Zeno v. Department of Education

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

ALEXANDER ZENO,

Appellant,

v. Case No. MJM-22-2389

DEPARTMENT OF EDUCATION,

Appellee.

MEMORANDUM OPINION

This matter is before the Court on appeal by pro se Plaintiff/Appellant Alexander Zeno of

an Order issued by the United States Bankruptcy Court for the District of Maryland (the

“Bankruptcy Court”) on September 7, 2022, which granted Defendant/Appellee Department of

Education’s (“DOE”) motion to dismiss. ECF No. 1. The issue before the Court on appeal is

whether the Bankruptcy Court erred as a matter of law when it concluded that: (1) it did not have

subject matter jurisdiction regarding DOE’s ability to enforce or collect the at-issue loans; and (2)

the interest and penalties on Zeno’s student loan debt are excepted from discharge under 11 U.S.C.

§ 523(a)(8).1

This matter is fully briefed, and the Court has reviewed the briefs and record on appeal,

ECF Nos. 8 (Appellant’s Designation of the Record), 14 (Appellee’s Designation of the Record),

1 Zeno states that the issue for appeal is determining whether “[a]ll interest and penalties, pre and

post bankruptcy petition, must have been discharged because the loan in question is a loan of the 11 U.S.C.

§ 523(a)(8)(B) type and not of the 11 U.S.C. § 523(a)(8)(A) type.” ECF No. 15 at 4. However, the

Bankruptcy Court did not make a determination regarding this issue, and it is not before this Court on

appeal. Rather, the Bankruptcy Court found that Zeno’s claims must be dismissed notwithstanding whether

his loans were categorized under § 523(a)(8)(A) or § 523(a)(8)(B).

15 (Appellant’s Brief), and 18 (Appellee’s Brief). No hearing is necessary. Loc. R. 105.6 (D. Md.

2023). For the reasons below, the decision of the Bankruptcy Court is AFFIRMED.

I. BACKGROUND

In 1999, Zeno obtained consolidation loans from DOE totaling $86,363.11. See Certificate

of Indebtedness #1 of 1, Zeno v. Dep’t of Educ., No. 21-00172 (Bankr. D. Md. Dec. 22, 2021),

ECF No. 20-2. Thereafter, on March 3, 2016, Zeno took out another loan in the amount of

$2,746.00, on which he owed $3,171.44 as of October 26, 2021. Id.2 As of October 26, 2021, the

amount due and owing on the loans, including interest, was $193,811.17. Id. On September 23,

2014, Zeno filed for Chapter 7 voluntary bankruptcy. In re Alexander Zeno, No. 14-24770-TJC

(Bankr. D. Md. Sept. 23, 2014), ECF No. 1.

Zeno filed an adversary proceeding on July 2, 2021. ECF No. 8-2 at 9. The Amended

Complaint asserts four counts, each in the alternative to the others: (1) the money that Zeno

borrowed should be categorized under 11 U.S.C. § 523(a)(8)(B) rather than under § 523(a)(8)(A)

and, therefore, should be considered discharged; (2) because Zeno’s loan is a consolidated loan, it

should not be excepted from discharge; (3) interest and penalties should not be included as part of

the loan; and (4) at maximum, plaintiff should owe no more than the amount of debt he listed on

Schedule F of his Bankruptcy Petition, $137,601. ECF No. 8-3 at 2. Zeno specifically

acknowledges that he is not appealing the Bankruptcy Court’s findings with respect to Counts 2

2 The Court will refer to all of Zeno’s loans collectively as the “loan” or “loans.”

and 4.3 ECF No. 15 at 4 n.1.

Appellees filed a motion to dismiss or, in the alternative, for summary judgment. ECF No.

8-2 at 7. Following a motions hearing, the Bankruptcy Court dismissed the Amended Complaint

with prejudice on September 6, 2022. ECF No. 8-4 at 2. The Bankruptcy Court held, for the reasons

stated on the record during its motions hearing, that “plaintiff’s consolidated loans to the

Department of Education are excepted from discharge under 11 U.S.C. § 523(a)(8), provided,

however, that plaintiff’s request for a determination of the amount due on the loans is dismissed

for lack of subject matter jurisdiction.” Id.

Regarding Count 1 of Zeno’s Amended Complaint, the Bankruptcy Court acknowledged

Zeno’s contention “that his loans do not fall under section 523(a)(8)(A) because Defendant cannot

produce the promissory notes.” ECF No. 14-1 (hereinafter “Mots. Hr’g”) at 32:17–20.4 Ultimately,

however, the Bankruptcy Court found that that it lacked subject matter jurisdiction on this issue

and, instead, ruled only on Zeno’s argument that the loan should not have been excepted from

discharge.

The Bankruptcy Court observed that “Defendant has submitted an affidavit and numerous

exhibits that establish beyond any real question that the loans were made by [DOE] . . . [and qualify

3 Zeno states that “[t]he claim on Count 4 . . . is withdrawn. The claim on Count 2 is preserved for

argument before the Fourth Circuit because of precedent contrary to [his] position . . . .” ECF No. 15 at 4

(citing Sheer v. Educ. Cred. Mgmt. Corp., 245 B.R. 236 (D. Md. 1999), aff’d sub nom, In re Sheer, 229

F.3d 143 (4th Cir. 2000)). Zeno does not advance any arguments on appeal regarding the Bankruptcy

Court’s decisions with respect to Counts 2 or 4. Accordingly, this Court will not address either count, and

they will not be considered on appeal. See, e.g., Nelson v. Adams USA, Inc., 529 U.S. 460, 469 (2000) (court

must “be fairly put on notice as to the substance of the issue” on appeal); Malbon v. Pa. Millers Mut. Ins.

Co., 636 F.2d 936, 941 (4th Cir. 1980) (“It is elementary that an issue not raised below will not, absent

extraordinary circumstances . . . be considered on appeal.”); United States v. Lavabit, LLC (In re Under

Seal), 749 F.3d 276, 288 (4th Cir. 2014) (finding that appellant failed to preserve issue for appeal where it

“neither ‘plainly’ nor ‘properly’ identified [the] issues for the district court”).

4 For clarity of record, the Court will cite the Bankruptcy Court’s opinion by page and line

designations of the motions hearing transcript, rather than by ECF page number.

as] section 523(a)(8) loans and [Zeno’s] claim would fail by reference to these documents.” Id. at

33:15–24. Nonetheless, even accepting, arguendo, that the loans were categorized under

§ 523(a)(8)(B), the court held, in relevant part, as follows:

Section 523(a)(8)(B) excepts from discharge, as pertinent here, “any

other educational loan that is a qualified education loan as defined

in section 221(d)(1) of the Internal Revenue Code of 1986, incurred

by a Debtor that is an individual.”

Plaintiff’s reliance on [26] U.S.C. 221 to support his argument that

section 523(a)(8)(B) loans are not entitled to interest is misplaced.

26 U.S.C. section 221(d) defines qualified education loan as “any

indebtedness incurred by the taxpayer solely to pay the qualified

higher education expenses.” Nothing in this provision limits the

[debt] on the qualified education loans, principal only, or excluded

interest from the loan.

By its term, the provision applies to “any indebtedness.” Any

indebtedness includes all amounts due on the qualified education

loan, including interest and other charges.

Indeed, the entire point of 26 U.S.C. section 221 is to provide for

the tax deduction for interest paid on a qualified education loan and

to establish the maximum deduction allowed for interest. See 26

U.S.C. section 221(a) and (b).

It is wholly unconvincing to argue that a qualified education loan

under 26 U.S.C. section 221(d) does not include interest when the

very purpose of that provision is to allow for the deduction of

interest on such a loan.

Id. at 34:6–35:6.

Regarding Count 3, the Bankruptcy Court rejected Zeno’s argument that interest and other

charges are not included in the student loan for purposes of § 523(a)(8). Id. at 37:6. The court

acknowledged that “[t]he term debt is defined in [11 U.S.C. § 101(12)5] as liability on a claim.

Thus, under the plain meaning of the bankruptcy code and the ordinary use of the term, the statute

5 The Bankruptcy Court mistakenly cited 11 U.S.C. § 102, which deals with rules of construction,

rather than § 101, which provides definitions.

excepts from discharge Debtor’s liability on the student loan claim.” Id. at 37:12–16. Further,

“[n]othing in the statute limits the obligation to principal only.” Id. at 37:18–19. The court cited

numerous supportive decisions. See Kielisch v. Educ. Credit. Mgmt. Corp. (In re Kielisch), 258

F.3d 315, 321 (4th Cir. 2001) (“debtor remains personally liable for the full amount of the student

loan debt[,]” including interest)); Bruning v. United States, 376 U.S. 358, 360 (1964) (“interest is

considered to be the cost of the use of the amounts owing a creditor and an incentive to prompt

repayment and, thus, an integral part of a continuing debt”); Leeper v. Pa. Higher Educ. Assistance

Agency, 49 F.3d 98, 101 (3d Cir. 1995) (applying Bruning to student loan context and finding that

“if a tax debt was nondischargeable, post-petition interest on that debt would also be

nondischargeable”); Richardson v. Educ. Loan Servicing Ctr. (In re Richardson), No. 03-1168,

2005 WL 4677829, at *2 (Bankr. E.D. La. June 20, 2005) (“interest on student loan obligations is

not dischargeable”).

Accordingly, the Bankruptcy Court dismissed the four counts of Zeno’s complaint with

prejudice and dismissed Zeno’s request that the court determine the amount due on the loan for

lack of subject matter jurisdiction. Id. at 40:12–17.

On September 19, 2022, Zeno timely filed his Notice of Appeal from the Bankruptcy

Court’s decision. ECF No. 1.

II. LEGAL STANDARD

Zeno filed this bankruptcy appeal under 28 U.S.C. § 158(a). Bankruptcy appeals “shall be

taken in the same manner as appeals in civil proceedings generally are taken to the courts of

appeals from the district courts . . . .” 28 U.S.C. § 158(c)(2). On appeal, this Court reviews the

Bankruptcy Court’s findings of fact for clear error and conclusions of law de novo. See Devan v.

Phoenix Am. Life Ins. Co. (In re Merry-Go-Round Enters.), 400 F.3d 219, 224 (4th Cir. 2005); In

re Kielisch, 258 F.3d at 319.

Factual findings are clearly erroneous “only when the reviewing court ‘is left with the

definite and firm conviction that a mistake has been committed.’” Citizens Bank of Md. v. Broyles

(In re Broyles), 55 F.3d 980, 983 (4th Cir. 1995) (quoting Anderson v. Bessemer City, 470 U.S.

564, 573 (1985)). Moreover, “due regard shall be given to the opportunity of the bankruptcy court

to judge the credibility of witnesses.” Farouki v. Emirates Bank Int’l, 14 F.3d 244, 250 (4th Cir.

1994) (citing Fed. R. Bankr. P. 8013). So long as the bankruptcy court’s account of evidence is

plausible, the district court may not reverse the decision simply because it would have weighed

the evidence differently. In re Broyles, 55 F.3d at 983 (citing Anderson, 470 U.S. at 573);

McGahren v. First Citizens Bank & Trust Co. (In re Weiss), 111 F.3d 1159, 1166 (4th Cir. 1997).

If there are “two permissible views of evidence, the factfinder’s choice between them cannot be

clearly erroneous." In re Weiss, 111 F.3d at 1166 (citing Anderson, 470 U.S. at 573–74).

“[T]he decision of a bankruptcy court must be affirmed if the result is correct even if the

lower court relied upon a wrong ground or gave a wrong reason.” Okoro v. Wells Fargo Bank,

N.A., 567 B.R. 267, 271 (Bankr. D. Md. 2017) (internal quotation marks omitted) (quoting SEC v.

Chenery Corp., 318 U.S. 80, 88 (1943)). Thus, this Court “may affirm the bankruptcy court on any

ground supported by the record.” LeCann v. Cobham (In re Cobham), 551 B.R. 181, 189 (Bankr.

E.D.N.C. 2015), aff’d, 669 F. App’x 171 (4th Cir. 2016). Nonetheless, the district court “may

affirm, modify, or reverse a bankruptcy court’s judgment, order, or decree or remand with

instructions for further proceedings.” Harman v. Robertson, 772 F.2d 1150, 1153 n.3 (4th Cir.

1985); Fed. R. Bankr. P. 8013.

Filings by pro se litigants are held “to less stringent standards than formal pleadings drafted

by lawyers.” Folkes v. Nelsen, 34 F.4th 258, 272 (4th Cir. 2022) (quoting Haines v. Kerner, 404

U.S. 519, 520 (1972)). Accordingly, the Court must construe pro se pleadings liberally. Bing v.

Brivo Sys., LLC, 959 F.3d 605, 618 (4th Cir. 2020), cert. denied, 141 S. Ct. 1376 (2021); see also

Fed. R. Civ. P. 8(f) (“All pleadings shall be so construed as to do substantial justice”). The Court

will not “attempt to discern the unexpressed intent of the plaintiff,” but will “determine the actual

meaning of the words used in the complaint.” Williams v. Ozmint, 716 F.3d 801, 805 (4th Cir.

2013) (internal quotations and citation omitted).

III. ANALYSIS

Zeno’s primary arguments on appeal is that the Bankruptcy Court erred in holding that his

loans were subject to interest and penalties and were not dischargeable under 11 U.S.C.

§ 523(a)(8)(B). ECF No. 15 at 4–5. For the reasons stated below, the Court affirms the Order

issued by the Bankruptcy Court dismissing Zeno’s complaint with prejudice.

A. The Bankruptcy Court did not err in concluding that it lacked subject matter

jurisdiction regarding DOE’s ability to enforce or collect the at-issue loans.

In his appeal brief, Zeno contends that, because DOE has not produced the promissory

notes relating to his loan, the loan cannot be classified as a guaranteed student loan. ECF No. 15

at 7–8.

Preliminarily, the Bankruptcy Court did not make a determination regarding the impact of

DOE’s inability to produce promissory notes on Zeno’s loan. Mots. Hr’g at 33:8–10. Rather, it

noted that “the effect of Defendant’s inability to produce the notes . . . on Defendant’s ability to

enforce or collect the loans is not before me.” Id. Indeed, the court correctly observed that it lacked

subject matter jurisdiction regarding DOE’s ability to enforce or collect the loan. Mots. Hr’g at

33:13–14. As the Fourth Circuit has explained:

“Federal bankruptcy courts, like the federal district courts, are courts

of limited jurisdiction.” Canal Corp. v. Finnman (In re Johnson),

960 F.2d 396, 399 (4th Cir. 1992). Two statutes govern jurisdiction

over bankruptcy proceedings, 28 U.S.C. §§ 157 and 1334. Under the

latter statute, district courts “have original and exclusive jurisdiction

of all cases under title 11,” and “original but not exclusive

jurisdiction of all civil proceedings arising under title 11, or arising

in or related to cases until title 11.” § 1334(a), (b). Under § 157,

district courts can refer § 1334(a) and (b) cases to bankruptcy courts.

§ 157(a). While subject matter jurisdiction is determined by § 1334,

the application of § 157(b) and (c) determines the bankruptcy court's

authority to act once that jurisdiction is established. See Valley

Historic Ltd. P’ship v. The Bank of New York, 486 F.3d 831, 839 n.3

(4th Cir. 2007).

Educ. Credit Mgmt. Corp. v. Kirkland (In re Kirkland), 600 F.3d 310, 315 (4th Cir. 2000).

In re Kirkland, the Fourth Circuit held that the Bankruptcy Court lacked subject matter

jurisdiction regarding the creditor’s “claim to post-petition interest and collection costs [because

that issue] is not a matter ‘under Title 11,’ nor is it a civil proceeding ‘arising in,’ or ‘related to’

[the debtor’s] bankruptcy petition. This is so because [the creditor’s] claims to post-petition

interest and collection costs arose entirely independent from [the debtor’s] bankruptcy

proceeding.” Id. at 316.

Similarly, in this case, the Bankruptcy Court lacked jurisdiction regarding DOE’s ability

to enforce or collect the loan—and interest, collection costs, or penalties associated therewith—

because such an action “is based on a contractual right created by the loan agreement and . . . the

right to collect . . . interest is not affected by or part of the bankruptcy proceeding.” Id. Thus, it

cannot be said to be an issue that “arises under Title 11.” Id. The Bankruptcy Court did not err in

finding that it lacked subject matter jurisdiction regarding the impact of DOE’s inability to produce

promissory notes on DOE’s ability to enforce or collect Zeno’s loans.

B. The Bankruptcy Court did not err in concluding that the interest and penalties on

the loans are excepted from discharge under 11 U.S.C. § 523(a)(8)(B).

Zeno next argues that the Bankruptcy Court erred in concluding that interest and penalties

on qualified education loans under 11 U.S.C. § 523(a)(8)(B) are not dischargeable.6 ECF No. 15

at 9. He similarly argues that student loans classified under § 523(a)(8)(B) “must be limited to the

money borrowed” and cannot include interest or penalties. Id. at 8.

Preliminarily, under 11 U.S.C. § 523(a):

(a) A discharge under . . . this title . . . does not discharge an

individual debtor from any debt . . .

(8) unless excepting such debt from discharge under this

paragraph would impose an undue hardship on the debtor and

the debtor’s dependents, for—

(A)

(i) 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

(ii) an obligation to repay funds received as an

educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education

loan, as defined in [26 U.S.C. § 221(d)(1)], incurred by a

debtor who is an individual . . .

This language “means that three categories of educational debt cannot be discharged in

bankruptcy: (1) loans and benefit overpayments backed by the government or a nonprofit [see 11

U.S.C. § 523(a)(8)(A)(i)]; (2) obligations to repay funds received as an educational benefit,

scholarship, or stipend [see id. § 523(a)(8)(A)(ii)]; and (3) qualified private educational loans [see

6 Zeno does not contest that interest and penalties would be excepted from discharge if his loan were

categorized under § 523(a)(8)(A). Nonetheless, the Bankruptcy Court found that—notwithstanding the

DOE’s affidavit and exhibits supporting that the loan is covered by § 523(a)(8)(A)—Zeno’s claims would

be dismissed even if the loan were categorized under § 523(a)(8)(B).

id. § 523(a)(8)(B)].” Homaidan v. Sallie Mae, Inc., 3 F.4th 595, 601 (2d Cir. 2021); see also

Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206, 217 (5th Cir. 2019).

Ultimately, the Bankruptcy Court did not decide whether Zeno’s loan was classified under

§ 523(a)(8)(A) or § 523(a)(8)(B). Rather, it held that Zeno’s claims failed irrespective of the

statutory category under which the loan was classified. Mots. Hr’g at 34:6–35:6. That is, the court

held, under either section, Zeno’s “indebtedness includes all amounts due on the qualified

education loan, including interest and other charges.” Id. at 34:20–22.

Zeno appears to argue that the Bankruptcy Court improperly relied on Supreme Court and

Fourth Circuit precedent, respectively, in Bruning, 376 U.S. 358, and In re Kielisch, 258 F.3d 315.

In this regard, he argues the Bankruptcy Court—and, by extension, the Supreme Court and Fourth

Circuit—incorrectly interpreted 11 U.S.C. § 523 and 28 U.S.C. § 221 because these statutes do not

explicitly define a “student loan” as encompassing interest and/or penalties.7

Zeno’s argument fails. As the Bankruptcy Court correctly observed:

Section 523(a)(8)(B) excepts from discharge, as pertinent here, “any

other educational loan that is a qualified education loan as defined

in section 221(d)(1) of the Internal Revenue Code of 1986, incurred

by a Debtor that is an individual.” . . . 26 U.S.C. section 221(d)

defines qualified education loan as “any indebtedness incurred by

the taxpayer solely to pay the qualified higher education expenses.”

Nothing in this provision limits the depth on the qualified education

loans, principal only, or excluded interest from the loan. By its term,

the provision applies to “any indebtedness.” Any indebtedness

includes all amounts due on the qualified education loan, including

interest and other charges.

Mots. Hr’g at 34:6–22.

7 Zeno does not challenge the Bankruptcy Court’s conclusion that consolidated loans are excepted

from discharge. ECF No. 15 at 4 n.1. Indeed, the Bankruptcy Court correctly concluded that, by the plain

language of 26 U.S.C. § 221(d), “a consolidation loan of a qualified education loan is indeed a qualified

education loan and therefore is involved under section 523(a)(8)(B).” Mots. Hr’g at 35:23–36:1.

The Bankruptcy Court’s findings are supported by the plain language of the statute itself

as well as existing precedent, namely, Bruning and In re Kielisch.8 In Bruning, the Supreme Court

held that “post-petition interest on an unpaid tax debt not discharged by [§ 17 of the Bankruptcy

Act] remains, after bankruptcy, a personal liability of the debtor.” 376 U.S. at 363. In re Kielisch,

the Fourth Circuit extended the Bruning rationale to the student loan context, holding that “interest

continues to accrue during the pendency of the bankruptcy proceedings and . . . the debtor remains

personally liable for the full amount of the student loan debt.” 258 F.3d at 321. As the Bankruptcy

Court recognized, several other courts have similarly found that student loan interest is not

dischargeable. See, e.g., United States Dep’t of Educ. v. Blair (In re Blair), 301 B.R. 181 (Bankr.

D. Md. 2003) (“post-petition interest on the student loan continues to accrue during bankruptcy

proceedings and, absent proof of undue hardship, the debtor remains personally liable for the full

amount of the student loan debt—i.e., both the principal and interest”) (internal quotation marks

and citation omitted); Leeper, 49 F.3d at 101 (applying Bruning to student loan context and finding

that “if a tax debt was nondischargeable, post-petition interest on that debt would also be

nondischargeable”); In re Richardson, 2005 WL 4677829 at *3 (debtor’s “nondischargeable

liability for the student loan obligation includes both pre- and post-petition interest”); In re

Sullivan, 195 B.R. 649, 653 (Bankr. W.D. Tex. 1996) (debtor remains liable post-discharge for

nondischargeable post-petition interest accruing on student loan claim).

This Court affirms the Bankruptcy Court’s conclusion that Bruning and In re Kielisch,

taken together, establish that interest on a student loan obligation is not dischargeable under §

8 Zeno argues this Court is not bound by Bruning and In re Kielisch because they are factually

dissimilar from the present case. But the Bankruptcy Court’s decision is not “contrary to law simply because

it applied existing case law precedent in this factually distinguishable, subsequent case. Indeed, to say that

case law is often applied to factually different, later cases would be an understatement.” Murphy v.

Freightliner Custom Chassis Corp., No. 2:16-CV-226, 2016 WL 10880159, at *3 (S.D. Ohio Nov. 17,

2016).

523(a)(8). As such, the Bankruptcy Court did not err in finding that Zeno’s student loan (principal

and interest) was not dischargeable.

IV. CONCLUSION

For the reasons stated herein, the Court affirms the Order issued by the Bankruptcy Court

dismissing Zeno’s complaint with prejudice.

A separate Order will issue.

March 28, 2024 /S/

Matthew J. Maddox

United States District Judge