United States District Court, D. Connecticut
IN RE LORNA Y. CHANNER, Debtor
v.
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY Appellee . LORNA Y. CHANNER Debtor-Appellant,
Chapter
7
MEMORANDUM OF DECISION
KARI
A. DOOLEY UNITED STATES DISTRICT JUDGE
Kari A.
Dooley, United States District Judge Appellant Lorna Channer
(the “Appellant”) appeals from the decision of
the United States Bankruptcy Court for the District of
Connecticut (“Bankruptcy Court”) denying her
motion to reopen her Chapter 7 bankruptcy case pursuant to 11
U.S.C. § 350(b).[1] For the reasons set forth below, the Court
AFFIRMS the Bankruptcy Court's decision.
Background
[2]
On
April 16, 2010, the Appellant sought relief under Chapter 7
of the United States Bankruptcy Code (the “Bankruptcy
Code”). On Schedule F of her bankruptcy petition, the
Appellant listed as unsecured and non-priority her student
loans, which were obtained through the Federal Family
Education Loan Program and guaranteed by the Pennsylvania
Higher Education Assistance Agency, d/b/a American Education
Services (“PHEAA”).[3] On November 3, 2010, the
Bankruptcy Court issued an order of discharge. In that order,
the Bankruptcy Court explained that there are “[s]ome .
. . common types of debts which are not discharged
in a chapter 7 bankruptcy case, ” which include
“[d]ebts for most student loans.” In re
Channer, No. 10-21232 (JJT), ECF No. 64 at p. 2, ¶
d. (Bankr. D. Conn. Nov. 3, 2010). The bankruptcy case was
administratively closed on August 29, 2013.
In or
about 2017, PHEAA began garnishing the Appellant's wages.
In response, the Appellant filed various motions with the
Bankruptcy Court in which she contended that PHEAA should be
held in contempt for attempting to collect a debt that had
been discharged by order of the court. As relevant to the
instant appeal, on September 17, 2018, the Appellant filed a
motion for order to show cause, which was denied on November
15, 2018 without prejudice to reconsideration if the
bankruptcy case was reopened. On January 2, 2019, the
Appellant filed a motion to reopen the bankruptcy case and
for reconsideration of her motion for order to show cause. In
that dual-motion, the Appellant argued, among other things,
that her student loan debt had been discharged and that PHEAA
was not a governmental entity entitled to protection from
such discharge. On January 17, 2019, the Appellant filed an
amended motion for order to show cause, in which she raised
these same arguments. On January 31, 2019, PHEAA filed an
objection to the Appellant's pending motions. PHEAA
argued that the motions should be denied because the student
loan debt was nondischargable under 11 U.S.C. §
523(a)(8) and the Appellant had failed to exhaust her
administrative remedies with respect to the garnishment of
her wages. PHEAA further asserted that because the debt was
nondischargable, it followed that the Appellant could not
establish by clear and convincing evidence that PHEAA acted
in contempt of the court's discharge order.
On
February 20, 2019, after a hearing, the Bankruptcy Court
issued a decision denying the Appellant's motion to
reopen. In re Channer, No. 10-21232 (JJT), 2019 WL
856247, at *1 (Bankr. D. Conn. Feb. 20, 2019). The Bankruptcy
Court determined that the Appellant's student loan debt
was not subject to discharge simply because it was listed on
her Schedule F, as the Appellant contended. Id.
Rather, the proper avenue for seeking discharge of this debt
was to commence an adversary proceeding pursuant to Rule 7001
of the Federal Rules of Bankruptcy Procedure, which the
Appellant had not done. Id. The Bankruptcy Court
further rejected the Appellant's contention that PHEAA
was not a governmental entity under Section 523(a)(8) because
controlling Pennsylvania law made clear that PHEAA was a
statutorily-created state agency. Id. Because the
Appellant's reasons for reopening her bankruptcy case and
seeking contempt sanctions rested on a faulty premise, the
Bankruptcy Court found that there was no relief that could be
accorded to her and denied the motion to reopen. Id.
at *2. On March 4, 2019, the Appellant timely filed the
instant appeal.
Standard
of Review
Federal
district courts have jurisdiction to hear appeals from final
judgments, orders, and decrees of bankruptcy judges. 28
U.S.C. § 158(a). Courts “review the bankruptcy
court's findings of fact for clear error and its legal
determinations de novo.” In re Anderson, 884
F.3d 382, 387 (2d Cir. 2018). “A bankruptcy judge's
decision to grant or deny a motion to reopen pursuant to 11
U.S.C. § 350(b) shall not be disturbed absent an abuse
of discretion.” In re Smith, 645 F.3d 186, 189
(2d Cir. 2011). “The reason is that such decisions
invoke the exercise of a bankruptcy court's equitable
powers, which is dependent upon the facts and circumstances
of each case.” In re Chalasani, 92 F.3d 1300,
1307 (2d Cir. 1996). An abuse of discretion “occurs
when (1) the court's decision rests on an error of law
(such as application of the wrong legal principle) or clearly
erroneous factual finding, or (2) its decision-though not
necessarily the product of a legal error or a clearly
erroneous factual finding-cannot be located within the range
of permissible decisions.” McDaniel v. Cty. of
Schenectady, 595 F.3d 411, 416 (2d Cir. 2010)
(alterations omitted; citations omitted; internal quotation
marks omitted) (quoting Kickham Hanley P.C. v. Kodak Ret.
Income Plan, 558 F.3d 204, 209 (2d Cir. 2009)).
Discussion
On
appeal, the Appellant contends that the Bankruptcy Court
erred when it denied her motion to reopen because there are
issues of fact concerning whether PHEAA qualifies as a
governmental unit under Section 523(a)(8) and, therefore,
whether her student loans were presumptively
nondischargeable. PHEAA responds that the Bankruptcy Court
properly concluded that the student loans had not been
discharged and, therefore, there was no cause to reopen the
bankruptcy case. Upon a review of the record, the Court
concludes that the Bankruptcy Court acted well within its
discretion when denying the Appellant's motion to reopen.
The
discharge provision of the United States Bankruptcy Code
discharges all debts “[e]xcept as provided in section
523.” 11 U.S.C. § 727(b). Pursuant to Section
523(a)(8), student loans “made, insured, or guaranteed
by a governmental unit, or made under any program funded in
whole or in part by a governmental unit or nonprofit
institution” are presumptively non-dischargeable in
bankruptcy unless the debtor establishes “undue
hardship.” 11 U.S.C. § 523(a)(8)(A)(i); accord
Easterling v. Collecto, Inc., 692 F.3d 229, 231-32 (2d
Cir. 2012). The Bankruptcy Code defines a “governmental
unit, ” in relevant part, as a “department,
agency, or instrumentality of . . . a Commonwealth. . .
.” 11 U.S.C. § 101(27). Here, PHEAA plainly
qualifies as a governmental unit. PHEAA is a
statutorily-created “governmental
instrumentality” tasked by the Commonwealth of
Pennsylvania with improving higher educational opportunities,
in part, by guaranteeing student loans.[4] 24 Pa. Stat.
§§ 5101-5102; Penn. Higher Educ. Assistance
Agency v. Xed, 456 A.2d 725, 725 (Pa. 1983)
(“PHEAA is a statutorily created instrumentality that
guarantees educational loans made to persons pursuing higher
education.”).
Citing
to United States ex rel. Oberg v. Pennsylvania Higher
Education Assistance Agency, 804 F.3d 646 (4th Cir.
2015) (“Oberg”), the Appellant argues
that there are issues of fact concerning whether PHEAA can
qualify as a government entity “because [PHEAA] is now
a self-sufficient student loan financial-services
company.” (Appellant Reply Br. at 5, ECF No. 15.) And,
therefore, the Bankruptcy Court erred by not permitting
discovery into this issue. Oberg is inapposite.
There, the Fourth Circuit Court of Appeals had to determine
“whether PHEAA qualifies as an ‘arm of the
state' or ‘alter ego' of Pennsylvania such that
it cannot be sued under the [False Claims
Act].”[5] Oberg, 804 F.3d at 650. To answer
that question, the court considered, among other things,
whether primary legal and financial liability for a judgment
against PHEAA would fall on Pennsylvania. Id. at
650-51. Here, Pennsylvania's legal or financial liability
vis-à-vis PHEAA is irrelevant. The sole issue is
whether PHEAA falls within the definition of
“governmental unit” for purposes of Section
523(a)(8), which it clearly does. See 11 U.S.C.
§ 101(27); 24 Pa. Stat. § 5101. No amount of
discovery into PHEAA's financial independence or
Pennsylvania's vicarious liability for PHEAA's
conduct could change this conclusion.
Because
PHEAA is a governmental unit, the Appellant's student
loan debt was presumptively non-dischargeable unless she
established undue hardship. 11 U.S.C. § 523(a)(8)(A)(i).
“To seek an undue hardship discharge of student loans,
a debtor must ‘commence an adversary proceeding by
serving a summons and complaint on affected
creditors.'” Easterling, 692 F.3d at 232
(quoting U.S. Aid Funds, Inc. v. Espinosa, 559 U.S.
260, 269 (2010)). It is undisputed that the Appellant has
never instituted an adversarial proceeding in the bankruptcy
...