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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW JERSEY
U.S. COURTHOUSE
402 E. STATE STREET
TRENTON, NEW JERSEY 08608
Hon. Michael B. Kaplan 609-858-9360
Chief Judge, United States Bankruptcy Court
February 13, 2025
All Interested Parties
Re: Budgick v. Ascendium Education Solutions, Inc.
Case No.: 23-01134
Dear Mr. Budgick and Counsel:
On December 30, 2024, the Court received a letter from Debtor Budgick in response to a
Motion to Reopen (ECF No. 58) filed by Educational Credit Management Corporation (“ECMC”),
which motion has since been withdrawn. The Court treated Mr. Budgick’s letter (ECF No. 61) as
a Motion for Sanctions against counsel for ECMC and scheduled same for a hearing. The Court
has fully reviewed all submissions and considered the arguments made on the record during the
February 6, 2025 hearing. For the reasons set forth below, the Court does not believe that ECMC’s
actions, or those of its counsel, rise to the level of sanctionable conduct. Mr. Budgick’s Motion
for Sanctions is DENIED.
I. Jurisdiction
The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and
157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended
September 18, 2012, referring all bankruptcy cases to the bankruptcy court. This matter is a core
proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), (J) & (O). Venue is proper in this
Court pursuant to 28 U.S.C. § 1408. The Court issues the following findings of fact and
conclusions of law as required by Fed. R. Bankr. P. 7052.
II. Background
This case has a somewhat tortured history. John William Budgick, II (“Debtor”) filed for
bankruptcy protection in May 2023 and commenced this adversary proceeding seeking to
discharge student loans held by Ascendium Education Solutions, Inc. (“Ascendium”), which is the
only defendant. On June 5, 2023, Navient Solutions filed a proof of claim on behalf of Ascendium
in Debtor’s bankruptcy case. The proof of claim included an address where mailings could be
made and served upon Ascendium, and the record clearly establishes that Ascendium had notice
of the pending adversary proceeding. Nevertheless, it declined to file an Answer or otherwise
respond to Debtor’s Amended Complaint. Instead, ECMC—who alleges it is a guarantor on the
student loans—filed an Answer and indicated an intent to intervene in the adversary proceeding.
See Answer n.1, ECF No. 6 (“Therefore, ECMC is the property party-in-interest in this lawsuit . .
. and will be seeking to intervene in this adversary proceeding.”).
Despite filing an Answer, participating during hearings, communicating with Chambers,
and expressing its intent to intervene, ECMC did not file a Motion to Intervene during the
pendency of the adversary proceeding. Therefore, in August 2023, the Court entered default
against Ascendium and, ultimately, entered a default judgment in favor of Debtor—discharging
the student loans held by Ascendium. The Court addressed ECMC’s failure to intervene in its
ruling on the default judgment and left ECMC to pursue its rights; suggesting that ECMC could
move to reopen the case, seek to intervene, and then seek to vacate the judgment. Instead, ECMC
chose to file a Motion to Reconsider (ECF No. 37).
During the hearing on the Motion to Reconsider, the Court recounted the procedural history
of the case and emphasized that Ascendium, by its own admission, was the holder of the loan at
the time the bankruptcy and adversary proceeding were filed. “[A]t no time was there a notice of
transfer of claim ever filed on the docket as required by the Federal Rules of Bankruptcy
Procedure.” Tr. of Oct. 5, 2023 Hrg. On Mot. to Reconsider 2:23-25, ECF No. 44. Moreover, the
Court noted that ECMC had declined to file a motion to intervene despite “ample opportunity to
do so[.]” Id. at 2:22. Given that ECMC had not demonstrated any changed facts or law that
warranted reconsideration, the Court denied ECMC’s motion. ECMC appealed, and the district
court affirmed this Court’s decision in an Opinion and Order dated May 31, 2024.
More than six months later, ECMC filed a Motion to Reopen this adversary proceeding in
order to intervene. Debtor then submitted a letter, which this Court treated as a Motion for
Sanctions and scheduled the matter to be heard on the same date as the hearing on ECMC’s Motion
to Reopen. Shortly before the scheduled hearing date, ECMC withdrew its Motion to Reopen,
leaving only Debtor’s Motion for Sanctions, which is the subject of this Letter Opinion.
III. Discussion
While Debtor cites the Court’s equitable powers under 11 U.S.C. § 105, the Court notes
that other bases for issuing sanctions exist, including 18 U.S.C. § 1927, Bankruptcy Rule 9011,
and the Court’s inherent powers.
In order to impose sanctions under § 1927, the statute requires a court to find that “an
attorney has (1) multiplied proceedings; (2) in an unreasonable and vexatious manner; (3) thereby
increasing the cost of the proceedings; and (4) doing so in bad faith or by intentional misconduct.”
See In re Prudential Ins. Co. Am. Sales Prac. Litig. Agent Actions, 278 F.3d 175, 188 (3d Cir.
2002). Here, the Court is unable to find the requisite willful bad faith or intentional misconduct.
While the Court may have been inclined to find the Motion to Reopen without merit, it appears
that there may have existed a lack of understanding by ECMC. Specifically, ECMC expressed
confusion regarding the wording of the Default Judgment (ECF No. 34) and its effect on the debt
allegedly owned by ECMC. See, e.g. Motion to Reopen ¶13-15, ECF No. 58-1.1 Additionally—
and significantly—the Court does not find any indication that Counsel’s actions in filing the
Motion to Reopen were done for any other improper purpose, such as harassment. Finally, the
Court notes that ECMC withdrew its motion. Thus, sanctions under § 1927 are not warranted.
The Third Circuit instructs that sanctions should be imposed under Bankruptcy Rule
9011(c) only in egregious circumstances, where a party has engaged in “objectively unreasonable
conduct.” In re Amoroso, 123 F. App'x 43, 47(3d Cir. 2004); see also, e.g. In re Bradley, 2024 WL
1389123, at *10 (M.D. Pa. Apr. 1, 2024). The Court finds that ECMC’s motion is an attempt to
obtain both clarity regarding the effect of the Default Judgment and a ruling on the merits of its
claim. Indeed, a timely-filed motion to intervene may have resulted in a favorable ruling, allowing
this Court to address ECMC’s contentions and render a ruling on the merits as opposed to a default
judgment. In ruling on the Motion to Reconsider, the Court advised that this strategy was available
1 For purposes of clarity, the outstanding student loan obligations held by Ascendium at the time the petition was filed
and specifically referenced in its proof of claim—which subsequently may have been assigned to ECMC—are
discharged by way of the Default Judgment. Any actions to collect on the discharged loans would constitute a
violation of the discharge injunction and, should such action occur, the Court would revisit the possibility of sanctions
at that time.
as a means for ECMC to pursue its rights. Although it declined to do so at that time, ECMC
eventually commenced that course of action by filing the Motion to Reopen. This Court is
unwilling to find that the delayed motion is so objectively unreasonable as to warrant sanctions
under Bankruptcy Rule 9011.
Similarly, the Court declines to impose sanctions under its inherent or § 105 equitable
powers. Notably, a court’s inherent power to sanction should generally “be reserved for those
cases in which the conduct of a party or an attorney is egregious and no other basis for sanctions
exists.” Martin v. Brown, 63 F.3d 1252, 1264 (3d Cir. 1995). Again, while Debtor argues that
ECMC’s motion has no merit, the filing of a meritless motion—without more—is not egregious
or sanctionable conduct. As discussed, the Court perceives no bad faith, and does not believe that
ECMC filed this motion for oppressive reasons. Accordingly, the Court declines to impose
sanctions under its inherent power or using the equitable powers afforded under § 105.
Admittedly, the filing of the Motion to Reopen caused the parties and the Court to expend
resources. However, the Court regularly addresses and denies motions as lacking legal and/or
factual support; therefore, the Court views the time and effort spent doing so in this case simply
as a regular function of the Court. Debtor likewise expended time and effort in supporting his
motion and defending against ECMC’s motion. However, the Court notes that the extent of his
efforts—including voluminous filings, and multiple emails and other correspondence—were
compounded by his own choice and actions. Debtor was informed that he could file a response to
ECMC’s motion, and he was aware of the procedure to properly do so. However, in addition to
opposing the Motion, Debtor chose also to take other actions, which he believed would further
protect his rights, and which—for the most part—he was permitted to do by law. Nevertheless,
the Court will not hold Counsel responsible for excessive work that Debtor undertook of his own
volition. In point of fact, this Court spent far more time reading Debtor’s 88-page supplement and
responding to Debtor’s emails—many of which were irrelevant to the pending issues—than it did
in preparing to rule on the underlying motion filed by ECMC.
On the topic of Debtor’s submissions, the Court takes this opportunity to address some of
Debtor’s concerns and to respond to certain comments, so that the record is clear, and so that he
has a better understanding and appreciation for these proceedings.
As an initial matter, the Court has not engaged in any misconduct and explicitly rejects
Debtor’s allegations on this point. There have been no improper ex parte communications in this
case. Debtor’s reference to conversations between Judge Ferguson’s Chambers and Mr. Baum
involved scheduling issues of which Debtor was subsequently informed. This is neither irregular
nor inappropriate. Moreover, it appears that Debtor is confused regarding what constitutes ex parte
communications. In sum, it refers to substantive conversations with the Court to which other
parties in the case are not privy. Despite being cautioned against this type of communication by
several Court employees, Debtor has willfully failed to copy counsel for ECMC on numerous
substantive communications and the Court was compelled to forward same to Counsel.
Additionally, throughout his submission, Debtor complains that Mr. Baum engaged in improper
ex parte communications by reaching out to him without copying the Court. To clarify, this is
neither uncommon nor improper. Ex parte communications are those directed at the Court. In
contrast, parties are permitted to—and encouraged to—engage with each other in what Debtor
refers to as “informal, off-record” communications, and often do so—as Mr. Baum did here—to
obtain consent and/or to engage in settlement negotiations. Indeed, the Court should not be copied
on those types of communications.
Debtor expresses confusion and frustration with the Court because a PreTrial hearing was
scheduled in this case, and he cites Court staff by name. It is evident from Debtor’s pleadings that
he confuses a “PreTrial Hearing”—which sets the dates and deadlines in a case going forward—
with a “Mediation”—in which the parties to attempt to consensually resolve their issues. Debtor
uses the term “Pre-Trial Mediation.” Court employees advised Debtor that a PreTrial Hearing is
set in every case and that information was accurate. While “Mediation” may not be mandatory in
all cases, a PreTrial Hearing is required. See, e.g., 2015 Comment to LBR 7016-1 (“The date for
the pretrial conference is set in the summons issued by the clerk when the adversary proceeding is
initiated.”).
In his submission, Debtor also focuses on the way documents are labeled on the docket and
suggests—at several points—either intentional misconduct on the Court’s part, collusion with
other parties, or Court negligence. Again, the Court assures Debtor that it is the substance of the
documents—rather than the label—that is determinative. While it is certainly helpful if the title
of a document accurately reflects its contents, the title alone does not afford any party an advantage
over any other party. Moreover, the Court often must glean the intent behind pleadings filed by
self-represented individuals such as Debtor, who are not familiar with the law. It does so in an
effort to assist litigants. Debtor cites instances where he was dissatisfied with a label or how a
document was interpreted and he suggests, at best, mistake and, at worst, intentional misconduct
on the Court’s part. The Court rejects any such allegations and declines to entertain his arguments
regarding the impact of document labels on alleged futuristic “AI supported case management
software” that is not utilized by the Court.
Debtor again points to the time lapse between the District Court’s Order on appeal and the
closure of the adversary proceeding in his case. He refers to this period as a “delay,” claims it is
“unusual,” and suggests it is “deliberate manipulation” that ignored the District Court’s directive.
As an initial matter, the District Court’s Order does not direct the closure of the adversary
proceeding. Rather, that Order affirms this Court’s decision, and directs the Clerk to close the
appellate case. See Order & Judgment, ECF No. 24 in Case No. 23-cv-21341. Moreover, as this
Court previously informed Debtor, the closure of a case in bankruptcy court is an administrative
function and is the result of internal reviews. The relevant date for litigants’ purposes is the date
of judgment, which in this case was August 31, 2023.
Debtor also refers to what he calls “systemic privileges,” and he suggests that the Court
has allowed other attorneys to bypass procedural safeguards or has given them more favorable
treatment. These allegations are unfounded. For example, he complains that while he was
informed that submissions to the Court cannot be made by email, the Court placed an email from
the Department of Justice on the record. This was done as a courtesy—not only to the Department
of Justice who was not a proper party—but to Debtor, whose case benefited from this information
becoming part of the record. Moreover, Debtor ignores the fact that this Court has extended this
courtesy to Debtor in the past.
Ultimately, Debtor raises more unfounded allegations to which this Court cares to respond.
This Court wishes to emphasize that it has handled this case properly and like it would any other
case—with respect and fair treatment for all the litigants involved, and with deference to the facts
of the case and the applicable law. Debtor, in fact, succeeded in his adversary proceeding.
Finally, this Court briefly responds to Debtor’s criminal allegations—including claims of
conspiracy, RICO violations, and obstruction of justice. Simply put, this Court is without authority
to address them, or to conduct an investigation into Amazon or “AWS’s” involvement. This is a
bankruptcy court and the issue before the Court in this case involved the dischargeability of a debt.
The Court made its determination, and the case is over. Allegations of criminal activity are outside
the scope of this case, and beyond the purview of this Court. They may be raised with the
appropriate authorities.
IV. Conclusion
For the foregoing reasons, Debtor’s Motion for Sanctions (ECF No. 61) 1s DENIED. The
Court will enter an appropriate Order.
WM bes Gop
Michael B. Kaplan, Chief Judge
U.S. Bankruptcy Court
District of New Jersey
Ce: Filed on CM/ECF