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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA43085015_0455%3A03

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2010
- **Citation:** 559 U.S. 260

## Text

[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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA43085015_0455%3A03. Public record. Not legal advice.