The opinion
VECeCMDer VO, □□□□□
Clerk, U.S. Bankruptcy Court
Below is an opinion of the court.
Dawid) Ws Horde
DAVID W. HERCHER
U.S. Bankruptcy Judge
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF OREGON
In re
Steven Alan Stein and Terra Lyn Case No. 09-65587-dwh13
Stein,
Debtors.
Terra Lyn Stein, Adversary Proceeding
No. 22-06012-dwh
Plaintiff,
MEMORANDUM DECISION
V. ON MOTIONS FOR
SUMMARY JUDGMENT!
National Collegiate Student
Loan Trust 2006-2, a Delaware
statutory trust, and National
Collegiate Student Loan
Trust 2007-3, a Delaware statutory
trust,
Defendants.
1 This disposition is specific to this action. It may be cited for whatever
persuasive value it may have.
Page 1 - MEMORANDUM DECISION ON MOTIONS FOR SUMMARY ete.
I. Introduction
Terra Lyn Stein, a chapter 13 debtor, completed her plan and received
a discharge in 2014. This year, she brought this action against two student
loan creditors, and in the main case she has moved that they be held in -
contempt.2 Both this action and the contempt motion pertain to
prebankruptcy loans that the creditors have attempted to collect since she
received her discharge. She argues that the loans have been discharged and
that the creditors’ postpetition collection efforts are discharge violations.
They argue that the loans were automatically excepted from discharge under
11 U.S.C. § 523(a)(8)(A)(i), so the postpetition collection efforts are lawful.
She disputes their claim under section 523(a)(8)(A)(i) and separately argues
that the loans are dischargeable under 523(a)(8)(B).
Neither Stein, on one hand, or the creditors, on the other, have
demonstrated the absence of a genuine dispute of material fact and that they
are entitled to judgment as a matter of law. I will deny both motions.
II. Undisputed facts
A. Facts alleged by creditors
The following facts are asserted by the creditors and accepted by Stein.
2 No. 09 65587 ECF No. 65.
1. Paragraphs 1 through 20 of creditors’ concise
statement of material facts
On March 15, 2006, Stein took out loan 1, a student loan for $14,000
from Charter One Bank, N.A., the predecessor in interest of National
Collegiate Student Loan Trust 2006 2, in connection with her attendance at
Chemeketa Community College (CC-C) in Salem, Oregon.3
On July 18, 2007, while attending Western Oregon University (WOU),
Stein took out loan 2, a loan for $25,000 from Bank of America, N.A., the
predecessor in interest of National Collegiate Student Loan Trust 2007 3.4
Both loans were obtained for an educational purpose.5 On the No-te
Disclosure Statements for both loans, she is identified as “Student.”6
The credit agreements for both loans specifically identify the loans as
educational loans. The loan 1 agreement identifies the loan as a “CFS Private
Education Undergraduate Loan,” and it states that the loan was made for the
“Academic Period: 04/2006–06/2006” for Stein to attend CCC. The loan 2
agreement identifies the loan as an “Education Maximizer Undergraduate
Loan,” and it states that the loan is made for the “Academic Period: 07/2007–
05/2008” for her to attend WOU.7
3 ECF No. 22 at 2 ¶ 1; ECF No. 31 at 1 ¶ 1.
4 ECF No. 22 at 2 ¶ 3; ECF No. 31 at 2 ¶ 3.
5 ECF No. 22 at 4 ¶ 18; ECF No. 31 at 3 ¶ 18.
6 ECF No. 22 at 4 ¶ 20; ECF No. 31 at 3 ¶ 20.
7 ECF No. 22 at 4 ¶ 19; ECF No. 31 at 3 ¶ 19.
After the bankruptcy case closed, the creditors sued Stein in Marion
County, Oregon, Circuit Court to collect the remaining balance of the loans in
two separate collection actions.8 The creditors each incurred a court cost. The
creditors obtained judgments in January 2016.10
2. Paragraph 21 of creditors’ statement
In part III.C.1 below, I address paragraph 21 of the creditors’ concise
statement of material facts.
3. Paragraphs 22 through 24 of creditors’ statement
The Articles of Organization of The Educational Resources Institute,
Inc. (TERI), state that it, as a nonprofit, was organized under the
Massachusetts nonprofit statute to be “operated exclusively for charitable
and educational purposes.”11 TERI is described as a nonprofit institution on
the Secretary of the Commonwealth of Massachusetts’s website.12
B. Facts alleged by Stein
The following facts are asserted by the Stein and accepted by the
creditors.
The petition date was October 15, 2009.13
Stein completed her chapter 13 plan and received her discharge on
October 28, 2014.14
8 ECF No. 22 at 2 ¶ 8; ECF No. 31 at 2 ¶ 8.
10 ECF No. 22 at 3 ¶¶ 9–10.
11 ECF No. 22 at 5 ¶ 23; ECF No. 31 at 3 ¶ 23.
12 ECF No. 22 at 6 ¶ 24; ECF No. 31 at 3 ¶ 18.
13 ECF No. 17 at 2 ¶ 10; ECF No. 27 at 3 ¶ 10.
14 ECF No. 17 at 3 ¶ 13; ECF No. 27 at 4 ¶ 13.
III. Analysis
This decision addresses four summary judgment motions, one filed by
each of Stein15 and the creditors16 in this acti-on and in the main case. Due to
the overlap of issues in this action and the main case, there are essentially
just two motions to consider. I will refer only to papers the parties have filed
in this action, which are essentially identical to those filed in the main case.
References to papers filed in the main case will include the main case’s
number, 09 66587, as well as the paper’s ECF number; references to papers
filed in this- action will include just the ECF number. I will file this decision
in the main case, as well as in this action.
Although Stein’s motion was filed first, the creditors have the burden
of proving nondischargeability, and her summary-judgment task is
essentially to prove a negative—that the loans do not fall into any of the
categories of nondischargeable debts. It thus makes sense to turn first to the
creditors’ arguments and focus on their asserted bases for
nondischargeability.
The creditors argue that Stein is barred by laches from contending that
the loans are nondischargeable and, alternatively, that the loans are
nondischargeable under 523(a)(8)(A)(i). She contests the creditors’ positions
and argues that the loans are dischargeable under 523(a)(8)(B).
15 ECF No. 16; No. 09 65587 ECF No. 78.
16 ECF No. 19; No. 09 65587 ECF No. 83.
A. Laches
1. Availability of laches in a creditor’s
nondischargeability action
The Ninth Circuit Court of Appeals’ 2002 decision in Beaty v. Selinger
(In re Beaty) addressed the role of laches in a creditor’s action seeking
determination that the creditor’s claim was nondischargeable under
523(a)(3)(B). Generally, a creditor’s action to determine the dischargeability
of a claim described in 523(a)(2), (4), or (6) must be brought within 60 days
after the first date set for the meeting of creditors.17 But if the debtor fails to
schedule the creditor’s claim and address in time to permit the creditor to
timely file a proof of claim and bring a dischargeability action, 523(a)(3)(B)
and Federal Rule of Bankruptcy Procedure 4007(b) permit the creditor to
bring the action “at any time.”18 In Beaty, the creditor was covered by
523(a)(3)(B), but he waited five years after learning of the discharge to bring
his nondischargeability action in bankruptcy court. The debtor raised laches
as a bar to the action.
The court began by acknowledging that, as a general principle, laches
is available upon “proof of (1) lack of diligence by the party against whom the
defense is asserted, and (2) prejudice to the party asserting the defense.”19
The court then recognized the “presumption that the equitable doctrine of
17 11 U.S.C. § 523(c)(1); Fed. R. Bankr. P. 4007(c).
18 Fed. R. Bankr. P. 4007(b).
19 Beaty, 306 F.3d at 926, quoting Kansas v. Colorado, 514 U.S. 673, 687
(1995).
laches, which has as its goal the prevention of prejudicial delay in the
bringing of a proceeding, is a relevant and necessary doctrine in the
bankruptcy context.”20
The court read 523(a)(3)(B) and Rule 4007(b) “as directing bankruptcy
courts to be especially solicitous to a § 523(a)(2)(B) claimant when laches is
invoked, and refuse to bar an action without a particularized showing of
demonstrable prejudicial delay.” The court also held that “there is a strong
presumption that a delay [in bringing a 523(a)(3)(B) action] is reasonable for
purposes of laches,” and “[a] party asserting laches as a defense to a
complaint filed under § 523(a)(3)(B) must make a heightened showing of
extraordinary circumstances and set forth a compelling reason why the action
should be barred.”21
2. Availability of laches in a debtor’s dischargeability
action
Here, as in Beaty, there is no express deadline for an action to
determine a debt’s dischargeability, and by rule the action could have been
brought “at any time.”22 The only material difference is that the action in
Beaty was brought by the creditor, and here it is brought by the debtor, Stein.
Stein makes several arguments against application of laches to bar a
debtor’s dischargeability action: (1) the bankruptcy discharge operates as an
20 306 F.3d 914, 922 (9th Cir. 2002).
21 Beaty, 306 F.3d at 926.
22 Fed. R. Bankr. P. 4007(b).
injunction and a nonwaivable defense; (2) whether a debt is dischargeable
can be unclear; and (3) application of laches to a debtor’s action to enforce the
discharge injunction would deprive her of the benefit of the discharge without
any determination that it is nondischargeable.23 Although Beaty didn’t
address those questions (it was an appeal from an action brought by a
creditor), neither did it suggest that its holding applies only to laches
asserted by a creditor. And she has cited no case holding that laches does not
apply to a creditor’s dischargeability action. Her arguments, if accepted,
would make laches categorically unavailable in a creditor’s
nondischargeability action, and they are thus inconsistent with Beaty.
Although laches is potentially available under Beaty as a defense in an
action by a bankruptcy debtor seeking a determination that a debt was
discharged, that case also requires that a creditor asserting laches make a
particularized showing of demonstrable prejudicial delay and a heightened
showing of extraordinary circumstances and a compelling reason why the
action should be barred.
3. Delay; lack of diligence
Under Beaty, determining whether a plaintiff has failed to act
diligently requires an examination of both the length of the delay between
the plaintiff learning of a basis for a nondischargeability action and bringing
that action, on one hand, and of the circumstances surrounding that delay,
23 ECF No. 30 at 2.
including [the plaintiff’s behavior during the interim period, on the other
hand.24
Stein’s discharge was entered on October 28, 2014.25 She alleges that
National Collegiate Student Loan Trust 2006 2 sued her on May 15, 2015.26
She does not allege when National Collegiate -Student Loan Trust 2007 3
sued her, but she provides the case numbers for both actions, and both -begin
with 15,27 indicating that they were filed in 2015. There is no evidence that
she learned of the creditors’ positions that the loans were not discharged
until she was served with their state-court complaints in 2015. Stein moved
to reopen her bankruptcy case, thereby beginning the process of seeking a
determination of the debts’ dischargeability, on April 15, 2022.28 So, more
than six years passed after she learned that there was a dispute about the
dischargeability of the loans and before she filed this action.
Stein does not satisfactorily explain her six-year delay. Her declaration
says that she “did not have independent information or knowledge regarding
the dischargeability of these loans and how the Bankruptcy Code may or may
not have limited their dischargeability in a bankruptcy.”29 But she offers no
legal support for the proposition that a would-be litigant’s ignorance of the
24 Beaty, 306 F.3d at 927.
25 No. 09 66587 ECF No. 55.
26 ECF No. 20 at 3 ¶ 12.
27 ECF N-o. 20 at 3:10–20 ¶¶ 12–13.
28 No. 09 66587 ECF No. 58.
29 ECF No. 32 at 2.
law makes her delay less unreasonable. The requirement of diligence entails
making reasonable efforts to inform oneself about one’s rights.
Stein also says in her declaration that she “did not have or receive any
additional, independent knowledge or information regarding TERI” when she
obtained the loans. The significance of this statement about TERI’s
involvement appears to be that the creditors now take the position that
TERI’s involvement makes the loan nondischargeable. She reasons that
because she didn’t know what TERI was, she couldn’t have anticipated that
its involvement would create any doubt about the dischargeability of the
debt. But she unequivocally knew that the creditors considered the loans
nondischargeable when they sued her in 2015. Even if she had no idea why
the creditors took that position, she certainly knew that they did, and she
does not explain why she nevertheless waited another six years to seek relief.
I conclude that the evidence in the summary-judgment record shows
beyond dispute that the more-than-six-year delay from service of the state-
court complaints in 2015 to filing this action in 2022 was unreasonable.
By contrast, I have no evidence that Stein’s delay before service of the
complaints was unreasonable. Although she could have initiated an action to
determine the dischargeability of the creditors’ claims at any time after she
filed her petition in 2009, the same could be said of the creditors. And to say
that she, rather than the creditors, is at fault for not having brought the
action sooner suggests that all education-related debts are presumptively
nondischargeable and that any delay in bringing a dischargeability action is
per se chargeable to the debtor, rather than the creditor. That approach
would require prejudging whether a particular loan satisfies one of the
particular 523(a)(8) nondischargeability grounds. There are good reasons, of
which cost is the most obvious, that a debtor would prefer to wait and see
what the creditor does before seeking a dischargeability ruling. So, it was not
undisputedly unreasonable for her to wait until she became aware of the
creditors’ intent to collect before she filed this action.
Having determined that it was reasonable for Stein to wait to
commence this action until she had been served with the creditors’
complaints in 2015, but not thereafter, I turn to whether that delay
prejudiced the creditors.
4. Prejudice
Although laches requires showing both unreasonable delay and
prejudice, Beaty teaches that laches “is primarily concerned with prejudice,”
rather than timing.30
Here, the creditors argue that they have suffered prejudice in two
ways, which they describe as evidentiary and “expectations-based.”31
(a) Evidentiary prejudice
The creditors’ only argument for evidentiary prejudice is that—
30 Beaty, 306 F.3d at 924.
31 ECF No. 21 at 6, citing Danjaq LLC v. Sony Corp., 263 F.3d 942, 955 (9th
Cir. 2001).
it has been more than six years since Creditors filed the
collection actions . . .. The multiple transfers of files needed to
assemble the information, including copying copies of scans of
documents, necessarily degrades the picture quality of the
evidence.32
The creditors do not support this argument by pointing to any examples of
documents whose visibility has degraded to the point of being unusable as
evidence. They thus fail to comply with Beaty’s requirement to demonstrate
prejudicial delay by a “particularized showing.”
In the creditors’ reply brief, they introduce a new evidentiary-prejudice
argument: satisfying their burden of proving that each of the loans is a
“qualified education loan” 523(a)(8)(B) has become more difficult with the
passage of time, because “obtaining and reconstructing this evidence
necessarily becomes progressively more difficult, if even possible, as more
time passes.”33
As with the image-quality argument, this new evidence-reconstruction
argument is too general to support laches. The creditors have not pointed to
any evidence that they have had difficulty obtaining due to the passage of
time. Of course, it’s true that documents from old transactions typically
become harder to track down as time passes. But if that general proposition
sufficed to establish laches, then laches would bar every complaint filed after
any significant delay. That would be inconsistent with Beaty’s requirement
32 ECF No. 21 at 6.
33 ECF No. 35 at 4.
that the reasonableness of delay “must in every case depend on the peculiar
equitable circumstances of that case.”34
The creditors have not demonstrated that they have suffered
evidentiary prejudice.
(b) Expectations-based prejudice
Concerning “expectations” prejudice, the creditors say that they
“expended tangible financial costs to procure the judgments in the collection
actions.”35 The specific expenditures that they identify in their motion are
costs of $502 that each incurred “to obtain” their state-court judgments (they
concede that the 2006-2 trust recovered its $502 by judgment collection).36
The judgment copies that the creditors attached to their motion as Exhibits A
and B recite that each includes “total costs and disbursements based upon
ORS 20.115 (4) in the sum of $502.00 . . ..”37 Oregon Revised Statutes (ORS)
§20.115(4) permits recovery in a circuit court action of “any reasonable costs
of service if the party has a contract right to recover those costs.” Because the
judgments’ specific reference to the statute allowing recovery of service costs
is consistent with the creditors’ allegation that the costs were incurred to
34 Beaty, 306 F.3d at 927, quoting Goodman v. McDonnell Douglas, 606 F.2d
800, 805–06 (8th Cir. 1979), quoting The Key City, 81 U.S. (14 Wall.) 653,
660, 20 L.Ed. 896 (1871).
35 ECF No. 83 at 6.
36 ECF No. 22 at 4 ¶¶ 16, 17; ECF No. 31 at 2–3 ¶¶ 16, 17.
37 ECF No. 21 at 6, Ex. A at 1:16–18, Ex. B at 1:16–18.
“obtain” judgment, I will treat the creditors as alleging that the $502 cost
that each incurred was for the cost of service.
Whether a cost that a defendant incurs constitutes expectations-based
prejudice warranting laches turns on whether the defendant would have
avoided the cost had the plaintiff brought the action without unreasonable
delay. Here, Stein did not learn of the creditors’ position that their loans were
not discharged until she was served with their state-court complaints. But
even if she had brought this action, or counterclaimed in the state-court
actions, immediately after being served with each creditor’s complaint, the
creditors would already have incurred the service costs. In other words, her
delay, after she was served, in bringing this action could not have caused the
creditors to incur the service costs.
In addition to the quantified $502 expenditure that each creditor
incurred, they also argue that they have suffered expectations-based
prejudice by (1) spending time pursuing collection of these loans, which would
have been spent on other loans had these loans earlier been determined to be
discharged, and (2) incurring legal fees to defend this action.38 They don’t
quantify their collection effort and thus haven’t made a “particularized
showing” of prejudice from that effort. More importantly, they don’t
demonstrate a causal relationship between Stein’s delay and their collection
efforts. If their collection efforts were made relatively soon after judgment in
38 ECF No. 21 at 7.
early 2016, then her delay causing those efforts to have been incurred would
have been correspondingly shorter, not six years; there is no basis in this
record to determine whether the actual delay was unreasonable. And the
creditors do not explain why the expense they have spent defending this
action would have been reduced had she brought this action sooner, so her
delay had no causal connection to that prejudice.
The creditors have not demonstrated that they suffered expectations-
based prejudice.
* * *
Because the creditors have not demonstrated that Stein’s delay in
bringing this action caused them either evidentiary or expectations-based
prejudice, I cannot grant the creditors summary judgment that laches bars
this action.
B. Creditors’ acquisition of the loans
Stein objects to admission of a statement by declarant Bradley Luke
that the loans were sold by the originators and ultimately acquired by
“National Collegiate Student Loan Trust.”39 But she accepted the creditors’
allegations that each of the loan originators—Charter One and Bank of
America—was a “predecessor in interest” of the corresponding trust.40 She
39 ECF No. 29 at 2:7–9, citing ECF No. 21 Ex. D at 5 ¶ 17, Ex. D 7 at 5.
40 ECF No. 22 at 2 ¶¶ 1, 3; ECF No. 31 at 1–2 ¶¶ 1, 3.
has thus conceded that those banks originated the loans and that the trusts
are the current loanholders.
Stein also objects to admission of statements that the loans’ servicing
rights were transferred,41 Luke’s employer was engaged as subservicer,42 and
a new trustee was appointed for the creditors.43 But her arguments in
support of her motion and against the creditors’ motion do not rely on, or
even refer to, the absence of evidence on those points.
C. Nondischargeability under 523(a)(8)(A)(i)
In the creditors’ motion, they argue that the loans are excepted from
discharge under 523(a)(8)(A)(i), which creates a discharge exception 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[.]”44 The creditors do not argue
that the loans were made, insured, or guaranteed by a governmental unit or
made under a program funded by a governmental unit.
Although one phrase in Stein’s supporting memorandum disputes
whether the creditors can demonstrate that each of her loans was “an
educational loan . . . of the kind described in section 523(a)(8),”45 she offers no
specific reasons why the loans should not be considered to be educational
41 ECF No. 29 at 2:9–10, citing ECF No. 21 Ex. D at 2 ¶ 4, Ex. D 1.
42 ECF No. 29 at 2:10–12, citing ECF No. 21 Ex. D at 2 ¶ 4, Ex. D 1.
43 ECF No. 29 at 2: 11–13, citing ECF No. 21 Ex. D at 2 ¶ 4, Ex. -D 7.
44 ECF No. 21 at 7. -
45 ECF No. 18 at 4:16–20. -
loans under 523(a)(8)(A)(i).46 Her specific argument about loan
characterization is limited to whether each of the loans is covered by
523(a)(8)(B) as a “qualified education loan.”47 I will address that question in
part III.D below.
The disputed issue under 523(a)(8)(A)(i), then, is just whether the
loans were made under programs funded in whole or in party by a nonprofit
institution.
1. Whether Stein admitted that TERI guaranteed the
loan programs
Paragraph 21 of the creditors’ concise statement is two sentences. The
first is: “The loan programs pursuant to which the Loans were issued were
guaranteed by The Education Resources Institute (‘TERI’), a non-profit
institution.” The second sentence is several citations, including quotations
from excerpts from the two credit agreements.
At first blush, because paragraph 21 of Stein’s response to the
creditors’ fact statement says simply “Accepted,”48 she appears to have
unqualifiedly accepted their allegation that TERI guaranteed the loans. And
the creditors so argue in their reply.49 But for two reasons, I conclude that
she meant that her paragraph 22 be her response to the creditors’
paragraph 21. First, the two sentences in her paragraph 22 appear
46 ECF No. 22 at 4 ¶ 19; ECF No. 31 at 3 ¶ 19.
47 ECF No. 18 at 7:24 – 9:8.
48 ECF No. 31 at 3 ¶ 21.
49 ECF No. 35 at 5.
responsive to the creditors’ paragraph 21, rather than to their paragraph 22.
Second, her inclusion of a paragraph 25 in her response when no
paragraph 25 appears in the creditors’ fact statement is consistent with her
having accidentally included an additional “Accepted” paragraph as
paragraph 21; if her paragraph 21 were omitted and the remaining
paragraphs renumbered, her paragraph 21 (current paragraph 22) would
logically respond to the creditors’ paragraph 21, and there would be no
superfluous paragraph 25.
Even treating Stein’s paragraph 22 as responsive the creditors’
paragraph 21, it’s not clear whether she accepts or denies their allegation
that “the loan programs were guaranteed by [TERI], a nonprofit
institution.”50 Her paragraph 22 consists of two sentences. The first accepts
the creditors’ paragraph 21 “insofar that” the two credit agreements refer to
TERI as either guaranteeing the loans or funding the loan programs. In the
second sentence, she “denies, however, having any additional, independent
knowledge or information” about TERI’s role vis-à-vis the loans and whether
the loans and loan programs “were in fact guaranteed, fully funded, or
partially funded by TERI.” The second sentence’s denial addresses only her
lack of knowledge, other than by having read the credit agreements, of
TERI’s role as guarantor or funder. She neither specifically denies the
creditors’ allegation that TERI in fact guaranteed the loans nor generally
denies the balance of the creditors’ paragraph 21. On the other hand, in her
opposition to the creditors’ motion, filed on the same day as her response to
the creditors’ fact statement, she disputes whether the creditors’ motion
demonstrates that TERI guaranteed the loans.51
Through November 30, 2022, Local Bankruptcy Rule (LBR) 7056 1
governed summary-judgment motions in this district and thus governed-
these motions. Under that rule, a summary-judgment movant’s fact
allegations “may be deemed admitted unless specifically denied or otherwise
controverted by a separate concise statement of the opposing party.” For
three reasons, I will exercise my discretion not to deem her to have admitted
the creditors’ statement that TERI guaranteed the loans: (1) her response is
unclear, (2) she separately and simultaneously contests whether the creditors
have demonstrated that TERI guaranteed the loans, and (3) the local rule
uses “may,” rather than “must.”
2. Creditors’ evidence that TERI guaranteed the loan
programs
As support for the creditors’ allegation that TERI guaranteed the loan
programs, they cite in the second sentence of paragraph 21 of their fact
statement paragraphs 11 and 12 of Luke’s declaration and the credit
agreements.52 Those paragraphs identify and refer to attached copies of the
credit agreements.
51 ECF No. 30 at 5:10 – 7:14.
52 ECF No. 22 at 5 ¶ 21; ECF No. 21 Ex. D at 5–6 ¶¶ 11–12.
Both credit agreements are voiced as the borrower speaking to the
lender. The loan 1 agreement says, “I understand that you have purchased a
guaranty of this loan, and that this loan is guaranteed by The Education
Resources Institute, Inc. (‘TERI’), a non-profit institution.”53 The loan 2
agreement includes the following statement, a portion of which is quoted in
the second sentence of paragraph 21:
I acknowledge that . . . either or both of the following apply:
(a) this loan was made pursuant to a program funded in whole
or in part by The Education Resources Institute, Inc. (“TERI”), a
non-profit institution, or (b) this is a qualified education loan as
defined in the Internal Revenue Code.54
In the creditors’ motion, as other evidence that TERI guaranteed the
loan programs under which the loans were issued, the creditors cite
documents attached to Securities and Exchange Commission Forms 8 K.55
In Stein opposition to the creditors’ motion, she challenges the -
sufficiency of the creditors’ evidence that TERI guaranteed or was even
“involved with” the loans or the originators’ programs under which the loans
were made.56
(a) Credit-agreement acknowledgments
Although I read Stein’s response to paragraph 21 of the creditors’ fact
statement not to accept that TERI guaranteed the loans, I also read her
53 ECF No. 21 at 3 ¶ 11, Ex. D 2 at 3 ¶ L.12.
54 ECF No. 21 at 3–4 ¶ 12, Ex. D 3 at 5 ¶ L.12.
55 ECF No. 21 at 12. -
56 ECF No. 30 at 5:12–16. -
response to accept that the credit agreements include the language the
creditors quote.
In the loan 1 agreement, Stein acknowledged that TERI guaranteed
that loan. By citing that acknowledgment, the creditors rely on her as their
affirmative witness for the fact of the loan 1 guaranty. But, as her lawyer
argued orally, under Federal Rule of Evidence 602, “a witness may testify to
a matter only if evidence is introduced sufficient to support a finding that the
witness has personal knowledge of the matter.” The creditors point to no
evidence, other than her signing of the loan 1 agreement, that she had
personal knowledge of whether TERI did, in fact, guarantee that loan when
she signed the agreement. Although Federal Rule of Civil Procedure 56(c)(2)
requires only that a movant prove the existence of evidence that could be
presented in admissible form, rather than produce evidence that itself is
admissible, the creditors here point to no reason why they could, at trial, offer
admissible evidence that Stein knew that TERI guaranteed loan 1. And due
to the “both or either” language in the loan 2 agreement, that agreement
doesn’t even act as her unqualified acknowledgment that TERI funded the
loan program under which loan 2 was issued.
Thus, the credit-agreement language the creditors quote does not
establish that TERI guaranteed the loan programs or the loans.
(b) Luke’s declaration statement
Separately from Luke’s reliance on the credit-agreement
acknowledgments, he states in paragraph 16 of his declaration that TERI
guaranteed both loan programs and both loans. But following that paragraph
are citations to the credit-agreement acknowledgments described in
part III.C.2(a) above,57 and he doesn’t refer to any other basis for having
personal knowledge of the guaranties. Just as Evidence Rule 602 bars
admission of Stein’s acknowledgments for lack of evidence that she had a
basis to know whether TERI guaranteed the loan programs or loans, the rule
also bars admission of Luke’s statement to that effect for lack of evidence,
other than the acknowledgments, that he had a basis to know the
acknowledgments to be true.
Even if Luke’s statement that TERI guaranteed the loan programs and
loans were admissible, it would not entitle the creditors to summary
judgment. For the party with the burden of proof at trial to prevail on a
summary-judgment motion, the party must “come forward with evidence
which would entitle it to a directed verdict if the evidence went
uncontroverted at trial.”58 In an action to determine dischargeability under
523(a)(8), the creditor has the burden of proof at trial on all elements other
57 ECF No. 22 Ex. D at 5 ¶ 16.
58 C.A.R. Transp. Brokerage Co., Inv. v. Darden Restaurants, Inc., 213 F.3d
474, 480 (9th Cir. 2000) (internal citation and quotation marks omitted).
than undue hardship.59 A directed verdict in favor of the party with the
burden of proof at trial is possible only if the movant “has established his
case by testimony that the jury is not at liberty to disbelieve.”60 If Luke’s oral
trial testimony is the same as his declaration and has the same foundation,
the trier of fact will be at liberty to disbelieve him, even absent contrary
evidence. Accordingly, his declaration statement is insufficient to establish
the absence of a genuine dispute and entitle the creditors to a determination
that TERI guaranteed the loan programs or the loans.
(c) 8 Ks
In addition to the acknowledgments in the credit agreements, the
creditors’ motion identifies as evidence of the TERI guaranties “the Trust
Agreement, and the dozens of references to TERI guaranties throughout the
Form 8 K.”61 Exhibits E 1 and E 2 attached to the creditors’ motion are
copies o-f 8 Ks filed with -respect t-o the trusts as registrants. The creditors’
motion ide-ntifies the location of “the Trust Agreement” as Exhibit E 1
at page 175 and Exhibit E 2 at page 197.62 In Exhibit E 1, a trust ag-reement
for the 2006 2 trust begins- on page 172, and in Exhibit E- 2, a trust
agreement fo-r the 2007 3 trust begins on page 193. Each -agreement is among
-
59 Naranjo v. Educational Credit Management, Corporation (In re Naranjo),
261 B.R. 248, 254 (Bankr. E.D. Cal. 2001).
60 Serv. Auto Supply Co. of Puerto Rico v. Harte & Co., 533 F.2d 23, 24–25
(1st Cir. 1976), cited with approval in United California Bank v. THC Fin.
Corp., 557 F.2d 1351, 1356 (9th Cir. 1977).
61 ECF No. 21 at 12.
62 ECF No. 21 at 10 n.1.
Wilmington Trust Company as owner trustee, on one hand, and The National
Collegiate Funding LLC and TERI, as owners of beneficial interests in the
trusts, on the other.
The 2006 2 trust agreement refers to TERI’s guaranty dated May 15,
2002, for loans o-riginated under Charter One’s CFS Direct to Consumer Loan
Program,63 which is the name of the loan program under which the creditors
argue in their motion that loan 1 was issued.64 The 2007 3 trust agreement
makes no reference to a TERI guaranty dated June 20, 2-002, which is the
date of the guaranty under which the creditors argue that loan 2 was made
(but that trust agreement does refer to a guaranty dated June 30, 200365).
The creditors do not point to any papers in the record that constitute or
include the TERI guaranties or even specimens of them. Under Civil
Rule 56(c)(3), in ruling on summary judgment, the court need only consider
“cited materials”; it may, but need not, consider other record materials. I
decline to exercise my discretion to consider the remaining 634 8 K pages.
References in the trust agreements to TERI guaranties are- factual
declarations of the trust agreement parties that the guaranties exist. Because
those declarations are offered for the truth of the existence of the matter
asserted, they are hearsay, and the creditors point to no applicable hearsay
exception.
63 ECF No. 21 Ex. E 1 at 224.
64 ECF No. 21 at 12.
65 ECF No. 21 Ex. E-2 at 217.
3. Loan-program guaranty as funding
Although my inability to determine on summary judgment that TERI
guaranteed the loan programs or loans prevents me from determining that
the loans are nondischargeable under 523(a)(8)(i), I can grant summary
judgment on part of a claim, so I will address whether a loan guaranty, if
proved, could constitute loan-program funding of the program under which
the loan was issued.
Stein argues that a guaranty cannot constitute funding. In her brief in
support of her motion, she advocates a dictionary-based reading of “funded”
in 523(a)(8)(A)(i) that would except from discharge only loans that were
“partially or fully ‘paid,’ or had their ‘funding satisfied’ by a . . . nonprofit . . ..”
She argues that there is no evidence that the loans were ever “paid or
satisfied” by a nonprofit.66
Case law, including from two circuit courts of appeals outside the
Ninth Circuit, supports treating a loan guaranty as funding under
523(a)(8)(A)(i). In the Sixth Circuit’s 1992 decision in Andrews University v.
Merchant (In re Merchant),67 the court held that a nonprofit university
funded a loan by agreeing to buy the loan on default, even though the
university did not otherwise fund the loan.
66 ECF No. 18 at 5:24 – 6:9.
67 958 F.2d 738 (6th Cir. 1992).
In the Second Circuit’s 2005 decision in In re O’Brien,68 the court held
that a guaranty constitutes 523(a)(8)(A)(i) funding without regard to any
actual payment by the guarantor. The underlying bankruptcy court decision69
discussed and rejected an argument that Stein raises here based on the
difference between the wording of the first and second clauses of
523(a)(8)(A)(i). In doing so, the bankruptcy judge relied on the 1997 decision
of another Southern District of New York bankruptcy judge in Adam H.
Klein v. The Education Resources Institute (In re Klein).70 The first clause of
523(a)(2)(A)(i) addresses a loan “made, insured, or guaranteed by a
governmental unit,” and the second addresses a loan “made under any
program funded” by a governmental unit or nonprofit. The O’Brien debtor
argued, as does Stein here, that the presence of “guaranteed” in the first
clause but not in the second means that Congress meant “funded” to exclude
“guaranteed.” The Klein bankruptcy judge explained that the two clauses
serve different purposes. The first clause deals with specific loans guaranteed
by governmental units, and the second “has a broader and different focus
since it encompasses governmental units and nonprofit institutions and
focuses on loan programs and not on particular loans.”71
68 419 F.3d 104, 107 (2d Cir. 2005).
69 O’Brien v. First Marblehead Education Resources, Inc. (In re O’Brien),
299 B.R. 725 (Bankr. S.D.N.Y. 2003).
70 Ch. 11 Case No. 92 B 44249, Adv. No. 96 8828A (Bankr. S.D.N.Y. Apr. 29,
1997).
71 Klein at 8–9; O’Brie-n,- 299 B.R. at 730. -
In the Eighth Circuit Bankruptcy Appellate Panel’s 2018 decision in In
re Page, the court recognized other decisions interpreting O’Brien to hold that
a loan program is “funded” by a nonprofit under 523(a)(8)(A)(i) if “the
nonprofit entity played any meaningful part in procurement of the loans
under the program.”72
In Stein’s opposition to the creditors’ motion, she cites the 2021
decision of a Southern District of California district judge in Medina v.
National Collegiate Student Loan Trust 2006 3 (In re Medina),73 considering
an appeal from a bankruptcy court. The district judge held that TERI’s loan
guaranty constituted funding under 523(a)(8) because “[w]ithout TERI’s
guaranty to purchase defaulted loans from the program, the loans would not
have been made.” The language that Stein quotes from Medina about a
guaranty being “critical” to a loan program’s funding was the district judge
quoting from the bankruptcy judge’s decision. The sentence about a guaranty
being “critical” to funding appears in the bankruptcy decision under the
heading “conclusions of law” and is followed not by any reference to evidence
but instead to other court decisions.74 The district judge did not address
whether a guarantor “funds” a loan only if the lender would not have made
72 592 B.R. 334, 336–37 (8th Cir. B.A.P. 2018).
73 2021 WL 1541645, at *5 (Bankr. S.D. Cal. Apr. 20, 2021); ECF No. 30
at 8:1–4; ECF No. 33 at 7:27 – 8:3.
74 Medina v. Nat’l Collegiate Student Loan Tr. 2006 3 (In re Medina),
No. 320CV01912BENMDD, 2020 WL 5553451, at *4 (Bankr. S.D. Cal.
Sep. 10, 2020). -
the loan absent the guaranty. The district judge did agree with other cited
cases stating that, as a matter of law, a loan guaranty should be treated as
523(a)(8)(A)(i) funding.
Stein has cited no decision of the Ninth Circuit or other circuits
holding that a nonprofit’s guaranty, without evidence of payment, does not
constitute 523(a)(8)(A)(i) funding. A Ninth Circuit decision adopting Stein’s
position would create a circuit split with the decisions of the Second Circuit in
O’Brien and the Sixth Circuit in Merchant. The Ninth Circuit “will not create
a direct conflict with other circuits . . . absent a strong reason to do so.” 75
Because I see no strong reason why the Ninth Circuit would disagree with
the Second and Sixth Circuits, I decline to do so.
I will grant the creditors’ motion in part, concluding that a nonprofit’s
loan guaranty constitutes 523(a)(8)(A)(i) funding of the program under which
guaranteed loans are made. I will otherwise deny both Stein’s and the
creditors’ motions on 523(a)(8)(i).
D. Nondischargeability under 523(a)(8)(B)
Stein contends in her supporting brief that her loans are not “qualified
education loans,” and thus they are dischargeable under 523(a)(8)(B), because
the loan amounts “greatly exceed the cost of attendance at both” the schools
she attended.76 The creditors have not moved on 523(a)(8)(B).
75 United States v. Chavez-Vernaza, 844 F.2d 1368, 1374 (9th Cir. 1987).
76 ECF No. 18 at 8:15–17.
A debt is nondischargeable under 523(a)(8)(B) if, among other things,
it is “a qualified education loan, as defined in section 221(d)(1) of the Internal
Revenue Code of 1986 [title 26, U.S. Code], incurred by a debtor who is an
individual.” Section 221(d)(1) of title 26 defines “qualified education loan” as
indebtedness incurred “solely to pay qualified higher education expenses,”
which are defined in 221(d)(2) to include the “cost of attendance” as defined in
the version of 20 U.S.C. § 1087ll. Section 1087ll defines “cost of attendance”
to include, in addition to tuition and fees, defined allowances for books,
supplies, transportation, and miscellaneous personal expenses77 and an
allowance for room and board costs.78
The creditors cite the 2020 decision of an Eastern District of Michigan
district judge in Conti v. Arrowood Indemnity Co,79 considering an appeal
from a bankruptcy court. The debtor argued that her student loans were not
for “qualified higher education expense” because she was permitted to, and
did, use a portion of the proceeds for personal expenses. Rejecting the debtor’s
argument, the district judge held that whether a loan is for “qualified higher
education expenses” turns on “the purpose of the loan, rather than how the
debtor actually spent the loan proceeds.” To permit a borrower to use student
loans for social uses and thus obtain the benefits of discharge while students
who properly use their loans would retain the burden of paying them would
77 20 U.S.C. § 1087ll(2).
78 20 U.S.C. § 1087ll(3).
79 612 B.R. 877, 881 (E.D. Mich. 2020); ECF No. 28 at 10.
be “an absurd result.” The loan applications stated that the loans were
predicated on the debtor’s status as a student and demonstrated that the
lender intended the loans to be for an educational purpose, from which the
district judge concluded that the loans were qualified education loans.80
Here, Stein cites no case disagreeing with Conti, and she accepts the
creditors’ fact statements that (1) the loans were obtained for an educational
purpose,81 (2) both Credit Agreements identified the loans as educational
loans for specified academic periods when she attended CCC and WOU,82 and
(3) on the note disclosure statements for both loans she is identified as
“student.”83 Thus, as in Conti, the originating lenders here intended the loans
to be for educational purposes, so the loans constitute qualified education
loans under 523(a)(2)(B) without regard to how she used the proceeds.
Even if Stein were correct as a matter of law that whether a loan is a
“qualified education loan” turns on how the borrower spends the loan
proceeds, she has not demonstrated, through information that I may
consider, that the loan amounts exceeded the cost of attendance. She argues
in her opening brief that the $14,000 Charter One loan for (now held by the
2006 2 trust) “greatly exceeded” the cost of attendance at CCC for April
throu-gh June 2006 and the Bank of America $25,000 loan (now held by the
80 612 B.R. at 882.
81 ECF No. 22 at 4 ¶ 18; ECF No. 31 at 3 ¶ 18.
82 ECF No. 22 at 4 ¶ 19; ECF No. 31 at 3 ¶ 19.
83 ECF No. 22 at 4 ¶ 20; ECF No. 31 at 3 ¶ 20.
2007 3 trust) “greatly exceeded” the cost of attending WOU for July 2007
throu-gh May 2008. But in that brief and in her statement of facts84 she does
not allege the cost of attendance at CCC, and she alleges that tuition and fees
for WOU attendance were no more than $5,982, but she does not mention the
other components of cost of attendance there, including books, supplies,
transportation, miscellaneous personal expenses, and room and board costs.
She thus does not provide with her motion evidence of the actual costs of
attendance to which the loan amounts could be compared.
After the creditors had responded to Stein’s motion, she filed a
supplemental declaration85 with her reply86 to augment her evidence on the
cost of attendance. But her supplemental declaration was impermissible
under LBR 7056 1(b)(3). That rule permitted a summary-judgment movant to
reply to the oppo-nent’s facts but only under LBR 7056 1(b)(1), which permits
the movant to accept or deny facts but does not permit- the introduction of
additional facts. LBR 7056 1(b)(2), which permits the opponent to introduce
new facts in opposition to a- motion, applies only to the opposition and not
also to the movant’s reply. That scheme is consistent with Civil Rule 56(a)’s
allocation to the summary-judgment movant of the burden of demonstrating
the absence of a genuine dispute as to any material fact. It’s also consistent
84 ECF No. 17.
85 ECF No. 34.
86 ECF No. 33.
with giving the opponent an opportunity to offer its own evidence in
contradiction of the movant’s.
I will deny Stein summary judgment that the loans are dischargeable
under 523(a)(2)(B).
IV. Conclusion
In both this action and the main case, I will grant the creditors’
motions in part by concluding that a nonprofit institution’s guaranty of loans
issued under a loan program constitutes funding of the program under
523(a)(8)(A)(i). I will otherwise deny Stein’s and the creditors’ motions in both
this action and the main case.
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