U.S. Dep't of Educ. v. Carrion (In Re Carrion)

FILED
MAY 31 2019
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
ORDERED PUBLISHED
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. SC-18-1234-FBKu
CARLOS CARRION, JR., Bk. No. 11-10508-MM7
Debtor. Adv. Pro. 17-90089-MM
U.S. DEPARTMENT OF EDUCATION,
Appellant,
v. OPINION
CARLOS CARRION, JR.,
Appellee.
Submitted without argument on May 23, 2019
Filed – May 31, 2019
Appeal from the United States Bankruptcy Court
for the Southern District of California
Honorable Margaret M. Mann, Bankruptcy Judge, Presiding
Appearances: Adam L. Braverman, Robert S. Brewer, Jr., and Glen F.
Dorgan on the brief for appellant U.S. Department of
Education; Jake A. Walton on the brief for appellee Carlos
Carrion, Jr.
Before: FARIS, BRAND, and KURTZ, Bankruptcy Judges.
FARIS, Bankruptcy Judge:
INTRODUCTION
Chapter 71 debtor Carlos Carrion, Jr. wanted to eliminate his
obligation to repay an educational loan. He did not contend that the loan
was dischargeable under § 523(a)(8). Instead, he argued that the loan was
unenforceable against him, contending that he was a victim of fraud and
identity theft and did not authorize the loan. The bankruptcy court rejected
these contentions, and Mr. Carrion did not appeal. But the court also held
that Mr. Carrion is liable for only one-half of the educational loan, based on
California Family Code (“CFC”) section 916 and a marital settlement
agreement (“MSA”) with his ex-wife. The educational loan creditor, U.S.
Department of Education (the “Department”), appeals this aspect of the
bankruptcy court’s decision. It argues that the bankruptcy court misapplied
CFC section 916 and that the entire debt should be nondischargeable as to
Mr. Carrion.
We agree with the Department. Accordingly, we REVERSE and
REMAND.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2
FACTUAL BACKGROUND2
A. The educational loan
Mr. Carrion was married to Laura Barajas. In 2010, Mr. Carrion’s and
Ms. Barajas’ son Mikel intended to enroll at Biola University. To fund his
education, Mr. Carrion and Ms. Barajas considered various financing
options.
In August 2010, the Department received an application for a Federal
Direct PLUS Loan purportedly on behalf of Mr. Carrion and containing
Mr. Carrion’s typed, electronic signature. The application also served as a
promissory note. The Department processed the loan and disbursed
$21,894 to Biola University to cover Mikel’s tuition costs.
Mr. Carrion and Ms. Barajas separated in February 2011. Ms. Barajas
filed a petition for dissolution of marriage in June 2011.
B. The joint chapter 7 bankruptcy
Also in June 2011, Mr. Carrion and Ms. Barajas filed a joint chapter 7
bankruptcy petition. They scheduled the $21,894 educational loan debt
owed to the Department and indicated that the debt belonged to
Mr. Carrion by designating it with an “H” (for “husband”). Both
Mr. Carrion and Ms. Barajas electronically signed the petition and
2
We borrow from the bankruptcy court’s findings of fact (none of which was
challenged on appeal) and conclusions of law. We also exercise our discretion to review
the bankruptcy court’s docket, as appropriate. See Woods & Erickson, LLP v. Leonard (In re
AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).
3
schedules under penalty of perjury.
The bankruptcy court granted Mr. Carrion and Ms. Barajas their
discharges in September 2011.
C. The marital settlement agreement
In 2013, Mr. Carrion and Ms. Barajas finalized their divorce and
executed the MSA. The MSA listed their liabilities in Exhibit D to the
agreement and provided that “[t]he parties’ obligations have been divided
equally between the parties pursuant to their agreement.” It further stated
that “[w]ith the exception of the parties’ son’s student loan, each party shall
assume the debt incurred in his or her name after the date of separation as
their sole and separate property.” They initialed Exhibit D, which
confirmed that they would each be liable for “1/2” of the “Student Loan
(Son).”
D. Mr. Carrion’s claim of identity theft
The educational loan became due in January 2016, when the
deferment period ended. The Department sent Mr. Carrion a billing
statement indicating a $32,124.42 balance. Mr. Carrion denied that he owed
the debt and filed a police report, claiming that he was a victim of identity
theft and fraud. He also filled out an affidavit stating that Ms. Barajas
perpetrated the fraud and submitted the loan application without his
knowledge. The loan servicer rejected his claim of identity theft.
4
E. The adversary proceeding
Mr. Carrion initiated an adversary proceeding against the
Department, seeking a determination that the debt was void because the
promissory note was executed as a result of identity theft and that the
educational loan debt was discharged. He stated that he “had no
knowledge of the Debt” and that Ms. Barajas “misappropriated Plaintiff’s
identity in order to execute the Note without Plaintiff’s knowledge or
consent” and “concealed the existence of the Debt from Plaintiff.”
The Department asserted that the educational loan debt was
nondischargeable under § 523(a)(8) absent a showing of undue hardship.
F. Trial and decision
The bankruptcy court held a trial on Mr. Carrion’s complaint.3 At the
conclusion of trial, the bankruptcy court ordered additional briefing on the
issue of the application of the California Family Code, apparently
concerning the effect of the MSA on Mr. Carrion’s liability for the
educational loan debt.
The Department contended that CFC section 916(a)(1) provides that a
person is personally liable for debt that he incurred before or during
3
Neither party ordered a copy of the trial transcript. We may presume that
nothing in the transcript would help the parties’ respective positions. See Gionis v.
Wayne (In re Gionis), 170 B.R. 675, 680-81 (9th Cir. BAP 1994) (“We are entitled to
presume that [an appellant who does not provide a transcript] does not think the trial
transcript helpful in that regard.”).
5
marriage, regardless whether the debt was assigned to the person’s spouse
under the MSA. It acknowledged that subsection (a)(3) holds the nondebtor
spouse personally liable for the debt if it was assigned for payment by the
nondebtor spouse in the division of property. It argued that the MSA
“allocated to Plaintiff one-half of the obligation to repay the student loan at
issue in this case. Accordingly, should this Court reject Plaintiff’s identity
theft claims, Plaintiff will remain personally liable to the Department for
the full amount of the student loan pursuant to [CFC] Section 916(a)(1).”
Mr. Carrion maintained that he did not owe any of the educational
loan debt. He denied that the student loan referred to in the MSA was the
Federal Direct PLUS Loan at issue.
The bankruptcy court found Mr. Carrion’s identity theft claim
unpersuasive, particularly given his statements in his 2011 bankruptcy
schedules that he was liable for the loan and the 2013 MSA, which allocated
the liability for the debt equally between himself and Ms. Barajas. It ruled
that, even if the educational loan was obtained without his consent, he
ratified the loan.
The bankruptcy court held that the Department had met its burden of
proving that the educational loan debt was excepted from discharge under
§ 523(a)(8). Of relevance to this appeal, the court held that, even though Mr.
Carrion ratified the loan and is liable for it, “the allocation of liability in the
MSA is nevertheless binding upon the Department, meaning that Barajas
6
and Carrion are each liable for one/half of the loan.” The court concluded,
“One half of the unpaid loan balance of $36,071.91, or $18,035.96, is non-
dischargeable as to Carrion.”
The Department timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in holding that Mr. Carrion
owed only half of the student loan debt.
STANDARD OF REVIEW
We review the bankruptcy court’s conclusions of law de novo. See
Litton Loan Servicing v. Garvida (In re Garvida), 347 B.R. 697, 703 (9th Cir.
BAP 2006). “De novo review requires that we consider a matter anew, as if
no decision had been made previously.” Francis v. Wallace (In re Francis),
505 B.R. 914, 917 (9th Cir. BAP 2014) (citations omitted).
DISCUSSION
A. The bankruptcy court erred in holding that Mr. Carrion was liable
for only half of the educational loan debt.
The sole issue on appeal is the bankruptcy court’s interpretation of
section 916 of the California Family Code. The Department essentially
argues that the bankruptcy court misconstrued section 916 by reading
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subsection (a)(2) in isolation without reference to subsection (a)(1). We
agree.
Section 916 provides, in its entirety:
(a) Notwithstanding any other provision of this chapter, after
division of community and quasi-community property
pursuant to Division 7 (commencing with Section 2500):
(1) The separate property owned by a married person at
the time of the division and the property received by the
person in the division is liable for a debt incurred by the
person before or during marriage and the person is
personally liable for the debt, whether or not the debt was
assigned for payment by the person’s spouse in the
division.
(2) The separate property owned by a married person at
the time of the division and the property received by the
person in the division is not liable for a debt incurred by
the person’s spouse before or during marriage, and the
person is not personally liable for the debt, unless the
debt was assigned for payment by the person in the
division of the property. Nothing in this paragraph affects
the liability of property for the satisfaction of a lien on the
property.
(3) The separate property owned by a married person at
the time of the division and the property received by the
person in the division is liable for a debt incurred by the
person’s spouse before or during marriage, and the
person is personally liable for the debt, if the debt was
assigned for payment by the person in the division of the
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property. If a money judgment for the debt is entered
after the division, the property is not subject to
enforcement of the judgment and the judgment may not
be enforced against the married person, unless the person
is made a party to the judgment for the purpose of this
paragraph.
(b) If property of a married person is applied to the satisfaction
of a money judgment pursuant to subdivision (a) for a debt
incurred by the person that is assigned for payment by the
person’s spouse, the person has a right of reimbursement from
the person’s spouse to the extent of the property applied, with
interest at the legal rate, and may recover reasonable attorney’s
fees incurred in enforcing the right of reimbursement.
Cal. Fam. Code § 916.
In plain english, section 916 means that, if Spouse A and Spouse B
divorce:
(1) Spouse A remains liable for Spouse A’s own debts, even if an
MSA requires Spouse B to pay some or all of those debts;
(2) Spouse A is not liable for any of Spouse B’s debts, except for any
of Spouse B’s debts that the MSA requires Spouse A to pay;
(3) Spouse A is liable for any of Spouse B’s debts that the MSA
requires Spouse A to pay;
(4) If Spouse A pays any debts that the MSA requires Spouse B to
pay, Spouse B must reimburse Spouse A; and
(5) Vice versa.
9
The Department argues on appeal that the bankruptcy court
improperly limited Mr. Carrion’s liability for the educational loan debt by
only applying CFC section 916(a)(2) or (a)(3) and ignoring section
916(a)(1).4 It contends that, under section 916(a), “a debtor spouse remains
personally liable for his or her debts incurred during marriage, regardless
of the terms of any marital settlement agreement[,]” and the bankruptcy
court correctly concluded that Mr. Carrion is the debtor spouse.
Accordingly, Mr. Carrion “remains personally liable for his student loan
with the Department notwithstanding the 50-50 division of his debt in the
parties’ MSA.”
We agree with the Department. Although we have not found any
case directly on point with regard to student loan debt, the language of the
statute (while hard to read) is not ambiguous. See Robinson v. Shell Oil Co.,
519 U.S. 337, 340 (1997) (The “first step in interpreting a statute is to
determine whether the language at issue has a plain and unambiguous
meaning with regard to the particular dispute in the case.”); Heritage Pac.
Fin. LLC v. Montano (In re Montano), 501 B.R. 96, 106 (9th Cir. BAP 2013)
4
The Department appears to misapprehend part of the bankruptcy court’s
ruling. It complains that the bankruptcy court “entered judgment discharging one-half
of the Student Loan, leaving a total of $18,035.96, plus interest, for which Appellee
remains liable.” The bankruptcy court did not discharge any part of the debt under
§ 523(a)(8); to the contrary, it held that the educational loan was covered by that section
and that Mr. Carrion did not demonstrate undue hardship. It held that Mr. Carrion
simply did not owe the other half of the debt and confirmed that “his” half of the debt
was “non-dischargeable as to Carrion.”
10
(same, applying California law). Mr. Carrion remained personally liable for
his own educational loan debt, even though the MSA allocated half of that
debt to Ms. Barajas. See Huskey v. Huskey (In re Huskey), 183 B.R. 218, 221
(Bankr. S.D. Cal. 1995) (“The California Family Code recognizes that
personal liability remains for community obligations assigned to the other
spouse. The remedy is to pay the debt and seek reimbursement from the
spouse assigned the debt.” (citing Cal. Fam. Code §§ 916(a)(1) and (b)).
The bankruptcy court erred when it decided that subsection (a)(2)
relieved Mr. Carrion of half of the debt. Pursuant to subsection (a)(2),
Ms. Barajas became liable for the half of Mr. Carrion’s educational loan
debt that the MSA assigned to her. See In re Marriage of Braendle, 46 Cal.
App. 4th 1037, 1042 (1996) (“Subdivision (a)(2) makes clear that former
community estate property received by the nondebtor spouse at division is
liable only if the nondebtor spouse is assigned the debt in division.”). But
subsection (a)(1) makes clear that Ms. Barajas’ assumption of half of the
debt did not relieve Mr. Carrion of liability for the entire debt.
Accordingly, the bankruptcy court erred when it failed to apply
subsection (a)(1) and focused exclusively on subsections (a)(2) and (a)(3).
On remand, the bankruptcy court is directed to enter judgment that
Mr. Carrion is liable for the entire amount of the debt and that the debt is
nondischargeable as to Mr. Carrion.
11
B. Mr. Carrion’s judicial estoppel argument is meritless.
Mr. Carrion does not address the Department’s points on appeal. He
only contends that the Department is judicially estopped from arguing that
the MSA is not controlling, because it relied on the MSA in the bankruptcy
court. His position is meritless.
Judicial estoppel is an equitable doctrine that “precludes a party from
gaining an advantage by taking one position, and then seeking a second
advantage by taking an incompatible position.” Wilcox v. Parker (In re
Parker), 471 B.R. 570, 576 (9th Cir. BAP 2012), aff’d, 533 F. App’x 740 (9th
Cir. 2013) (quoting Whaley v. Belleque, 520 F.3d 997, 1002 (9th Cir. 2008)). We
consider three elements when applying judicial estoppel: “(1) whether a
party’s later position is ‘clearly inconsistent’ with its original position;
(2) whether the party has successfully persuaded the court of the earlier
position, and (3) whether allowing the inconsistent position would allow
the party to ‘derive an unfair advantage or impose an unfair detriment on
the opposing party.’” Id. (quoting United States v. Ibrahim, 522 F.3d 1003,
1009 (9th Cir. 2008)).
The Department is not raising inconsistent arguments. It argued
before the bankruptcy court that the MSA was proof that Mr. Carrion
ratified the educational loan debt. It also raised the issue of liability for the
debt under CFC section 916(a)(1), claiming that Mr. Carrion was liable for
the entire amount of the debt. It further argued that, even if Mr. Carrion
12
was the victim of identity theft, he was nevertheless liable for half of the
debt pursuant to the MSA under section 916(a)(3) .
On appeal, the Department does not argue that the MSA is invalid or
must be ignored; it only contends that, even considering the terms of the
MSA, Mr. Carrion is still liable for the entire debt under CFC section
916(a)(1). These positions are not inconsistent, and there is no indication
that the Department is seeking an unfair advantage in this litigation.
CONCLUSION
The bankruptcy court erred in holding that Mr. Carrion was liable for
only half of the educational loan debt. Accordingly, we REVERSE and
REMAND for entry of judgment in accordance with this decision.
13