Kaufman v. Case Western Reserve

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 04a0151n.06
Filed: December 8, 2004
No. 02-6516
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
IN RE: )
)
STEPHEN MARK KAUFMAN, )
)
Debtor, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
STEPHEN MARK KAUFMAN, ) COURT FOR THE MIDDLE
) DISTRICT OF TENNESSEE
Appellant, )
)
v. )
) OPINION
CASE WESTERN RESERVE )
UNIVERSITY AND USA GROUP )
GUARANTEE SERVICES, INC., )
)
Appellees. )
BEFORE: BATCHELDER and SUHRHEINRICH, Circuit Judges, and RICE, District
Judge.*
WALTER HERBERT RICE, District Judge.
This case involves an attempt by a debtor to use general language in his
bankruptcy plan to discharge student loan debt. Under 11 U.S.C. § 523(a)(8), student
*
The Honorable Walter Herbert Rice, Judge of the United States District Court for
the Southern District of Ohio, sitting by designation.
loan debt is not normally dischargeable. Both the bankruptcy court and the district court
below held that confirmation and successful completion of the Debtor’s Chapter 11 plan
did not discharge Appellant’s student loans, finding that the plain language of §
523(a)(8) mandates that all student loans are nondischargeable, unless their repayment
would cause an undue hardship on the debtor. We affirm, holding that Appellant’s
failure to argue that excepting his student loan debt from discharge would constitute an
undue hardship is fatal to his argument.
On June 1, 1995, Dr. Stephen Mark Kaufman filed a petition for relief under
Chapter 11 of the United States Bankruptcy Code in the bankruptcy court. Appellee
Case Western Reserve University (“Case Western”) is a creditor from which Dr.
Kaufman received student loans. Likewise, Appellee Educational Credit Management
Corporation (“ECMC”) is an assignee of certain student loans.1 Creditors, such as
Appellees, who held unsecured claims were classified as “Class 2” creditors. The
reorganization plan (the “Plan”) indicated that:
Class 2 includes all remaining unsecured creditors and shall be
paid the total of $750.00 per month until the aggregate of $45,000.00 had
been [paid] for distribution in this class. The funds available for the
allowed claims in this class will be paid, pro rata. The payment
contemplated herein shall commence thirty (30) days after the Effective
Date of the plan and on the fifteenth (15th) day of each month thereafter
until paid as contemplated under this section under the plan.
As a condition of confirmation, all unsecured claims of whatsoever
nature and wheresoever situated shall be deemed discharged pursuant to
11 U.S.C. § 524(a).
After confirmation of the Plan, on January 7, 2002, Dr. Kaufman initiated an adversary
1
The promissory note under which Dr. Kaufman obtained the loans began to accrue at a
rate of 5% per annum on or about December 1, 1989.
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proceeding, pursuant to 28 U.S.C. §§ 157 and 1334, asking the bankruptcy court to
declare that student loans owed to Appellees were discharged upon confirmation. He
argued (and continues to argue to this Court) that the loans, although considered
nondischargeable by the Bankruptcy Code, were discharged because the Plan
language purported to discharge all unsecured claims pursuant to § 524 of the
Bankruptcy Code. The bankruptcy court rejected this claim, and Kaufman appealed to
the United States District Court for the Middle District of Tennessee, pursuant to 28
U.S.C. § 158(a). On November 14, 2002, the district court affirmed the decision of the
bankruptcy court. This Court has jurisdiction over this appeal from the district court
pursuant to 28 U.S.C. § 1291.
I. Standard of Review
When reviewing a decision of a district court in a case originating in bankruptcy
court, the Sixth Circuit directly reviews the decision of the bankruptcy court rather than
the district court’s review of the bankruptcy court’s decision. In re Cannon, 277 F.3d
838, 849 (6th Cir. 2002), citing In re M.J. Waterman & Assocs., Inc., 227 F.3d 604, 607
(6th Cir. 2000). Findings of fact are reviewed under the clearly erroneous standard, and
legal conclusions are reviewed de novo. Id.
II. Analysis
As noted supra, the Plan provided that, upon confirmation of the Plan, all claims
of unsecured creditors would be deemed discharged, pursuant to 11 U.S.C. § 524(a).
Based on his reading of § 524, Appellant concludes that the Plan effectuated a
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discharge of his student loans. Furthermore, Appellant urges that, to the extent that the
Plan constituted a determination that his student loan debt is to be discharged, the issue
of dischargeability is res judicata, and Appellees are thus estopped from relitigating it.
A claim is barred by the res judicata effect of prior litigation if all of the
following elements are present: “(1) a final decision on the merits by a court of
competent jurisdiction; (2) a subsequent action between the same parties or their
‘privies’; (3) an issue in the subsequent action which was litigated or which should
have been litigated in the prior action; and (4) an identity of the causes of action.”
Bittinger v. Tecumseh Prods. Co., 123 F.3d 877, 880 (6th Cir. 1997).
As a general matter, it is true that confirmation of a reorganization plan
constitutes a final judgment in bankruptcy proceedings. Browning v. Levy, 283 F.3d
761, 772 (6th Cir. 2002), citing Sanders Confectionery Prods., Inc. v. Heller Fin.,
Inc., 973 F.2d 474, 480 (6th Cir. 1992). “Such confirmation by a bankruptcy court
‘has the effect of a judgment by the district court and res judicata principles bar
relitigation of any issues raised or that could have been raised in the confirmation
proceedings.’” Id., quoting In re Chattanooga Wholesale Antiques, Inc., 930 F.2d
458, 463 (6th Cir. 1991).
Before reaching the issue of res judicata, however, it is necessary to determine
whether the Plan had the effect of discharging Appellant’s student loan debt. A plain
reading of the Code suggests that it did not. As ECMC correctly points out, § 524 does
not have the power to effect any discharge. Instead, discharges are provided for by §
1141, which indicates, inter alia, that a bankruptcy plan “discharges the debtor from
any debt that arose before the date of [the] confirmation [of the plan,]” except that
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the “plan does not discharge an individual debtor from any debt excepted from
discharge under section 523 of this title.” 11 U.S.C. § 1141(d). Accordingly, § 523
indicates, inter alia, that
[a] discharge under section [1141] of this title does not discharge an
individual debtor from any debt for an educational benefit overpayment
or loan 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, or for an obligation to repay funds received as
an educational benefit, scholarship or stipend, unless excepting such
debt from discharge under this paragraph will impose an undue
hardship on the debtor and the debtor’s dependents...
11 U.S.C. § 523(a)(8). Appellant has not, at any point in this litigation, argued that
excepting his student loan debt from discharge would impose an undue hardship.
Furthermore, even if the Plan, in conjunction with the above-cited code
provisions, could be interpreted as discharging Appellant’s student loan debt,
application of res judicata would raise significant due process concerns. Specifically,
Appellees argue that application of res judicata, as urged by Appellant, would violate
their due process rights, in that the wording of the Plan did not provide adequate notice
that the debts held by them were to be discharged. In response to this, Appellant relies
heavily on In re Andersen, 215 B.R. 792 (B.A.P. 10th Cir. 1998), aff’d, 179 F.3d 1253
(10th Cir. 1999). There, a debtor, who had outstanding student loans similar to
Appellant herein, filed a Chapter 13 petition, and placed language in her proposed plan
indicating that, “[p]ursuant to 11 U.S.C. § 523(a)(8), excepting the aforementioned
education loans from discharge will impose an undue hardship on the debtor and the
debtor’s dependents. Confirmation of debtor’s plan shall constitute a finding to that
effect and that said debt is dischargeable.” Id. at 793. Noting that a debtor has the
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burden of seeking a formal judicial determination of the nondischargeability of her debts,
the bankruptcy court in Andersen had found the plan provision was too vague, and thus
did not afford the creditors due process. The Tenth Circuit Bankruptcy Appellate Panel
reversed that determination. It noted that “[d]ue process requires only that there be
notice and a meaningful opportunity to be heard” and that, in that case, “[n]o argument
ha[d] been made that [the creditor] was not properly served with the plan and with
notice, or that [the creditor] lacked the opportunity either to object or to have a
meaningful hearing.” Id. at 795, citing Turney v. FDIC, 18 F.3d 865 (10th Cir. 1994).
Accordingly, the court held that the order confirming the plan was a binding
determination that payment of student loans, beyond that provided for in the plan, would
constitute undue hardship, and was res judicata on the issue of dischargeability.
Appellant’s reliance on Andersen is misguided because the facts are vastly
divergent. As noted supra, Appellant herein has never argued that excepting his
student loans from discharge would work an undue hardship. Yet, that finding was the
cornerstone of Andersen, in which the plan specifically asserted that such an undue
hardship would be present. Appellant’s Plan herein made no such assertion. Without
such specific reference, there would have been nothing to overcome § 523's express
wording that student loans are excepted from a debtor’s discharged debt. This fact
alone is sufficient to reject Appellant’s claim, without even reaching the due process
issue, because without a determination in the Plan that an exception to the
nondischargeability of student loan debt (i.e., undue hardship) applies, there is no final
judgment of undue hardship, and res judicata does not come into play. Not even
Andersen would have held that the debtor’s student loans would have been discharged
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if the plan had not declared that failure to do so would impose an undue hardship. See
Andersen, 215 B.R. at 794-95 (explaining that vague plan language would provide a
creditor with insufficient notice and preclude the application of res judicata).
Accordingly, since this case is easily factually distinguishable from Anderson, the Court
need not decide whether it agrees with Anderson that discharges by declaration comply
with due process.
Lastly, there are two issues in Appellant’s brief that the Court need not address
at this time. First, in his statement of the issues on appeal, Appellant raises the issue of
“[w]hether the claims of [Case Western] and [ECMC] against the Plaintiff are barred by
laches?” Yet, he fails to argue this in his brief. As such, this argument is abandoned
and the Court need not consider it.
Second, Appellant argues that if the Court finds that his student loan debt was
not discharged, Appellees should be bound by the monthly amount provided for by the
bankruptcy plan and should be precluded from seeking interest on the debt because
they did not seek interest under the Plan. However, these issues were not before either
the bankruptcy court or the district court and Appellant raises them for the first time on
appeal. “As a general rule, appellate courts do not consider any issue not passed
upon below.” In re Morris, 260 F.3d 654, 663 (6th Cir. 2001), citing Singleton v. Wulff,
428 U.S. 106, 120, 96 S. Ct. 2868, 49 L. Ed. 2d 826 (1976). Accordingly, we do not
consider these arguments.
The order of the bankruptcy court, as affirmed by the district court, is AFFIRMED.
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