Kurz v. Colo. Dep't of Pub. Health & Env't (In re Kurz)

660 F.Supp.3d 1046

IN RE: Nicholas Brian KURZ, Debtor.

Nicholas Brian Kurz, Plaintiff, v. Colorado Department of Public Health and Environment, Defendant,Colorado Department of Public Health and Environment, Appellant, v. Nicholas Brian Kurz, Appellee.

Civil Action No. 22-cv-00487-LTB

Bankruptcy Case No. 15-22984-MER

Adversary Case No. 20-1342-MER

United States District Court, D. Colorado

Signed March 9, 2023

Guy Brian Humphries, Guy Humphries, Attorney at Law, Littleton, CO, for Nicholas Brian Kurz.

Deanna Lee Westfall, Deanna Lee Westfall, Attorney at Law, Lafayette, CO, Morgan Henry Stanley, Colorado Department of Law, Denver, CO, for Colorado Department of Public Health and Environment.

MEMORANDUM OPINION AND ORDER

Babcock, JUDGE

Appellant Colorado Department of Public Health and Environment ("CDPHE" or the "Department"), appeals the United States Bankruptcy Court for the District of Colorado (the "Bankruptcy Court") Order and Judgment dated February 10, 2022, granting Appellee Nicholas Brian Kurz's ("Kurz") motion for summary judgment and denying CDPHE's motion for summary judgment in the above referenced adversary proceeding. Appellate Record, Doc #5, at 220-231 (the "Order"). Oral argument would not materially assist in the determination of this appeal. After full consideration of the record and the parties' briefs, I AFFIRM the Bankruptcy Court's Order.

I. JURISDICTION

Under 28 U.S.C. § 158(a)(1), this Court has jurisdiction to hear appeals from "final judgments, orders and decrees" of the Bankruptcy Court. There is no dispute that the Order fully adjudicated the parties' dispute and is final and that this Court has jurisdiction over the appeal.

II. BACKGROUND

The underlying facts as set forth in the parties' briefs submitted in this appeal and in the parties' Stipulation of Facts filed with the Bankruptcy Court in connection with their motions for summary judgment in the adversary proceeding ("Stip.") (R. at 57-60), are undisputed, unless otherwise noted.

Kurz attended the Des Moines University Osteopathic Medical Center from 2000-2004. Stip. ¶ 13. He is a Doctor of Osteopathic Medicine licensed in the State of Colorado and has been a practicing physician since 2004. Id. ¶ 12.

Pursuant to C.R.S. § 25-1.5-501(1), the State of Colorado established the Colorado Health Service Corps (the "Program") to implement incentives to encourage health care professionals to practice in medically underserved areas of the State. Stip. ¶ 15. Pursuant to C.R.S. § 25-1.5-501(2), the incentives under the Program permit health care professionals with existing educational loans to exchange a work obligation for repayment of existing medical education student loans. Stip. ¶ 16. The Program has a dual purpose: (1) encouraging health care providers to work in underserved areas and (2) using "state money, federal money, when permissible, and private sources to help repay the outstanding education loans that many health-care professionals . . . hold." C.R.S. § 25-1.5-501(1)-(2).

On August 19, 2010, six years after Kurz completed his medical education and six years after he became a practicing physician, the Colorado State Controller approved the Loan Repayment Contract (the "Contract") executed by Kurz and the Department. R. at 61-83; Stip. ¶¶ 12, 13, 17. (The Contract itself was entered into on July 9, 2010, but did not become effective until August 19, 2010, the date it was approved by the State Controller. Stip. ¶¶ 17, 18.) Pursuant to the terms of the Contract, the Department paid $105,000.00 of Kurz's medical student loans with funding from a combination of federal and state funds. Stip. ¶ 19; R. at 134, ¶¶ 5, 13. The $105,000 of Kurz's loans paid pursuant to the Contract included a government educational loan in the amount of $91,490 and a private educational loan in the amount of $13,510. R. at 134-135, ¶¶ 14-22.

Section 5 of the Contract discusses the repayment of Kurz's educational loans. Section 5(C) states that the loans to be paid are "qualified educational loan(s)" and that the funds disbursed by the Department are "applied solely to repayment of qualifying educational loans." R. at 64. Section 12 of the Contract imposes financial penalties in the event Kurz defaults. R. at 65-66. Section 12(A)(3) provides that if Kurz "fails to complete the full Period of Service or separates from the [Upper San Juan Health Service District (a subdivision of the State of Colorado), doing business as Pagosa Mountain Hospital] prior to completion of the Period of Service, [Kurz] is required to make full and immediate repayment to [the Department], pursuant to federal regulations governing the Program." R. at 65-66.

On October 16, 2013, the Department commenced litigation against Kurz in the District Court for Archuleta County, Colorado, Case No. 2013CV30078 ("Archuleta District Court case"), asserting that Kurz had failed to complete the full period of service required under the Contract, resulting in a breach that entitled the Department to damages. Open. Br. Ex. 1 [Doc #9-1]; R. at 97. On November 22, 2015, prior to a ruling in the Archuleta District Court case, Kurz filed a Chapter 7 petition for relief, Case No. 15-22984-MER. Stip. ¶ 14; R. at 57. In his Statement of Financial Affairs, Kurz described the Archuleta District Court case as an action "for breach of student loan repayment contract." Stip. ¶ 10. In his bankruptcy Schedule F, Kurz listed CDPHE's claim against Kurz (sometimes referred to by CDPHE and herein as the "Debt") as "dispute of educational loan repayment contract." Id. ¶ 9. A Discharge Order was entered in Kurz's bankruptcy case on February 22, 2016. Id. ¶ 8.

Post-discharge, on February 19, 2018, the Archuleta District Court (the "District Court") found that Kurz had breached the Contract, made factual findings regarding the breach and damages, and granted summary judgment to the Department. R. at 99. Kurz appealed the judgment to the Colorado Court of Appeals, Case No. 18CA0643. See R. at 96-104. On April 4, 2019, the Colorado Court of Appeals made the following findings in support of its decision that Kurz had breached the Contract and that the Department was entitled to damages:

a. "It is undisputed that (1) [the Department] paid $105,000 as agreed; and (2) although Kurz's contractual commitment ended in mid-August 2013, he worked at the site only through June 27, 2013, a difference of approximately seven weeks." R. at 97. (Although the Bankruptcy Court's Order correctly states that Kurz's period of service under the Contract began on August 19, 2010, the Order also describes his work period as "July 1, 2010, through June 27, 2013," leaving the incorrect impression that he worked all but four days of his required service period. Order at 2.)

b. "The parties eventually moved to stay the proceedings anticipating the fulfillment of a settlement agreement. The settlement required Kurz to provide seven weeks of service at a qualifying site and to reimburse [the Department] $3400. He was to begin work within ninety days. Kurz did not start work. Shortly after ninety days had passed, Kurz filed for bankruptcy, and his filing automatically stayed the proceedings again." R. at 98.

c. With regard to damages, the Department presented evidence to the District Court that Kurz did not provide "full-time clinical practice" throughout his time at the site (in addition to leaving the site approximately seven weeks early). R. at 97-98.

Based on the foregoing, the Court of Appeals affirmed the District Court's finding that Kurz breached the Contract by failing to provide seven weeks of required service and remanded the case to the District Court to calculate damages based upon Kurz's failure to complete seven weeks of service and Kurz's failure to provide full-time service during his period of service. R. at 103-104.

On December 19, 2020, prior to the hearing on remand, Kurz filed the underlying adversary proceeding, seeking a determination that the Debt was discharged in his 2015 bankruptcy case pursuant to Section 523(a)(8) of the Bankruptcy Code. R. at 4-30. The District Court case is held in abeyance pending the outcome of this matter. Open. Br., Ex. 1 [Doc #9-1]; Ex. 2 [Doc #9-2]. On February 10, 2022, the Bankruptcy Court entered summary judgment in favor of Kurz and against the Department, holding that the Debt was dischargeable. In its Order, the Bankruptcy Court held that "in construing whether the Contract falls within the exception to discharge under § 523(a)(8) narrowly and in favor of Kurz, as this Court is required to do, the Court finds it is neither a 'qualified education loan' in the form of a refinance, or an 'obligation to repay funds received as an educational benefit.' " Order at 10.

III. STANDARD OF REVIEW

In reviewing a bankruptcy court's decision, the district court functions as an appellate court and is authorized to affirm, reverse, modify or remand the bankruptcy court's rulings. 28 U.S.C. § 158(a). A bankruptcy court's construction of the Bankruptcy Code is reviewed de novo and because the bankruptcy court granted summary judgment to Kurz, we also review the record de novo. See In re C.W. Min. Co., 798 F.3d 983, 986 & n. 2 (10th Cir. 2015).

IV. ANALYSIS

One of the principal purposes of the Bankruptcy Code is to grant a "fresh start" to the "honest but unfortunate debtor." In re Kinney, 5 F.4th 1136, 1145 (10th Cir. 2021) (quoting Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007)). However, by providing limited exceptions to discharge, the Bankruptcy Code recognizes that certain interests outweigh the "fresh start" for the debtor. Grogan v. Garner, 498 U.S. 279, 287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). To that end, the Bankruptcy Code excepts from discharge certain categories of debt, including certain student loans. See 11 U.S.C. § 523(a)(8); In re Segal, 57 F.3d 342, 348 (3d Cir. 1995) (explaining, based on the limited legislative history of section 523(a)(8),...