White v. Great Lakes Educ. Loan Servs., Inc.

659 F.Supp.3d 809

Michael B. WHITE, Appellant, v. GREAT LAKES EDUCATIONAL LOAN SERVICES, INC., Appellee.

Case No. 1:22-cv-11229

United States District Court, E.D. Michigan, Northern Division

Signed March 7, 2023

Michael B. White, Birch Run, MI, Pro Se.

Marc P. Jerabek, Jeffrey C. Gerish, Plunkett & Cooney, Bloomfield Hills, MI, for Appellee.

OPINION AND ORDER AFFIRMING BANKRUPTCY COURT'S ORDERS

THOMAS L. LUDINGTON, United States District Judge

Between 2006 and 2010, Michael B. White paid for his daughter's college by securing six Department of Education (USDE) student loans, which were eventually serviced by Great Lakes Educational Loan Services. In 2013, he filed for bankruptcy, and the USDE filed a claim to recover the student-loan debt from his bankruptcy estate. Four years later, the Bankruptcy Court issued a standard Chapter 7 discharge order, discharging most of White's debts. But it did not discharge White's student-loan debt, which is non-dischargable under the Bankruptcy Code unless the debtor demonstrates undue hardship. After the discharge order was issued, the USDE and Great Lakes reported the student-loan debt as delinquent.

White then initiated this adversary proceeding in the Bankruptcy Court, arguing that his student-loan debt was or should be discharged, and that he is owed damages for the harm caused by the loan appearing on his credit report as delinquent. White argued that the claim the USDE filed in 2017 was invalid and should be disallowed, which would discharge the debt. But disallowing a creditor's claim does not discharge a debt; it merely prevents the creditor from collecting the debt from the bankruptcy estate. Indeed, even if the Bankruptcy Court disallowed the USDE's claim, the debt would have survived discharge because it is nondischargable.

Thus, the only viable claims that White asserted in his 12-count Complaint allege that the student-loan debt should be discharged because it caused him undue hardship. With that understanding, the Bankruptcy Court dismissed all White's claims except those relating to the future discharge of the student-loan debt. And, because only the creditor may discharge the debt, the loan servicer Great Lakes was dismissed altogether.

White appealed the Bankruptcy Court's dismissal orders here. Then he settled with the USDE and dismissed the USDE from this case. He nevertheless pursues the appeal against Great Lakes. The question before this Court is whether the Bankruptcy Court erred in granting Great Lakes's Motion to Dismiss.

I.

Beginning in 2006, Debtor Michael B. White secured six Parent PLUS loans for his daughter to attend college.¹ See Mot., In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Mar. 3, 2020), ECF No. 925 at 2. Great Lakes serviced² the loans from March 2013 to May 2019, when the loans when into default. ECF No. 12 at PageID.835.

In July 2013, Debtor and his wife jointly filed for Chapter 11 bankruptcy. Pet., In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. July 30, 2013), ECF No. 1. Twenty-two days later, the USDE timely filed a proof of claim³ against Debtor Michael White ("Claim 5-1"). See Cls. Reg., In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Aug. 21, 2013). One year later, the Bankruptcy Court converted the case into a Chapter 7 proceeding. Order, In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Aug. 22, 2014), ECF No. 168.

Although Debtor objected to Claim 5-1 in June 2015, he did not properly serve the USDE, so it did not respond.⁴ See Obj., In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. June 12, 2015), ECF No. 356. Twenty months later, Debtor filed an "Omnibus Objection" to 14 creditor claims, including Claim 5-1. Objs., In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Feb. 27, 2017), ECF No. 607. Debtor argued Claim 5-1 should be disallowed because the USDE failed to respond to his earlier objection. Id. But, again, he did not properly serve the USDE, so it filed no response. Yet the Bankruptcy Court sustained Debtor's objection and dismissed Claim 5-1 with prejudice.⁵ Order, In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Apr. 18, 2017), ECF No. 664.

In November 2017, the Bankruptcy Court issued a standard Chapter 7 discharge order. Order, In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Nov. 21, 2017), ECF No. 770. Standard discharge orders enjoin "the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any [discharged] debt as a personal liability of the debtor." 11 U.S.C. § 524(a)(2). But standard discharge orders do not discharge student-loan debt. See Order, In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Nov. 21, 2017), ECF No. 770 (noting that "debts for most student loans" not discharged by standard discharge order): see also 11 U.S.C. § 523(a)(8)(B) (exempting educational loans from bankruptcy discharge); Kerry Brian Melear, The Devil's Undue: Student Loan Discharge in Bankruptcy, the Undue Hardship Standard, and the Supreme Court's Decision in United Student Aid Funds v. Espinosa, 264 EDUC. L. REP. 1, 4 (2011) (explaining that discharge of a student-loan debt requires "an additional adversary proceeding" to prove that paying the debt would cause undue hardship).

In February 2020, Debtor filed a motion for the Bankruptcy Court to hold the USDE in contempt if it did not "correct [its] financial records to reflect no debt is owed and to prompt[ly] notify all major credit reporting agencies no debt is owed." Mot., In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Feb. 3, 2020), ECF No. 918. The USDE objected by arguing it never received proper notice of Debtor's objections to Claim 5-1 and, therefore, filed a motion to set aside the April 2017 Order that dismissed Claim 5-1 with prejudice. Mot., In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Mar. 3, 2020), ECF No. 925.

The Bankruptcy Court agreed with the USDE and reinstated Claim 5-1. See Order, In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Sept. 30, 2017), ECF No. 938. In February 2021, the Bankruptcy Court noted that Debtor had "voluntarily withdrawn" both his 2015 and 2017 objections to Claim 5-1. Order, In re White, No. 1:13-BK-21977 (Bankr. E.D. Mich. Feb. 11, 2021), ECF No. 1008.

Then, in November 2021, Debtor filed an adversary proceeding against the USDE, Great Lakes, and EGS Financial Care. Compl., White v. U.S. Dep't of Educ., No. 1:21-AP-02038 (Bankr. E.D. Mich. Nov. 22, 2021), ECF No. 1. Debtor included 12 Counts related to Claim 5-1 and the dischargeability of his student-loan debt.⁶ See id. Debtor's claims are summarized as follows:

Debtor asserts six arguments for why Claim 5-1 was invalid⁷ or should be disallowed (Counts 1-6), one breach-of-contract claim relating to the underlying master promissory note (Count 8-1), three arguments for why the student-loan debt was or should be discharged (Counts 7, 8-1, and 9), and two vague fraud-and-misrepresentation claims. Id. at 21-53.

The USDE and Great Lakes each filed a motion to dismiss Debtor's claims, and Debtor filed a motion for summary judgment. See Mots., White, No. 1:21-AP-02038 (Bankr. E.D. Mich. Jan. 2022), ECF Nos. 16; 17; 27. The USDE argued that Debtor lacked standing to bring any claims except the claims to discharge his student-loan debt. See Mot., White, No. 1:21-AP-02038 (Bankr. E.D. Mich. Jan. 3, 2022), ECF No. 16. Great Lakes argued that it should be dismissed from Counts 1-9 because it was not a proper defendant, and that Counts 10 and 11 did not state a claim. Mot., White, No. 1:21-AP-02038 (Bankr. E.D. Mich. Jan. 17, 2022), ECF No. 17. Great Lakes also concurred with the USDE that Debtor lacked standing to bring the claims related to the disallowance of Claim 5-1 (Counts 1-6). Id.

On May 24, 2022, the Bankruptcy Court issued an order addressing each party's motion as follows:

(1) granting the USDE's Motion to Dismiss all Debtor's claims except Counts 7, 8-2, and 9, which related to the dischargeability of Debtor's student-loan debt, In re White, No. 1:13-BK-21977, 2022 WL 1656708 (Bankr. E.D. Mich. May 24, 2022);

(2) granting Great Lakes' Motion to Dismiss in full, In re White, No. 1:13-BK-21977, 2022 WL 1666892 (Bankr. E.D. Mich. May 24, 2022); and

(3) denying Debtor's Motion for Summary Judgment because all but three claims had been dismissed and factual questions remained regarding Counts 7, 8-2, and 9, In re White, No. 1:13-BK-21977, 2022 WL 1653916 (Bankr. E.D. Mich. May 24, 2022).

In June 2022, Debtor filed a notice of appeal here. ECF No. 1. Thirty-eight days later, he stipulated to dismiss the appeal against the USDE.⁸ ECF No. 7. Thus, the only remaining reviewable orders are the Bankruptcy Court's Order Granting Great Lakes's Motion to Dismiss and its Order Denying Debtor's Motion for Summary Judgment Against Great Lakes as Moot.

II.

The district court sits as an appellate court when reviewing decisions of the Bankruptcy Court. 28 U.S.C. § 158. When a bankruptcy-court order is appealed, the bankruptcy court's findings of fact are reviewed under a clearly erroneous standard, and its legal conclusions are reviewed de novo. B-Line, LLC v. Wingerter (In re Wingerter), 594 F.3d 931, 935-36 (6th Cir. 2010). An order that grants a motion to dismiss an adversary proceeding is reviewed de novo. Nehasil v. Grenier (In re Grenier), 430 B.R. 446, 449 (E.D. Mich. 2010), aff'd, 458 F. App'x 436 (6th Cir. 2012).

Federal Rule of Civil Procedure 12(b)(6) applies to adversary proceedings. FED. R. BANKR. P. 7012(b). "Thus, . . . to survive a motion to dismiss, a plaintiff must allege 'facts that state a claim to relief that is plausible on its face and that, if accepted as true, are sufficient to raise a right to relief above the speculative level.' " GCap Holdings, LLC v. Bodley, No. 2:21-CV-10337, 2022 WL 565585, at *2 (E.D. Mich. Feb. 24, 2022) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

And Federal Rule of Civil Procedure 9(b) applies to fraudulent-misrepresentation...