# Amicus Curiae Brief — Tennessee Student Assistance Corporation v. Hood

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2004
- **Citation:** 541 U.S. 440

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0657%3A15. Public record. Not legal advice.