Amicus Curiae Brief — Tennessee Student Assistance Corporation v. Hood

No. 02-1606 ms oe

Jn The

Supreme Court of the Anited States

*

TENNESSEE STUDENT ASSISTANCE CORPORATION,

Petitioner,

V.

PAMELA L. HOOD,

Respondent.

¢

On Writ Of Certiorari To The

United States Court Of Appeals

For The Sixth Circuit

o

BRIEF OF DONALD J. SPRING AS

AMICUS CURIAE IN SUPPORT OF RESPONDENT

S

C. HALL SwWAIM*

MITCHEL APPELBAUM

GEORGE W. SHUSTER, JR.

STEVEN C. BENNETT

*Counsel of Record

HALE AND Dorr LLP

60 State Street

Boston, Massachusetts 02109

617.526.6000 (telephone)

617.526.5000 (facsimile)

Counsel for Donald J. Spring

as Amicus Curiae

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ............:.ccceeeeeeneeeeeeeeeeeees ii

INTEREST OF AMICUS CURIAE .........00:00:0000e00008 1

SUMMARY OF ARGUMENT ..............ccceeeeeeeeeeeeenen ees 2

ARGUMENT. ............c0eceecssecsscceeseceeecseeenseeeeeeeeseeenns 3

There is no meaningful alternative to an “undue

hardship” action by a debtor against a state

creditor in federal Court ............:sseeeeeeeeeeeereneeeneeeees 3

A. State Court Suits ............:ccceceeeeeeeeeeeeeeeeeeeeees 4

B. Ex Parte Young Suits ..........cccccccceeeeseeeeeeeseneess 16

C. Federal Government Suits...........ccccceeeeeeeeeeees 18

D. Non-Judicial Options ............::ccceeeseeeeeeeeeeeeeees 21

CONCLUSION .........::ccccesseeeeeeeeeeneneeeeeneeeeeenannesessnnees 23

ii

TABLE OF AUTHORITIES

Page

FEDERAL CASES

Alden v. Maine, 527 U.S. 706 (1999) ...........ccccccesessesecccceeees 5

Arnold v. Sallie Mae Servicing Corp. (In re Arnold),

255 B.R. 845 (Bankr. W.D. Tenn. 2000)...............ccccc0000 14

Brunner v. New York State Higher Educ. Servs.

Corp., 831 F.2d 395 (2d Cir. 1987) ...............cccscscccceeessees 13

Clean Air Council v. Mallory, 226 F. Supp. 2d 705

CIE.D. FO. BRGBE) .....cecvecsseccvcsseseceessensueeiunnnnnnnnnnannnnnnn 17

Ex parte Young, 209 U.S. 123 (1908) ............:cccc0see000 passim

Holland v. United States Dept. of Educ. (In re

Holland), 230 B.R. 387 (Bankr. W.D. Mo. 1999)............ 12

Idaho v. Coeur d’Alene Tribe, 521 U.S. 261 (1997)............ 17

In re D’Agnese, 86 F.3d 732 (7th Cir. 1996) ..........cccccccceeeees 7

In re Dalen, 259 B.R. 586 (Bankr. W.D. Mich. 2001)......... 20

In re Setzler, 73 F. Supp. 314 (S.D. Cal. 1947).......0000.... 8,15

In re Sobh, 61 B.R. 576 (E.D. Mich. 1986)............ccccccceceeee 14

Janc v. Coordinating Bd. For Higher Educ. (In re

Janc), 251 B.R. 525 (Bankr. W.D. Mo. 2000)..............0.. 13

Jordon v. Norfolk State Univ. (In re Jordon), 275

B.R. 755 (Bankr. W.D. Va. 2002) ...........cccccceeeeeeeseeees 10, 17

Kahl v. Texas Higher Ed. Coordinating Bd. (In re

Kahl), 240 B.R. 524 (Bankr. E.D. Pa. 1999) ........ co. 10

Lien v. United States Dept. Health and Human

Servs. (In re Lien), 224 B.R. 431 (Bankr. D.

Alasite 1606).......0.0ccesscssessscsvesseseuessuunnnnninnnnannnnnnnnnEE 14

Local Loan Co. v. Hunt, 292 U.S. 234 (1934) .............00. 5, 22

Nelson v. Carland, 42 U.S. 265 (1843) ........cccccccccccceeseeeeeces 7

ill

TABLE OF AUTHORITIES — Continued

Page

Pavelich v. McCormick, Barstow, Sheppard, Wayne

& Carruth LLP (In re Pavelich), 229 B.R. 777

a 7

Pennsylvania Higher Educ. Assistance Agency v.

Faish (In re Faish), 72 F.3d 298 (3d Cir. 1995).............. 19

Perkins v. Coordinating Bd. For Higher Educ. (In re

Perkins), 228 B.R. 431 (Bankr. E.D. Mo. 1998)............. 18

Poplar Run Five Ltd. P’ship v. Virginia Elec. &

Power Co. (In re Poplar Run Five Ltd. P’ship),

192 B.R. 848 (Bankr. E.D. Va. 1995)...............:cccceeeeeeeeees 7

Rosenbaum v. Cummings (In re Rosenbaum), 150

EE rn 6

Siragusa v. Siragusa (In re Siragusa), 27 F.3d 406

Ee 14

Stone v. Vanderbilt Univ. (In re Stone), 180 B.R. 499

OE | ene i]

Stout v. United States Dept. of Educ. (In re Stout),

231 B.R. 313 (Bankr. W.D. Mo. 1999)................ 10, 11, 17

United States v. McGrath, 143 B.R. 820 (D. Md.

Ee 13

United States v. Mississippi Dept. of Pub. Safety,

le FE NS | ae 19

Warren v. Calania Corp., 178 B.R. 279 (M.D. Fila. ,

iv

TABLE OF AUTHORITIES -— Continued

Page

STATE CASES

In re Marriage of Letsinger, 748 N.E.2d 812 (Ill.

EI SITU cnsscetansnanintininintetatininiinininsiniaaiasanistinaaiiasiaaieiisiaaad’ 8, 15

Vermont Student Assistance Corp. v. Zeichner, 708

ee CR a See ceaieenhchisteileniaamincniinetisatiinitieiaimacitaiaie 13

FEDERAL STATUES AND REGULATIONS

a RIN UF teil inneestereinsiiciteniiaibdetatiinsienianeniniaeiiinidiminiieiaiinetaneds 2,10

Se MEY Sire chnetrienceeetachlenitnaaininientanaeinenniantnantaniiniiiiadeiainia latinas 7

RT Re ST a 20

Be SIE Ui taliliiccricencisnacnneseneiscsenneniensitensecnusatiatadiinieniinitesdinn) 18

Se Ca EETTIs 1 eaeeliccictsecettnieateieceasbcandemntenindsiataneniieesanediaaniaiiinai tata 9

11 U.S.C. § 523(a).................. eeneemeteenneeeminnmiennets 11, 12,14

Se Pe CITI ccciinsnecsirtcnseanmseiticapantaneeniadinideiiel 9,11, 12

Se ts ITT ceciiraiinasemiationiisianitamaanimanidinattiieiat 11, 12

Se Se IEEE ntiitasepenmnnnctndiemmmmanintenindnatiomeneniing! 15

ie CITT csccrnscncnteceteberecinniatineiantitsiiemniceniialueci 11, 12

Se rn UII ocintsicicniahcenehichiediutaniesennannaneniasitdiantintiennies passim

a i rmueanaianiaiinl 11, 12,13

eT NO Bern EH a 11

eT 9,18

Be I SITs ichcccesictcnteaeninamtentsaiaiieetmemnidadintcnnieiieliils 9

Sins II UIT HE ccecestathcsidaniaaiantnionnminiadeatmmaedimeliaiekineaiandel 1,9, 18

EE: Tr EDU ciraccrreennnceiitntetencndememnneniaaiabniaibaniiceiisiiagsinias 8

a ae OF Se cxenscsncsninsinsncennintenataiiiineninniinaminiiiaitisbiat 8

TABLE OF AUTHORITIES — Continued

Page

OE eae 20

LT ee 7,8

i 2) dl cr 8, 12

BE CER. 8 CBR. BOG) qnncccce. cceccccccecesescccccscsscscccsccscscsosesesces 22

B46 CPR. 8 CBB. AOE) .occccccesscccccccccscsscccccoscccssssscscsseseees 22, 23

Fed. R. Bankr. P. 4007(b) ...........:ccccccceeeeeeereeeeeenenes 12, 14, 15

Fed. R. Bankr. P. 4007(C) ......20..000c...scccccccsscocscessssceeoees 11, 12

OTHER AUTHORITIES

2002 UNITED STATES TRUSTEE PROGRAM, ANNUAL

REPORT OF SIGNIFICANT ACCOMPLISHMENTS ...........-+-++++ 19

http://aspe.hhs.gov/poverty/O3poverty. htm ..............:::0:0+++ 23

http://www.ed.gov/finaid ............cssessesseeneenenereeerssensnensnees 21

1

INTEREST OF AMICUS CURIAE

Donald J. Spring submits this brief as amicus curiae

because the outcome of this case is important to similar

issues pending in his Chapter 7 bankruptcy case before

the United States Bankruptcy Court for the District of

Massachusetts (Chapter 7 Case No. 02-19005).’

Mr. Spring commenced his Chapter 7 case in Decem-

ber 2002 with a principal purpose of seeking a discharge of

his government student loan debts. In April of this year,

the bankruptcy court granted a “general discharge” of Mr.

Spring's debts pursuant to 11 U.S.C. § 727. However, by

operation of 11 U.S.C. § 523(a\(8), the bankruptcy court’s

general discharge did not apply to Mr. Spring’s government

student loans. Therefore, Mr. Spring filed an action in the

bankruptcy court seeking a separate order of discharge for

his government student loans on the basis of “undue hard-

ship” (Adversary Proceeding No. 03-01116). The University of

Massachusetts, one of Mr. Spring’s student loan creditors

and a defendant in the “undue hardship” discharge action,

filed a motion to dismiss Mr. Spring’s complaint on Eleventh

Amendment sovereign immunity grounds.

Last month, the bankruptcy court entered an order

denying the University’s motion to dismiss for the same

reason articulated in the opinion of the United States

Court of Appeals for the Sixth Circuit in this case — that,

‘ Hale and Dorr LLP represents Mr. Spring on a pro bono basis,

both in this case and in his Chapter 7 bankruptcy case, and Hale and

Dorr LLP, in its capacity as pro bono counsel, has paid all costs of

submitting this brief. No other person or entity has made a monetary

contribution to the preparation or submission of this brief. Counsel for

Mr. Spring at Hale and Dorr LLP authored this brief in whole.

2

by enacting 11 U.S.C. § 106, Congress validly abrogated

Eleventh Amendment sovereign immunity for 11 U.S.C.

§ 523(a)(8) actions. The bankruptcy court stated, however,

that it would entertain a motion to reconsider its order if

the Court were to reverse the Sixth Circuit’s decision.

Because the decision of the Court in this case has a

direct and substantial effect on Mr. Spring’s pending

“undue hardship” discharge case against the University of

Massachusetts, Mr. Spring has sought and obtained, from

both the petitioner and the respondent, consent to file this

amicus curiae brief in support of the respondent.

¢

SUMMARY OF ARGUMENT

The primary question in this case is whether Congress

has authority to abrogate sovereign immunity under the

Bankruptcy Clause of the Constitution. The practical

effect of this question on Chapter 7 debtors like Ms. Hood

and Mr. Spring is significant. The answer to this question

determines whether Ms. Hood and Mr. Spring may sue

their respective government student loan creditors in

federal court to obtain “undue hardship” discharges under

11 U.S.C. § 523(a)(8).

The petitioner and amici curiae in support of the

petitioner have attempted to de-emphasize the importance

of this case for Chapter 7 debtors by suggesting various

alternatives to “undue hardship” suits by debtors against

state creditors in federal court. These alternatives fall into

four categories: state court suits, Ex parte Young suits,

suits by the federal government against states, and non-

judicial options.

3

In this brief, Mr. Spring will demonstrate that the

alternatives suggested by petitioner and other amici are

not satisfactory to Chapter 7 debtors like Ms. Hood and

Mr. Spring. For the most part, these alternatives fail to

offer the timely, certain, and full relief from government

student loan debts that an “undue hardship” discharge

promises. Further, Mr. Spring will demonstrate that thé

alternatives suggested by the petitioner and other amici

may not be available to Chapter 7 debtors like Ms. Hood

and Mr. Spring. For jurisdictional, factual, and practical

reasons, most or all Chapter 7 debtors may be denied

access to the avenues of relief suggested by the petitioner

and other amict.

Mr. Spring submits that there is no meaningful

alternative to an “undue hardship” discharge granted by a

federal court. Accordingly, the suggestions for alternative

relief made by the petitioner and other amici cannot

provide a basis for the Court to reverse or vacate the

decision of the Sixth Circuit below. Mr. Spring requests

that the Court affirm the Sixth Circuit’s decision and

preserve what may be his and Ms. Hood’s only means for

adequate relief from their respective government student

loans.

o

ARGUMENT

There is no meaningful alternative to an

“undue hardship” action by a debtor against

a state creditor in federal court

The petitioner and amici curiae in support of the

petitioner have suggested four alternatives to “undue

hardship” suits by debtors against states in federal court.

4

The petitioner and other amici assert that these alterna-

tives properly and adequately protect the interests of

Chapter 7 debtors, such that suits against state creditors

for “undue hardship” discharges are not required.

First, petitioner and other amici have suggested that a

Chapter 7 debtor may wait for a state creditor to collect a

student loan in state court and may raise an “undue hard-

ship” defense at that time. Second, petitioner and other

amici have suggested that a Chapter 7 debtor may file an

action against state officials in federal court under the

doctrine of Ex parte Young, 209 U.S. 123 (1908). Third, peti-

tioner and other amici have suggested that a Chapter 7 debtor

may wait for the federal government to sue the state creditor

in federal court. Fourth, petitioner and other amici have

suggested that a Chapter 7 debtor may pursue non-judicial

options for debt relief through administrative agencies.

Mr. Spring agrees that most of these suggested alterna-

tives avoid the Eleventh Amendment sovereign immunity

issues confronted in a debtor’s “undue hardship” action

against a state in federal court. However, the suggested

alternatives are only valuable to Chapter 7 debtors — and to

the Court as it attempts to resolve this case — if the alterna-

tives can provide relief similar to that of an “undue hardship”

bankruptcy discharge. Disappointingly, they cannot. The

suggested alternatives either fail to offer debtors satisfactory

relief, are not generally available to debtors, or both.

A. State Court Suits

In its brief, the petitioner states, “The appropriate and

fully adequate remedy for a debtor seeking discharge

under 11 U.S.C. § 523(a)(8) is to raise the issue of ‘undue

hardship’ as a defense to any collection action that might

ae tee tee

5

be brought by the state creditor in state court.” (Pet’r Br.

at 30). Although the Eleventh Amendment is applicable to

suits in both federal and state court, a state creditor

commencing a collection action in state court would waive

any sovereign immunity available to it under state or federal

law. See Alden v. Maine, 527 U.S. 706 (1999) (holding Elev-

enth Amendment sovereign immunity extends to suits

against states in state court involving federal law claims).

Thus, a state court collection action does not implicate the

Eleventh Amendment concerns that have engendered the

dispute in this case.’ However, contrary to the petitioner's

assertions, the suggested state court alternative is neither

appropriate nor adequate. In fact, relief under this alterna-

tive is unsatisfactory and may not even be available.

First, the state court alternative is unsatisfactory

because it forces a debtor to rely upon the action of a state

creditor to resolve the debtor’s financial affairs. A debtor

cannot obtain the “fresh start” promised by bankruptcy if

he or she must live under the shadow of a potential state

court collection action. See Local Loan Co. v. Hunt, 292

U.S. 234, 244 (1934) (stating that one of the primary

purposes of bankruptcy is to provide a debtor with “a new

opportunity in life and a clear field for future effort,

unhampered by the pressure and discouragement of pre-

existing debt”). Whether a government student loan debt

is discharged or not may be a material factor in a debtor’s

post-bankruptcy financial plan and will likely affect a

? On the other hand, under the Court’s decision in Alden, Eleventh

Amendment concerns would be raised if a debtor initiated an action in

state court seeking a discharge of his or her government student loans

pursuant to 11 U.S.C. § 523(a\8).

6

debtor’s future financial and nonfinancial decisions. For

example, Mr. Spring has plans for employment retraining,

which he will be more likely to pursue if the debts relating

to his past educational experiences are discharged. In

addition, a state creditor may collect government student

loans without initiating a state court collection action. Mr.

Spring’s federal and state tax refunds have in the past

been offset against his government student loan debts, and

Mr. Spring believes that these offsets will continue to the

extent that he is entitled to future tax refunds. Thus, a

debtor like Mr. Spring may never have an opportunity to

raise an “undue hardship” defense in state court, making

the suggested state court remedy impossible. Accordingly,

a passive “wait and see” approach is far inferior to a timely

grant (or denial) of discharge.*

Second, Mr. Spring submits that a state court does not

have jurisdiction to grant the type of relief that a debtor

would request in a state court collection action. As de-

scribed in more detail in the following paragraphs, only

federal courts have the power to grant a bankruptcy

discharge. Since a determination of “undue hardship”

* It is also possible that a debtor may lose his or her ability to

assert an “undue hardship” defense because of events occurring in a

state court collection action. If a state creditor sues to collect in state

court and a debtor fails to respond, or responds without raising an

“undue hardship” defense, and if a state court is held to have concur-

rent jurisdiction over “undue hardship” discharge, then a debtor may be

collaterally estopped from later seeking a discharge of that debt. See

Rosenbaum v. Cummings (In re Rosenbaum), 150 B.R. 994, 997 (E.D.

Tenn. 1993). Debtors suffering from “undue hardship” may have

unstable residential arrangements, health problems, and a lack of

resources to hire counsel, making this result more likely than for

average litigants.

involves a grant of a discharge, that determination is

within the exclusive jurisdiction of the federal courts and

is not within the concurrent jurisdiction of state courts.

Therefore, state courts are without jurisdiction to provide

the debtor with the alternative relief suggested by the

petitioner and other amici.

Federal courts have exclusive jurisdiction

over the grant of a bankruptcy discharge.

Pursuant to 28 U.S.C. § 1334(a) and (b), federal courts

have exclusive jurisdiction over “all cases under title 11”

and concurrent jurisdiction with state courts over “all civil

proceedings arising under title 11, or arising in or related

to cases under title 11.” This distinction separates the

primary aspects of bankruptcy — the filing of a petition

and the grant of a discharge — from all other aspects of

bankruptcy.‘ See Pavelich v. McCormick, Barstow,

Sheppard, Wayne & Carruth LLP (In re Pavelich), 229

B.R. 777, 783 (BAP 9th Cir. 1999) (“[T]he types of matters

* Cases interpreting the language “cases under title 11” in 28

U.S.C. § 1334(a) have concluded that a “case” is the bankruptcy petition

filed under the applicable chapter of title 11. See, e.g., Poplar Run Five

Ltd. P’ship v. Virginia Elec. & Power Co. (In re Poplar Run Five Ltd.

P’ship), 192 B.R. 848, 855 (Bankr. E.D. Va. 1995). For Ms. Hood and Mr.

Spring, the “case” is the voluntary petition for relief under Chapter 7 of

title 11 filed by each debtor pursuant to 11 U.S.C. § 301. A Chapter 7

petition is, under modern procedure, manifested by Official Bankruptcy

Form 1, in which a debtor states that he or she “requests relief in

accordance with the chapter of title 11, United States Code, specified in

this petition.” A “petition for relief” under Chapter 7 is, in essence, a

“petition for discharge,” and this “petition for discharge” language has

been used to describe bankruptcy cases throughout the history of

federal bankruptcy law. See, e.g., Nelson v. Carland, 42 US. 265, 266

(1843); In re D’Agnese, 86 F.3d 732, 733 (7th Cir. 1996).

8

that must fall under the exclusive jurisdiction of the

bankruptcy court ... include discharges.”); Warren uv.

Calania Corp., 178 B.R. 279, 281 (M.D. Fla. 1995) (“The

issuance of a bankruptcy discharge is a matter within

exclusive federal jurisdiction.”). A debtor may file a Chap-

ter 7 bankruptcy petition only in federal court, and only a

federal court may grant a debtor a discharge.

This is not to say that state courts have no concurrent

jurisdiction over matters related to discharge. “[W]Jhile the

grant of a discharge in bankruptcy is the function of the

bankruptcy court alone, the effect of the discharge can be

determined by any court where it is properly raised.” Jn re

Marriage of Letsinger, 748 N.E.2d 812, 818 (Ill. App. 2001)

(emphasis added). This principle of bifurcated jurisdiction

has existed throughout the history of federal bankruptcy

law in the United States.° See In re Setzler, 73 F. Supp.

314, 316 (S.D. Cal. 1947) (“As a general rule, ‘the granting

of a discharge is the function of the bankruptcy court

alone, but its effect is for any court in which it is duly

pleaded or otherwise submitted for judgment.’”) (internal

citations omitted) (emphasis added).

* The principle of bifurcated jurisdiction is codified both in 28

U.S.C. §§ 1334(a) and (b) and in 28 U.S.C. § 157(b). 28 U.S.C. § 157(b)

identifies a number of “core” proceedings that “arise in” or “arise under”

title 11 (the same language used to describe the scope of concurrent

jurisdiction in 28 U.S.C. § 1334(b)). These “core” proceedings include

“determinations as to the dischargeability of particular debts.” 28

U.S.C. § 157(b)(2)(1D). Indeed, state courts have concurrent jurisdiction

to determine whether a particular debt was “dischargeable,” i.e.,

whether a discharge granted in federal court applies to that debt. This

concurrent jurisdiction should be distinguished, however, from the

federal courts’ exclusive jurisdiction over the grant of a discharge.

9

Government student loans are not part of a

general discharge under 11 U.S.C. § 727.

A Chapter 7 debtor like Ms. Hood or Mr. Spring often

receives a “general discharge” at the conclusion of his or

her bankruptcy case pursuant to 11 U.S.C. § 727. This

general discharge applies to all debts except those specifi-

cally carved out of the general discharge by 11 U.S.C.

§ 523. Debts “for an educational benefit overpayment or

loan made ... by a government unit, or made under any

program funded in whole or in part by a government unit”

are excluded from the general discharge pursuant to 11

U.S.C. § 523(a)(8).*

The exclusion of government student loans from the

general discharge has meaningful implications to a debtor

in the post-bankruptcy period. Because no discharge has

been granted with respect to those loans, the “discharge

injunction” contained in 11 U.S.C. § 524 does not bar a

lender’s collection efforts, such as the commencement or

continuation of court proceedings.’ See Stone v. Vanderbilt

Univ. (In re Stone), 180 B.R. 499, 501 (Bankr. M.D. Tenn.

1995) (“The predicate for a violation of the discharge

injunction in § 524 is a discharged debt with respect to

which collection action has been taken. A [general] dis-

charge under chapter 7 does not discharge an individual

* Throughout this brief, the term “government student loans” is

used to describe debts within this 11 U.S.C. § 523(a)(8) description.

” 11 U.S.C. § 524(a)(2) states, “A discharge in a case under this title

... Operates as an injunction against the commencement or continua-

tion of an action, the employment of process, or an act, to collect,

recover or offset any [discharged] debt as a personal liability of the

debtor ....”

10

debtor of any student loan described in 11 U.S.C.

§ 523(a)(8).”).

Indeed, by suggesting that Ms. Hood await a state

court collection action before raising her “undue hardship”

defense against the petitioner, the petitioner implies that

it could file a collection action without being bound by the

discharge injunction presently in force with respect to

most of Ms. Hood’s debts. The petitioner’s position that it

is not presently bound by the discharge injunction is

supported by decisions in which courts refuse to apply the

Ex parte Young doctrine to government student loan

discharge actions. In these Ex parte Young decisions,

courts generally hold that the discharge injunction cannot

form the basis for an “ongoing violation of federal law”

with respect to government student loan debts, because

the general discharge does not apply to those debts. See,

e.g., Jordon v. Norfolk State Univ. (In re Jordon), 275 B.R.

755, 761 (Bankr. W.D. Va. 2002); Stout v. United States

Dept. of Educ. (In re Stout), 231 B.R 313, 316 (Bankr. W.D.

Mo. 1999).* These courts reason that without a discharge,

* It bears mention that in Ex parte Young cases such as Jordon and

Stout courts often issue dicta suggesting that a state court does have

the power to determine “undue hardship” and effect a discharge of

government student loans. These courts do not analyze the issues

discussed in this brief. Specifically, these courts do not consider whether

a state court has jurisdiction to grant a discharge. It appears, in the

area of “undue hardship” cases against states, that courts often deny

the requested form of relief and “pass the buck” to an alternative type

of relief, without examining in detail whether the alternative relief is

available. When asked to allow a debtor to proceed against a state

under 11 U.S.C. § 106, courts have often found 11 U.S.C. § 106

unconstitutional, but have in dicta recommended that the debtor

proceed under the Ex parte Young doctrine. See, e.g., Kahl v. Texas

Higher Educ. Coordinating Bd. (In re Kahl), 240 B.R. 524, 536 (Bankr.

(Continued on following page)

11

there can be no “ongoing violation” of the discharge injunc-

tion, and without an “ongoing violation” of the discharge

injunction, there can be no Ex parte Young action. The

predicate for these decisions is the determination that

government student loans are not part of the general

discharge.

An “undue hardship” finding involves a grant

of a discharge.

Although government student loans are not part of

the general discharge, debtors are able under 11 U.S.C.

§ 523(a)(8) to seek a specific discharge of these debts on

“undue hardship” grounds. It is this specific “undue

hardship” discharge that Ms. Hood and Mr. Spring have

sought to obtain relief from their respective government

student loans.

A determination of “undue hardship” is unlike any

other determination under 11 U.S.C. § 523(a). For debts

within the scope of certain 11 U.S.C. § 523(a) subsections,

namely 11 U.S.C. § 523(a)(2), (4), (6), and (15), a creditor

must act in the bankruptcy court within a specified time

period in order to except the debts from the general

discharge. See 11 U.S.C. §523(c); Fep. R. BANkR. P.

4007(c). Because creditor action must occur as a part of

the general discharge process, all determinations under 11

E.D. Pa. 1999). When asked to allow a debtor to proceed against state

officials under the Ex parte Young doctrine, courts have often found the

doctrine inapplicable, but have in dicta recommended raising an “undue

hardship” defense in state court. See, e.g., Stout, 231 B.R. at 317. Yet, a

state court alternative is also untenable for the practical and

jurisdictional reasons discussed in this brief.

12

U.S.C. § 523(a)(2), (4), (6), and (15) are within the exclu-

sive jurisdiction of the federal (usually bankruptcy) courts.

See FED. R. BANK. P. 4007(c), Advisory Committee Note.

For debts covered by other 11 U.S.C. § 523(a) subsections,

including the government student loans described in 11 U.S.C.

§ 523(aX8), no creditor action is required. Debts within the

scope of these “self-effectuating” subsections are automatically

excepted from the general discharge without any request by a

creditor. See Holland v. United States Dept. of Educ. (In re

Holland), 230 B.R. 387, 390 (Bankr. W.D. Mo. 1999). A party

desiring a determination of whether a debt was covered by one

of these “self-effectuating” subsections may file an action at

any time, even years after the general discharge has been

granted and the debtor’s Chapter 7 case has been closed. See

FED. R. BANKR. P. 4007(b). As a general matter, determina-

tions as to whether a debt falls within one of the “self-

effectuating” subsections of 11 U.S.C. § 523(a) are within the

concurrent jurisdiction of federal and state courts pursuant to

28 U.S.C. § 1334(b), because they involve only the application

of the general discharge, not the grant of a separate discharge.

However, the structure of 11 U.S.C. §523(aX8) makes it

unique among the “self-effectuating” subsections of 11 U.S.C.

§ 523(a) and places “undue hardship” determinations within

the exclusive jurisdiction of the federal courts.

Among the “self-effectuating” subsections of 11 U.S.C.

§ 523(a), only the exception to discharge contained in 11

U.S.C. § 523(a\(8) contains an “exception to the excep-

tion.” Under 11 U.S.C. § 523(aX8), a debtor who can

* In fact, within all of the 11 U.S.C. § 523(a) subsections, “self-

effectuating” and non-“self-effectuating” subsections alike, only

subsections (8) and (15) have an “exception to the exception” format.

(Continued on following page)

13

demonstrate “undue hardship” may apply for and receive a

separate grant of discharge with respect to his or her

government student loans, notwithstanding the fact that

those loans were excepted from the general discharge. The

existence of “undue hardship” does not itself cause other-

wise undischarged government student loans to be dis-

charged. See United States v. McGrath, 143 B.R. 820, 825

(D. Md. 1992); Vermont Student Assistance Corp. uv.

Zeichner, 708 A.2d 1351, 1352 (Vt. 1998) (“[S]tudent loans

are not discharged automatically under § 523(a)(8).”).

Rather, a debtor’s proof of “undue hardship” provides a

basis for a court to grant a discharge of government

student loans — and only a federal court has jurisdiction to

provide such a grant.

The leading test for measuring “undue hardship”

underscores the idea that an “undue hardship” determina-

tion involves the grant of a separate discharge. According

to the decision in Brunner v. New York State Higher Educ.

Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987), the grant of

an “undue hardship” discharge requires, among other

things, “(1) that the debtor cannot maintain, based on

current income and expenses, a ‘minimal’ standard of living

for herself and her dependents if forced to repay the

loans,” and “(2) that additional circumstances exist indi-

cating that this state of affairs is likely to persist for a

See Janc v. Coordinating Bd. for Higher Educ. (In re Janc), 251 B.R.

525, 530 n.5 (Bankr. W.D. Mo. 2000). As stated above, subsection (15) is

squarely within the exclusive jurisdiction of the federal courts, and

subsection (8) “undue hardship” determinations belong within the

exclusive jurisdiction of the federal courts as well.

14

significant portion of the repayment period of the student

loans.” (emphasis added). The determination of “undue

hardship” at the time when the “undue hardship” action is

pending (and for subsequent periods), not at the time a

general discharge is granted, indicates that an “undue

hardship” determination involves a discharge that is

separate from and unrelated to the general discharge.”

Federal court exclusive jurisdiction over the

grant of bankruptcy discharges does not infringe

upon state court concurrent jurisdiction over

the application of bankruptcy discharges.

Courts have recognized the concurrent jurisdiction of

state courts over the application of bankruptcy discharges.

See, e.g., Siragusa v. Siragusa (In re Siragusa), 27 F.3d

406, 408 (9th Cir. 1994). Particularly, many courts have

noted that state court concurrent jurisdiction extends to

determinations of whether certain debts fall into or out-

side the 11 U.S.C. §523(a) exceptions like 11 U.S.C.

§ 523(a)(8). See, e.g., Arnold v. Sallie Mae Servicing Corp.

* As noted above, an “undue hardship” action may be initiated at

any time, even a number of years after a general discharge is granted

and a Chapter 7 case is closed. See FED. R. BANKR. P. 4007(b). A debtor

may not suffer “undue hardship” when the general discharge is

granted, but may suffer “undue hardship” at a later date. A determina-

tion of “undue hardship” at the later date would require a prospective

grant of discharge, but not a grant of discharge retrospective to the date

of the general discharge. Moreover, the denial of an “undue hardship”

discharge at an earlier date does not preclude a debtor from bringing a

later action for “undue hardship” if the debtor’s circumstances change.

See Lien v. United States Dept. Health and Human Servs. (In re Lien),

224 B.R. 431, 434 (Bankr. D. Alaska 1998) (citing Jn re Sobh, 61 B.R.

576 (E.D. Mich. 1986)).

15

(In re Arnold), 255 B.R. 845, 850 (Bankr. W.D. Tenn. 2000).

The decisions of these courts are supported by the Advi-

sory Committee Notes to Federal Rule of Bankruptcy

Procedure 4007(b), which indicate that there is some

degree of state court concurrent jurisdiction under 11

U.S.C. §523(a)(8). However, no court appears to have

considered the precise extent of the state court concurrent

jurisdiction suggested by the Advisory Committee Notes.

Further, no court seems to have considered whether

“undue hardship” determinations require a separate and

specific grant of discharge and therefore remain within the

exclusive jurisdiction of federal courts. A thorough analysis

of state court jurisdiction in this area indicates that

federal court exclusive jurisdiction to grant bankruptcy

discharges does not infringe upon or conflict with state

court concurrent jurisdiction to apply bankruptcy dis-

charges granted by federal courts.

As described above, the grant of a discharge in bank-

ruptcy is a power reserved exclusively for federal courts,

while the effect of a discharge in bankruptcy can be deter-

mined by a state or federal court. See Setzler, 73 F. Supp.

at 316; Letsinger, 748 N.E.2d at 818. Under this structure,

state courts have jurisdiction, for example, to determine

whether a debt is for “alimony” or “child support” and is

thus subject to the exception to discharge contained in 11

U.S.C. § 523(a)(5). Likewise, state courts have jurisdiction

to determine whether a debt is “for an educational benefit

overpayment or loan” and is thus subject to the exception

to discharge contained in 11 U.S.C. § 523(a)(8). These

determinations, whatever their results, cannot necessitate

or effect the grant of a discharge. Instead, these determi-

nations answer the question of whether certain debts were

“in” or “out” of the general discharge in the first place. If a

16

debt is for child support or a government student loan,

then the general discharge never applied to the debt, and

no separate discharge of the debt is appropriate. If a debt

is not for child support or a government student loan, then

the general discharge always applied to the debt (subject

to any other applicable exceptions), and no separate

discharge of the debt is required.

On the other hand, “undue hardship” determinations

may require the grant of a separate discharge. If a state

court determines that a debtor does not suffer from “undue

hardship,” taen the relevant government student loan

debt was automatically excepted from the general dis-

charge, and no separate discharge of the debt is appropri-

ate. But, if a state court finds that a debtor suffers from

“undue hardship,” then a separate discharge of the gov-

ernment student loan debt is required — and cannot be

granted in state court. State courts are not incapable to

hear certain dischargeability claims, but a finding of

“undue hardship” necessitates relief that a state court is

incapable to grant. For this reason, although state courts

have concurrent jurisdiction over some 11 U.S.C.

§ 523(a)(8) matters, the state court alternative suggested

by the petitioner and other amici will not provide an

opportunity for “undue hardship” discharge relief.

B. Ex Parte Young Suits

Another suggested alternative to a debtor’s suit

against a state in federal court is a debtor’s suit against

state officials in federal court under the Ex parte Young

doctrine. (Pet’r Br. at 29). It is well established that the

Eleventh Amendment is not a bar to most suits against

state officials in federal court, provided that the plaintiffs

17

seek only prospective declaratory and injunctive relief for

an ongoing violation of federal law by the state officials.

See Idaho v. Coeur d’Alene Tribe, 521 U.S. 261, 276-77

(1997).

The Ex parte Young doctrine relies in part on the legal

theory that acts done in violation of federal law are outside

the official capacities of state employees. State officials

violating federal law are acting ultra vires, as private

individuals rather than as instruments of government. See

Clean Air Council v. Mallory, 226 F. Supp. 2d 705, 712

(E.D. Pa. 2002) (quoting Ex parte Young, 209 U.S. 123

(1908)). Therefore, suits against state officials for viola-

tions of federal law are not suits against states, subject to

the Eleventh Amendment, but are rather suits against

individuals who are not entitled to sovereign immunity.

See id.

If available, Ex parte Young relief might provide a

debtor with a satisfactory alternative to an “undue hard-

ship” suit against a state. From a technical standpoint, Ex

parte Young relief could enjoin only specific state-official

defendants from collecting a debtor’s student loans.

However, a declaration of “undue hardship” discharge

under the Ex parte Young doctrine would, in practice,

likely prevent collection attempts by non-defendant state

officials as well.

The problem with Ex parte Young relief is not that it is

unsatisfactory, but rather that it is not readily available.

As discussed in section A above, courts have in general

held that there is no “ongoing violation of federal law” to

support Ex parte Young relief in the “undue hardship”

context. See, e.g., Jordon, 275 B.R. at 761; Stout, 231 B.R.

18

at 316; Perkins v. Coordinating Bd. for Higher Educ. (in re

Perkins), 228 B.R. 431, 435 (Bankr. E.D. Mo. 1998).

In bankruptcy, the discharge injunction in 11 U.S.C.

§ 524 makes it illegal to attempt to collect a debt that has

been discharged. The converse is also true — it is not

illegal, of course, to attempt to collect a debt that has not

been discharged. Government student loan debts are not

discharged until a separate “undue hardship” discharge is

granted, and, under the rationale of the Ex parte Young

cases, state officials are not violating the federal discharge

injunction by seeking to collect loan debts like those owed

by Ms. Hood and Mr. Spring." Pecause no “ongoing viola-

tion of federal law” may be alleged with respect to non-

discharged government student loans, courts in cases like

Jordon and Stout have been unwilling to entertain Ex

parte Young actions for “undue hardship” discharges.

Accordingly, Ex parte Young relief may not be available to

a debtor seeking an “undue hardship” discharge, and such

relief almost certainly will not be available without vigor-

ous debate.

C. Federal Government Suits

It has also been suggested that a federal court suit in

which the federal government is the plaintiff is a viable

alternative to a federal court suit by a debtor against a

" It is a violation of the “automatic stay” contained in 11 U.S.C.

§ 362 to attempt to collect any debts of a debtor prior to the grant of a

“general discharge” under 11 U.S.C. § 727. However, the automatic stay

terminates upon the grant of a general discharge, and thereafter a

creditor may attempt to collect any debt not subject to the general

discharge.

19

state. (Pet’r Br. at 29). It is undeniable that the federal

government may sue a state in federal court, notwith-

standing state sovereign immunity. See United States v.

Mississippi Dept. of Pub. Safety, 321 F.3d 495, 499 (5th

Cir. 2003). However, it is unlikely that the federal gov-

ernment would actually commence a suit to protect a

Chapter 7 debtor in this manner, and the basis for such a

suit is in any event unclear.

Each year, nearly one million cases are filed under

Chapter 7 of the Bankruptcy Code. See 2002 UNITED

STATES TRUSTEE PROGRAM, ANNUAL REPORT OF SIGNIFICANT

ACCOMPLISHMENTS at 58. Many Chapter 7 debtors have

outstanding government student loans, and many Chapter

7 debtors believe that they meet the “undue hardship”

standard for a discharge of those loans. It is difficult to

imagine a process by which the executive branch of the

federal government would determine which debtors

deserve federal prosecution of an “undue hardship” dis-

charge and which debtors do not. It is also difficult to

imagine the vast expenditure of public resources necessary

to prosecute any significant number of “undue hardship”

cases. These cases are highly individualized and fact-

specific, taking into account the details of a particular

debtor’s life on a case-by-case basis. See Pennsylvania

Higher Educ. Assistance Agency v. Faish (In re Faish), 72

F.3d 298, 302 (3d Cir. 1995). If a debtor were required to

rely on federal prosecution to obtain an “undue hardship”

discharge, then the chance of the debtor obtaining such a

discharge would be infinitesimal.

Also, it is unclear what cause of action the federal

government would bring against a state creditor in this

context, and what federal agency would have standing to

do so. As discussed in section B above, a state creditor may

20

attempt to collect a government student loan, absent the

grant of an “undue hardship” discharge, without violating

federal law. Thus, it would appear that the federal gov-

ernment cannot prosecute a state for attempting to collect

government student loans like those owed by Ms. Hood

and Mr. Spring. On the other hand, if the federal govern-

ment were to sue a state creditor to seek an “undue

hardship” discharge for a debtor, the federal government’s

standing might be questioned. Most federal government

agencies would lack standing to pursue such an action.

The Office of the United States Trustee, alone among

federal agencies, may have standing to prosecute an

“undue hardship” case pursuant to 11 U.S.C. § 307.” Yet,

the United States Trustee is a supervisor of the bank-

ruptcy process, not an advocate for the debtor.” Prosecu-

tion of “undue hardship” cases for debtors would be

inconsistent with the United States Trustee’s traditional

role.

Even if a federal agency has standing to pursue an

“undue hardship” action against a state creditor, the

interests of the federal government would not favor — and

would in fact oppose — the pursuit of a government student

* 11 U.S.C. § 307 states as follows: “The United States trustee may

raise and appear and be heard on any issue in any case or proceeding

under this title but may not file a plan pursuant to section 1121(c) of

this title.”

* See 28 U.S.C. § 586(a) (describing duties of the United States

Trustee). See also In re Dalen, 259 B.R. 586, 598 n.16 (Bankr. W.D.

Mich. 2001) (“Indeed, the purpose of the United States trustee program

is to fill the gap left by Congress’ decision to remove the bankruptcy

judges from the supervisory role which they had come to accept under

the Bankruptcy Act.”).

———_————-

el ee

21

loan discharge. As a lender for whom 11 U.S.C. § 523(a)(8)

is a protection, the federal executive branch has an inter-

est in keeping the “undue hardship” standard difficult to

satisfy and in having most “undue hardship” discharge

requests denied.“ Thus, a federal agency is a poor ally for

a Chapter 7 debtor seeking an “undue hardship” dis-

charge, and the alternative of a federal government suit is

inadequate and likely unavailable.

D. Non-Judicial Options

Certain non-judicial options have also been presented

as alternatives to “undue hardship” actions against states

in federal court. (Br. of Council of State Gov’ts as Amici

Curiae Supporting Pet’r at 28-30). State and federal

agencies have promulgated administrative means of

deferment, forbearance, and forgiveness of government

student loans to offer borrowers certain limited types of

debt management. However, these non-judicial options

either are inferior to a bankruptcy discharge or, even if

roughly equivalent, are not available to most Chapter 7

debtors.

Deferment and forbearance are not equivalent to an

“undue hardship” discharge because these options do not

provide the “fresh start” conferred by an “undue hardship”

discharge. The “fresh start” is “a new opportunity in life

and a clear field for future effort, unhampered by the

“ The federal government, through its Department of Education,

provides $67 billion in student aid each year, which constitutes 70

percent of all student aid nationally and which assists millions of

students. See http://www.ed.gov/finaid (last visited Dec. 16, 2003).

22

pressure and discouragement of pre-existing debt.” Hunt,

292 U.S. at 244 (emphasis added). While deferment and

forbearance offer temporary relief from a government

student loan debt, they do not offer a “clear field for future

effort” — the debtor continues to be “[ Jhampered by the

pressure and discouragement” of the government student

loan debt. Deferment and forbearance may be somewhat

helpful to some borrowers under some circumstances, but

these types of relief are far more narrow and far less

helpful than a bankruptcy discharge.

Some state and federal regulations may offer perma-

nent relief roughly equivalent to that provided by an

“undue hardship” discharge. For example, federal regula-

tions offer a discharge of a government student loan if a

debtor demonstrates, among other things, that he or she is

“totally and permanently disabled.” 34 C.F.R. § 682.402(c).

However, a “total and permanent disability” regulatory

discharge is only available to a narrow subset of Chapter 7

debtors, excluding most debtors who meet Congress’

“undue hardship” standard for a bankrur cy discharge.

Pursuant to the federal regulations, “totally and

permanently disabled” is defined as “the condition of an

individual who is unable to work and earn money because

of an injury or illness that is expected to continue indefi-

nitely or result in death.” 34 C.F.R. § 682.200(b). Not only

must a debtor meet this high standard, which is obviously

more stringent than “undue hardship,” but he or she must

also wait three years after a finding of “total and perma-

nent disability” before a government student loan debt is

permanently discharged. 34 C.F.R. § 682.402(c). If at any

23

time during the three-year period the debtor’s annual

earnings exceed the poverty level for a family of two, the

debt will not be discharged.” 34 C.F.R. § 682.402(c).

Accordingly, forms of relief like a “total and permanent

disability” discharge, which may be roughly equivalent to

a bankruptcy discharge, are simply not available to most

debtors who would nevertheless be entitled to “undue

hardship” bankruptcy discharges.

¢

CONCLUSION

Mr. Spring’s case demonstrates that the alternatives

suggested by the petitioner and other amici are not really

alternatives at all. Mr. Spring would be prejudiced if he

were forced to wait for the University of Massachusetts to

sue him in federal court. Not only would his finances

remain uncertain, but any tax refunds to which he might

be entitled would likely be automatically offset against his

government student loans. Even if he were sued in state

court by the University, his “undue hardship” defense

would fail for jurisdictional reasons or for other reasons

unrelated to Mr. Spring’s “undue hardship.” __

Mr. Spring has tried to avert the indeterminate status

of his government student loans by commencing an Ex

parte Young action against offi~ials of the University of

Massachusetts. These officials have responded with a

* The federal poverty level for a family of two is presently $12,120.

See http://aspe.hhs.gov/poverty/O3poverty.htm (last visited Dec. 16,

2003). For a debtor like Mr. Spring, this income level will not likely

suffice to pay ordinary living expenses and to service government

student loan debt.

24

motion to dismiss on the grounds described in section B of

this brief. To date, the issue has not been resolved in Mr.

Spring’s case, and Mr. Spring’s ability to receive an “undue

hardship” discharge under the Ex parte Young doctrine is

far from certain.

Mr. Spring could rely on a hope that the federal

government will step in to sue the University of Massa-

chusetts for his “undue hardship” discharge, but this hope

would be in vain. No federal agency has indicated a

willingness to pursue this type of action on behalf of Mr.

Spring, and it is not certain whether such an action would

be permitted. Moreover, Mr. Spring cannot be expected to

rely on the nation’s largest government student loan

creditor to pursue a discharge of his government student

loans.

The University of Massachusetts has itself suggested

that Mr. Spring apply for an administrative discharge on

the grounds of “total and permanent disability.” However,

Mr. Spring is not totally disabled. Whatever “undue

hardship” means, it is something less than “total and

permanent disability,” and Mr. Spring believes that he is

able to satisfy the former standard, even if he is not able to

satisfy the latter.

Mr. Spring believes that the federal bankruptcy court

should grant him an “undue hardship” discharge of his

government student loans. Indeed, Mr. Spring submits

that the federal courts are the only courts able to provide

Mr. Spring with this relief. What is more, Mr. Spring

submits that an “undue hardship” discharge is the only

relief able to satisfy the principles of federal bankruptcy

law to which he has turned for help. Accordingly, it is

important to Mr. Spring that the Court affirm the decision

25

of the Court of Appeals for the Sixth Circuit below and

allow him to proceed against the University of Massachu-

setts for an “undue hardship” discharge in federal court.

Respectfully submitted,

C. HALL SWAIM*

MITCHEL APPELBAUM

GEORGE W. SHUSTER, JR.

STEVEN C. BENNETT

*Counsel of Record

HALE AND DorR LLP

60 State Street

Boston, Massachusetts 02109

617.526.6000 (telephone)

617.526.5000 (facsimile)

Counsel for Donald J. Spring

as Amicus Curiae