Bannister v. Sallie Mae Educ. Tr. (In re Bannister)

In re: Sarah Bannister, Debtor.

Sarah Bannister, Plaintiff, v. Sallie Mae Education Trust, c/o Navient Solutions, LLC, et. al, Defendants.

Case No. 09-16875 (JLG)

Adv. Pro. No. 15-01418 (JLG)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

January 20, 2021

NOT FOR PUBLICATION

Chapter 7

MEMORANDUM DECISION AND ORDER RESOLVING MOTION OF SARAH BANNISTER TO VACATE SETTLEMENT AS VOID UNDER 11 U.S.C. § 524

APPEARANCES:

SMITH LAW GROUP LLP

Attorney for Plaintiff Sarah Bannister

3 Mitchell Place

New York, NY 10017

By: Austin C. Smith, Esq.

MCGUIRE WOODS LLP

Attorney for the Defendant Sallie Mae Education Trust

c/o Navient Solutions, LLC

1251 Avenue of the Americas, 20^th Floor

New York, NY 10020

By: Shawn R. Fox, Esq.

HON. JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE

Introduction

Sarah Bannister (the "Debtor") is a chapter 7 debtor herein. She is indebted to Navient Solutions, Inc. ("Navient") in the sum of approximately $125,000 on account of five Tuition Answer Loans (collectively, the "Navient Loans") to her daughter. That indebtedness (the "Navient Debt") is evidenced by five promissory notes (the "Navient Notes"). The Debtor filed this adversary proceeding in part to obtain a hardship discharge of the Navient Debt under section 523(a)(8) of the Bankruptcy Code (the "Adversary Proceeding"). The Debtor and Navient did not litigate the matter to a conclusion. Instead, they settled the litigation by agreeing in substance that the Navient Loans are nondischargeable education loans under section 523(a)(8) of the Bankruptcy Code, payable in a reduced amount over an extended period of time, at a fixed rate of interest (the "Stipulation for Settlement"). On May 31, 2017, the Court approved that settlement. The ma)tter before the Court is the Debtor's motion to vacate the Stipulation for Settlement as void under section 524 of the Bankruptcy Code (the "Motion").¹ Navient objects to the Motion (the "Objection").² For the reasons stated herein, the Court sustains the Objection and denies the Motion.

Jurisdiction

This Court has jurisdiction over the Motion pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska, C.J.). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

Facts³

On November 18, 2009, the Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code (the "Petition") herein.⁴ The Schedules annexed to the Petition did not include any student loan obligations. On May 24, 2010, the Debtor received her discharge in bankruptcy.⁵ On May 10, 2012, the Debtor filed a motion to reopen her chapter 7 case in order to include the Navient Debt within the scope of her chapter 7 discharge due to hardship.⁶ On May 22, 2012, the Court granted Debtor's motion and reopened the case.⁷ On December 12, 2015, the Debtor filed a Complaint commencing this Adversary Proceeding.⁸ On December 17, 2015, the Debtor filed her Amended Complaint.⁹

Except in cases of undue hardship, a bankruptcy discharge does not discharge a debtor from any enumerated education-related debt in section 523(a)(8) of the Bankruptcy Code. In support of the Amended Complaint, the Debtor asserts that the "adversary proceeding is broughtunder 11 U.S.C. §523(a)(8) and Fed. R. Bankr. P. 7001," and that she is seeking "a determination that [her] student loan obligations should be subject to discharge in this bankruptcy case on the basis of undue hardship." Amended Complaint ¶ 2. In particular, she alleges that the (i) Navient Loans are "student loan[s] within the purview of 11 U.S.C. §523(a)(8)[,]" and "[n]ot excepting the [Navient Loans] from discharge would result in an undue hardship for Plaintiff Sarah Bannister." Id. ¶¶ 28, 29. In its answer to the Amended Complaint (the "Answer")¹⁰, Navient admitted that the Debtor is indebted to Navient on account of the Navient Loans (Answer ¶¶ 8, 11) and that the loans are within the purview of section 523(a)(8) of the Bankruptcy Code. Id. ¶ 28. However, Navient denied any assertion that the Debtor suffers undue hardship, "because Navient is without information or knowledge sufficient to form a belief as to the truth of this averment." Id. ¶ 2; see also id. ¶ 29.

On May 3, 2017, Navient noticed the Stipulation for Settlement for presentment.¹¹ Without limitation, in that stipulation, the Debtor and Navient agreed that the Debtor is indebted to Navient in the aggregate amount of $123,867.39 (the "Outstanding Balance") on account of the Navient Loans, that the indebtedness is evidenced by the Navient Notes, and that the "Outstanding Balance is currently due and owing on the [Navient] Loans evidenced by the [Navient] Notes, and the [Navient] Loans evidenced by the [Navient] Notes are nondischargeable educational loans, pursuant to 11 U.S.C. § 523(a)(8) . . . " Stipulation for Settlement at 2. They also agreed to dismiss Navient as a defendant in the Adversary Proceeding subject to the terms of the settlement, upon Court approval of the settlement. The terms of the Stipulation for Settlement include:

For so long as Plaintiff does not default under this Stipulation, the balance shall be reduced to $90,000.00 ("Reduced Balance"), and the variable interest rate shall be reduced to a fixed rate of 1% ("Reduced Interest"), and Plaintiff shall repay the Reduced Balance at the Reduced Interest rate as follows: $289.48 per month for a period of three hundred sixty (360) consecutive months.

The following shall be Events of Default hereunder: (a) Plaintiff shall fail to make any payment due hereunder within thirty (30) days of the due date, without securing Navient's agreement to a forbearance of such payment(s); or (b) Plaintiff commences any further legal proceedings against Navient, its successors or assigns.

Upon the occurrence of an Event of Default under this Stipulation, any forgiveness of the principal and interest is revoked, and the Plaintiff will be liable for the full amount of the Outstanding Balance plus interest pursuant to the applicable terms of the Promissory Notes (less any payments made hereunder which, following default shall be applied first to interest that would have accrued had this Stipulation not been in effect, and then to principal).

Stipulation for Settlement ¶¶ 1, 3, 4. On May 31, 2017, the Court approved the Stipulation for Settlement and dismissed Navient from the Amended Complaint.¹²

Motion

The Debtor contends that the Navient Loans are not qualified education loans under section 523(a)(8) of the Bankruptcy Code because, among other things, the Debtor did not incur them to pay qualified higher education expenses, and they exceeded the student's cost of attendance. See Motion at 1, 4-12. She asserts that the Stipulation for Settlement constitutes an invalid reaffirmation agreement and is void ab initio because all of the Navient Loans or some of them had been discharged in the Debtor's chapter 7 case and because the stipulation does not satisfy the requirements of section 524(c) of the Bankruptcy Code. Id. at 1-2. The Debtor argues that, as she prepares to file a petition under chapter 13 of the Bankruptcy Code, Navient shouldnot be permitted to recover through her anticipated chapter 13 plan indebtedness that was previously discharged by the Court. Id. at 1.

In opposing the Motion, Navient contends that section 524(c) is not applicable to this Court ordered settlement of the Adversary Proceeding embodied in the Stipulation for Settlement, and that the stipulation controls the dischargeability of the Navient Loans. It asserts that is so because the Stipulation for Settlement operates as a waiver of dischargeability, as it specifically identified the Navient Loans as nondischargeable education loans under section 523(a)(8). Objection at 2-3. It also asserts that as section 524(c) is not applicable to the stipulation, the Debtor's only avenue for relief from the Stipulation for Settlement is through Rule 60(b) of the Federal Rules of Bankruptcy Procedure ("Rule 60(b)").¹³ Navient maintains that the Debtor cannot demonstrate grounds for relief from the Stipulation for Settlement under Rule 60(b). Id. at 4-7.

In her Reply, the Debtor argues that section 524 is not applicable herein because in its Objection, Navient conceded that the Navient Debt has been discharged. Reply at 2-3. She also contends that the Stipulation for Settlement is a "consent decree," and not a "judgment," and that the "exceptional circumstances" standard under Rule 60(b) is not relevant to the issue of the enforcement of the Stipulation for Settlement. Id. at 3-5. Below, the Court considers these matters and the Debtor's contentions regarding the application of section 524 to the Stipulation for Settlement.

Discussion

In the Motion, the Debtor argues, at length, why, in her view, the Navient Loans are dischargeable under section 523(a)(8) of the Bankruptcy Code. See Motion at 2-13.¹⁴ The Debtor contends that because Navient makes no attempt in its Objection to rebut any of those arguments, the Court should conclude that Navient has conceded that the Navient Debts are dischargeable and were indeed discharged in her chapter 7 case. Reply at 2-3. In doing so, the Debtor relies on cases that support the proposition that in appropriate circumstances, a court may infer from a party's conduct in the course of litigation that it has abandoned claims or defenses that it could assert in that litigation.¹⁵ That principle is not applicable herein because the question of whether the Navient Loans are dischargeable debts under the Bankruptcy Code is not at issue in the Motion. At issue is whether the Court should void the Stipulation for Settlement. Navient was not bound to rebut any of the Debtor's contentions regarding the dischargeability of the Navient Loans. Moreover, and in any event, in its Objection and Sur-Reply, Navient maintains that the Navient Debt is not...