Crocker v. Navient Solutions, LLC (In re Crocker)

585 B.R. 830

IN RE: Evan Brian CROCKER; aka Crocker Legal, PLLC, Debtor(s).

Evan Brian Crocker, Michael Shabazi, Wendy L. Landes and Regina Seitz–Moulds, on behalf of themselves and all those similarly situated, Plaintiffs,

v.Navient Solutions, LLC and Navient Credit Finance Corporation, Defendants.

CASE NO: 15–35886

ADVERSARY NO. 16–3175

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed March 26, 2018

Jason W. Burge, Fishman Haygood LLP, Lynn E. Swanson, Jones, Swanson, Huddell and Garrison LLC, New Orleans, LA, George Fortune Carpinello, Adam Reese Shaw, Robert Charles Tietjen, Boies Schiller et al., Albany, NY, Adam Corral, Corral Tran Singh, LLP, Marc Douglas Myers, Ross, Banks, May, Cron & Cavin P.C., Houston, TX, for Plaintiffs.

Thomas M. Farrell, McGuireWoods LLP, Houston, TX, Stephen Wayne Sather, Barron Newburger, P.C., Austin, TX, Karen Elizabeth Sieg, McGuireWoods LLP, Richmond, VA, for Defendants.

ORDER

(Docket No. 162)

DAVID R. JONES, UNITED STATES BANKRUPTCY JUDGE

In this putative class action, Navient Solutions, LLC ("NSL") and Navient Credit Finance Corporation ("NCFC" and collectively with NSL, "Navient") seek a summary judgment (i) dismissing all claims asserted by Michael Shahbazi on the ground of a lack of jurisdiction; and (ii) against Michael Shahbazi and Evan Brian Crocker, class representatives¹ , under 11 U.S.C. § 523(a)(8)(A)(ii). For the reasons set forth below, the Court denies the motion.

The Putative Class Representatives

Evan Brian Crocker f/k/a Evan Brian Haas filed a voluntary chapter 7 case in the Southern District of Texas on November 3, 2015 [Docket No. 1, Case No. 15–35886]. In his Schedule F, Mr. Crocker listed four debts in favor of Navient totaling in excess of $117,000 [Docket No. 1, Case No. 15–35886]. The debt at issue in this adversary proceeding arises out of a bar exam study loan from Sallie Mae Bank. The loan was subsequently transferred to NCFC. Mr. Crocker received his discharge on February 9, 2016 [Docket No. 18, Case No. 15–35886].

Prior to filing bankruptcy, Michael Shabazi obtained a Sallie Mae career training loan in 2002 for tuition expenses at an unaccredited technical school. Mr. Shabazi filed a voluntary chapter 7 case in the Eastern District of Virginia on September 20, 2011. Mr. Shabazi received his discharge on December 27, 2011.

Procedural Background

In response to collection efforts by Navient, Mr. Crocker filed his original Complaint for Determination of Discharge, Declaratory Judgment, Contempt, and Application for Temporary and Preliminary Injunctive Relief on August 5, 2016 against SLM Corporation d/b/a Sallie Mae Education Trust and Navient Corporation based on alleged wrongful collection activity in violation of the statutory discharge injunction under 11 U.S.C. § 524 [Docket No. 1].

After reviewing the complaint and the request for emergency injunctive relief, the Court issued a temporary restraining order on August 5, 2016 prohibiting any collection activities against Mr. Crocker or the issuance of any negative information regarding Mr. Crocker to any credit bureau [Docket No. 4]. On August 18, 2016, a preliminary injunction was entered by agreement against Navient Solutions Inc. ("NSI") [Docket No. 13].

A first amended complaint was filed on August 26, 2016 by Mr. Crocker and Michael Shahbazi on behalf of themselves and all others similarly situated [Docket No. 15]. In the first amended complaint, the plaintiffs allege that the defendants have been continuously engaged in a decade-long scheme to subvert the Bankruptcy Code by intentionally disregarding the injunctive provisions of 11 U.S.C. § 524(a) [Docket No. 15]. The first amended complaint further seeks the certification of a nationwide class comprised of debtors who were alleged victims of the scheme [Docket No. 15].

On October 31, 2016, NSI filed its motion to dismiss [Docket No. 37]. In the motion, NSI requested that Mr. Crocker and Mr. Shahbazi be compelled to arbitrate their disputes as individuals and that the first amended complaint be dismissed [Docket No. 37]. After several agreed extensions, the Court conducted a hearing on the motion on January 9, 2017. By order entered January 10, 2017, the Court denied the motion.

By agreed order entered January 25, 2017, the Court authorized the filing of a second amended complaint [Docket No. 94]. The second amended complaint was filed on January 26, 2017 [Docket No. 95]. The second amended complaint deleted SLM Corporation as a defendant and added NCFC [Docket No. 95].

On November 10, 2017, Navient filed its motion for summary judgment seeking the dismissal of this adversary on two legal theories [Docket Nos. 162, 163]. First, Navient asserts that because Mr. Shahbazi received his discharge in the Eastern District of Virginia, a bankruptcy court in the Southern District of Texas has no jurisdiction to enforce the injunctive provisions of 11 U.S.C. § 524 [Docket Nos. 162, 163]. Second, Navient asserts that the loans provided to Mr. Crocker and Mr. Shahbazi are excepted from discharge under 11 U.S.C. § 523(a)(8)(A)(ii) [Docket Nos. 162, 163]. The plaintiffs filed their opposition on December 1, 2017 [Docket No. 173]. Navient filed its reply on December 22, 2017 [Docket No. 184].

The Court scheduled a hearing for January 17, 2018 to consider the summary judgment motion. By agreement of the parties, the hearing was adjourned to March 5, 2018 [Docket No. 185].

On January 23, 2018, the plaintiffs filed an unopposed motion seeking leave to file a third amended complaint [Docket No. 186]. The Court granted the motion by order entered February 28, 2018 [Docket No. 190]. The third amended complaint added two additional putative class representatives and modified the definition of the proposed class [Docket No. 190].

On March 5, 2018, the Court conducted a hearing on Navient's motion for summary judgment. At the conclusion of the hearing, the Court took the matter under advisement.

Summary Judgment Standard

Summary judgment should be granted "if the pleadings, the discovery, and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c) ; Gray Law LLP v. Transcon. Ins. Co. , 560 F.3d 361, 365 (5th Cir. 2009). Federal Rule of Bankruptcy Procedure 7056 incorporates Rule 56 in adversary proceedings.

A party seeking summary judgment bears the burden to demonstrate the absence of (i) evidence to support the non-moving party's claims; or (ii) a genuine issue of material fact. Sossamon v. Lone Star State of Tex. , 560 F.3d 316, 326 (5th Cir. 2009) ; Norwegian Bulk Transp. A/S v. Int'l Marine Terminals P'ship , 520 F.3d 409, 412 (5th Cir. 2008) ; Warfield v. Byron , 436 F.3d 551, 557 (5th Cir. 2006). A genuine issue of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. Brumfield v. Hollins , 551 F.3d 322, 326 (5th Cir. 2008). Allegations in a plaintiff's complaint are not evidence. Wallace v. Tex. Tech Univ. , 80 F.3d 1042, 1047 (5th Cir.1996) ("[P]leadings are not summary judgment evidence."); Johnston v. City of Houston, Tex., 14 F.3d 1056, 1060 (5th Cir.1994) (stating that, for the party opposing the motion for summary judgment, "only evidence—not argument, not facts in the complaint—will satisfy the burden,"). The court reviews the facts and evidence in the light most favorable to the non-moving party. Campo v. Allstate Ins. Co. , 562 F.3d 751, 754 (5th Cir. 2009). In this proceeding, the parties do not dispute the relevant facts.

Issues Presented

Navient's motion present two legal issues. First, the Court must determine whether the enforcement of the statutory injunction under 11 U.S.C. § 524 is limited to the bankruptcy court that granted the debtor's discharge. Second, the Court must interpret the language of 11 U.S.C. § 523(a)(8)(A)(ii). Specifically, the Court must determine whether a third party loan constitutes an "obligation to repay funds received as an education benefit, scholarship, or stipend..."

Jurisdiction

Navient first asserts that this Court has no subject matter jurisdiction to enforce a discharge order entered by another bankruptcy court citing a plethora of cases which stand for the unchallenged proposition that only the court that issues an injunction can enforce that injunction through contempt proceedings. See Waffenschmidt v. MacKay , 763 F.2d 711 (5th Cir. 1985). The Court concurs. From a practical perspective, such proceedings necessarily involve a particular judge's assessment of a unique set of circumstances in fashioning specific equitable relief. See In re Davis , No. 06-7016, 2006 WL 2827270 (Bankr. S.D. Tex. Sept. 27, 2006) (Isgur, J.). Navient misses the point, however, with respect to the instance case.

First, a discharge order is not itself a court-ordered injunction. None of the requisites of Rule 65 are present. Indeed, Official Form B318 contains but a single sentence—"A discharge under 11 U.S.C. § 727 is granted to ____________." The effect, however, of a court granting a discharge is established by statute as set forth in 11 U.S.C. 524. Section 524(a) provides that "[a] discharge in a case under this title ... operates as an injunction against the commencement or continuation of an action, the employment of process, or an act to collect, recover or offset any such debt as a personal liability of the debtor ... and operates as an injunction against the commencement or continuation of an action, the employment of process, or an act to collect, recover from or offset against property of the debtor ...." 11 U.S.C. § 524(a)(2), (3). There is no subjective thought process that requires deference nor is there any risk of misinterpretation of a particular judge's reasoning.

Second, the remedy sought in this class action goes to the very core of the bankruptcy process itself. The Court is not...