Opposition Brief — United Student Aid Funds, Inc. v. Espinosa

[Sere cot UE

(3 MAY 1 2 2009

No. 08-1134 OFFICE OF THE CLERK

Jn The

Supreme Court of the United States

UNITED STUDENT AID FUNDS, INC.,

Petitioner,

Ve

FRANCISCO J. ESPINOSA,

Respondent.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Sixth Circuit

BRIEF IN OPPOSITION

JAMES L. ROBINSON, JR. MICHAELJ. MEEHAN

Rosinson & RYLANDER, P.C. Counsel of Record

4340 NortH CAMPBELL Or CouNSEL

Suite 266 MuNGER Cuapwick, P.L.C.

Tucson, ARIZONA 85718 333 N. Wicmot, Surre 300

(520) 299 4922 Tucson, ARIZONA 85711

(520) 721-1900

Counsel for Respondent

May 12, 2009

Becker Gallagher + Cincinnau, OH + Washington, D.C. - 800 890 5001

i

QUESTIONS PRESENTED

Debtor gave notice of a Chapter 13 plan by United

States Mail to the address given him to make his loan

payments. The proposed plan gave plain and detailed

notice that the outstanding princ.pal balance of the

Student Loan would be paid but all other charges

would be discharged.

Petitioner’s Litigation department received the

mailing, filed a proof of claim, but did not object to

confirmation. Petitioner did not appeal, and collected

its entire due under the plan. Petitioner then ignored

the bankruptcy court injunction against collection,

engaging in self help. When Espinosa sought to

enforce the injunction, Petitioner sought relief under

Rule 60(b)(4) which required proof that the

confirmation order was void, thus requiring a showing

of a constitutional due process violation. The

questions presented:

1. Does the 5“ Amendment make void an order

about which Petitioner had actual knowledge, but

chose to ignore?

2. Does the fact that Espinosa proposed to have a

portion of a student loan discharged without an

adversary proceeding, which Petitioner chose not to

dispute, render the enforceability of the discharge

order under 11 U.S.C. 1327(a) inapplicable?

3. If this Court rules that Due Process requires an

adversary hearing, should its ruling be prospective

only?

il

TABLE OF CONTENTS

QUESTIONS PRESENTED ................... i

ep en re ii

TABLE OF AUTHORITIES .................. iv

ss eke ek etka ee Oe 1

STATEMENT OF THE CASE ................ 2

REASONS TO DENY CERTIORARI ........... 7

1. This is a case that, correctly, turned upon

the fact that petitioner waived its right to an

adversary proceeding by doing nothing, in

the face of its knowledge of the plan. It isa

waiver case — not a due process case ...... 7

2. Constitutional due process really isn’t at

issue in this case because of petitioner's

actual knowledge of the proceeding ....... 9

3. The opinion below does not conflict with

Tennessee Student Assistance Corp. v. Hood,

og ee ee re 11

4. The holding in this case does not conflict

with the cases Petitioner argues that it does,

for either of two reasons: (1) the “conflicting”

cases did not consider whether “actual

knowledge” mooted the dispute about “what

method of notice” is required; or (2) the

notice in the conflicting cases did _ not

il

“reasonably convey the required

information” which due process requires . 15

5. Tochisel the adversary proceeding rule into

constitutional-due-process stone, or create

an exception to the finality dictates of

§ 1327(a) based upon the importance of the

policy underlying a particular Code section,

would significantly disrupt bankruptcy

Ss oh cas uk keeseeeeeess 4 20

6. Adopting the rule Petitioner seeks would

also have broad ramifications for due process

and the finality of judgments. .......... 22

7. It is neither necessary nor desirable for this

Court to grant certiorari in order to

determine whether a constitutional rule and

a fundamental interest in finality of

judgments should be altered in order to

impact the manner of practice by the

ES i oe khan ct aucaeeees 29

8. There is no need, nor sense, in this Court

granting certiorari to write a special rule for

POD rie a nen 32

9. If this Court grants certiorari, it must

determine whether its ruling should be

prospective only, given that Espinosa relied

upon a procedure that was acceptable at the

time, and thereafter approved by the Ninth

ly AIRS APE ee 8 cake aot ot. ie PTR a 34

Es as Siti ig Deane ee a ae akan 35

iv

TABLE OF AUTHORITIES

CASES

Andersen v. UNIPAC-NEBHELP,

179 F.3d 1253 (10" Cir. 1999) ....... 13, 19, 34

Banks v. Sallie Mae Servicing Corp..,

299 F.3d 296 (4 Cir. 2002) ............ 17,18

Burda Media, Inc. v. Viertel,

417 F.3d 292 (2d Cir. 2005) ............... 10

Chevron Oil Co. v. Huson,

ge ) , ) 34

Chevy Chase Bank v. Locke (In re Locke),

227 B.R. 68 (E.D. Va. 1998) ............... 25

Educ. Credit. Mgmt. Corp. v. Mersmann (In re

Mersmann),

505 F.3d 1033 (10" Cir. “007) .... 13, 18, 19, 34

Factors Funding Co. v. Fili (In re Fili),

257 B.R. 370 (B.A.P. 1* Cir. 2001) ......... 24

Grammenos v. Lemos,

457 F.2d 1067 (2d Cir. 1972) .............. 10

Great Lakes Higher Educ. Corp v. Pardee (In re

Pardee),

193 F.3d 1083 (9 Cir. 1999) ........... passim

Green Tree Fin. Corp. v. Garrett (in re Garrett),

185 B.R. 620 (Bankr. N.D. Ala. 1995) ....... 25

v

Hanson v. Educ. Credit Mgmt. Corp..,

397 F.3d 482 (7™ Cir. 2005) ............... 17

Homebanc v. Chappell (In re Chappell),

984 F.2d 775 (7 Cir. 1993) ............--. 26

In re Battle,

164 B.R. 394 (Bankr. M.D. Ga. 1994) ....... 26

In re Bonanno,

78 B.R. 52 (Bankr. E.D. Pa. 1987) ...... 26, 28

In re Brenner,

189 B.R. 121 (Bankr. N.D. Ohio 1995) ...... 24

In re DaShiell,

124 B.R. 242 (Bankr. N.D. Ohio 1990) ...... 14

In re Elstein,

238 B.R. 747 (Bankr. N.D. Ill. 1999) ........ 24

In re Gregory,

705 F.2d 1118 (9" Cir. 1983) ........ 15, 21, 28

In re Harvey,

S15 F.Oe BA CT Cle. SOGDD «woe ce edi vncees 25

In re King,

290 B.R. 641 (Bnkr. C.D. Ill. 2003) ......... 14

In re Kleather,

208 B.R. 406 (Bankr. S.D. Ohio 1997) ...... 14

In re Pence,

905 F.2d 1107 (7" Cir. 1990) .............. 11

vi

In re Robert L. Helms Constr. & Dev. Co.,

139 F.3d 702 (9" Cir. 1998) (En Banc) ...... 23

In re Stewart,

247 B.R. 515 (Bankr. M.D. Fla. 2000)....... 26

In re Szostek,

886 F.2d 1405 (3d Cir. 1989) .............. 27

In re Walker,

128 B.R. 465 (Bankr. D. Idaho 1991) ....... 25

In re Young,

281 B.R. 74 (Bankr. S.D. Ala. 2001) ........ 26

Jones v. Flowers,

re 5, 10

Lester Mobile Home Sales v. Woods (In re Woods),

130 B.R. 204 (W.D. Va. 1990) ............. 23

Marlow v. Sweet Antiques (In re Marlow),

216 B.R. 975 (Bankr. N.D. Ala. 1998) ....... 24

McDonough v. Plaistow Coop. Bank (In re

McDonough),

166 B.R. 9 (Bankr. D. Mass. 1994) ......... 24

Mullane v. Cent. Hanover Bank & Trust Co,

soe U.S. 306 (19G0) ........... 5,8, 10, 14, 27

Multnomah County v. lvory (In re Ivory),

70 F.3d 73 (9 Cir. 1995) .............. 23, 28

Nationsbanc Mortgage v. Williams (ln re Williams),

276 B.R. 899 (C.D. Ill. 1999) .............. 26

vii

Piedmont Trust Bank v. Linkus (In re Linkous),

990 F.2d 160 (4" Cir. 1993) ............ 26, 27

Ruehle v. Educ. Credit Mgmt. Corp.,

412 F.3d 679 (6™ Cir. 2005) ......... 16, 17, 18

Stoll v. Gottlieb,

PC ED occ ccccccusesvecucss 23

Sullivan v. Choquette,

420 F.2d 674 (1* Cir. 1969), cert. den. (1970) . 10

Taylor v. Freeland,

ee MP ED occ cece cet eweccnes 31, 32

Tennessee Student Assistance Corp. v. Hood,

er ED ck wcv ceucasectbeues passim

Tulsa Professional Collection Services, Inc. v. Pope,

es Cg, gv eevee ce cuevevewss 14

United States v. Casciano,

124 F.3d 106 (2d Cir. 1997), cert. den. (1997). 10

Whelton v. Educ. Credit Mgmt. Corp..,

432 F.3d 150 (2d Cir. 2005) ............ 17, 18

CONSTITUTION

Ee ere ree 12

re ee oa 4

Vill

STATUTES

ne a dd Wawa wees 26

eR RE acter Smee amar pur 2

EE ia on cc dc ce eek sa tea ieaw ewe 20

te oe aoe week eee el 21

ee a cece sae beh ees 20

rr. os keh eee dw eeeeeeeun 21

go 5 ao 0a haedeoweee neues 21

ck eeeeueeseeeewes 21

ER eR err 6,12, 19

| a 31

es is oo 4 esa eens eeewe 28

sg sk ob wee seca cee eeeee 26

nec eeeeessacoscenen 25

Re ED po ccc c ccs ecctcessned 6, 19

a ee 26, 27

PF eee ee ee passim

i. Er re 6,19

ns ck hee awe see weeees 32

es eee eke RAE 13

RULES

ee bee eke es oe eee us 4

eeu essen owen 4

wee ee eeeceneeace 4

| ere passim

ne. ee se ec uleaw eens 2

ee D . . . tte cece ew eeess 3

le deee eee 9,12

ee I, Dg. ce ce wees passim

ee es cee eee sees huaee 4

ix

OTHER

Keith M. Lundin, CHAPTER 13 BANKRUPTCY, 3D.

EDITION §228.1 (2000 & Supp. 2007) ....... 23

Keith M. Lundin, CHAPTER 13 BANKRUPTCY, 3D.

EDITION § 229.1 (2000 & Supp. 2007) . 19, 27, 28

Keith M. Lundin, CHAPTER 13 BANKRUPTCY, 3D.

EDITION § 346.1 (2000 & Supp. 2007) ....... 14

1

CASE OVERVIEW

Respondent Espinosa opposes the grant of

certiorari. This is a case in which the court of appeals

recognized that Petitioner United Student Aid Funds

had been aware of the proposal to discharge a minor

portion of the debt owed to it without a formal

adversary proceeding, but chose to do nothing except

take advantage of the plan of arrangement by

collecting money from Espinosa for years. The court of

appeals appropriately concluded that the Due Process

clause is irrelevant to deciding whether a creditor can

waive its right to insist upon a full-blown adversary

proceeding, for a Chapter 13 plan of which it was

aware, participated in and received the benefits of, and

later attempted to renounce. It also held that simply

because the confirmed plan was not the result of an

adversary hearing on “undue burden” — which

Espinosa proposed be waived and Petitioner chose not

to disagree with — was no reason to make an exception

to the binding nature of plans under 11 U.S.C.

§ 1327(a). The result applied fundamental principles

of notice and the finality of judgments. To reverse it

will raise great uncertainty in the jurisprudence of

both subjects.

The opinion below does not conflict with Tennessee

Student Assistance Corp. v. Hood, 541 U.S. 440 (2004),

nor with any other case of this Court. It properly

distinguishes other circuit precedent or explains why

that precedent is unpersuasive. The Court of Appeals

logically and justly decided this case on its facts. The

opinion below is the one that got it right, and there is

no sense in disturbing it.

2

There is a key fact which petitioner ignores here, as

it did below, and which the Court of Appeals found

determinative. Petitioner had actual knowledge of the

proceeding and the specific proposal that the plan

would call for Espinosa to pay the principal sum of

$13,250.00 due petitioner on his student loan, but

discharge $4,582.15 ofinterest. Petitioner did nothing.

That fact distinguishes this case from those with

which petitioner claims it conflicts. It also makes this

case peculiarly ill suited for a grant of certiorari.

STATEMENT OF THE CASE

Espinosa filed a proposed Plan for relief from

creditors under Chapter 13 of the Code on December 2,

1992. E.R. 22'

Petitioner had an established post office box for the

receipt of loan payments. This was furnished to the

Bankruptcy Clerk by Espinosa, under Fed. R. Bankr.

P. 1007, for the Clerk to use for giving notice. E.R. 15.

Notice of Espinosa’s bankruptcy was mailed to

Petitioner as required by 11 U.S.C. § 341.° Petitioner's

litigation department received the notice on December

18, 1992. E.R.28. The notice advised that Espinosa

would seek Bankruptcy Court confirmation of his plan

on April 15, 1993. The plan accompanied the notice.

The Plan prominently featured on top of its first page,

in bold letters, the legend “WARNING IF YOU AREA

' Reference is to the Excerpts of Record filed in the Court of

Appeals.

‘ Further references to the Bankruptcy Code wil! be by section

number only, for simplicity

3

CREDITOR YOUR RIGHTS MAY BE IMPAIRED BY

THIS PLAN.” E.R. 22.

Not only did the plan contain the above-quoted

warning, it spelled out plainly and in detail its

proposal that the principal of specific education loans,

from specific lenders, in specific amounts, would be

fully paid, and that all other amounts claimed owing

by the debtor, of any nature, not paid under the plan,

would be discharged. E.R. 25.

The notice was successful and complete. Petitioner

received actual notice of the bankruptcy, of the

proposed plan, and of the proceedings scheduled for

confirmation of the plan on April 15, 1993, from the

Clerk of the Bankruptcy Court, as specified by Fed. R.

Bankr. P. 2002(b). E.R. 28. Proof that the actual

notice was in fact successful arises from the fact that

Petitioner filed a Proof of Claim on January 8, 1993,

more than three months before the scheduled hearing

to confirm the plan. E.R. 36 (Trustee’s Notice to

Creditor, reflecting receipt of objection on January 8,

1993.)

Moreover, the notice went exactly where it needed

to in order for Petitioner to be advised in the premises,

and take action in the Bankruptcy proceeding. A

stamped legend on the Proof of Claim demonstrates

that the litigation department of the Petitioner

received notice. E.R. 28. No better notice could have

been given for the purpose of this case.

Petitioner made no objection to the Plan. The

Bankruptcy Court confirmed the plan on May 6, 1993.

Petitioner did not appeal that order. But there ts

more.

4

On June 10”, within the time available to

Petitioner to file an appeal, Trustee served notice of

the Trustee’s objection to Petitioner’s proof of claim

upon Petitioner. E.R. 36. Service was accomplished

by mail to the address specified in Petitioner’s proof of

claim. The objection notified Petitioner that its claim

“differs from the amount listed in the plan [and] will

be paid as listed in the plan,” which reduced it to

$13,250.00. The plan also advised Petitioner that “any

amounts or claims for student loans unpaid by this

plan shall be discharged. E.R. 25. Petitioner still did

not appeal.

The Trustee’s notice provided thirty days to object

to this treatment of its claim. Petitioner did nothing.

Petitioner bypassed yet another remedy available

to it. Petitioner did not file any motion under Fed. R.

Bankr. P. 9024; Fed. R. Civ. P. 60(b)(1), (2) or (3)

within the one year permitted by the rule for the

bringing of such motions. Under those parts of Rule

60, petitioner could have challenged the order of

confirmation on the grounds of mistake, inadvertence,

surprise, excusable neglect, fraud, misrepresentation

or other misconduct. Instead, petitioner collected its

due under the plan, waited for seven years after that,

and then began unilaterally intercepting government

payments belonging to Espinosa. Then, eleven years

after the plan was confirmed, it filed a Rule 60(b)(4)

motion, but only after Espinosa forced the issue by

reopening the Bankruptcy and moving to enforce the

injunction against these kinds of acts by petitioner.

Petitioner argued that the confirmation order was

void because unless it had been served with process for

an adversary proceeding under Bankruptcy Rule

5

7001(6), it had been denied due process under the 5”

Amendment. Alternatively, it argued that the

generally binding nature of a confirmed plan,

established by § 1327(a) should be inapplicable where

no adversary proceeding had occurred, even though it

had never chosen to claim its right to have such an

adversary proceeding. The Court of Appeals rejected

both contentions.

The Court recognized that Rule 60(b)(4), invoked by

Petitioner, restricted the grounds upon. which

Petitioner could challenge the confirmation order. Pet.

App. 11, 12. Because Petitioner had invoked Rule

60(b)(4) the only basis upon which it could gain relief

was by proving the confirmation order was “void.”

The Court addressed the Petitioner’s due process

claim in light of the Petitioner’s invocation of Rule

60(b)(4), as of course it had to do. App. 18. It

recognized, as again it of course had to do, that the due

process issue was governed by Mullane v. Cent.

Hanover Bank & Trust Co, 339 U.S. 306 (1950).

Mullane, of course, requires “notice reasonably

calculated, under all the circumstances, to apprise

interested parties of the pendency of the action and

afford them an opportunity te present their

objections.” Jd. p. 314. Recognizing that “due process

does not require actual notice,”"Jones v. Flowers, 547

U.S. 220, 225 (2006), the court logically concluded that

“it follows a fortiori that actual notice satisfies due

process.” Ibid.

Because, as the record makes abundantly clear,

App. 21, Petitioner had had notice not only of the

pending proceeding but of the potential adverse impact

on its claim and what it must do to avoid the adverse

6

treatment, the Court concluded that Petitioner had

been more than adequately accorded due process.

Addressing the statutory argument, the Court

concluded that what occurred in this case, by debtor

proposing that the hardship hearing be waived, and

the creditor acquiescing, presented no conflict between

the existence of the statutory provisions about student

loan discharge, on the one hand, and § 1327(a)’s

establishment that a confirmed plan is binding upon

creditor, on the other. The Court said “We see no such

conflict; both provisions can operate fully, within their

proper spheres.” App. 9. As the court further

explained, the creditor “can object to the plan until the

debtor shows undue hardship in an adversary

proceeding.” Jbid. The Court found no interference

with the operation of the statutes which would control

how and when a student loan discharge is obtained®

merely by the later enforcement of the finality of a

plan pursuant to §1327(a):

“(Wlihen the creditor is served with notice of

the proposed plan, it has a full and fair

opportunity to insist on the special procedures

available to student lean creditors by objecting

to the plan on the ground that there has been no

undue hardship finding. Rights may, of course,

be waived or forfeited, if not raised in a timely

fashion. This doesn’t mean that these rights are

ignored, or that a judgment that is entered after

*§§ 523(4)(8) (requiring finding of undue hardship for discharge),

1328(a)(2) (making § 523(a)8) applicable in Chapter 13 cases) and

§ 1325(a\1) requiring a Chapter 13 plan to conform to the

requirements of the Code

7

a party fails to assert them conflicts with the

statutory scheme or is somehow invalid.

“The Bankruptcy Code’s finality provision

comes into play much later in the process, after

the bankruptcy proceedings come to an end.”

App. pp. 10, 11.

Petitioner and the Amici come to this Court asking

it to hold that actual notice — more precisely

“knowledge” of the entire situation — does not satisfy

due process unless Bankruptcy Rule 7001(6) is

followed, regardless whether they requested that it be.

They also ask this Court to hold that if an order is

confirmed by a process omitting a procedure, their

right to which they knowingly waived, the terms of the

confirmed plan cannot be enforced by the Bankruptcy

Court’s injunctive powers.

REASONS TO DENY CERTIORARI

1. This is a case that, correctly, turned upon

the fact that petitioner waived its right to

an adversary proceeding by doing nothing,

in the face of its knowledge of the plan. It

is a waiver case - not a due process case.

This case is a poor candidate for certiorari because

the fact that Petitioner had full knowledge and chose

to waive its rights is incontrovertible and was the

major premise for the decision below. The Court

correctly observed:

“It makes a mockery of the English language

and common sense to say that [Petitioner]

wasn't given notice, or was somehow ambushed

8

or taken advantage of. The only thing the

creditor was not told is that it could insist on an

adversary proceeding and a_ judicial

determination of undue hardship. But that’s

less a matter of notice and more of a tutorial as

to what right the creditor has under the

Bankruptcy Code — a long-form Miranda

warning for bankers.” App. p. 16.

This case, and the questions Petitioner asks this

Court to review, are cabined by the procedure that

brought it here. Having slept on its rights for eleven

years, petitioner could only move for relief from the

stay under Fed. R. Civ. P. 60(b)(4)(“That the judgment

is void.”) Unless petitioner could prove that the order

confirming the plan was void, it could not obtain relief.

If Petitioner could not prove that it was denied due

process, it could not prove that the order of

confirmation was void. Petitioner could not prove a

due process violation, because it not only reccived

notice, that notice more than _ satisfied the

requirements of Mullane v. Central Hanover Bank &

Trust Co., 339 U.S. 306 (1950). It had knowledge of

the hearing date to confirm the plan, and its proposal

that, ifthe plan was confirmed the principal of its debt

would be paid, and the remainder discharged.

Petitioner’s entire argument in this case has been

about the quality of the notice it _ received,

notwithstanding that it received actual notice. See,

e.g. Petition p. 4, (notice was given “only by mail,” and

not by “service”); p 12, (‘notice ... was given... . no

adversary proceedings were commenced”); p. 21

(“Espinosa’s plan... was merely mailed... tothe post

office box .. .”); p. 24 (“USA Funds never had ‘proper

notice’. . .). See, eg. Ninth Cir. Ans. Br. p. 4

9

(Espinosa gave “no particularized notice of the Plan”);

p. 11 (notices went to P.O. Box instead of a “person

authorized to accept service of process”); p. 16 (notice

“merely satisfied the lower notice threshold of

Bankruptcy Code Section 1324 and Bankruptcy Rule

2002(b)”); p. 17 (conceding that Espinosa gave “good

notice” but complaining that “he did not serve a

complaint and summons as required by Rule 7001 and

7004”)(emphasis in original).

It is understandable that Petitioner poses its

argument thusly, because those cases which arguably

conflict with this one (which almost none do because of

the pivotal fact that Petitioner here had full

knowledge, See J 4 infra) conclude that because the

issue of discharge of student loans is such a public

policy favorite, due process does require “super notice.”

However, the fact remains: Petitioner had not only

good notice, but knowledge. So this case is a poor

vehicle in which to decide whether for certain claims or

issues, embodying arguably more important policy

reasons than others, due process notice can only be

furnished through the summons and adversary

process.

2. Constitutional due process really isn’t at

issue in this case because of petitioner’s

actual knowledge of the proceeding.

Before this Court might reach the issue of whether

student loan discharges involve such important policy

that as a matter of constitutional law notice of a

proposal for such a discharge must occur with the

service of a summons, it must first decide whether a

party can be found to have been denied due process

even though it had full knowledge of the case, the plan,

10

what the plan would do to its claim, and when plan

confirmation would be considered. Unless this Court

were to so hold, the type of notice given is irrelevant.

The notion that a party who had actual knowledge

and an opportunity to be heard was nonetheless denied

due process seems to be virtually non-existent outside

of these student loan cases. Since it is true that “due

process does not require actual notice,” Jones uv.

Flower, 547 U.S. 220, 225 (2006), the issue normally is

whether the notice given comported with the due

process clause even though not actually received.

Probably because of the logic observed in the opinion

below, that “a fortiori actual notice satisfies due

process,” cases holding that actual notice vitiates any

argument of denial of due process are not abundant.

But they exist. See, e.g.:

¢ Burda Media, Inc. v. Vieriel, 417 F.3d 292, 303

(2d Cir. 2005)(due process requirement of Mullane v.

Central Hanover Bank & Trust Co, satisfied by actual

notice even though service in foreign country did not

comply with Hague Convention);

e United States v. Casciano, 124 F.3d 106, 112-

113 (2d Cir. 1997) cert. den. (1997)due process

requirement of notice of protection order satisfied by

actual notice even though service was invalid);

¢ Sullivan v. Choquette, 420 F.2d 674, 676(1" Cir.

1969) cert. den. (1970)(service of process of writ

improper but due process satisfied by wife informing

party of its existence);

¢ Grammenos v. Lemos, 457 F.2d 1067, 1070 (2d.

Cir. 1972)\“The standards set in Rule 4(d) for service

11

on individuals and corporations are to be liberally

construed, to further the purpose of finding personal

jurisdiction in which the party has received actua!

notice.”)

That informal notice satisfies due process even if

“formal written notice” is lacking has been recognized

in the context of a Chapter 13 plan confirmation

proceeding. Jn re Pence, 905 F.2d 1107, 1109 (7™ Cir.

1990)(“Due process does not always require formal,

written notice of court proceedings; informal actual

notice will suffice.”)

So the due process dispute disappears when a party

has knowledge. Nothing more is required.

3. The opinion below does not conflict with

Tennessee Student Assistance Corp. uv.

Hood, 541 U.S. 440 (2004).

What the Constitution requires is different from

what a statute or a court rule provides. There is no

due process violation merely because the adversary

process was not involved. Tennessee Student

Assistance Corporation v. Hood, 541 U.S. 440 (2004)

says as much. Petitioner and the amici claim that the

Ninth Circuit opinion conflicts with Hood, but they

ignore or misunderstand its holding: that the

acceptable form of notice for a proceeding to discharge

a debt is not limited to the issuance of a summons in

an adversary proceeding, and that failure to use the

adversary proceeding is not a constitutional violation.

Td., 541 US. at 453.

In Hood, this Court considered whether a debtor's

proceeding in bankruptcy court to discharge a student

12

loan he owed to a state implicated the Eleventh

Amendment. If it did, the Court would have to decide

whether, under the Bankruptcy clause of the

Constitution, Article I, § 8, cl. 4, Congress had

abrogated state immunity for such a proceeding, thus

avoiding a violation of the Eleventh Amendment.

Hood, supra, p. 443. This Court did not reach the

issue of Congressional abrogation, because it held that

a bankruptcy court determination of dischargeability

was an inrem proceeding, id. p. 447, and therefore was

not “a suit against the state.” Id. p. 450.

The Tennessee Student Assistance Corporation

contended that the adversary proceeding to determine

dischargeability, established by Bankruptcy Rule

7001, did demonstrate that the dischargeability

determination was a suit against the state, and that

service of the summons constituted an infringement

upon the sovereignty of the state. Jd. at p. 452. This

Court rejected that argument by (1) recognizing that

there is no statutory requirement for an adversary

proceeding to determine dischargeability, let alone a

constitutional dictate for doing so; (2) by recognizing

that therefore dischargeability could be determined

through use of the motion procedure which did not

require service of a summons; and (3) that the possible

use of a summons was thus irrelevant to the question

of infringement upon a state’s sovereignty, because an

adversary proceeding was not mandated, either as a

matter of constitutional requirement or of statutory

dictate. Id. at pp. 453-54. This Court was very clear.

It said:

e “The text of [11 U.S.C] § 523(a)(8) does not

require 4 summons, and absent Rule 7001(6) a debtor

13

could proceed by motion . . . which would raise no

constitutional concern.” /d. p. 453;

¢ “To conclude that the issuance of a summons,

which is required only by the Rules, precludes Hood

from exercising her statutory right to an undue

hardship determination would give the Rules an

impermissible effect. 28 U.S.C. § 2075 (“[The

Bankruptcy Rules] shall not abridge, enlarge, or

modify any substantive right”). Id. p. 454.

A leading commentator on Chapter 13 bankruptcy

proceedings has explained quite well how the holding

of Hood controls:

“Admittedly, sovereign immunity, not the

preclusive effect of confirmation, was the issue

in Hood; but the point remains that the

Supreme Court recognized in Hood that an

adversary proceeding initiated by complaint and

summons is not a statutory or constitutional]

prerequisite to adjudication of the discharge of

a student loan. Many of the cases taking issue

with Pardee* and Andersen’ declare the

contrary view that the discharge of a student

loan by any procedure other than adversary

* Great Lakes Higher Educ. Corp. v. Pardee,193 F.3d 1083 (9" Cir.

1999). The opinion in this case reaffirmed Pardee.

° Andersen v. UNIPAC-NEBHELP, 179 F.3d 1253 (10" Cir. 1999).

Following the lead of other circuits which had concluded that the

adversary proceeding of Bankruptcy Rule 7001(6) was enshrined

in the Due Process Clause, the Tenth Circuit overruled Andersen

in Educational Credit Mgmt. Corp. v. Mersmann, 505 F.3d 1033

(10“ Cir. 2007)

14

proceeding violates due process. This premise

is not consistent with Hood.” Keith M. Lundin,

CHAPTER 13 BANKRUPTCY, 3D. EDITION § 346.1,

p. 346-33, (2000 & Supp. 2007).

The case that would control here —if this was a due

process case — is Mullane v. Central Hanover Bank &

Trust Co., 339 U.S. 306, 314 (1950). The government

must provide “notice reasonably calculated, under all

the circumstances, to apprise interested parties of the

pendency of the action and afford them an opportunity

to present their objections.” This Court has held that

“mail service is an inexpensive and_ efficient

mechanism that is reasonably calculated to provide

actual notice.” Tulsa Professional Collection Services,

Inc. v. Pope, 485 U.S. 478, 490 (1988). Here, Petitioner

received mail notice — as authorized by the Rule for

giving notice of plan confirmation proceedings — of a

plan confirmation proceeding.®

® Petitioner's quibbles about the address to which the notice was

given is unavailing, not only because of the fact that it obtained

actual knowledge anyway, but because the mailing addresses used

here, first by the Clerk in mailing the plan and notice, and then

by the Trustee in mailing the follow up notice, were proper. E.g.

In re King, 290 B.R. 641, 645 (Bnkr. C.D. Ill. 2003)(*|A| notice of

filing mailed to mortgagee’s payment address is sufficient ”); /n re

Kleather, 208 B.R. 406, 410 - 12 (Bankr. S.D. Ohio

1997 forwarding notice to processing address as opposed to

service address was sufficient for due process purposes); Jn re

DaShiell, 124 BR. 242, 249 (Bankr. N.D. Ohio 1990)(service at

post office box proper because debtor made his loan payments to

the post office box.)

15

4. The holding in this case does not conflict

with the cases Petitioner argues that it

does, for either of two reasons: (1) the

“conflicting” cases did not consider

whether “actual knowledge” mooted the

dispute about “what method of notice” is

required; or (2) the notice in the

conflicting cases did not “reasonably

convey the required information” which

due process requires.

The opinion below and the precedent it reaffirmed,

Great Lakes Higher Educ. Corp v. Pardee (In re

Pardee), 193 F.3d 1083 (9" Cir. 1999), stood upon long

-~ established precedents “recognizling] the finality of

confirmation orders even if the confirmed bankruptcy

plan contains illegal provisions.” 193 F.3d 1086.

Pardee also held that “If a creditor fails to protect its

interests by timely objecting to a plan or appealing the

confirmation order, ‘it cannot later complain about a

certain provision contained in a confirmed plan, even

if such a provision is inconsistent with the Code.” Ibid.

Pardee stands upon In re Gregory, 705 F.2d 1118 (9""

Cir. 1983).

The opinion here reaffirmed and followed the

principles of Pardee and Gregory, which embody the

non-remarkable proposition that when a judgment has

been entered, has become final, and no appeal has

been taken from it, the judgment is binding and cannot

be ignored, nor can any arguable errors inherent in

that judgment be revisited.

Petitioner claims a conflict between this case and

some from other Circuits which hold discharges

contained in plans to be void if no adversary

16

proceeding was conducted. Some of those cases are

clearly distinguishable because the creditor did not

receive the plan itself as part of its notice, and the

notice of a hearing to confirm a plan was held by itself

not adequate to inform the creditor that the plan

intended to discharge student loan obligations. Others

are not in conflict because the “conflicting” case

holding did not decide whether the fact of “actual

knowledge” mooted the issue of “what method of

notice” due process requires. Moreover, they should

not be followed because their holdings erroneously find

the use of the plan confirmation process to discharge

a loan, instead of the adversary proceeding, to be a

denial of due process. This case stands apart from

Petitioners claimed “conflicting” cases principally

because it is based upon the indisputable fact that

Petitioner had full knowledge and information about

the plan, its confirmation, and the effect upon its

claim. None of the others focus on that fact.

These are the cases Petitioner claims conflict with

this one:

Ruehle v. Educ. Credit Mgmt. Corp. 412 F.3d 679

(6 Cir. 2005). The Ruehle court found that the case

before it, “unlike Andersen and Pardee fails to reflect

that the original creditor or its successor . . . had

reasonable notice of the proposed plan or an

opportunity to be heard prior to the confirmation.” Zd.

at p. 683. By contrast, here Petitioner both had actual

knowledge and a full opportunity to be heard. — In

addition, however, Ruehle concluded that a discharge

obtained without filing an adversary proceeding was

void because it was said to ignore the clear intent of

congress, and the Judicial Conference, to require an

adversary proceeding. Actually, Congress has not

17

mandated an adversary proceeding, instead only

requiring that there be a finding of hardship, which

Petitioner could have easily required had it voiced a

simple objection to the plan. Further, as this Court

made plain in Hood, the court rules (i.e. Ruehle’s

reference to the Judicial Conference-adopted

Bankruptcy Rules) can neither expand nor contract

rights, and thus cannot be enshrined into the due

process clause.

Whelton v. Educ. Credit Mgmt. Corp., 432 F.3d 150

(2d Cir. 2005). The creditor “had received” the notice.

432 F.3d at 152. Further, Whelton draws the same

erroneous conclusion as Ruehle, supra. Whelton

adopted the Ruehle analysis, and both cases have the

same flawed reasoning.

Hanson v. Educ. Credit Mgmt. Corp., 397 F.3d 482

(7" Cir. 2005) was a case where creditor “received”

notice. Jd. at 443. But the Seventh Circuit did not

base its decision on such “receipt,” thus not conflicting

with Espinosa. Hanson then proceeded to hold that

“due process entitles creditors to the heightened notice

provided for by the Bankruptcy Code [once again

misunderstanding the lack of such a provision in the

Code, see, Hood] and Rules... .” Jd. at p. 486.

Banks v. Sallie Mae Servicing Corp., 299 F.3d 296

(4° Cir. 2002) found that the creditor did “not dispute

that it received the proposed plans, the hearing notice,

and the confirmation order.” Jd. at 299. Like Whelton

and Hanson, Banks, too, errs both in thinking that the

Bankruptcy Code specifies the required notice for a

proceeding to determine dischargeability of a student

loan, and in enshrining into the constitutional due

process clause the Bankruptcy rule which Hood later

18

found not to be the exclusive method of determining

student loan discharges. The Fourth Circuit did not

have the benefit of this Court’s Hood opinion, which

drains Banks of any vitality, and renders it further

irrelevant as a purported “circuit conflict.”

Educ. Credit. Mgmt. Corp. v. Mersmann (In re

Mersmann), 505 F.3d 1033 (10" Cir. 2007). For named

debtor Mersmann the creditor “received notice, but

failed to object."Jd. at 1039. For creditor Seiwert,

whose case was also decided in Mersmann, the scope

and clarity of the notice, and whether it could be

concluded that the creditor did in fact have knowledge

of the proceeding, was not mentioned in any way. 7d.

at 1040. Mersmann based its decision in part in

reliance upon Banks, supra, and Ruehle, supra,

including their erroneous perceptions that the

Bankruptcy code mandated use of an adversary

proceeding. 505 F.3d at 1046. It based its

disagreement with its own Andersen case, and Pardee,

also on the erroneous belief that the bankruptcy code

required adversary proceedings. Ibid. And it

overlooked the importance of the point in Whelton,

supra, that giving notice as part of plan confirmation

is only insufficient if the terms affecting the student

loan creditor “were not sufficiently evidenced in a plan

to provide adequate notice to the creditor.” Jd. at 1047.

Mersmann based its holding upon dictum from

Hood describing the “self executing” nature of the Code

section on discharge of student loans. Jd. at 1048. it

also relied upon the Ruehle court mis-apprehension

that Congress required student loan discharges to

occur in an adversary proceeding, when of course it

does not. Jbid. Mersmann also found a conflict

between § 1327(a) and those sections of the code

19

governing what, when and how discharges are

granted.’ Jbid. But all of Mersmann’s analysis of

statutory conflict presume its major premise — that

Congress has mandated a hearing, in an adversary

proceeding, to determine hardship, and has also

dictated that such a hearing cannot be waived by a

creditor, as was done here. For if a creditor can waive

the hardship hearing, none of the statues Mersmann

found to be infringed upon by the rule of Pardee (and,

now, this case) would in fact have been, because

creditor simply waived them and agreed that the

discharge order may include student loans. That is

what the opinion below held, and it was correct.

The opinion below, the previous Pardee opinion,

and the Tenth Circuit in Andersen v. UNIPAC-

NEBHELP (In re Andersen), 179 F.3d 1253 (10" Cir.

1999)(before it reversed course) got it right. “Pardee

and Andersen stand soundly for the better-reasoned

principle that notice of how the Chapter 13 plan affects

creditors’ rights is all that the Constitution, the

Bankruptcy Code and the Bankruptcy Rules require to

bind creditors to the provisions of a confirmed plan

under § 1327(a).”. Keith M. Lundin, CHAPTER 13

BANKRUPTCY, 3D. EDITION § 229.1, p. 229-41, (2000 &

Supp. 2007).

This case does not conflict with the above opinions

because it bases its holding on the full, complete,

information that Petitioner actually received, a fact

?

lt USC. § 523(a(8\(requiring undue hardship to discharge

student loan), § 1328(a)(2) making § 523 apphcable to Chapter 13

proceedings), and § 1325(a)(1)(requiring plans to conform to the

Code)

20

upon which none of the erstwhile “conflicting” cases

based its holding. Moreover, this case reasoned

correctly in the legal analysis that it spoke about in

common with the other cases.

5. To chisel the adversary proceeding rule

into constitutional-due-process stone, or

create an exception to the finality dictates

of § 1327(a) based upon the importance of

the policy underlying a particular Code

section, would significantly disrupt

bankruptcy administration.

The opinion below, and its predecessor Pardee, held

that by its inaction, a Creditor waived its right to

object. To grant certiorari in order to reverse this rule,

allowing long-final judgments confirming plans of

arrangement to be attacked for legal error, would work

a major encroachment upon the highly important

interest not only in finality of orders confirming plans

or reorganization in Bankruptcy, but of judgments in

general.

The specification of adversary proceedings to

determine dischargeability of a debt is a creation of the

Bankruptcy Rules. 7001(6). The rule is not unique to

student loan discharges; it applies to all discharges.

Ibid. There are numerous circumstances specified in

11 U.S.C. § 523(a) requiring denial of a discharge to

the debtor. Each and every one of them has strong

policy reasons prompting the denial of a discharge.

Some of them are:

¢ Money or property obtained by fraud or false

pretenses. § 523(a)(2);

21

e Fraud,embezzlement or larceny while acting as

a fiduciary. § 523(a)(4)°;

¢ Domestic support obligations. § 523(a)(5);

e Willful or malicious injury. § 523(a)(6);

e Fines, penalties or forfeitures that are not

compensation for actual pecuniary loss. § 523(a).

If this Court were to accept Petitioner’s argument

that due process is offended when an adversary

proceeding is not used to determine dischargeability of

student loans, it would generate litigation throughout

the Circuit, District and Bankruptcy courts, in one of

two ways. A blanket rule requiring the same result for

all discharge issues and other matters where the Rules

call for an adversary proceeding inevitably would have

to be confirmed for the various kinds of discharge. Or

the courts would have to begin deciding which other

issues implicate policy reasons strong enough to

militate against discharge without an adversary

proceeding, even where debtor proposes that such a

hearing be waived, and creditor does not object. Then

creditors would begin opening un old cases, invoking

whichever version this Court chose. Is there, then, to

be a due process violation if a debtor files a plan with

his or her petition, listing one of the above non-

dischargeable debts for discharge, the creditor dues not

object, and the plan is confirmed? We think not.

* This was the provision involved in /n re Gregory 705 F.2d 1118

(9° Cir. 1983). Petitioner's claim that Gregory is distinguishable

from this case because upon presumptive dischargeability, or non-

dischargeability, is not correct

22

If it were to be a violation of due process not to use

the adversary procedure, then every plan that was

confirmed with a discharge (not even limited to

student loan discharges) without an adversary

proceeding is void. If it is void, there is no time limit

under Rule 60(b)(4) within which a creditor may open

up the plan. This puts in jeopardy every single such

plan, extending for years into the past.

6. Adopting the rule Petitioner seeks would

also have broad ramifications for due

process and the finality of judgments.

Considering the breadth and scope of the impact of

§ 1327’s finality on bankruptcy administration shows

just how unwise it would be to accept Petitioner’s

arguments.

11 U.S.C. § 1327{a) provides:

“Upon confirmation of a plan, the plan and its

provisions shall be binding upon the debtor and

upon all creditors of the debtor, whether or not

they are affected by the plan or have accepted it

or have filed their claims, and whether or not

their claims have been scheduled or allowed or

are allowable.”

As Judge Lundin aptly described it in his

authoritative treatise:

“Confirmation is the bright line in the life of the

Chapter 13 case at which all the important

rights of creditors and responsibilities of the

debtor are defined and after which all rights

and remedies must be determined with

23

reference to the plan. Once the confirmation

order becomes final, the effect of confirmation is

comprehensively defined in § 1327 of the Code.”

Lundin, supra, §228.1, p. 228-1.

As one court has said:

“A Chapter 13 bankruptcy case, unlike the

typical civil case, can involve several discrete

disputes within it which are disposed of

sometimes over the course of several years. It

is important for the orderly and efficient

administration of the case and for the curing of

the rights of the parties to the case that the

issues, including the issue of subject matter

jurisdiction resolved by the order confirming a

Chapter 13 plan, not be subject to

reconsideration (except in the case of fraud)

after the direct appeals process for the order

has ended.” Lester Mobile Home Sales v. Woods

(In re Woods), 130 B.R. 204, 208 (W.D. Va.

1990).

There is a long history of reported decisions

recognizing the special finality of confirmation orders

in reorganization cases. E.g. Stoll v. Gottlieb, 305 U.S.

165 (1938); In re Robert L. Helms Constr. & Dev. Ce.,

139 F.3d 702, 704 (9" Cir. 1998) (En Banc)(“A

confirmed reorganization plan operates as a final

judgment with res judicata cffect.”); Multnomah

County v. Ivory (In re Ivory); 70 F.3d 73 (9" Cir.

1995)(taxing authority failure to object to confirmation

left it bound by a plan that redeemed property from a

tax foreclosure judgment “even assuming that the

order confirming the plan was in error.”).

24

The binding nature of a plan, once confirmed, has

long been a _ pivotal aspect in bankruptcy

reorganizations in general, and of Chapter 13 cases in

particular. See, e.g. Factors Funding Co. v. Fili (In re

Fili), 257 B.R. 370, 372-74 (B.A.P. 1* Cir. 2001)(“Plan

confirmation is a final order, with res judicata effect,

and is imbued with the strong policy favoring

finality”);In re Elstein, 238 B.R. 747, 754 (Bankr. N.D.

Ill. 1999)\(“The order confirming a chapter 13 plan...

has res judicata effect as against the IRS with respect

to the question of eligibility for chapter 13 relief.”);

Marlow v. Sweet Antiques (In re Marlow), 216 B.R.

975, 979 (Bankr. N.D. Ala. 1998)(“Pursuant to § 1327,

the order of confirmation in a chapter 13 case

constitutes res judicata as to all justiciable issues

which were or could have been raised prior to

confirmation.” Therefore confirmation order allowing

claims bars debtors’ post confirmation preference

action to avoid a judicial lien.)(emphasis added); In re

Brenner, 189 B.R. 121, 128 (Bankr. N.D. Ohio

1995)(“The doctrine of res judicata, equity, and the

policies underlying the Bankruptcy Code” all preclude

the IRS’s challenge to a confirmed plan that treats it

as a priority unsecured claim holder notwithstanding

that the IRS filed a proof of claim assesrting secured

status.); McDonough v. Plaistow Coop. Bank (In re

McDonough), 166 B.R. 9 (Bankr. D. Mass. 1994)(Bank

precluded from objecting to avoidance of its lien after

confirmation where the bank failed to object to

confirmation of a plan that provided for same.)

A creditor cannot use a post confirmation motion

for relief from the stay to collaterally attack the

confirmed plan if the creditor failed to object or appeal

the order of confirmation, notwithstanding that the

confirmed plan contains provisions the creditor could

25

have defeated in a timely objection to confirmation.

E.g. Chevy Chase Bank v. Locke (In re Locke), 227 B.R.

68, 71 (E.D. Va. 1998)(plan confirmed value of bank

collateral] lower than the amount contained in an

approved proof of claim); Jn re Walker, 128 B.R. 465

(Bankr. D. Idaho 1991)(plan that modified creditor’s

rights in violation of 11 U.S.C. §1322(b)(2) is res

judicata. Creditor received notice of confirmation and

copy of plan, but did not object.); Green Tree Fin. Corp.

v. Garrett (In re Garrett), 185 B.R. 620, 623 (Bankr.

N.D. Ala. 1995)(confirmation bound creditor to

accepting cure of defaults and the maintenance of

payments through the plan, notwithstanding that

creditor had been granted relief from stay prior to

confirmation.)

The recognition of finality represented by this case

and Pardee (which it merely applied) is not unique to

student loans. E.g. In re Harvey, 213 F.3d 318 (7™ Cir.

2000 (lien stripping):

“It is a _ well-established principal of

bankruptcy law that a party with adequate

notice of a bankruptcy proceeding cannot

ordinarily attack a confirmed plan. 11 U.S.C

§ 1327(a) .. . The reason for this mirrors the

general justification for res judicata principles

... This is especially true in the bankruptcy

context, where a confirmed plan acts more or

less like a court-approved contract or consent

decree that binds both the debtor and all the

creditors. ... It is perfectly reasonable to expect

interested creditors to review the terms of a

proposed plan and object if the terms are

unacceptable, vague, or ambiguous.” 213 F.3d

at 321, 22.

26

Confirmation orders containing terms conflicting

with a variety of sections of the Bankruptcy Code have

been held to be res judicata where the creditor did not

object to the plan, or appeal from it. E.g. In re Young,

281 B.R. 74, 80 (Bankr. S.D. Ala. 2001)(confirmation

occurred before expiration of redemption period under

11 U.S.C. § 108(b), an objection pursuant to 11 U.S.C.

§ 1325(a)(5) could have been raised and litigated, but

plan is binding whether in fact it was); Jn re Bonanno,

78 B.R. 52 (Bankr. E.D. Pa. 1987)(plan gave co-signors

broader rights than permitted under 11 U.S.C. § 1301);

Homebanc v. Chappell (In re Chappell, 984 F.2d 775,

782 — 83 (7™ Cir. 1993)\(mortgage interest under 11

U.S.C. § 506(b)); Nationsbanc Mortgage v. Williams (In

re Williams), 276 B.R. 899, 907 — 10 (C.D. Il.

1999)(Bank failed to object to plan, of which it was

given a copy and 25 days’ notice of confirmation

hearing, and was bound by plan that did not give it the

protection of 11 U.S.C. § 1322(b), rejecting due process

claim such as argued here); Jn re Stewart, 247 B.R.

515, 521 (Bankr. M.D. Fla. 2000)(Mortgage holder

failure to object to plan that did not afford it

arrearages, notwithstanding § 1322(b) prohibited such

a plan, bound mortgage holder; rejecting due process

claim like that asserted here); Jn re Battle, 164 B.R.

394, 395 — 99 (Bankr. M.D. Ga. 1994)(failure to object

to plan that omitted arrearages, in contravention of 11

U.S.C. § 502(b)(2) made the plan binding)

In this case petitioner had full, detailed notice of

the plan’s proposal to discharge interest and bind

debtor only to pay the principal of the student loans.

It is thus distinguished from cases like Piedmont Trust

Bank v. Linkus (In re Linkous), 990 F.2d 160 (4" Cir.

1993) where the confirmation notice was later

determined to be insufficient to bind the creditor,

27

because the notice, consisting of a summary of the

plan, did not “reasonably convey the required

information” that debtor intended “to re-evaluaate the

secured claims pursuant to § 506(a)”. Jd. at 162, 63,

citing Mullane v. Cent. Hanover Bank & Trust Co, 339

U.S. 306, 314 (1950). Therefore the plan confirmation

and discharge orders here arc just as binding as in the

myriad of cases just cited.

Obviously, if this Court were to grant certiorari,

reverse, and hold that an order of confirmation is not

res judicata because there may be erroneous or even

illegal provisions in it, a very large number of cases to

the contrary would be overruled or cast in doubt.

“Andersen and Pardee are not aberrations — they are

mainstream statements of the powerful binding effect

of confirmation of a Chapter 13 plan under [11 U.S.C.]

§ 1327(a).” Keith M. Lundin, CHAPTER 13

BANKRUPTCY, 3D. EDITION § 229.1, p. 229-35 —36, (2000

& Supp. 2007).

Enforcing the finality of a plan of confirmation in

the face of irregularities or errors in the terms of the

plan is not a phenomenon restricted to student loans.

Student lenders have not been “singled out” for unfair

treatment. For Example:

¢ Acreditor’s failure to object to confirmation of a

plan is fatal to a creditor's objection that it didn’t

provide the present value required by § 1325(a)(5). In

re Szostek, 886 F.2d 1405 (3d Cir. 1989).

e A taxing authority’s failure to object to

confirmation left it bound by a plan that redeemed

property from a tax foreclosure judgment “[elven

assuming that the order confirming the plan was in

28

error.” Multnomah County v. Ivory, 70 F.3d 73, 75 (9

Cir. 1995).

¢ A plan which proposed a “zero” payment upon

an embezzlement debt was binding because the notice

of confirmation hearing, and summary of the plan, was

adequate notice to creditor. Jn re Gregory, 705 F.2d

1118 (9 Cir. 1983).

¢ A creditor is bound by a provision prohibiting

action against a cosignor notwithstanding that the

confirmed plan is broader than the statutory

protection of_cosignors in 11 U.S.C. § 1301. In re

Bonanno 78 B.R. 52 (Bankr. E.D. Pa. 1987).

This case does not conflict with the cases from

other circuits, | 4, which Petitioner raises. Rather,

those cases are in conflict with the virtual flood of

cases — of which those discussed here are but a

fraction’ — which hold that waiver by a creditor after

notice of a plan to which it could have objected as

containing terms not compliant with the Code, Rule or

case, makes the plan binding, and requires the creditor

to honor it and the bankruptcy court injunction that

stands behind it.

To grant certiorari and reverse would embark this

Court and all the other federal courts at every level on

a wave of litigation to determine which “errors” in a

plan make it “void;” or which notification procedures

* See Lundin, § 229.1, p. 229-3 - 229-6 (2000 and Supp. 2007)

which comprises one, long, four page, single-spaced footnote citing

cases demonstrating just how far flung and important the

principle of plan finality is.

29

carry the constitutional due process gloss and which do

not. There is no reason whatsoever to do that,

particularly for Petitioner whose legal department

knew all about the bankruptcy proceeding, the plan,

the proposal in the plan treating portions of the

student loan as discharged, and when they could

appear and object; but did not.

7. It is neither necessary nor desirable for

this Court to grant certiorari in order to

determine whether a constitutional rule

and a fundamental interest in finality of

judgments should be altered in order to

impact the manner of practice by the

bankruptcy bar.

Some of the cases involving the discharge of

student loans by a debtor proposing waiver of a

hardship hearing are critical of this aspect of Chapter

13 practice. Others, including the opinion below, are

not. See App. 25 (“It is apparent that a number of

courts in our circuit . . . are uncomfortable with the

practice of some Chapter 13 debtors to seek to

discharge their student debts by working them into

their Chapter 13 plans.”) And see App. 26 (For reasons

explained above, we view matters quite differently.

Our long-standing circuit law holds that student loan

debts can be discharged by way of a Chapter 13 plan if

the creditor does not object, after receiving notice of

the proposed plan .. .)

Petitioner and amici gang up on debtors and their

counsel, attacking them with colorful phrases like

“hidling|] magic language in their” plans, and “set[ting]

a trap for unwary courts, trustees, and creditors,” or

30

“discharge by ambush.””® As has already been shown,

this case, at least, contains no taint of deception or an

attempt to surprise or “ambush” a creditor. Counsel for

Espinosa was completely open about his proposal, and

provided full and complete disclosure by sending

Petitioner the entire proposed plan, months in advance

of the confirmation hearing. This was a procedure

sanctioned by the Ninth Circuit. Great Lakes Higher

Educ. Corp. v. Pardee, 193 F.3d 1083 (9™ Cir. 1999).

There are several good and sufficient reasons that

might prompt a debtor to prepare a plan that proposes

to have the creditor waive its right to a hardship

hearing and acquiesce in discharge of some part or all

of a student loan, and a creditor to do so. The opinion

below identified three:

¢ Creditor may believe debtor can make the

required showing of undue hardship, and “thus

see no point in wasting the debtor’s money, and

its own, litigating the issue.” App. 9.

¢ Creditor may conclude that a Chapter 13 plan

“presents its best chance of collecting most of

the debt, rather than spending years trying to

squeeze blood out of a turnip.” Jbid.

e Further, the creditor may hope to get some

payments from debtor under a plan, with the

prospect of collecting more if debtor is

unsuccessful in performing the plan. Such

Brief of Educational Credit Management Corporation, p 3, Brief

of States of Oregon, ef. al., p. 3, respectively

31

failure occurs in most Chapter 13 cases. App.

10 n. 2.

There is an additional, very practical reason that

both debtors and creditors may seriously consider

waiving the conduct of a hardship hearing. As noted

by amici States, “these are usually low dollar cases.”

Brief of the State of Oregon et. al. p. 10. The average

payout to unsecured creditors — in the aggregate — is

$4,500.00 per case. Ibid. The average fee paid to

debtor’s counsel for a case is $1,000.00. Ibid

(calculated from figures). It is understandable that

Espinosa and his counsel offered Petitioner a chance to

waive a full blown adversary hardship hearing over

the discharge of $4,582.15 of interest. And it is

understandable that Petitioner’s litigation department

chose to acquiesce. What is not understandable is why

petitioner should “have its cake and it eat, too.”

This Court has already determined the

unacceptability of writing substantive law in the

complex bankruptcy field because of creditors’

complaints or fears that debtors will flout the

bankruptcy laws. Taylor v. Freeland, 503 U.S. 638

(1992). Rejecting an argument that § 522(1) should be

interpreted to limit debtors’ filing of claims of

exemption because of fears of abuse, this Court said:

“Debtors and their attorneys face penalties

under various provisions for engaging in

improper conduct in bankruptcy proceedings.

See, e. g.,11 U.S. C. § 727(a)(4\(B) (authorizing

denial of discharge for presenting fraudulent

claims); Rule 1008 (requiring filings to “be

verified or contain an unsworn declaration” of

truthfulness under penalty of perjury); Rule

32

9011 (authorizing sanctions for signing certain

documents not “well grounded in fact and...

warranted by existing law or a good faith

argument for the extension, modification, or

reversal of existing law”); 18 U. S. C. § 152

(imposing criminal penalties for fraud in

bankruptcy cases). These provisions may limit

bad-faith claims of exemptions by debtors. To

the extent that they do not, Congress may enact

comparable provisions to address the difficulties

that Taylor predicts will follow our decision.”

503 U.S. at 644, 645.

Making constitutional law, or tinkering with the

finality of judgments, out of fear that the remedies

noted above aren’t sufficient, makes no sense.

8. There is no need, nor sense, in this Court

granting certiorari to write a special rule

for student lenders.

If the Court were inclined to grant certiorari, and

rule in favor of the Petitioner, what would the opinion

say?

First, this Court would have to dispose of the

threshold issue by holding that, even though Petitioner

had actual knowledge of the bankruptcy proceedings,

of the scheduled hearing to confirm a plan, and of the

plan itself including precisely how Petitioner’s claim

was to be treated, that Petitioner can claim that due

process allowed it to ignore the plan because the paper

bore a different title, or went to a different mailing

address, than contemplated by the bankruptcy rules.

This Court would then have to invoke due process, or

an interpretation of § 1327(a) that opens up great

33

uncertainty about the uniformity and scope of its

operation.

On the statutory issue, this Court would have to

hold that even though the confirmed plan was a final

judgment, which Petitioner did not appeal, nor

challenge in any way until haled into court because it

had flouted the injunction and confiscated debtor’s

property, that Petitioner should now be granted

special privileges by virtue of its claimed exalted

status as a student loan holder. Should Petitioner be

allowed, by an opinion of this Court, to have

acquiesced in the judgment, to collect its benefits, yet

turn around, renounce the judgment, and begin taking

Espinosa’s money? Such a holding would eviscerate

the bedrock principle of finality. It would sow seeds of

uncertainty in determining the finality of judgments

under various circumstances.

Because it is indubitably true that Petitioner did

nothing in this case notwithstanding its complete

knowledge of the proposed plan and its terms, trying

to decide due process and plan finality issues here

would be awkward at best. It would invite parties to

begin litigating the sufficiency of notice

notwithstanding their knowledge, and _ probable

waiver, of the right to respond. This single fact

suggests that after granting certiorari and grappling

with the case more intensively, there is a good

prospect that the result would be a dismissal as

improvidently granted.

34

9. If this Court grants certiorari, it must

determine whether its ruling should be

prospective only, given that Espinosa

relied upon a_éprocedure that was

acceptable at the time, and thereafter

approved by the Ninth Circuit.

If this Court grants certiorari, Espinosa will urge

this Court to make any reversal have prospective

operation only. The Tenth Circuit so held in Educ.

Credit. Mgmt. Corp. v. Mersmann (In re Mersmann),

505 F.3d 1033 (10“ Cir. 2007). Applying the factors

impacting a decision whether a civil case decision

should be prospective, from Chevron Oil Co. v. Huson,

404 U.S. 97 (1971), Mersman held that its ruling did

not apply to one of the cases decided by that opinion,

in which the debtor’s action had been consistent with

the Tenth Circuit’s previous precedent, Andersen uv.

UNIPAC-NEBHELP, 179 F.3d 1253 (10 Cir. 1999).

If this Court grants certiorari, Espinosa, whose case

was compliant with the Ninth Circuit precedent, Great

Lakes Higher Educ. v. PardeeCorp. (In re Pardee), 193

F.3d 1083 (9" Cir. 1999), will argue that any change

should not be applied to him.

There would be strong reason for this Court to

make any ruling prospective, because there are an

undetermined number of old cases doubtless

numbering in the thousands — where student loan

discharge occurred by waiver of the hardship hearing,

in reliance upon the accepted practice of the day. On

the other hand, this point highlights the undesirability

of this case as a candidate for certiorari. Petitioner's

complaint is “old news,” now being addressed by many

courts as a matter of practice or the enforcement of the

“good faith” requirements of Chapter 13 adjudication,

35

explicit and implicit, in the Code. See, e.g. opinion

below, App. 25, and cases cited.

CONCLUSION

This is a waiver case, not a due process case.

The opinion in this case correctly avoided

stretching the due process clause into a tool by which

litigants can either make up for their mistakes, or

change tactics years after a judgment has become final

and been performed. It follows and correctly applies

Hood. It makes clear that those cases from other

circuits which might actually be viewed as conflicting

with it did not reach the right result.

Due process means the receipt of notice and an

opportunity to be heard; neither more nor less.

Petitioner received due process. That is the only issue

this Court can review, inasmuch as the case arises

from Fed. R. Civ. P. 60(b)(4) — that the judgment was

“void.”

The Petition should be denied.

36

Respectfully submitted

Michael] J. Meehan*

Of Counsel

Munger Chadwick, P.L.C.

333 N. Wilmot, Suite 300

Tucson, Arizona 85711

520-721-1900

James L. Robinson, Jr.

Robinson & Rylander, P.C.

4340 North Campbell, Suite 266

Tucson, Arizona 85718

(520) 299 4922

* Counsel of Record

Counsel for Petitioner