Essangui v. SLF V-2015 Trust (In re Essangui)

573 B.R. 614

IN RE: Yolande E. ESSANGUI, Debtor.

Yolande E. Essangui, Plaintiff,

v.SLF V–2015 Trust, et al., Defendants.

Case No. 16–12984–MMH

Adv. No. 16–00201–MMH

United States Bankruptcy Court, D. Maryland, at Baltimore.

Signed October 2, 2017

Ronald J. Drescher, Drescher & Associates, Baltimore, MD, for Plaintiff.

Firstmark Services, pro se.

Golden Tree Asset Management, LLP, pro se.

Citibank, N.A., pro se.

DeVry Medical International, Inc., pro se.

University Accounting Service, LLC, pro se.

Charles Alan Malloy, Arnold & Porter LLP, Washington, DC, Michael J. Klima, Jr., Peroutka, Miller, Klima & Peters, P.A., Pasadena, MD, for Defendants.

MEMORANDUM OPINION

MICHELLE M. HARNER, U.S. BANKRUPTCY JUDGE

In general, a debtor cannot obtain a discharge of student loan obligations in a bankruptcy case. That general principle is, however, subject to certain qualifications. The most frequently discussed is a debtor's ability to seek a hardship discharge of the obligations under section 523(a)(8) of the U.S. Bankruptcy Code. 11 U.S.C. §§ 101, et seq. (the "Code"). Nevertheless, even before reaching the question of "hardship," the Court must determine whether the student loan obligations at issue fall within the statutory categories protected by Congress under section 523(a)(8)(A) or (B) of the Code. This latter question is the subject of the parties' respective motions for summary judgment. It basically requires the Court to consider whether the category of "nondischargeable student loans" includes any loan made to a student for educational purposes.

Section 523(a)(8) includes three subsections addressing educational debt that is excepted from discharge. The parties do not argue that either section 523(a)(8)(A)(i) or 523(a)(8)(B) is applicable to this case. Rather, the defendant asserts that its debt is covered by section 523(a)(8)(A)(ii), as "an obligation to repay funds received as an educational benefit, scholarship, or stipend." 11 U.S.C. § 523(a)(8)(A)(ii). For the reasons set forth below, the Court concludes that the loan is not an educational benefit under section 523(a)(8)(A)(ii) and, therefore, is dischargeable in the Debtor's chapter 7 case. To hold otherwise would ignore the plain language of the statute and render subsections (A)(i) and (B) largely meaningless. Indeed, if subsection (A)(ii) covers any loan for educational purposes, much of the language in the remainder of the section is superfluous. The Court accordingly will enter an Order granting the Debtor's (Plaintiff's) Motion for Summary Judgment and denying the Defendant's Motion for Summary Judgment.

I. Procedural Background

Yolande E. Essangui (the "Debtor") filed this chapter 7 case on March 8, 2016. On April 21, 2017, she initiated this adversary proceeding to determine the dischargeability of a loan used, in part, for educational purposes. The Debtor's Complaint names numerous entities as defendants because the subject loan has changed hands several times since the execution of the original documents. GS2 Grantor Trust 2016–A (the "Defendant"), assignee of SLF V–2015 Trust, was the only defendant to file an Answer to the Debtor's Complaint.

On June 29, 2017, after discovery was completed, the Defendant filed its Motion for Summary Judgment at ECF 43, and the Debtor filed a response thereto at ECF 46. On June 30, 2017, the Debtor filed her Motion for Summary Judgment at ECF 44, and the Defendant filed a response thereto at ECF 45. The Defendant's response did not contest the Debtor's assertion that the loan is not a "qualified education loan" under section 523(a)(8)(B).¹ Accordingly, the only disputed issue before the Court is whether the Defendant's debt is excepted from discharge under section 523(a)(8)(A)(ii). Counsel for the parties confirmed the limited scope of the dispute at oral argument on the motions for summary judgment, held on September 6, 2017.

II. Jurisdiction and Legal Standards

The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334, 28 U.S.C. § 157(a), and Local Rule 402 of the United States District Court for the District of Maryland. This proceeding is a "core proceeding" under 28 U.S.C. § 157(b)(2).

Rule 56 of the Federal Rules of Civil Procedure, made applicable to this proceeding by Bankruptcy Rule 7056, governs the parties' respective motions for summary judgment. A moving party may be entitled to judgment as a matter of law under Civil Rule 56 in the absence of any genuine issue of material fact. Fed. R. Civ. P. 56. See Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir. 2008) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). See also Guessous v. Fairview Prop. Inv., LLC , 828 F.3d 208, 216 (4th Cir. 2016) (discussing standards for summary judgment). "When a party has submitted sufficient evidence to support its request for summary judgment, the burden shifts to the nonmoving party to show that there are genuine issues of material fact." Emmett , 532 F.3d at 297. Here, the parties agree that there are no disputed issues of material fact and that the resolution of this proceeding turns on the application of section 523(a)(8)(A)(ii) to those facts.

III. Material Undisputed Facts

In March 2008, the Debtor enrolled in a Medical Education Readiness Program ("MERP"). MERP is a preparatory course of instruction that, upon completion, allows students to enroll at Ross University School of Medicine. MERP is not qualified as a Title IV institution under the Higher Education Act of 1965 (as amended) and federal aid, grants, or loans are not available to students attending MERP. The Debtor completed MERP, and she enrolled at Ross University for the fall 2008 semester. The Debtor did not complete her coursework or graduate from Ross University, as she was dismissed from Ross University in December 2008.

The Debtor financed her participation in MERP.² Specifically, she applied for and received a CitiAssist Health Professions Loans Online Loan from Citibank N.A. (the "Loan"). Citibank disbursed approximately $23,670.00 to the Debtor under the Loan on March 20, 2008. The Debtor used the proceeds of the Loan to pay for MERP fees and her books for the program, as well as rent and living expenses incurred while attending the program. Citibank sold its interest in the Loan to SLF V–2015 Trust, which then assigned its interest in the Loan to GS2 Depositor 2016–A SPV, LLC. Through a Trust Agreement, GS2 Depositor 2016–A SPV, LLC, deposited the Loan with the Defendant, which is the current holder of the Loan. The Defendant asserts that the current balance is approximately $37,175.25, plus interest.

The Defendant argues that the Loan is nondischargeable in the Debtor's chapter 7 case under section 523(a)(8)(A)(ii) because the Loan qualifies as "an obligation to repay funds received as an educational benefit" and the Debtor is not seeking a hardship discharge. The Debtor contests that position and asserts that the Loan is not protected against discharge under the statute. The Court has reviewed the parties' respective pleadings, the positions of their counsel at oral argument, and the relevant statutory and case law addressing the disputed legal issue. The Court's analysis and conclusions of law are set forth below.

IV. Legal Analysis

Prior to 1976, the list of nondischargeable obligations under the Bankruptcy Act of 1898 included only a few major categories. Bankruptcy Act of 1898, 11 U.S.C. § 35 (1976 ed.) (repealed 1978). Notably absent from this list was a category for student loan obligations. Thus, at that time, student loan obligations were dischargeable in bankruptcy. That no longer is the case. In fact, the pendulum appears to have swung to the opposite extreme, with many courts and some commentators suggesting that any money received by, or on behalf of, a debtor for educational purposes is nondischargeable under section 523(a)(8) of the Code. See, e.g. , Rumer v. Am. Educ. Servs. (In re Rumer) , 469 B.R. 553, 562 (Bankr. M.D. Pa. 2012) (noting that "[m]ost courts ... have analyzed whether a loan is a qualified educational expense by focusing on the stated purpose for the loan when it was obtained, rather than how the proceeds were actually used ..."). A brief exploration of the historical treatment of student loan obligations in bankruptcy is helpful to understand and accurately assess the current state of the law and the parties' respective positions in this adversary proceeding.

A. History of Section 523(a)(8)

Congress first imposed limitations on the dischargeability of student loans in 1976, by enacting section 439A of the Higher Education Act of 1965. See Education Amendments of 1976, Pub. L. No. 94–482, § 127(a), 90 Stat. 2081, 2099 (repealed 1978). Section 439A provided that "[a] debt which is a loan insured or guaranteed under the authority of this part may be released by a discharge in bankruptcy under the Bankruptcy Act only if such" loan first became due more than five years before the subject bankruptcy case or the repayment of the loan imposed an undue hardship on the debtor. Id. The legislative history of section 439A suggests that Congress was acting specifically to protect the solvency of the federal student loan program, as well to mitigate perceived abuses in the system. See Johnson v. Mo. Baptist Coll. (In re Johnson) , 218 B.R. 449, 451–453 (8th Cir. BAP 1998) (explaining the genesis of student loan nondischargeability legislation and the concerns articulated in the relevant legislative history).

Commentators debate the necessity of such action. See, e.g. , John A.E. Pottow, The Nondischargeability of Student Loans in Personal Bankruptcy Proceedings: The Search for a Theory , 44 CANADIAN BUS. L.J. 245, 248–249 (2007) (summarizing the history of student loan nondischargeability and the related empirical evidence).³ Regardless, the language of section 439A targeted the federal student loan program and curtailed a student's ability to discharge those obligations in...