Richelle Page v. NCSLT

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 18-6011
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In re: Richelle A. Page
lllllllllllllllllllllDebtor
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Richelle Angela Page
lllllllllllllllllllllPlaintiff - Appellant
v.
JP Morgan Chase Bank
lllllllllllllllllllllDefendant
National Collegiate Student Loan Trust 2006-1
lllllllllllllllllllllDefendant - Appellee
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Appeal from United States Bankruptcy Court
for the Eastern District of Missouri - St. Louis
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Submitted: September 24, 2018
Filed: November 20, 2018
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Before SALADINO, Chief Judge, DOW and SANBERG, Bankruptcy Judges.
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Dow, Bankruptcy Judge
Debtor Richelle Page appeals from the Bankruptcy Court’s order granting
summary judgment in favor of the National Collegiate Student Loan Trust
(“NCSLT”) and denying Debtor’s motion for summary judgment seeking a
discharge of her NCSLT debt pursuant to 11 U.S.C. §523(a)(8). For the reasons
that follow, we reverse and remand.
FACTUAL BACKGROUND
The Debtor attended St. Louis Community College in the spring semester of
2006, and paid for her tuition with financial aid. In response to a loan
“preapproval notice” she received from Chase Bank (“Chase”), the Debtor
executed a Loan Request/Credit Agreement (the “Agreement”) requesting a
$30,000 loan through the “Education One Undergraduate Loan” program. She
acknowledged as part of the agreement that she would be responsible for repaying
any funds which were not used for educational expenses related to the community
college. The instruction sheet directed applicants to submit the agreement either
by regular mail or expedited delivery to The Educational Resources Institute, Inc.
(“TERI”), a non-profit organization.
The loan proceeds were disbursed to the Debtor (the “Debt” or the “Loan”).
The Loan was subsequently sold to NCSLT. Despite the restriction in the
Agreement, the Debtor used the proceeds to pay for non-educational expenses.
The Debtor filed bankruptcy in 2010. She listed the Debt in her Schedules.
The bankruptcy court entered a discharge order providing that certain debts,
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including those for most student loans, were not discharged. Six years later, the
Debtor filed her complaint seeking a determination that her student loan debt was
not excepted from discharge. The NCSLT moved for summary judgment and the
Debtor filed her own motion for summary judgment. The bankruptcy court
granted summary judgment in favor of NCSLT and ordered that the Debt be
excepted from discharge pursuant to §523(a)(8). Specifically, the court concluded
that there was no genuine issue of material fact in dispute as to whether the Loan
was an “educational loan” and as to whether TERI “funded” the Loan (program)
for purposes of §523(a)(8)(A)(i). The Debtor appeals.
STANDARD OF REVIEW
We review the Bankruptcy Court’s determination of nondischargeability de
novo. Educational Credit Management Corporation v. Jesperson, 571 F.3d 775,
779 (8th Cir. 2009). Findings of fact on which the legal conclusions are based are
reviewed for clear error. Id.
DISCUSSION
Was the Loan an “educational loan” as contemplated by §523(a)(8)?
Section 523(a)(8) of the Bankruptcy Code provides for certain exceptions to
discharge, including an educational 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. 11 U.S.C. §523(a)(8)(A)(i). The
Debtor states in her Brief on appeal that the Loan was not an “educational loan”
but rather a routinely dischargeable consumer loan because of its alleged attributes
(e.g., Chase’s security interest in the Loan, the requirement of co-signers, and a
substantial origination fee). However, the Debtor cited no cases holding that the
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commercial features described disqualify a loan from being an “educational loan”
under §523(a)(8).
Rather than focus on a loan’s features, courts routinely look to the purpose
of a loan to determine whether it is “educational.” See, e.g., In re Murphy, 282
F.3d 868 (5th Cir. 2002); In re Jean-Baptiste, 584 B.R. 574, 585 (Bankr. E.D.N.Y.
2018); In re Busson-Sokolik, 635 F.3d 261, 266 (7th Cir. 2011). The debtor in
Busson-Sokolik challenged whether the loan could be properly considered
“educational” as required to bring it within §523(a)(8)(A). The court applied the
purpose test and found that the following facts established that the loan was indeed
educational: the loan was part of a package that included scholarship and grant
money toward completion of the debtor’s education at the school, the promissory
note was signed while the debtor was a student, the debtor had to be a student to be
eligible for the loan, and the loan proceeds were deposited into the debtor’s student
account at the school. Id. at 267. The bankruptcy court here applied a similar
analysis and concluded that there was no genuine issue of material fact in dispute
as to whether the Debt was for an “educational loan” based largely on the many
education-related terms in the Agreement: identification as an “Undergraduate
Loan,” made through the “Education One” Loan Program, covering an “Academic
Year,” while debtor is enrolled at a specific “School.” In addition, NCSLT’s
witness attested that the Loan was “for educational purposes.” We agree that the
court made ample findings based on undisputed facts to support its conclusion that
the Loan was an “educational loan” within the meaning of §523(a)(8)(A).
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Did the bankruptcy court err in drawing the inference in NCSLT’s favor that
TERI funded the program?
The Debtor also argues on appeal that the bankruptcy court erroneously
inferred (in NCSLT’s favor) that TERI expended resources in processing some of
the bank’s mail and thereby funded the loan program, stating since “TERI served
in a plenary capacity as the sole entity to which loan documents were submitted,” it
expended its resources on the administration of the loan program and thereby
funded it. The Debtor asserts that the bankruptcy court reduced the meaning of
“funded” so that any entity that plays even a marginal role in a loan program can
be said to have funded it.
When considering a motion for summary judgment, the court is required to
review the record and draw all reasonable inferences in favor of the non-movant.
Foster v. John-Manville Sales Corp., 787 F.2d 390, 391-92 (8th Cir. 1986). These
inferences must then be considered in light of any competing inferences. See, e.g.,
In re Sunnyside Timber, LLC, 413 B.R. 352, 363 (Bankr. W.D. La. 2009)(if a
reasonable trier of fact could find that the defendants engaged in collusive conduct
after considering any inferences of non-collusive conduct supported by the
evidence, the court should not grant summary judgment). Where the parties file
cross-motions, the standards by which the Court decides the motions do not
change. Livingston v. South Dakota State Medical Holding Co., Inc., 411 F. Supp.
1161, 1163 (D.S.D. 2006)(citing Heublein Inc. v. United States, 996 F.2d 1455,
1461 (2nd Cir.1993)). Each motion must be evaluated independently, “taking care
in each instance to draw all reasonable inferences against the party whose motion
is under consideration.” Id. In this case, both parties filed competing summary
judgment motions, so the question before us is whether the inference drawn by the
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court (that TERI funded the program) was appropriate, reasonable and supported
by the evidence.
The widely-held view among courts considering this issue is that the
definition of “funded” should not require that actual money be placed in some type
of account. In re Gakinya, 364 B.R. 366, 374 (Bankr. W.D. Mo. 2007). Instead,
the test adopted by many courts is whether the nonprofit entity played any
meaningful part in procurement of the loans under the program.1 In re O’Brien,
299 B.R. 725, 730 (Bankr. S.D.N.Y. 2003)(citing In re Hammarstrom, 95 B.R.
160, 165 (Bankr. N.D. Cal. 1989)(“Congress intended to include within section
523(a)(8) all loans made under a program in which a nonprofit institution plays any
meaningful part in providing funds.”)). See also In re Sears, 393 B.R. 678, 680-81
(Bankr. W.D. Mo. 2008)(rather than focus on financial role of the nonprofit, courts
should place emphasis on the institution’s degree of involvement in administrative
functions of the program). The cases applying the so-called “meaningful part” test
hinge on whether the non-profit entity committed financial resources to the loan
program, or contributed something of value to make the program successful. See,
e.g., In re Merchant, 958 F.2d 738 (6th Cir. 1992)(non-profit’s agreement to
purchase all defaulted student loans from for-profit lender held to be sufficient);
1
At least one court has concluded that the “meaningful part” test should not be applied.
In re Pilcher, 149 B.R. 595, 600 (9th Cir. BAP 1993)(“The addition of the
meaningfulness requirement is purely a judicial creation. No qualifying language was
included by Congress to establish minimum levels of participation.”). The issue of
whether the bankruptcy court erred in applying the “meaningful part” test is not before
this Panel. However, regardless of whether that test is applied, there is insufficient
evidence to support a finding that TERI funded this loan program.
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In re Pilcher, 149 B.R. 595 (9th Cir. BAP 1993)(sufficient that some participants of
the loan program were nonprofit institutions).
A number of courts have held that a non-profit institution’s guarantee of the
loans is sufficient to constitute a “meaningful contribution” by the nonprofit. See,
e.g., In re McClain, 272 B.R. 42 (Bankr. D.N.H. 2002); In re Jean-Baptiste, 584
B.R. at 584 (loans ultimately purchased or guaranteed by non-profit entities
generally excepted from discharge).2 The parties in this case disputed whether
TERI in fact guaranteed this Loan. In the affidavit of Bradley Luke, custodian of
records for NCSLT, he states that the Loan was guaranteed by TERI. The Debtor
moved to strike that statement. The bankruptcy court denied the motion to strike
as moot, stating that the court did not rely on that statement in rendering
judgment.3 The bankruptcy court declined to resolve the issue and adjudicated
summary judgment without making that determination. It concluded that TERI
played a meaningful part in the program regardless of whether it guaranteed the
Loan.
The only role mentioned by the court was that “TERI served in a plenary or
near-plenary capacity as the sole entity to which loan documents were submitted to
But see In re Wiley, 579 B.R. 1 (Bankr. D. Me. 2017)(holding that guarantee by
2
nonprofit institution is not, by itself, enough). This is the minority view.
3
In addition, there was guaranty language in Paragraph L.11 of the Agreement: “I
acknowledge that the requested loan is subject to the limit on dischargeability in
bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code.
Specifically, I understand that you have purchased a guaranty of this loan, and that
the loan is guaranteed by [TERI], a non-profit institution.” It is unclear if the
bankruptcy court considered this acknowledgment, as it made no mention of it in
its opinion.
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the Loan Program by regular mail or overnight delivery.” While the instructions
for submitting the application provided a P.O Box Number and address for TERI,
the facsimile number was not identified as TERI’s. It is unclear, therefore, whether
TERI received all of the loan applications. In addition, the bankruptcy court
admitted that the record did not reflect the method by which the Debtor submitted
her Agreement – just that it was submitted. Also, NCSLT does not assert that it
was TERI employees who processed the applications, merely that TERI spent
money on the facilities where the processing occurred.
In general, any evidence presented in connection with §523(a)(8) must be
viewed with the Congressional intent that exceptions to discharge be narrowly
construed against the creditor and liberally in favor of the debtor in order to
provide the debtor with comprehensive relief from the burden of his indebtedness.
In re Olson, 454 B.R. 466, 472 (Bankr. W.D. Mo. 2011). This principle applies
equally to student loan exceptions to discharge. See, e.g., In re Johnson, 215 B.R.
750, 753 (Bankr. E.D. Mo. 1997), aff'd, 218 B.R. 449 (B.A.P. 8th Cir.
1998)(applying, in the context of student loan debt, the well-established principal
that exceptions to discharge are to be narrowly construed).
Here, the bankruptcy court’s broad construction of the term “funded” is
inconsistent with Congress’ intent that exceptions to discharge be narrowly
construed. The evidence on which the bankruptcy court’s conclusion that TERI
funded the Loan is based is scanty. It was not established that TERI guaranteed the
loans, processed the loans, or even received all the loans. TERI merely provided
an address to which applications could be delivered, and that is not sufficient to
support the inference that TERI “funded” this loan program. Further, that
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inference was drawn in favor of NCSLT, the movant, rather than the Debtor as
legally required.
We are not in a position to make a factual finding on the issue of TERI’s
guarantee of the Loan since the bankruptcy court declined to make that finding.
We, therefore, remand this issue to the court for that determination and its legal
significance to the Loan’s dischargeability.
CONCLUSION
Based on the record below and considering the established case law on the
meaning of “educational loan,” we hold that the bankruptcy court did not err in
characterizing the Debtor’s Loan as an “educational loan” within the meaning of
§523(a)(8)(A)(i). However, we conclude that the bankruptcy court’s inference in
NCST’s favor that TERI “funded” the loan program was not reasonable as it was
not supported by the evidence. We, therefore, reverse and remand the issue
regarding TERI’s guarantee of the Loan and funding of the program for further
consideration in accordance with this opinion.
Accordingly, the judgment of the bankruptcy court is reversed and
remanded.
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