims in the Original Complaint, the Plaintiff asks this Court only to resolve her claim under § 523(a)(8)(A)(ii) on this Motion for Summary Judgment. In its entirety, § 523(a)(8) balances two competing policy objectives: (1) the debtor's right to a fresh start; and (2) the need to protect the financial integrity of educational loan programs and to induce lenders to lend to students who cannot qualify for loans under traditional underwriting standards. Brown v. Rust (In re Rust), 510 B.R. 562, 566 (Bankr. E.D. Ky. 2014); Gorosh v. Posner (In re Posner), 434 B.R. 800, 803 (Bankr. E.D. Mich. 2010). The creditor bears the initial burden of proof that the debt is nondischargeable under § 523(a)(8). If this burden is met, the debtor can still discharge the debt if the debtor proves that repayment would constitute an undue hardship. See Barrett v. Educ. Credit Mgmt. Corp. (In re Barrett), 487 F.3d 353, 358-59 (6th Cir. 2007); Educ. Credit Mgmt. Corp. v. Savage (In re Savage), 311 B.R. 835, 839 (1st Cir. BAP 2004).
In 2005, Congress broadened the range of student loans that were to be considered nondischargeable under § 523(a)(8) by adding § 523(a)(8)(A)(ii) to encompass
In the suit at bar, there is no dispute of material fact between the Plaintiff and the Defendant that there was an obligation on the part of the Defendant to repay the funds she received from THECB. [Adv. Doc. No. 7, ¶ 8, p. 2 of 3]. Similarly, there is no dispute that the loan proceeds the Defendant received from THECB were used for her education. [Adv. Doc. No. 7, ¶ 9, p. 2 of 3]. There is also no dispute that the Plaintiff was liable to THECB if the Defendant defaulted under the Note. [Adv. Doc. No. 7, ¶ 10, p. 2 of 3]. Further, nowhere in the Defendant's Answer to Complaint, or in the Defendant's Response to Plaintiff's Motion for Summary Judgment, is undue hardship alleged.
According to the Defendant, the only material dispute of fact before this Court on summary judgment is the proper title for the Plaintiff in this suit. The Defendant alleges that there are several titles that could be assigned to the Plaintiff: guarantor, co-maker, co-borrower, cosigner, surety, and accommodation party. [Adv. Doc. No. 10, p. 2 of 5]. The Defendant seems to contend that if the Plaintiff is a "co-maker" or "co-borrower," then she does not have standing to seek a judgment that the Debt is nondischargeable. However, at oral argument, the Defendant's counsel failed to cite one case supporting this argument as it relates to § 523(a)(8)(A)(ii). Additionally, in the Defendant's own Answer to the Original Complaint, the Defendant admitted that the Plaintiff was a "guarantor" by virtue of her admission in paragraph ten of her Answer [Adv. Doc. No. 9, Ex. No. 2, ¶ 10, p. 2 of 3] — thereby admitting that the Plaintiff is a "guarantor" and, accordingly, barring the Defendant from now arguing that there is a genuine issue of material fact as to whether the Plaintiff is a "guarantor."
While there is no binding precedent addressing an accommodation party as relating to § 523(a)(8)(A)(ii), this Court finds persuasive two cases with legally similar principles to the suit at bar, and adopts their reasoning. First, In re Corbin addressed the issue of whether an obligation held by a non-debtor/co-signer of a student loan is nondischargeable under § 523(a)(8)(A)(i) and (ii). In re Corbin, 506 B.R. at 290. The plaintiff was the vice president of a company where the defendant worked. Id. The plaintiff cosigned the defendant's federally insured loans, while receiving no consideration in return. Id. The defendant defaulted on the loan, and the plaintiff subsequently paid off the loan in full.
Id. at 297-98. Because of the factual and legal similarities to the present suit, this Court finds In re Corbin persuasive, and agrees with its holding that an accommodation party can pursue a suit for debt nondischargeability under § 523(a)(8)(A)(ii).
While the Plaintiff in the suit at bar — unlike the plaintiff in In re Corbin — did not work with the Defendant, the Plaintiff and the Defendant were both members of the same church congregation, and therefore — like the parties in In re Corbin — had known each other for some time. [Adv. Doc. No. 9, ¶ 8, p. 2 of 15]. Just like the plaintiff in In re Corbin, the Plaintiff in the suit at bar had no obligation to sign the loan documents, and she received no benefit
A second case with legal and factual similarities to the suit at bar is In re Rust, 510 B.R. at 562. In that case, the plaintiff signed a credit agreement that allowed the debtor/defendant to acquire funds to be used while attending the University of Southern Indiana. Id. at 565. The plaintiff signed the credit agreement as "Cosigner." Id. Over the next few years, the plaintiff received notifications that the defendant had failed to make timely payments on her loans. Id. The plaintiff made two payments on the loan balance before subsequently paying off the balance in full. Id. The plaintiff filed suit in state court, and recovered a default judgment against the defendant for the amounts paid on the loan. Id. The defendant filed a Chapter 7 petition, and the plaintiff filed a complaint to have the debt declared nondischargeable. Id. The bankruptcy court found the plaintiff to be an accommodation party under state law. Id. at 568-69. Additionally, the court held that by protecting the plaintiff's rights to seek reimbursement, its holding supported the Congressional intent of § 523(a)(8)(A)(ii). Id. at 572. Specifically, many lenders would not provide loans without the backing of an accommodation party who would guarantee the debt. Thus, acting as an accommodation party supports the Congressional intent of allowing educational loans to be available to those who might not be able to get them on their own. Id. Because accommodation parties support the Congressional intent coinciding with the broadening of § 523(a)(8) to include § 523(a)(8)(A)(ii), the court found the debt to be nondischargeable. Id.
Like In re Corbin, In re Rust is factually and legally similar to the suit at bar. As in In re Rust, the Plaintiff in the present suit signed the loan document as a guaranto/cosigner, and repaid a debt owed once the Defendant defaulted. Additionally, the Plaintiff is an accommodation party under Texas law. See Faulkner v. Mikron Indus., Inc. (In re Heritage Org., L.L.C.), 354 B.R. 407, 421 (Bankr. N.D. Tex. 2006) ("Texas courts look to two primary factors in determining whether a party has signed for accommodation: (1) the intent of the
The Defendant, however, argues the suit at bar is more similar to In re Posner, 434 B.R. at 800. The In re Posner court found that a plaintiff who cosigned loan notes was not a lender, but rather was a co-borrower. Id. at 803. Because the plaintiff was a co-borrower, the court found that the plaintiff was not able to "shoe-horn her status as a co-borrower into some other status which would protect Plaintiff's claim against Defendant from discharge." Id. However, In re Posner relied on two cases, both of which were factually different from the case before it, and the case before this Court. Id.
In re Posner relied on two cases, Resurrection Med. Ctr. v. Lakemaker (In re Lakemaker), 241 B.R. 577 (Bankr. N.D. Ill. 1999) and Santa Fe Med. Servs., Inc. v. Segal (In re Segal), 57 F.3d 342 (3d Cir. 1995), both of which involved plaintiffs who, in the course of providing a benefit to the employee, acquired the student debt of the employee. In re Posner, 434 B.R. at 803-04. The courts in these cases found that the plaintiffs were not educational lenders, and thus were not eligible to obtain a judgment that the debts of the students/debtors were nondischargeable under § 523(a)(8). Id. at 804. In re Posner followed a similar rationale, and held that the plaintiff was not a lender, but rather a co-borrower, who had direct obligations to the original lender, and who was not entitled to the protections under § 523(a)(8)(A)(i). Id. In re Posner never analyzed the plaintiff's claim as it relates to § 523(a)(8)(A)(ii), the broader of the two subsections of § 523(a)(8)(A). Instead, it only discusses § 523(a)(8) as a whole, briefly mentioning that the "Plaintiff cannot demonstrate that she is a lender within the meaning of § 523(a)(8)(A)(I) [sic]."
In sum, in the suit at bar, because there is no genuine issue as to any material fact regarding the nature of the Debt incurred, its educational purpose, or the Plaintiff's status as a guarantor/co-signer/accommodation party, this Court concludes that the Plaintiff is entitled to a summary judgment that the Debt is nondischargeable under § 523(a)(8)(A)(ii).
In addition to the recovery of the $12,136.80, plus prejudgment interest, the Plaintiff also asks this Court for the award of reasonable and necessary attorney's fees for the prosecution of this Adversary Proceeding. The American Rule is the bedrock principle of our country's court system, where each litigant pays their own attorney's fees, win or lose, unless a statute or contract provides otherwise. Baker Botts L.L.P. v. ASARCO LLC, ___ U.S. ___, 135 S.Ct. 2158, 2164, 192 L.Ed.2d 208 (2015). The American Rule is to be followed "absent explicit statutory authority" that is "specific and explicit" as to the allowance of attorneys' fees. Id. The Plaintiff cites no explicit statutory authority or any language in the loan document supporting an award of attorney's fees under § 523(a)(8)(ii) in her Original Complaint or Motion for Summary Judgment. Accordingly, the Court denies the Plaintiff's request to require the Defendant to pay her attorney's fees and costs.
Defendant owes the Plaintiff a debt of $12,136.80, plus prejudgment interest from the date the petition was filed (i.e., April 13, 2017) to the date of entry of judgment (i.e., March 23, 2018), based on this Court's determination that the Plaintiff is an accommodation party.
An order consistent with this Memorandum Opinion will be simultaneously entered on the docket.
Signed on this 23rd day of March, 2018.
