Nemeth v. Citizens Fin. Grp., Inc. (In re Nemeth)

In the Matter of: RYAN STEVEN NEMETH Debtor

RYAN STEVEN NEMETH Plaintiff v. CITIZENS FINANCIAL GROUP, INC. Defendant

Case No. 17-30116 HCD

Adv. Proc. No. 17-3017

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

September 7, 2017

Chapter 7

Appearances:

Eric C. Redman, Esq., 151 North Delaware Street, Suite 1106, Indianapolis, Indiana 46204 for the plaintiff.

Citizens Financial Group, Inc., One Citizens Plaza, Providence, Rhode Island, pro se defendant.

MEMORANDUM OF DECISION

At South Bend, Indiana, September 7, 2017.

Now before the court is the Motion for Default Judgment filed by the plaintiff in this adversary proceeding, Ryan Steven Nemeth (Nemeth). Nemeth, in his amended complaint, asks the court to "declare the subject student loans dischargeable under 11 U.S.C. § 523(a)(8)." Nemeth has a student loan debt owed to the defendant, Citizens Financial Group, Inc. (Citizens).¹ For the reasons discussed in this memorandum of decision, the court will grant the motion.

Jurisdiction

This court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157, and 1334, and Northern District of Indiana Local Rule 200-1. The court has determined that this matter is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(I). The plaintiff has expressly acknowledged the authority of this court to hear and decide this adversary proceeding.

Relevant Facts

The court summarizes the pertinent facts as follow. Nemeth is single with no dependents. He filed a voluntary petition for relief under chapter 7 in January 2017. Although listed as a creditor on Schedule E/F, Citizens is not among the creditors filing claims in Nemeth's bankruptcy case. The court issued a discharge to Nemeth, and closed his bankruptcy case.

In his amended complaint, filed on April 7, 2017², Nemeth states his monthly household income is $2,430.00, and his basic monthly living expenses are $2,420.00. He alleges that income and expected future income "will be barely adequate for him to afford the basic necessities of life." Nemeth states that he has "made a good faitheffort to repay" the student loans and that Citizens has refused to offer any reasonable payment options.

During this adversary proceeding, the clerk has issued a summons and twice issued alias summonses.³ Less than 60 days elapsed between the filing of the complaint and service of the second alias summons by Nemeth. Court records show Nemeth served the initial summons and complaint by certified mail addressed to "Citizens Financial Group" at an address in Providence, Rhode Island. The record does show that Nemeth made timely service in each instance. Using certified mail, Nemeth addressed the first alias summons to "Citizens Financial Group, Inc., c/o Highest Officer Found," using the same Rhode Island address as the initial summons. He addressed the second alias summons, again using certified mail, to "Citizens Bank" at mailing address in Highlands Ranch, Colorado. The record does not provide a reason for this multiple service.

Discussion

Granting a default judgment falls within the court's discretion. See Domanus v. Lewicki, 742 F.3d 290, 301 (7^th Cir. 2014). As enunciated by the Seventh Circuit, "exceptions to discharge are to be [construed] strictly against a creditor and liberally in favor of the debtor." In re Trentadue, 837 F.3d 743, 749 (7^th Cir. 2016). Federal Rule of Bankruptcy Procedure 7055 addresses defaults and states thatFederal Rule of Civil Procedure 55 applies in adversary proceedings. Entry of a default judgment "is appropriate where defendants fail to timely answer and offer no justifiable excuse for their conduct." Mason v. RJK Investors (In re Klarchek), 509 B.R. 175, 186 (Bankr. N.D. Ill. 2014) (citations omitted). Before entering a default judgment, however, the court requires that a plaintiff establish a prima facie showing on the merits of its claim. See, e.g., In re Taylor, 289 B.R. 379, 383 (Bankr. N.D. Ind. 2003) ("[B]efore a litigant is awarded the relief it seeks when the opposing party fails to respond, the court needs to satisfy itself that the facts before it demonstrate a prima facie entitlement to that relief."); Nishimatsu Construction Co., Ltd. v. Houston National Bank, 515 F.2d 1200, 1206 (5^th Cir. 1975) ("[A] defendant's default does not in itself warrant the court in entering a default judgment. There must be a sufficient basis in the pleadings for the judgment entered.").

The court first examines the sufficiency of service of process. Federal Rule of Bankruptcy Procedure 7004 addresses service of process. This rule makes Federal Rule of Civil Procedure 4 applicable in adversary proceedings. "Valid service of process is a prerequisite to a district court's assertion of personal jurisdiction." Swaim v. Moltan Co., 73 F.3d 711, 719 (7^th Cir. 1996 ) (citing Omni Capital Int'l v. Rudolf Wolff & Co., Ltd., 484 U.S. 97, 103 (1987)). Rule 7004(b) authorizes service by first class mail postage prepaid. When serving a domestic corporation, the plaintiff must send the summons and complaint by first class mail "to the attention of an officer, a managing or general agent." Fed. R. Bankr. P. 7004(b)(3). Whenserving an insured depository institution, the plaintiff must use certified mail addressed to an officer of the institution. Fed. R. Bankr. P. 7004(h).

In this adversary proceeding Nemeth has sent a summons and copy of the complaint by certified mail to Citizens three times, using addresses in Rhode Island and Colorado. Nemeth served each summons within 90 days after he filed the amended complaint. Civil Rule 4(m).⁴ As required by Bankruptcy Rule 7004(h), Nemeth addressed one of the alias summonses to the highest officer found. Nemeth has fulfilled his service obligation. The court finds Nemeth has effectively served Citizens under the rules of procedure, and that the court has acquired personal jurisdiction over Citizens.

The court will next consider whether Nemeth has presented a prima facie showing that he is entitled to the relief he seeks. As part of this analysis, the court relies on case law in this Circuit concerning the failure of a litigant to participate. By not responding to the complaint, the court must interpret the absence of any response by Citizen as a waiver of any opposition to the complaint. See, e.g., Bonte v. U.S. Bank, N.A., 624 F.3d 461, 466 (7^th Cir. 2010) (Failure to respond to an argument results in waiver.); In re GT Automation Group, Inc., 828 F.3d 602, 605 (7^th Cir. 2016) ("An argument not responded to is ordinarily deemed waived."). Being unopposed, the court accepts the truth of the allegations in Nemeth's complaint.

Section 523(a)(8) generally excepts debts for educational loans from discharge. In re Rifino, 245 F.3d 1083, 1087 (7^th Cir. 2001). To discharge his student loan debt under the Brunner⁵ test, Nemeth must show that: (1) he cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans; (2) additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) he has made good faith efforts to repay the loans. Tetzlaff v. Educational Credit Management Corp., 794 F.3d 756, 758-59 (7^th Cir. 2015), cert. denied 136 S.Ct. 803 (2016).

Nemeth's complaint shows his household monthly net income exceeds his basic monthly living expenses by $10. Since Citizens has not challenged these figures, the court accepts their accuracy. With only a $10 difference between monthly net income and basic expenses, the court finds that Nemeth will be unable to maintain a minimal standard of living should he compelled to repay his loans from Citizens. Nemeth has made a prima facie showing of the first element of the test under Tetzlaff.

Nemeth alleges that excepting his debt to Citizens from discharge will impose an undue hardship on him. Citizens has not contested this allegation. While not articulated with clarity, the court understands Nemeth's complaint to indicate his financial situation and hardship will persist into the future. Again, Citizens issilent on this subject. The court finds under the undisputed facts it is reasonable to conclude that repayment will cause great hardship. Nemeth has met the second part of the Tetzlaff test.

Finally, Nemeth must show that he has made a good faith effort to repay the Citizens loan. The record lacks any indication from Citizens challenging Nemeth's assertions. The undisputed factual allegations in the complaint support the conclusion that Nemeth has made good faith efforts to repay and that Citizens has refused to offer him any reasonable payment options. The court finds that Nemeth has met the last element of Tetzlaff.

Having found that Nemeth has presented a prima facie case that his debt to Citizens should not be excepted...