Amicus Curiae Brief — United Student Aid Funds, Inc. v. Espinosa

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FILED

* TICEOFTHE™

No. 08-1134 Bin

Jn the Supreme Court of the GAnited States

UNITED STUDENT AID FUNDS, INC., PETITIONER

Vv.

FRANCISCO... ESPINOSA

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONER

ELENA KAGAN

Solicitar General

Counsel of Record

TONY WEST

Assistant Attorney General

MALCOLM L. STEWART

Deputy Solicitor General

TosBy J. HEYTENS

Assistant to the Solicitor

General

WILLIAM KANTER

PETER R. MAIER

Attorneys

Department of Justice

Washington, D.C. 20430-0001

(202) 314-2217

QUESTION PRESENTED

Whether the confirmation and subsequent comple-

tion of respondent’s plan under Chapter 13 of the Bank-

ruptcy Code had the effect of discharging his student

loan debt, notwithstanding his failure to initiate an

adversary proceeding to determine dischargeability and

the lack of any determination by the bankruptcy court

that “excepting [the] debt from discharge * * * would

impose an undue hardship on the debtor and the debt-

or’s dependents.” 11 U.S.C. 523(a)(8).

TABLE OF CONTENTS

Page

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ARREST Ss Reng pe gas ie gr a 2

IIE, 5 ipo bes be isnce es Sevecensocevaense 9

Argument:

The bankruptcy court’s discharge order did not

discharge respondent’s student loan debt because the

court did not find, pursuant to the procedures specified

in the Bankruptcy Rules, that failure to do so would

create undue hardship for the debtor and his

till aati a is es as wo 12

A. Petitioner was not required to demand an adversary

proceeding or to appeal from the confirmation or

discharge order to preserve its right to collect the

remainder of respondent’s student loan debt after

respondent’s Chapter 13 plan was completed ....... 12

1. Petitioner did not waive its right to an undue

hardship determination by failing to object to

respondent’s plan or to demand an adversary

aN. ks vee BEL ERE I ned 6% be 60404 13

2. Petitioner was not required to appeal the

confirmation or discharge order to preserve its

right to collect respondent’s remaining debt

because, under the terms of the applicable

Bankruptcy Code provisions, a discharge order

does not discharge student loan debt in the

absence of an undue hardship determination ... . . 17

B. Permitting discharge of student loan debt without an

undue hardship finding is ineonsistent with the

background and purposes of Section 523(a)(&) ...... 23

C. Treating an undue hardship finding as a precondition

to discharge is fair to both debtors and creditors ... 26

(111)

Table of Contents—Continued: Page

D. Because respondent did not initiate the appro-

priate procedure for securing an undue hardship

finding and the bankruptcy court made no such

finding in this case, respondent’s student loan

debt has not been discharged and the court need

not address the constitutional question presented

Cc Usccdbeweunat kedeesecesysedns ye 30

EY Pes cas nee evi Vaeed eben eeecdnedanseusees 32

TABLE OF AUTHORITIES

Cases:

City of New York v. New York, New Haven &

Hartford R.R., 344 U.S. 293 (1953) ................. 15

Educational Credit Mgmt. Corp. v. Mersmann

(In re Mersmann), 505 F.3d 1033 (10th Cir.

PE OSS BR en eee ane 3, 25

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

Pardee), 193 F.3d 1083 (9th Cir. 1999) ............ 8, 21

Johnson v. Home State Bank, 501 U.S. 78 (991) ....... 29

Jones v. Flowers, 547 U.S. 220 (2006) ................. 30

Martin v. Wilks, 490 U.S. 755 (1989) ................. 15

Morales v. TWA, 504 U.S. 374 (1992) ...............5- 22

Nobelman v. American Sav. Bank, 508 U.S.

SE te A ge oe A 2

Northwest Austin Mun. Util. Dist. No. One v.

prommer, 129 S. Ct. F506 CITB)... ccc ccc cc scces 31

Ruehle v. Educational Credit Mgmt. Corp.

(dn re Ruehle), 412 F.3d 679 (6th Cir. 2005) ... 15, 26, 28

Tennessee Student Assistance Corp. v. Hood,

ee IE Se: Cae ues S 0a bcaencees sss passim

Cases—Continued: Page

Travelers Indem. Co. v. Bailey, 129 S. Ct. 2195 (2009) ... 19

Whelton v. Educational Credit Mgmt. Corp.,

GER 6 SEP GRC. BD ov cas cicavecwsensnuuam 29

Constitution, statutes, regulation and rules:

U.S. Const.:

Amend. V (Due Process Clause) ................. 8,11

Bankruptcy Act, 11 U.S.C. 35 (1976) .................. 23

Bankruptcy Code (11 U.S.C.):

Ch. 1, 11 U.S.C. 101 et seq.:

RE | | eer ne 19

BE TR BD nekcdedeccelevenuaseun dene 2

Ch. 3, 11 U.S.C. 301 et seq.:

BD TIRED 0-0 6 0 <ncwvnddececes + iaune eel 2

BS Ula ME 6.06600 cbcaden sonssne cena 19

AD Uae, SOU a 6s vccockscucecap uae 19

SR eee 19

SBS | om | Pe rere emer mie el 19

RD TEx SRO <n. wie du cicuceasesceaunneee 19

Ch. 5, 11 U.S.C. 501 et seq.:

BE Ties EEE ov ode cncnccvdsccsecesae eee 19

BE Tae MD ae bod novnncucaseene eee passim

AE WK FPO ov avcdscncesasnncuuane 20

RR UE EEE 6 os 64x bess 0e ee ance ee 13

BD CIS ND a os cnnvacicnch essa eee 13

OS CLARA SOD 6 ov ne vcncadcepeeesseeueee 20

BS UWA oo occ cvenuccctavecesuual 13

C5 WK. SD 8 Seb iu cusdbaceanee cee passim

Statutes, regulation and rules—Continued: Page

31 U.S.C. GEaNGMA) (1962) ... 2... eee ees 24

OE UW, GEMMA) CIGRE) 2... ccc cece ee 3

eens Seeccue vad ddbecnever 20

ee sou oa oss oud es wee 13, 14

BE UB. GREME) . wee cc weee tens aces 20, 30

Cee ik. wen wads 64k 6 caueus 18

ee 6d eas be pee ceeedovsecces 2, 20

Ee 2, 20

Ch. 7, 11 U.S.C. 701 et seq.:

SE 19

LE EI 19

SID «5. oo... esse scenes eens 19

eee 19

Ch. 9, 11 U.S.C. 901 et seq»

ee saad odie dwcbieneds’ 19

ee Ne al a eb ene-e'e'e 19

Ch. 11, 11 U.S.C. 1101 et seq.:

EE es 19

EA 19

Ch. 12, 11 U.S.C. 1201 et seq.:

ee 19

Seca sesucsece 19

EE 19

Fe rrr 19

Se Pas BO OC OOE, . 5 coc ccc ce eccces passim

EE a 19

ae a ae 2

Vil

Statutes, regulation and rules—Continued: Page

ns nin os WS eee cadena w ewan 2

Oe ED diac aca enncsedsewdesaneeacdh 19

I cu oo vueha sa vadaus bwkke seks un keel 2

rs ob od sundae nesses dcednes es «ene 2

EE oo, Coe naa kawe woe eee keen 28

ED i cn dendsenekeueuncadeaue 29

Eo os se eas ahaa ee abeee ee 19

ei ob 5b uebaneaneeenenceeent 2

ee ee pee eacee een akin 2

es og 24. cc cand 5:50 6akweo wnense 22, 23

6 oes dc es ben uuancnuenen nee 23

4 Re re rr ran were 23

Be IN i-0s 0s 4040440 5s00eRCeceudatoe 23

ia so 54x 05445004 a0es beeen eee 18

i 5 GREE Sra ere rt 2, 18, 24, 29

Oe on 6 od canekanccuvinee ens 3, 18, 20

IE a ER ERR Sey 19

Sr I ss. is 60 bae'scaueannese snake 19

pS i ban 6 a vba wabkoeeaeeeanous 19

ee os ica beer ne cea 19

Ch. 15, 11 U.S.C. 1501 et seq.:

or Sa re ary Care gcse alee 19

de ee hee ame wee wick 19

Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

ee ee ak be emae ee 24

Education Amendments of 1976, Pub. L. No. 94-482,

es SE, cen e ce cuetecsbacvuce 23

Vill

Statutes, regulation and rules—Continued: Page

Federal Debt Collection Procedures Act of 1990,

Pub. L. No. 101-647, § 3621(1)-(2), 104 Stat.

a a a wees 24

Higher Education Amendments of 1998, Pub. L. No.

106-224, § O7ifa), 112 Bhat. ISBT... ww ec cece 25

Student Loan Default Prevention Initiative Act of

1990, Pub. L. No. 101-508, § 3007(b), 104 Stat.

ss eee e ese edu hede eke s aoa sen aoe OS 24

ED soc ac do vba eb ebadececsdesdc’ 27

Fed. R. Bankr. P.:

es ceed eg aes us eee eeuert 4, 26

i rid ee ecteadebesseanseebanane 4

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eS ee le tae Veda eae Cee eee ed 4

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as a0 cab 4 4 ESS Code REUTER CLEMO REO 3, 14

so nC ae Cee Cia bs tne ee EUR + ona eS 3,14

ere ae oar are ere rtn ese ner rae Oe! 3

eed rs aa windy aan aes 4, 14, 27

it .icaco ls cle elCaUuee ae aed ealeeeaie 4

gio Oo a Ede eeie wae aenen 4

Cele ike eeu uta Weke eee eae eee ee

IR INR ASE te peal SPN Rm Nal gem ac PAS ya 31

ER Se ON Pe Bie 2 om mee eg 28

Pe Dies. vid ivaae sen kee eye suru huns 28

on re ti A oe ae eee 28

AREER attend Sart gee ME oh ca PHA Rew Bai tla 28

ge RE aR RAR Att RET 4 ey Ie Me 17

Rules—Continued: Page

Fed. R. Civ. P.:

ERR nrer Sore iat a ee ee ee 3, 27

oe hss on CDRA Se RAS Ss eed ea OES 27

a a bee haee yeaa keno Wake Rae aeRn 27

Miscellaneous:

Collier on Bankruptcy (Alan N. Resnick & Henry J.

Sommer, eds., 15th ed.):

ae, ie ha ie ti 25, 26, 29

Vol. &:

ee i Tila ed il a ee 2,18

eas Pere eet Nh SaaS ae 27

S. Rep. No. 989, 95th Cong., 2d Sess. (1978) ........ 13, 18

Seth J. Gerson, Separate Classifications of Student

Loans in Chapter 13, 73 Wash. U. L.Q. 269 (1995) ... 25

Jn the Supreme Court of the Cited States

No. 08-1134

UNITED STUDENT AID FUNDS, INC., PETITIONER

FRANCISCO J. ESPINOSA

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONER

INTEREST OF THE UNITED STATES

The United States is both a direct lender and a guar-

antor of student loans. The government’s current loan

portfolio is worth approximately $618 billion. The

Court's resolution of this case also may have implica-

tions for various other debts that are owed to the federal!

government and are non-dischargeable in bankruptcy,

including taxes or customs duties; non-tax fines, penal-

ties, and forfeitures; and restitution orders. The United

States therefore has a significant interest in this case.

(1)

STATEMENT

1. a. Chapter 13 of the Bankruptcy Code permits

“individual debtors [to] obtain adjustment of their in-

debtedness through a flexible repayment plan approved

by a bankruptcy court.” Nobelman v. American Sav.

Bank, 508 U.S. 324, 327 (1993). To proceed under Chap-

ter 13, a debtor must have “regular income” and his in-

debtedness must be below certain statutory limits. 11

U.S.C. 109(e).

A debtor initiates a Chapter 13 proceeding by filing

a petition with the appropriate bankruptcy court, 11

U.S.C. 301(a), and he must file a proposed plan within 15

days after filing the petition, 11 U.S.C. 1321; Fed. R.

Bankr. P. 3015(b). The bankruptcy court holds a confir-

mation hearing, 11 U.S.C. 1324, and must confirm the

plan if it satisfies certain criteria, 11 U.S.C. 1325. The

debtor must then make all payments required under the

plan, 11 U.S.C. 1326, a process that takes between three

and five years. 11 U.S.C. 1322(d), 1325(b)(4). _If the

debtor completes the plan, the bankruptcy court enters

a discharge order under 11 U.S.C. 1328(a), which “oper-

ates as an injunction against” efforts to “collect, recover

or offset any * * * debt” that was “discharged under

|that] section.” 11 U.S.C. 524(a)(1) and (2).

b. A full-compliance discharge under Chapter 138 “is

broader than the discharge received in any other chap-

ter” of the Bankruptey Code. 8 Collier on Bankruptcy

{ 1328.01, at 1328-5 (Alan N. Resnick & Henry J. Som-

mer, eds., 15th ed. rev. Sept. 2005) (Collier). Certain

debts, however, remain non-dischargeable even in a

Chapter 13 proceeding. In particular, Chapter 13 incor-

porates 11 U.S.C. 523(a)(8), which provides that a dis-

charge order “does not discharge an individual debtor

from” most student loan debt “unless excepting such

debt from discharge * * * would impose an undue

hardship on the debtor and the debtor’s dependents.”

See 11 U.S.C. 1328(a)(2).'

ec. The Federal Rules of Bankruptcy Procedure

(Bankruptcy Rules) establish certain procedures for

“determin[ing] the dischargeability of a debt.” Fed. R.

Bankr. P. 7001(6). “Because student loan debts are not

automatically dischargeable,” those Rules “require the

debtor to file an ‘adversary proceeding’ against” the

relevant creditor in order to obtain a discharge. Ten-

nessee Student Assistance Corp. v. Hood, 541 U.S. 440,

451 (2004) (Hood).

Although an adversary proceeding “is considered

part of the original bankruptcy case,” Hood, 541 U.S. at

452, it “has all the trappings of civil litigation,” Educa-

tional Credit Mgmt. Corp. v. Mersmann (In re Mers-

mann), 505 F.3d 1033, 1043 (10th Cir. 2007) (en banc).

The debtor initiates an adversary proceeding by filing a

complaint, Fed. R. Bankr. P. 7003, which must satisfy

the requirements of Federal Rule of Civil Procedure 8,

see Fed. R. Bankr. P. 7008, and must be served on the

creditor along with a summons issued by the clerk. Fed.

R. Bankr. P. 7004. In addition to the methods of service

permitted by the Federal Rules of Civil Procedure, the

Bankruptcy Rules also authorize service by mail. Fed.

R. Bankr. P. 7004(b). If the creditor is a corporation,

service must be made on “a managing or general agent,

or * * * any other agent authorized by appointment or

' At the time of the discharge order in this case, Section 523(a) also

provided for discharge of any student loan debt that first hecame due

more than seven years before the filing of the bankruptcy petition. 11

U.S.C. 523(a)(8)(A) (1994). That provision is not at issue here because

respondent filed his bankruptey petition less than five years after re

ceiving his first student loan. Pet. App. 60-61.

by law to receive service of process.” Fed. R. Bankr. P.

7004(b)(3). If the federal government is a creditor, as

often is the case with student loan debts, service must be

made on the Attorney General, the local United States

Attorney, and the appropriate federal agency. Fed. R.

Bankr. P. 7004(b)(4) and (5).

The procedures for providing notice of a Chapter 13

plan are considerably less rigorous. The clerk must give

all parties in interest at least 25 days’ written notice of

the deadline for filing objections and the date of the con-

firmation hearing. Fed. R. Bankr. P. 2002(b). That no-

tice need not include a copy of the plan itself; “a sum-

mary of the plan” is sufficient. Fed. R. Bankr. P.

3015(d). In addition, unlike: an adversary complaint,

notice under Bankruptcy Rule 2002(b) need not be di-

rected to an agent authorized to receive service of pro-

cess. Instead, notice may be “mailed to the address

shown on the list of creditors or schedule of liabilities”

filed by the ova along with the bankruptcy petition.

Fed. R. Bankr. P. 2002(g¢)(2).

2. During 1988 and 1989, rec pondent obtained four

federally guaranteed student loans that totaled $13,250

and a.crued interest at varying rates. Pet. App. 52, 60-

61. On December 7, 1992, respondent filed a Chapter 13

petition and a proposed plan. /d. at 61. The only spe-

cific indebtedness identified in respondent’s bankruptcy

petition was his student loan debt. J.A. 15-20. The plan

proposed to repay only the principal on that debt, and it

stated that “[a]ny amounts or claims for student loans

unpaid by this Plan shall be discharged.” J.A. 26. The

plan did not assert that failing to discharge the interest

on respondent’s student loan debt would impese an “un-

due hardship” on respondent and his dependents, nor

did it suggest that plan confirmation would constitute an

“undue hardship” finding by the bankruptcy court.

Respondent did not initiate an adversary proceeding

in order to determine the dischargeability of the interest

on his student loan debt. Instead, the clerk of the bank-

ruptcy court mailed a one-page notice form and a copy

of respondent’s proposed plan to petitioner at the post

office box. Pet. App. 14 n.4, 71; J.A. 34 (copy of notice).

Immediately below the caption, the plan stated:

“WARNING IF YOU ARE A CREDITOR YOUR

RIGHTS MAY BE IMPAIRED BY THIS PLAN.” J.A.

23. The plan also listed the deadline for filing a proof of

claim, J.A. 26-27, and stated that “[o]bjections, by any

creditor, must be filed seven (7) days prior to the hear-

ing on Confirmation of [the] Plan.” J.A. 26.

The clerk’s notice was stamped “REC’D” by peti-

tioner’s litigation department on December 18, 1992.

J.A. 34. On January 8, 1993, petitioner filed a proof of

claim for $17,832.15, which represented both the princi-

pal and accrued interest on respondent’s student loans.

J.A. 35 & n.**; Pet. App. 62 n.2. Petitioner did not ob-

ject to confirmation of the plan, and respondent did not

object to petitioner’s proof of claim. /d. at 62, 72.

On May 6, 1993, the bankruptcy court entered an

order stating that respondent’s “Chapter 13 plan is ap-

proved and the Debtors are ordered to comply there-

with.” J.A. 43. The court made no finding that failing to

discharge the interest on respondent’s student loan debt

would impose undue hardship on respondent and his

dependents. Petitioner was not provided with a copy of

the bankruptcy court’s confirmation order. Pet. App. 62.

A month after the bankruptcy court entered its con-

firmation order, the Chapter 13 Trustee mailed peti-

tioner a pre-printed form labeled “TRUSTEE’S NO-

TICE TO CREDITOR.” J.A. 44. That form had a box

checked stating that “[t]he amount of the claim filed

differs from the amount listed for payment in the plan”

and that “[yJour claim will be paid as listed in the plan.”

/bid. The form also stated that “[i]f an interested party

wishes to dispute the above stated treatment of the

claim, it is the responsibility of the party to address the

dispute” by notifying the trustee. /bid. Petitioner did

not respond to that notice. Pet. App. 63.

Respondent completed all payments provided for in

the plan, ineluding the $13,250 designated for payment

to petitioner. Pet. App. 63. On May 30, 1997, a second

bankruptcy judge entered a one-page order stating that

respondent was “discharged from all debts provideu for

by the plan or disallowed under 11 [U.S.C.] § 502, ex-

cept” for six specified categories of debt. J.A. 46 (em-

phasis added). The third category listed included “any

debt * * * fora student loan.” J.A. 46. Respondent

neither sought reconsideration of the discharge order

nor filed a notice of appeal. Pet. App. 52

3. Pursuant to a reinsurance agreement, respon-

dent’s loans were assigned to the United States Depart-

ment of Education, which commenced collection efforts.

Pet. App. 63. In 2003, respondent reopened his bank-

ruptey case, and he later filed a motion asking the bank-

ruptey court, inter alia, to order various entities, inelud-

ing petitioner, to cease all collection efforts. C.A. E.R.

39-43. Petitioner opposed that motion and filed a cross-

motion for relief from the bankruptcy court's confirma-

Lion order, arguing that the order had been entered in

violation of the Bankruptcy Code and Rules and that re-

spondent’s student loan debt had not been discharged.

Pet. App. 6; C.A. E.R. 72-87. Petitioner also requested

a recall of respondent’s loans from the Department of

Education, which was completed on June 3, 2004. Pet.

App. 63.

On August 12, 2004, a third bankruptcy judge grant-

ed respondent’s motion in relevant part, denied peti-

tioner’s cross-motion, and ordered all claimants to

“cease and desist all collection activity against” respon-

dent. Pet. App. 79.

Petitioner appealed to the district court, which re-

versed. Pet. App. 60-70. The district court concluded

that the bankruptcy court’s confirmation order was

“void,” and it remanded “for an adversary hearing to

determine whether [respondent] qualifies under the 11

U.S.C. § 523(a)(8) exception for the discharge of his stu-

dent loan.” /d. at 60.

4. The court of appeals reversed and remanded.

Pet. App. 1-27.

a. In an initial per curiam opinion, the court of ap-

peals remanded the case to the bankruptcy court for the

limited purpose of addressing whether its discharge

order—which, as noted above, specifically excluded stu-

dent loan debt from discharge—‘“was entered as a result

of a clerical error and, if so, whether to correct it so as

to conform to [respondent’s| Chapter 13 plan.” Pet.

App. 59. The court of appeals observed that such a limi-

tation on discharge was “inconsistent with” the con-

firmed plan’s terms, and it hypothesized that the clerk

of the bankruptcy court may have generated the dis-

charge order without tailoring it to “the facts of [respon-

dent’s] case.” /d. at 57-58 (internal quotation marks and

citation omitted).

b. On remand, the bankruptcy judge who had ruled

on the 2003 motiens issued a new order. The bankrupt-

cy court found that the language excepting respondent's

student loan debt from discharge “was inserted because

of a clerical mistake, because it was the clear intent of

the Court, as reflected in the Chapter 13 Plan, as ap-

proved by the Court, that all student loan-related obli-

gations were to be discharged if the debtor successfully

performed and completed the Plan.” J.A. 48. The bank-

ruptcy court ordered the relevant paragraph stricken

from the discharge order, and further ordered that re-

spondent “be * * * discharged from all obligations of

any nature whatsoever arising from or relating to the

Student Loans listed in” respondent’s bankruptcy peti-

tion. /bid.

ce. Following the remand, the court of appeals re-

versed the district court’s decision and remanded the

case to the bankruptcy court with directions to reinstate

its order enjoining any attempt to collect the unpaid

portion of respondent’s student loan debt. Pet. App. 26-

27. The court framed the issue as “[w]hether a debtor

may obtain discharge of a student loan by including it in

a Chapter 13 plan, if the creditor fails to object after

notice of the proposed plan.” /d. at 5. 1t concluded that

such a discharge was consistent both with the Bank-

ruptcy Code and Rules, id. at 8-18, and with the Due

Process Clause, id. at 18-25.

The court of appeals determined that its previous

decision in Great Lakes Higher Education Corp. v.

Pardee (lu re Pardee), 193 F.3d 1083 (9th Cir. 1999) was

“on all fours with our case” and “foreclose[d]” petition-

er’s statutory argument. Pet. App. 8. The court ob-

served that petitioner could have “insistled] on the spe-

cial procedures availa ‘le to student loan creditors by

objecting to the plan wn the ground that there hafd]

been no undue hardship finding,” but that petitioner had

raised no such objection. /d. at 10; see id. at 14-15. The

court also stated that “[a] bankruptey discharge order is

a final judgment” and that “[e]Jrrors committed during

the course of litigation must be corrected by way of a

timely appeal.” /d. at 11.

The court of appeals also rejected petitioner’s argu-

ment “that the discharge order is void because |peti-

tioner] was denied due process.” Pet. App. 18. The

court stated that a party who “is adequately notified of

a pending lawsuit * * * is deemed to know the conse-

quences of responding or failing to respond.” /d. at 20.

Because petitioner “receive[d] actual notice of [respon-

dent’s] bankruptcy case,” the court of appeals concluded

that it had suffered no violation of its rights under the

Due Process Clause. /d. at 21.°

SUMMARY OF ARGUMENT

Respondent’s student loan debt has not been dis-

charged because petitioner did not waive or forfeit its

right to contest discharge and the bankruptcy court has

not made the undue hardship finding that is an essential

prerequisite to discharge of such debt.

A. The court of appeals held that petitioner had

waived its objection to discharge of a portion of respon-

dent’s student loan debt by failing either to object to the

discharge in the bankruptcy court proceedings or to ap-

peal the confirmation or discharge order. Under the

Bankruptcy Code, however, the debtor must affirma-

tively secure an undue hardship finding in order to ob-

~ The court of appeals noted that some bankruptcy judges had an-

nounced that they would not confirm plans that purported to discharge

student loan debts and that one bankruptcy judge had suggested that

including such provisions in a proposed plan might subject a debtor's

counsel tosanctions. Pet. App. 25-26. The court disapproved both prac-

tices, stating that “student loan debts can be discharged by way of a

Chapter 13 plan” and that bankruptcy judges “have no business stand

ing in the way” if a ereditor fails to object. /d. at 26.

tain a discharge of student loan debt. The Bankruptcy

Rules establish a procedure for obtaining such a finding,

and the debtor is responsible for initiating that proce-

dure. The court of appeals’ waiver analysis has the

practical effect of shifting to the creditor the burden

that the Code and Rules place upon the debtor. By con-

trast, another provision of the same statutory section

provides that certain non-dischargeable debts—but not

student loan debts—are covered by a discharge order

unless a creditor requests a hearing. The court of ap-

peals’ approach effectively subjects student loan debt to

the same procedural regime, notwithstanding Con-

gress’s evident intent that the two categories of debt be

treated differently.

Petitioner was not required to appeal! from the con-

firmation or discharge order to preserve its right to seek

repayment of respondent’s remaining student loan debt

after the plan was completed. The Bankruptcy Code

states that a discharge order “does not discharge an

individual debtor from” most student loan debt “unless

excepting such debt from discharge * * * would im-

pose an undue hardship on the debtor and the debtor’s

dependents.” 11 U.S.C. 523(a) and (8). This provision is

framed as a self-executing limitation on the effect of a

discharge order rather than as a directive to bankruptcy

courts about what plans to confirm. By contrast, numer-

ous other provisions of the Bankruptcy Code are framed

as directives to the bankruptcy court. To the extent that

Section 523(a) is ambiguous in this regard, construing

that provision as a limitation on the legal effect of a dis-

charge order serves Congress's purposes by preventing

debtors from circumventing statutory bans on the dis-

charge of other categories of debt, such as domestic sup-

port obligations.

B. Discharge of student loan debt without an undue

hardship finding is inconsistent with the background

and purposes of Section 523(a)(8). For more than 30

years, Congress has acted repeatedly to restrict the dis-

charge of student loan debt in bankruptcy, both to pre-

vent abuses of the student loan system by debtors and

to safeguard the financial integrity of the government

entities and nonprofit institutions that participate in it.

C. Treating an undue hardship finding as a precondi-

tion to discharge is fair to both debtors and creditors.

Because student loan debt is presumptively non-dis-

chargeable, it makes sense to place the onus on debtors

to request an undue hardship determination rather than

on creditors to scrutinize every one of the vast number

of Chapter 13 plans that they receive. There is no rea-

son to believe that involved proceedings will be neces-

sary every time a deotor seeks an undue hardship deter-

mination. Requiring a debtor to obtain such a determi-

nation in order to discharge a student loan debt also

avoids creating ethical quandaries for debtors’ attor-

neys.

D. Because respondent did not initiate an adversary

proceeding and the bankruptcy court made no undue

hardship finding in this ease, respondent’s student loan

debt has not been discharged, and petitioner did not

violate the discharge injunction by seeking to collect

that debt. The Court therefore reed not address the

question whether or under what circumstances the wai-

ver rule announced by the Ninth Circuit might violate

the Due Process Clause.

ARGUMENT

THE BANKRUPTCY COURT'S DISCHARGE ORDER DID NOT

DISCHARGE RESPONDENT'S STUDENT LOAN DEBT BE-

CAUSE THE COURT DID NOT FIND, PURSUANT TO THE

PROCEDURES SPECIFIED IN THE BANKRUPTCY RULES,

THAT FAILURE TO DO SO WOULD CREATE UNDUE HARD-

SHIP FOR THE DEBTOR AND HIS DEPENDENTS

A. Petitioner Was Not Required To Demand An Adversary

Proceeding Or To Appeal From The Confirmation Or

Discharge Order To Preserve Its Right To Collect The

Remainder Of Respondent's Student Loan Debt After

Respondent’s Chapter 13 Plan Was Completed

Respondent’s Chapter 13 plan proposed to pay

$13,250 to petitioner in satisfaction of respondent’s stu-

dent loan debt and to discharge the remainder of that

debt. J.A. 26. Respondent did not contend, however,

that a failure to discharge the remaining debt would

subject him to undue hardship, he did not initiate the

adversary proceeding that the Bankruptcy Rules specify

as the required mechanism for resolving issues of dis-

chargeability; and the bankruptcy court made no undue

hardship finding. In holding that the bankruptcy court’s

discharge order nevertheless precluded petitioner from

attempting to collect the remaining debt, the court of

appeals found that petitioner had forfeited its right to

insist that the statutory prerequisite to discharge be

satisfied by failing (a) to object to the plan during the

bankruptcy court proceedings and (b) to appeal from the

confirmation and discharge orders. Pet. App. 10-11, 14-

16. That analysis is erroneous.

1. Petitioner did not waive its right to an undue hard-

ship determination by failing to object to respon-

dent’s plan or to demand an adversary proceeding

The court of appeals stated that, when a creditor re-

ceives notice of a proposed Chapter 13 plan that pro-

vides for the discharge of student loan debt, the creditor

can “insist on the special procedures available to student

loan creditors by objecting to the plan on the ground

that there has been no undue hardship finding.” Pet.

App. 10. The court further indicated that a creditor who

fails to “insist” on an adversary proceeding in these cir-

cumstances thereby “waive[s] or forfeit{s]” any objec-

tion to discharge of the debt. /bid. That analysis is in-

consistent with the Bankruptcy Code, the Bankruptcy

Rules, and this Court’s decision in Tennessee Student

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

a. Section 523(c) provides that “the debtor shall be

discharged” from debts that fall within three of the 19

categories of non-dischargeable debt specified in Section

523(a) “unless” the creditor requests a hearing to deter-

mine whether a particular debt falls within a relevant

category. 11 U.S.C. 523(c).” Student loan debt, how-

ever, is not among the categories of debt to which Sub-

section (c) applies. The logical inference is that a credi-

tor need not request a hearing in order to prevent stu-

dent loan debt from being discharged in the absence of

an undue hardship finding. Accord S. Rep. No. 989, 95th

Cong., 2d Sess. 79 (1978) (Senate Report) (stating that,

* The three categories are debts for things obtained by fraud or false

pretenses (11 U.S.C. 523(a)(2)), debts “for fraud or defalcation while

acting in a fiduciary capacity, embezzlement, or larceny” (11 U.S.C.

523(a)(4)), and debts “tor willful and malicious injury by the debtor to

another entity or to the property of another entity” (11 U.S.C.

523(a (6)). See 11 U.S.C, 523%).

under Section 523(a)(8), “[t]he lender or institution is

not required to file a complaint to determine the non-

dischargeability of any student loan”). The court of ap-

peals’ approach, which treats a student loan creditor's

failure to “insist” on an adversary proceeding as a wai-

ver of the creditor’s objection to discharge, effectively

subjects student loan debt to the same procedural re-

gime that applies to the debts specified in Section 523(c),

notwithstanding Congress’s evident intent to distinguish

between the two categories.

b. The Bankruptcy Rules specify the procedures for

resolving questions of dischargeability, including ques-

tions as to the presence or absence of “undue hardship”

in student loan cases. Those Rules place the burden on

the debtor to initiate an adversary proceeding through

the filing of a complaint and service of the complaint and

asummons. Fed. R. Bank. P. 7003, 7004. The practical

effect of the court of appeals’ approach is to reverse that

burden by requiring the creditor cither to demand an

adversary proceeding or to forfeit his objection to dis-

charge. Unlike notice of the plan itself, moreover, the

summons and complaint must be specifically directed to

an agent of the creditor who is “authorized by appoint-

ment or by law to receive service of process.” Fed. R.

Bankr. P. 7004(b)(3); see pp. 3-4, supra. Like the re-

quirement that the debtor initiate the adversary pro-

cess, that heightened notice requirement is effectively

negated if providing notice of the plan to some other

agent transfers to the student loan creditor the burden

of objecting to the discharge.

The court of appeals found that, so long as petitioner

had constitutionally adequate notice of respondent's

Chapter 13 plan, its failure to demand an adversary pro-

ceeding could appropriately be treated as a waiver of

any challenge to the dischargeability of respondent’s

student loan debt. Pet. App. 21. But the fact that an

interested party has actual knowledge of pending legal

proceedings does not mean, in and of itself, that the

party’s failure to assert its rights can be treated as a

waiver. Rather, the determination whether a waiver has

occurred may depend on whether the party has received

the type of notice required by applicable law. See City

of New York v. New York, New Haven & Hartford Rail-

road, 344 U.S. 293, 297 (1953) (holding, under the former

Bankruptcy Act, that “even creditors who have know!}-

edge of a reorganization have a right to assume that the

statutory ‘reasonable notice’ will be given them before

their claims are forever barred”); Martin v. Wilks, 490

U.S. 755, 765 (1989) (Under the Federal Rules of Civil

Procedure, “{jJoinder as a party, rather than knowledge

of a lawsuit and an opportunity to intervene, is the

method by which potential parties are subjected to the

jurisdiction of the court and bound by a judgment or

decree.”); Ruehle v. Educational Credit Mgmt. Corp.

(In re Ruehle), 412 F.3d 679, 685 (6th Cir. 2005) (posit-

ing a hypothetical situation in which a plaintiff pur-

ported to commence a civil action by filing a motion and

mailing it to the defendant). That principle applies with

particular force here, where the Bankruptcy Rules

squarely place the burden of initiating an adversary pro-

ceeding upon the debtor, and the effect of the court of

appeals’ waiver analysis is to shift that burden to the

creditor.

ec. This Court’s decision in Hood confirms that it is

the debtor’s obligation to obtain an undue hardship find-

ing rather than the creditor’s obligation to insist on one.

The Court in Hood held that “a proceeding initiated by

a debtor to determine the dischargeahility of a student

loan debt [owed to a State] is not a suit against the State

for purposes of the Eleventh Amendment.” 541 U.S. at

443. In reaching that conclusion, the Court observed

that, because a student loan debtor must “affirmatively

secure[] a hardship determination” in order to obtain a

discharge, “the major difference between the discharge

of a student loan debt and the discharge of most other

debts” is that student loan creditors who decline to par-

ticipate in the bankruptcy proceedings “might still re-

ceive some benefit: The debtor’s personal liability on

the loan may survive the discharge.” /d. at 450. The

Court also noted, with apparent approval, the debtor’s

concession that “even if [the creditor] ignores the sum-

mons and chooses not to participate in the proceeding

the Bankruptcy Court cannot discharge her debt with-

out making an undue hardship determination.” /d. at

453-454.

The Court in Hood thus recognized that an actual un-

due hardship finding by the bankruptcy court is an es-

sential prerequisite to discharge of a student loan debt,

even when the debtor properly initiates an adversary

proceeding and the creditor does not object to dis-

charge. It follows a fortiori that a debtor who does not

initiate an adversary proceeding cannot obtain a dis-

charge of his student loan debt without an undue hard-

ship finding simply because the creditor does not “in-

sist” on a proceeding that it is the debtor’s duty to in-

voke.'

* The court of appeals cited Hood's observation “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.” Pet. App. 17-18 (internal quotation marks and citation omitted);

accord Hood, 541 U.S. at 453 (“The text of § 523(a)(8) does not require

a summons, and absent [Federal Rule of Bankruptey Procedure]

2. Petitioner was not required to appeal the confirma-

tion or discharge order to preserve its right to collect

respondent's remaining debt because, under the

terms of the applicable Bankruptcy Code provisions,

a discharge order does not discharge student loan

debt in the absence of an undue hardship determina-

tion

The court of appeals also suggested (Pet. App. 10-11)

that petitioner’s failure to appeal either the confirmation

or discharge order independently precluded it from

seeking to collect respondent’s remaining debt after the

completion of respondent’s plan. An appeal was unne:-

essary, however, because the discharge order ultimately

entered in this case did not have the effect of discharg-

ing respondent’s student loan debt.

a. The Bankruptcy Code provides that a ¢ischarge

order “does not discharge” a covered studen. joan debt

“unless excepting such debt from discharge * * *

would impose an undue hardship on the debtor and the

7001(6) a debtor could proceed by motion.”). But while the details of

the procedural scheme are set forth in the Rules rather than the Code,

the Court in Hood made elear that the statute imposes the basic re

quirement that the debtor must “affirmatively secure{| a hardship

determination.” Jd. at 450. The court of appeals’ approach, under

which the debtor’s submission of a plan that provides for discharge of

student loan debt shifts to the creditor the burden of objecting, is thus

inconsistent with the Code as well as with the Rules. In addition, the

heightened notice requirements described above still wou.d apply even

if the Bankruptcy Rules did permit a debtor to seek to discharge a stu-

dent loan debt by filing a motion rather than commencing an adversary

proceeding. See Fed. RK. Bankr. P. 9014(b) (providing that a “motion

shall be served in the manner provided fur service of a summons and

complaint by Rule 7004”)

debtor’s dependents.” 11 U.S.C. 523(a) and (a)(8).° This

provision is not framed as a directive to the bankruptcy

court. Instead, it is a “self-executing” limitation on the

effect of a discharge order. Hood, 541 U.S. at 450; ac-

cord Senate Report 79 (describing Section 523(a)(&) as

“self-executing”). Accordingly, the most natural reading

of Section 523(a)(8) is that, “[u]nless the debtor affirma-

tively secures a hardship determination, the discharge

order will not include a student loan debt.” Hood, 541

U.S. at 450; see id. at 444 (describing Section 523(a)(8)

as providing that covered student loans “are not inelud-

ed in a general discharge order unless the bankruptcy

court” makes an “undue hardship” finding).

Unlike Section 523(a), other provisions of the Bank-

ruptey Code are framed as directives to the bankruptcy

court. Another provision in the same statutory Section

provides that “the court shall” award costs and fees to

the debtor in certain circumstances and “shall not

award” costs and fees in other circumstances. 11 U.S.C.

523(d). Other provisions of the Bankruptcy Code, in-

cluding provisions in Chapter 13, also provide that bank-

* Section 523(a\8) is not by its terms directly applicable to Chapter

13 cases in which the debtor successfully completes performance under

a confirmed plan. Instead, Section 523(a)(8) is incorporated via Section

1328, which provides that “the court shall grant the debtor a discharge

of all debts provided for by the plan or disallowed under section 502 of

this ttle, except any debt * * * of the kind specified in” eight enum-

erated paragraphs of Section 523(a). 11 U.S.C. 1328(a) and (a)(2). “The

effect of this [provision] is to exclude from the full-compliance discharge

{under Chapter 13] those debts for educational loans that are nondis-

chargeable under section 523(a)(&)."” 8 Collier 4 1328.02[3][ h], at 1328-

20; accord Br. in Opp. 6.0.3 (describing Section 1328(2)(2) as “making

§ 523(a)(8) applicable in Chapter 13 cases”).

5 7

ruptcy courts “shall not’”’ or “may not”’ do certain

things. Another provision states that an action “does

not” have a certain effect “[uJnless the [bankruptcy]

court, for cause, orders otherwise.” 11 U.S.C. 349. In

contrast, Section 523(a)(8) states that a discharge order

“does not” have a certain effect “unless” a particular

condition is satisfied.

That difference is significant. As the court of appeals

explained, a final judgment is ordinarily binding, and an

injunction must be obeyed, even if the issuing court has

exceeded its authority or has committed legal error in

the course of adjudicating the suit. Pet. App. 10-11.

“[A] final judgment cannot be ignored or set aside just

because it was the result of an error,” but rather “must

be corrected by way of a timely appeal.” /d. at 11; see

Travelers Indem. Co. v. Bailey, 129 S. Ct. 2195, 2205

(2009). Under the statutory provisions governing dis-

charge of student loan debt, however, petitioner was not

required to appeal either the confirmation or the dis-

charge order in order to preserve its right to collect re-

spondent’s debt after the Chapter 13 plan had been com-

pleted. Such an appeal was unnecessary because, in the

absence of an undue hardship finding, a bankruptcy dis-

charge “does not discharge an individual debtor from

any debt” (11 U.S.C. 523(a)) for student loans covered

by Section 523(a)(8).

The court of appeals emphasized that a “discharge

injunction” comes “into force by operation of law upon

entry of the discharge” and “precludles] the creditor, on

~ 11 U.S.C. 380(a)(4)(A), 366(0€) 1 CB), 13280) and (1).

' 11 U.S.C. 105(b), 326(b), 341(€), 505(a)(2), 706(¢), 707(b)(1), (bX 2)(D)

and (c)(3), 904, 921(e), 1112(c), 1129(d), 1222(e), 1225(b)(1), 1228(f),

122% ¢), 1307(, 132244 (2), 18245(b)11), 13828¢h), 1329¢e), 1501(d), 1521(d).

pain of contempt, from taking any actions to enforce the

discharged debt.” Pet. App. 13. As the court of appeals’

own description recognizes, however, the discharge in-

junction under the Bankruptcy Code is limited by its

terms to “actions to enforce the discharged debt.” Ibid.

(emphasis added); see 11 U.S.C. 524(a)(1) (referring to

“any debt discharged under section * * * 1328 of this

title”), 524(a)(2) (discharge “operates as an injunction

against” any act “to collect, recover or offset any such

debt”). Because the effect of Section 523(a)(8) was to

prevent the discharge from encompassing respondent's

student loan debt in the absence of an undue hardship

finding, the discharge injunction likewise did not cover

that debt.

b. To the extent that the statutory language is oth-

erwise ambiguous, this reading of Section 523(a) effectu-

ates the intent of Congress by preventing debtors from

evading statutory prohibitions on the discharge of other

categories of debt. For example, Section 523(a)(1)(B)-

specified types of tax debt; Section 523(a)(5) provides

that it “does not discharge * * * any debt * * * for

a domestic support obligation”; and Section 523(a)(9)

provides that it “does not discharge” debts “caused by”

the debtor’s unlawful operation of a motor vehicle while

impaired by drugs or alcohol. See 11 U.S.C. 1328(a)(2)

(making those provisions applicable to Chapter 13 pro-

ceedings such as this one). As with student loan debt,

those debts are not among the categories for which Sec-

tion 523(c)(1) requires the creditor to object to dis-

charge.

By rendering certain debts completely non-

dischargeable, those provisions reflect Congress's deter-

mination that the compelling societal interests in the

satisfaction of such obligations should take precedence

over the debtor’s interest in obtaining a fresh start in

bankruptey. The Ninth Circuit’s analysis, however, in-

vites debtors to attempt to escape liability for debts

within those categories as well as for student loan debt

(which can lawfully be discharged if the debtor initiates

an adversary proceeding and the bankruptcy court

makes an undue hardship finding). As here, the debtor

could include language in a proposed bankruptcy plan

stating that confirmation of the plan would extinguish

the relevant debts. Then, if the creditor did not object

and the plan was confirmed and subsequently com-

pleted, the debtor could argue that the debts had been

discharged and that the discharge (though illegal) was

not subject to later reexamination. In a prior decision,

the Ninth Circuit acknowledged that possibility but

stated only that it “d[id} not address any of the public

policy concerns that might impact the dischargeability

of such obligations as alimony or child support.” Great

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

F.3d 1083, 1087 n.6 (1999). In contrast, no such difficul-

ties arise if Section 523(a) is understood to limit the le-

gal effect of a discharge order rather than to provide

direction to bankruptcy courts about what plans to con-

firm.

c. On the facts of this case, it is particularly clear

that petitioner’s failure to take an appeal did not effect

a forfeiture of its right to collect the unpaid portion of

respondent’s student loan debt after the completion of

the plan. The discharge order entered in May 1997 ex-

pressly excluded “any debt * * * for a student loan”

from the categories of debts being discharged. J.A. 46.

A different bankruptcy judge subsequently concluded

that this exclusion was a “clerical mistake,” J.A. 48, and

the court of appeals accepted that characterization. It

is at least equally plausible, however, that the bank-

ruptcy court in issuing the discharge order recognized

(perhaps belatedly) that, in the absence of an undue

hardship finding, any unpaid student loan debt could not

be discharged. In any event, petitioner’s failure to ap-

peal a discharge order that specifically excluded the

debt at issue here cannot reasonably be viewed as a

waiver of its right to pursue continued collection efforts.

d. The court of appeals relied (Pet. App. 35) on 11

U.S.C. 1327(a), which states that “[t]he provisions of a

confirmed plan bind the debtor and each creditor,

whether or not the claim of such creditor is provided for

by the plan, and whether or not such creditor has ob-

jected to, has accepted, or has rejected the plan.” The

issue before the Court, however, does not involve whe-

ther the plan was binding on petitioner and respondent,

since respondent does not contend that petitioner vio-

lated the plan’s terms while it was in effect. Instead, the

question here involves the legal effect of the discharge

order that the bankruptcy court entered upon respon-

dent’s completion of the plan. With respect to that ques-

tion, Section 528(a)(8), not Section 1327(a), is the con-

trolling provision.

In any event, any possible tension between Section

523(a)(8) and Section 1327(a) is properly resolved by the

“commonplace of statutory construction that the specific

governs the general.” Morales v. TWA, 504 U.S. 374,

384 (1992). Section 523(a)(8) is the more specific provi-

sion because it directly addresses the circumstances

under which a bankruptcy court’s discharge order dis-

charges a particular type of presumptively non-

dischargeable debt. In contrast, Section 1327(a) pre-

scribes the general effects of plan confirmation as be

tween the debtor and creditor, and it does not address ©

any limits on the legal effect of a bankruptcy court’s

discharge order.®

B. Permitting Discharge Of Student Loan Debt Without An

Undue Hardship Finding Is Inconsistent With The Back-

ground And Purposes Of Section 523(a)(8)

Until 1977, student loans were dischargeable in

bankruptcy on the same terms as other debts. See

11 U.S.C. 35 (1976) (listing non-dischargeable debts).

Since then, Congress has acted repeatedly to restrict

the discharge of student loan debt in bankruptcy. The

history and purposes of those enactments confirm that

a discharge order does not discharge a student loan debt

unless the bankruptcy court finds that failure to do so

will result in undue hardship to the debtor and his de-

pendents.

1. In 1976, Congress enacted legislation “making it

more difficult for debtors to discharge student loans

guaranteed by States.” Hood, 541 U.S. at 449. That

statute provided that such debt “may be released by a

discharge in bankruptcy * * * only if” (1) the loan had

been outstanding for more than five years as of the dis-

charge date, or (2) “the court in which the proceeding

[was] pending determine|dj| that payment from future

income or other wealth w[ould) impose an undue hard-

ship on the debtor or his denendents.” Education

* Neither the court of appeals nor respondent has relied upon Seetion

1327(b) or (c), which together provide that confirmation of a Chapter 18

plan generally “vests all of the property of the estate in the debtor” and

does so “free and clear of any claim or interest of any creditor provided

for by the plan.” 11 U.S.C. 1327(b)-(¢). Like Section 1327(a), these pro-

visions do not specifically address debts that are excepted from dis

charge by Section 523(a)

Amendments of 1976, Pub. L. No. 94-482, § 439A(a), 90

Stat. 2141.

In 1978, Congress replaced the Bankruptcy Act with

the Bankruptcy Code, which contained a_ provision

whose wording closely paralleled current Section

523(a)(8). That provision stated that “la] discharge un-

der” three specified sections of the Bankruptcy Code

“dlid] not discharge an individual debtor from any debt

* * * to a governmental unit, or a nonprofit institution

of higher education, for an educational] loan, unless” one

of two conditions was met. Bankruptcy Reform Act of

1978, Pub. L. No. 95-598, § 101, 92 Stat. 2590-2591. The

first basis for discharge under the original Bankruptcy

Code was that the “loan first became due before five

years * * * before the date of the filing of the peti-

tion.” 11 U.S.C. 523(a)(8)(A) (1982). The second basis

was worded identically to current Section 523(a)(8):

“unless * * * excepting such debt from discharge

* * * will impose an undue hardship on the debtor and

the debtor’s dependents.” /bid.

Since 1978, Congress has consistently expanded the

scope of non-dischargeability of student loan debt. In

1990, Congress extended Section 523(a)(8)’s restrictions

to discharge orders entered under Section 1328(a),

which governs discharges (like the one at issue here)

entered following completion of a Chapter 13 plan. Stu-

dent Loan Default Prevention Initiative Act of 1990,

Pub. L. No. 101-508, § 3007(b), 104 Stat. 1388-28. That

same year, Congress also increased the required waiting

period in the absence of undue hardship from five years

to seven years. Federal Debt Collection Procedures Act

of 1990, Pub. L. No. 101-647, § 3621(1)-(2), 104 Stat.

4964-4965. In 1998, Congress eliminated the provision

authorizing time-based discharge of student loan debt,

thus creating the current regime under which all dis-

charges of such debt require an undue hardship finding.

Higher Education Amendments of 1998, Pub. L. No.

105-244, § 971(a), 112 Stat. 1837."

2. The consistent direction of these changes and the

reasons underlying them refute any suggestion that

debtors can obtain a discharge of student loan debt with-

out an undue hardship determination. “[S]tudent loans

are enabling loans [that] allow|] individuals to improve

their own human capital and increase their income po-

tential.” Educational Credit Mgmt. Corp. v. Mersmann

(In re Mersmann), 505 F.3d 1033, 1042 (10th Cir. 2007)

(en bane) (internal quotation marks and citation omit-

ted). Because the principal benefit of student loans—

that is, an education—cannot be seized in the event of a

default, policymakers feared that, without federal guar-

antees, “most lenders would * * * refuse to fund a stu-

dent’s pursuit of higher education.” /bid. (quoting Seth

J. Gerson, Separate Classifications of Student Loans in

Chapter 13, 73 Wash. U. L.Q. 269, 280 (1995)). As a re-

sult, the United States “insures or guarantees lenders

and guarantors that the government will repay student

loans in the event of a borrower’s default.” /bid.

The current restrictions on dischargeability of stu-

dent loan debt in bankruptcy thus serve two fundamen-

tal purposes. First, they “prevent|] abuses of the educa-

tional loan system by restricting the ability to discharge

a student loan shortly after a student’s graduation.”

4 Collier 9 523.14{1], at 523-101 (June 2007). Second,

they “safeguard|] the financial integrity of governmental!

* Because the bankruptcy court’s discharge order was entered in

1997, see J.A. 47, the 1998 amendments are not directly applicable to

this case. There is no dispute, however, that respondent was ineligible

tor a time-based discharge under the pre-1998 version of the statute.

entities and nonprofit institutions that participate in

educational loan programs.” Jbid.

Permitting debtors to discharge student loan debt

without obtaining the undue hardship determination

mandated by Section 523(a)(8) is inconsistent with both

purposes. So long as the immediate creditor fails to ob-

ject, the Ninth Circuit’s approach would permit a debtor

to obtain a binding discharge of student loan debt imme-

diately upon his graduation and without any determina-

tion of undue hardship. Indeed, respondent appears to

be precisely the sort of debtor for whom Congress did

not intend to authorize a discharge of student loan debt.

Respondent sought bankruptcy protection less than five

years after he obtained his first student loan. Pet. App.

60-61. At the time he filed for bankruptcy, moreover,

respondent was employed, J.A. 21, did not assert that he

had any dependents, and identified no specific debts

beyond his student loans, J.A. 7.

C. Treating An Undue Hardship Finding As A Precondition

To Discharge Is Fair To Both Debtors And Creditors

1. Requiring a Chapter 13 debtor to “affirmatively

secure|! a hardship determination” (Hood, 541 U.S. at

450) in order to discharge a student loan debt makes

sense because, as a practical matter, student loan credi-

tors cannot conduct a timely and thorough review of

every Chapter 13 plan that they receive. See Ruehle,

412 F.3d at 681 (noting that student loan creditors “re-

ceive tidal waves of mail”). We are advised that Chapter

13 plans often are mailed only to payment service sub-

contractors, and that those subcontractors cannot prac-

ticably forward those plans promptly enough to permit

timely scrutiny by knowledgeable staff members before

the date of the confirmation hearing. See Fed. R.

Bankr. P. 2002(b) (providing that notice must be given

“not less than 25 days” before the deadline for filing

objections). And even when those staff members do

timely receive Chapter 13 plans for review, thorough

scrutiny of the plan may be impracticable because

“there is no fixed form that [the} plan must take, and

debtors are allowed to tailor their plans to meet their

own needs and circumstances.” 8 Collzer 9 1322.01, at

1322-6 to 1322-6.1 (Sept. 2006). In contrast, the proce-

dures for commencing an adversary proceeding are de-

signed to ensure that the appropriate individuals receive

prompt and effective notice of the debtor’s intent to seek

discharge of a presumptively non-dischargeable student

loan debt. See, e.g., Fed. R. Bankr. P. 7004(b)(3) (re-

quiring service on “an officer, a managing or seneral

agent, or * * * any other agent authorized by appoint-

ment or by law to receive service of process”); Fed. R.

Bankr. P. 7008 (incorporating Federal Rule of Civil Pro-

cedure 8, and thus requiring that an adversary com-

plaint contain “a short and plain statement of the claim”

(Fed. R. Civ. P. 8(a)(2) and “a demand for the relief

sought” (Fed. R. Civ. P. 8(a)(3)).

Requiring the debtor to seek an undue hardship de.

termination will not necessitate lengthy or complicated

proceedings. A creditor may choose not to contest un-

due hardship once the issue properly is raised if it con-

cludes that such a finding is warranted or that the costs

of contesting the existence of undue hardship would ex-

ceed the benefits. Cf. 34 C.F.R. 682.402(i)(1)(iii) (De-

partment of Education regulation permitting, but not

requiring, a guaranty agency to refrain from opposing

an undue hardship determination if it concludes that

“the expected costs of opposing the discharge petition

would exceed one-third of the total amount owed on the

loan”). The Federal Rules of Bankruptcy Procedure do

not forbid stipulations, and they expressly authorize

requests for admission, Fed. R. Bankr. P. 7036, default

judgments, Fed. R. Bankr. P. 7055, and summary judg-

ment, Fed. R. Bankr. P. 7056. Although the bankruptcy

court must make an explicit undue hardship finding to

discharge student loan debt even if the creditor does not

object (see p. 16, supra), that finding can be made expe-

ditiously.

2. The conclusion that debtors may not discharge a

student loan debt simply by including language in a pro-

posed Chapter 13 plan also avoids creating ethical diffi-

culties for debtors’ attorneys. As this Court stated in

Hood, the Bankruptcy Rules “require|} the debtor to file

an ‘adversary proceeding’ against [a creditor] in order

to discharge his student loan debt,” and the Bankruptcy

Code provides that a “Bankruptcy Court cannot dis-

charge [such a] debt without making an undue hardship

determination.” 541 U.S. at 451, 453-454.

The Ninth Circuit’s approach encourages debtors’

attorneys to seek to evade both of those requirements

by including “plainly illegal provision[s]” in bankruptcy

plans. Ruehle, 412 F.3d at 681. Doing so, however,

would implicate Federal Rule of Bankruptcy Procedure

9011(b)(2), which states that, by presenting a document

to a bankruptcy court, an attorney certifies that “the

claims, defenses, and other legal contentions therein are

warranted by existing law or by a nonfrivolous argument

for the extension, modification, or reversal of existing

law.” In addition, the approach approved by the court of

appeals depends for its success on the prospect that the

bankruptcy court will not become aware of the illegal

provisions in time to perform its independent duty to

confirm only those plans that “compl[y] with the provi-

sions of” the Bankruptcy Code. 11 U.S.C. 1325(a)(1);

see Johnson v. Home State Bank, 501 U.S. 78, 87 (1991)

(stating that “[a] bankruptcy court is authorized to con-

firm a[Chapter 13] plan only if the court finds” that it

complies with the requirements set forth in Section

1325(a)) (emphasis added). The Bankruptey Code

should not be construed to encourage “practice by am-

bush.” Whelton v. Educational Credit Mgmt. Corp., 432

F.3d 150, 153 (2d Cir. 2005) (citation omitted).

3. The principle that “student loan debt remains due

until there is a determination that the loan is discharge-

able,” 4 Collier 9 523.14[2], at 523-102, is fair to the

debtor’s other creditors and to the debtor himself. Be-

cause a debtor does not receive a discharge under Chap-

ter 13 until after performance under the plan is com-

plete, 11 U.S.C. 1328(a), a subsequent determination

that the discharge order did not effectively discharge

the debtor’s student loan debt will not affect payments

made under the plan to other creditors. The Bankrupt-

cy Code, moreover, imposes no time limit within which

an undue hardship determination must be made. Ac-

cordingly, a debtor who legitimately qualifies for a dis-

charge of student loan debt but has failed to secure the

necessary hardship determination need only do what he

should have done in the first place: return to the bank-

ruptcy court and commence an adversary proceeding.

See Pet. App. 60 (district court remanding to the bank-

ruptcy court for an undue-hardship determination). In

contrast, a debtor who cannot demonstrate undue hard-

ship is prevented from obtaining a windfall to which he

is not entitled.

D. Because Respondent Did Not Initiate The Appropriate

Procedure For Securing An Undue Hardship Finding

And The Bankruptcy Court Made No Such Finding In

This Case, Respondent's Student Loan Debt Has Not

Been Discharged And The Court Need Not Address The

Constitutional Question Presented In The Petition

This Court need not address petitioner’s additional

contention (Br. 51-58) that the notice it received of re-

spondent’s Chapter 13 plan failed to satisfy constitu-

tional due process requirements. Consistent with the

Constitution, Congress could have included student loan

debt among the debts listed in Section 523(c)(1), for

which a creditor must either raise or forfeit its objection

to dischargeability. See p. 13 & n.3, supra. Had Con-

gress done so, it also could have provided that mailing a

student loan creditor notice of a proposed plan at an

appropriate address is sufficient to trigger the creditor’s

duty to contest discharge. See Jones v. Flowers, 547

U.S. 220, 225-226 (2006) (stating that “due process does

not require actual notice” and noting “this Court’s ample

precedent condoning notice by mail”). Thus, the proce-

dural regime that effectively results from the court of

appeals’ ruling here would raise no substantial constitu-

tional concerns if Congress had enacted it into law,

thereby giving student loan creditors fair warning of the

steps needed to preserve their rights to payment.

As explained above, however, the Bankruptey Code

does not require creditors to object to the debtor's plan

to preserve the non-dischargeability of student loan

debt, but rather places upon student loan debtors an

affirmative duty to secure an undue hardship finding as

a prerequisite to discharge. In addition, the Bankruptcy

Rules require a particular type of notice (service of an

adversary complaint upon specified agents of the credi-

tor) in order to commence proceedings to adjudicate the

dischargeability of a student loan debt, and they provide

that a creditor’s obligation to respond within the context

of such a proceeding does not arise until a complaint “is

duly served.” Fed. R. Bankr. P. 7012(a). The Code and

Rules thus assure student loan creditors that their right

to full payment will not be placed at issue unless and

until the creditor is informed, in compliance with the

Rules’ heightened notice requirement, that the debtor

has sought an undue hardship finding. ‘The gravamen of

petitioner’s constitutional challenge is that respondent’s

failure to initiate an adversary proceeding as required

by the Code and Rules deprived petitioner of the pro- .

cess it was due. See Pet. Br. 54-55.

The Code and Rule provisions on which petitioner

relies make clear, however, that petitioner did not waive

its right to pursue continued collection efforts by failing

to insist on an adversary proceeding. See pp. 13-16, su-

pra. And under Section 523(a)(8), the proceedings in the

bankruptcy court did not effect a discharge of respon-

dent’s unpaid student loan debt. See pp. 17-25, supra.

It is therefore unnecessary for the Court to decide whe-

ther petitioner would have suffered a deprivation of con-

stitutional magnitude if its right to seek further repay-

ment had been abrogated without the notice and proce-

dures that the Code and Rules require for a discharge of

student loan debt.

This Court’s usual practice is to avoid deciding con-

stitutional questions whenever possible, see, e.g., North-

west Austin Mun. Util. Dist. No. One v. Holder, 129

S. Ct. 2504, 2508, 2513 (2009), and there is no reason to

depart from that practice here. To the contrary, with-

holding decision on any constitutional issue would be

particularly appropriate because of the atypical facts of

this case. It is undisputed that petitioner’s litigation

department received actual notice of respondent’s

Chapter 13 plan, the deadline for filing objections, and

the date of the confirmation hearing. Pet. App. 21; see

J.A. 34. In many other cases, however, it will not be

possible to show that the creditor received actual notice.

See pp. 26-27, supra.

CONCLUSION

The judgment of the court of appeals should be

reversed.

Respectfully submitted.

ELENA KAGAN

Solicitor General

TONY WEST

Assistant Attorney General

MALCOLM L. STEWART

Deputy Solicitor General

Toby J. HEYTENS

Assistant to the Solicitor

General

WILLIAM KANTER

PETER R. MAIER

Attorneys

SEPTEMBER 2009

No. 08-1134 Supreme Court, U.S.

OCT 16 2009

IN THE OFFICE OF THE CLERK

Supreme Court of the United States

—. - o->s- — —

UNITED STUDENT AID FUNDS, INC.,

Petitioner,

—

FRANCISCO J. ESPINOSA,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

BRIEF IN SUPPORT OF RESPONDENT FOR

AMICI CURIAE PROFESSORS RICHARD AARON,

JAGDEEP S. BHANDARI, SUSAN BLOCK-LIEB,

ROBERT D’AGOSTINO, KENNETH N. KLEE,

GEORGE W. KUNEY, JONATHAN C. LIPSON,

LOIS LUPICA, RALPH R. MABEY, C. SCOTT PRYOR,

MICHAEL D. SOUSA, AND ROBERT M. ZINMAN

RICHARD LIEB

Research Professor of Law

ST. JOHN'S UNIVERSITY ye pi

SCHOOL OF LAW moe

8000 Utopia Parkway

Jamaica, New York 11439

(212) 479-6020 or (718) 990-1923

Counsel of Record for

Amici Curiae

Dated: October 16, 2009

TABLE OF CONTENTS

PAGE

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

INTEREST OF AMICI CURIAE................. 1

SUMMARY OF ARGUMENT ..................... 2

1. Summary of the res judicata

EE nrcdndeds cd ccennnnnatensenneersne 3

2. Summary of the argument based

kin od cdo eNScsedenidineeses 5

POINT I.

PETITIONER’S CLAIM IS BARRED

BY RES JUDICATA, WHICH PRECLUDES

A CHALLENGE TO A CONFIRMATION

ORDER IN A POST-CONFIRMATION

PROCEEDING IN THE SAME

os ge! ene 6

A. Travelers v. Bailey Bars Collateral

Attack of Confirmation Orders in the

Same Bankruptcy Case ................ 6

B. The Finality of Confirmed Plans

Ensures the Efficient Administration

of the Bankruptcy Process............ 10

PAGE

POINT II.

EVEN IF RES JUDICATA WERE HELD NOT

TO BAR AN ATTACK ON A PROVISION OF

A CONFIRMATION ORDER FOR LACK OF

JURISDICTION OR SUBSTANTIVE POWER

OF A BANKRUPTCY COURT, THE STUDENT

LOAN PROVISIONS AND F. R. BANKR.

P. 7001(6) ARE NON-JURISDICTIONAL

AND DO NOT VOID THE ORDER. A

CREDITOR FORFEITS NON-JURISDIC-

TIONAL OBJECTIONS BY NOT RAISING

THEM AT THE CONFIRMATION STAGE,

AND THUS CANNOT RAISE THEM

Fe IN han 060.6066 cees ch cen eidcepenes 12

A. The Student Loan Provisions of

§§ 523(a)(8) and 1328(a)(2) Are Not

Jurisdictional In Light of the “Readily

Administrable Bright Line” Test Set

Forth In Arbaugh v. Y & H Corp.,

Requiring That To Be Jurisdictional A

Statute Must, By Its Own Text, Clearly

Evidence Congress’ Intent To Implicate

the Bankruptcy Court's Subject Matter

EE 55056486 0 arnsGasonecssacesss 14

B. F. R. Bankr. P. 7001(6) is a Non-

Jurisdictional Claims Processing Rule

Under the Court's Decision in Kontrick

i 66.05 40445055540090 50 nH Oke ESN dee es 18

iii

PAGE

C. Concepts of Finality and Repose

Dictate that a Creditor Who Fails To

Object Prior to Confirmation of a

Chapter 13 Plan Forfeits Its Right To

Later Object That the Plan Was

Erroneously Confirmed................ 20

POINT IIL.

A PROVISION OF A CONFIRMED CHAPTER

13 PLAN TIAT DISCHARGES STUDENT

LOAN DEBT IS BINDING AND EFFECTIVE

BY VIRTUE OF BANKRUPTCY CODE

§ 1327(a) WHERE THE CREDITOR HOLD-

ING THE CLAIM (1) RECEIVED ADEQUATE

NOTICE OF TIIE PROPOSED PLAN AND

THE PROCEEDING FOR ITS CONFIRMA-

TION, AND (2) CHOSE NOT TO OBJECT... — 23

Es acakcuneeketet neta snenseconaieweries 30

TABLE OF AUTHORITIES

Cases:

Arbaugh v. Y & H Corp.,

546 U.S. 500 (2006)............. sacnsenteups

Caminetti v. United States,

242 U.S. 470 (1917) ......cccecceecccecceecees

Chicot County Drainage Dist. v. Baxter

State Bank, 308 U.S. 371 (1940)...........

City of Sherrill v. Oneida Indian Nation,

Pe Se EE b envdiesnccccccncncedacecce

Eberhart v. United States,

546 U.S. 12 (2006).............cccceceeeeeees

El Paso Natural Gas Co. v. Neztsosie,

541 U.G. 478 (IGG) ........0cccecccccccccsees

Federated Dept. Stores, Inc. v. Moitie,

SE i Se ED ob ccdcnskddduncecssconsses

Hart Steel Co. v. Railroad Supply Co.,

OO0 UM. GPG CAOET) «2.5.5.5 .csccce...e.0ce.

Hartford Underwriters Insurance Co. v.

Union Planters Bank, N.A.,

cdr nbdeassecoacnsedcccecses

PAGE

In re American Preferred Prescriptions, Inc.,

200 F.0d S7 (20 Cir. 2001)...................

In re Chicago, Milwaukee, St. Paul & Pac.

R.R. Co., 891 F.2d 159 (7th Cir. 1989).....

In re Continental Airlines, Inc.,

91 F.3d 553 (3d Cir. 1996)

“ee ee ee ee eee eee

passim

PAGE

In re County of Orange, 219 B.R. 543

fh Ee lg ee ere 27

In re Mersmann, 505 F.3d 1033

Ot I i ae i de ee eeeee 15

In re Metromedia Fiber Network, Inc.,

416 F.3d 136 (2d Cir. 2005) ...........000... 26

In re Optical Technologies, Inc.,

425 F.3d 1294 (1lith Cir. 2005) ............. i)

In re Penn-Dixie Industries, Inc.,

32 B.R. 173 (Bankr. S.D.N.Y. 1983)........ 27

In re Public Serv. Co., 963 F.2d 469

COO Sa BP bho ccdcacseccuconcuenicossaunens 29

In re Roberts Farms, 652 F.2d 793

SY Gs: SED a cncundvsanenccadssesexenend dues 29

In re Trusted Net Media Holdings,

550 F.3d 1035 (11th Cir. 2008) ..... 14, 15, 16, 17

In re Watkins, 240 B.R. 735

fo ee Te 27

Kontrick v. Ryan, 540 U.S. 443

CED 6 de4sdedesndseseunekunonueds 13, 15, 19, 20, 21

Rubin v. Belo Broad. Corp.,

769 F.2d 611 (9th Cir. 1985) ................ 16

Schacht v. United States, 398 U.S. 58 (1970) .. 19

Stoll v. Gottlieb, 305 U.S. 165 (1938)..... 6, 7, 11, 28

Tennessee Student Assistance Corp. v. Hood,

BSE ED. GO Ce cenncccccenssescviseenses 18

PAGE

Travelers Indemnity Company v. Bailey,

__ U.S. _., 129 S.Ct. 2195 (2009) ......... passim

United States v. Ron Pair Enterprises, Inc.,

IED 5 cocens Gecccceneseseccosss 24

Washington, A. & G. Steam Packet Co. v.

Sickles, 65 U.S. 333 (1860) ................. 22

Willy v. Coastal Corp., 503 U.S. 131 (1992).. 10

Young v. United States, 535 U.S. 42 (2002) .. 22

Zipes v. Trans World Airlines, Inc.,

re 16

Statutes:

Bai kruptcy Code § 303(b) ...................... 17

Bankruptcy Code § 523(a)(8) ................. passim

Bankruptcy Code § 524(e)....................... 27

Bankruptcy Code § 546(a)....................... 18

Bankruptcy Code § 90l(a)....................... 27

Bankruptcy Code § 944(a) .................... 5, 23, 28

Bankruptcy Code § 1104(a)..................... 27

Bankruptcy Code § 1123(a)(4).................. 27

Bankruptcy Code § 1129(a)(9).............0.... 27

Bankruptcy Code § 114l(a)...............5, 23, 25, 28

Bankruptcy Code § 1141(d)(2) ................. 25

Bankruptcy Code § 1225(a)......................27, 28

PAGE

Bankruptcy Code § 1227(a) ................. 23, 25, 28

Bankruptcy Code § 1228(a) ..................05 25

Bankruptcy Code § 1324 ......................0, 20, 21

NEE NE CID ©] BGS occccccsccccccccccccses passim

Bankruptcy Code § 1328(a).................... passim

Ey GUND © BOs occ cect ncccsccecsccevcs 24

Te OUD nevnttnncd cease sees vandaneteetsencses 15

I T-TT sie ches saeiinbathesushnnnekeaassin 13, 15

EE, Ce an cdscascnsceee scan entaened 13, 15, 19, 21

te CE 46 encscdeieemisiendsasnendihanine 20

Pub. L. No. 696, ch. 575, § 657, 52 Stat. 840 ..

(1938) (repealed 1978) ..................... 25

Rules:

ie Le MR nics ccuhucscacncennccecpensctly meee

a oe ne... + sisehaniunannesdadtancasee 21

ee Oe | rrr rrr rr ree passim

Pe Site Es OG ND canna cccesscccccnevsenssntens 21

ie: ee SE OG EE co cencnwnsenecesvscedessecsees 20

PA Tile ee We a 6c be cisccccssbensecesceces 13

Other Authorities:

2 COLLIER ON BANKRUPTCY, 4 303.02 and

9 303.08[2] (Allen N. Resnick et al.

I aad 18

vill

5 COLLIER ON BANKRUPTCY, 9] 546.02[4]

(Allen N. Resnick, et al. eds.,

RS i

8 COLLIER ON BANKRUPTCY, 9 1327.02| 1] [c]

(Allen N. Resnick et al. eds.,

Sr ee

4 KEITH M. LUNDIN, CHAPTER 13 BANKRUPTCY,

§ 346.1(3d ed. 2000 & Supp. 2004).........

CHARLES A. WRIGHT, ARTHUR R. MILLER, ET AL.

FEDERAL PRACTICE & PROCEDURE, § 4403

tt eck cekiged deteabadeoeswesenens

George W. Kuney, Slipping Into Mootness,

2007 ANN. SURV. BANKR. LAW, ART 9, 267..

PAGE

’

INTEREST OF AMICI CURIAE'

The Amici Curiae are law professors who have

devoted their careers to the study and teaching of

bankruptcy law.* They are deeply interested in the

outcome of this appeal, not only for its effect on

debt restructuring cases under chapter 13 of the

Bankruptcy Code,’ but also because of its potential

impact on cases for reorganization under chapters 9,

11 and 12 of the Bankruptcy Code. The Amici file

this brief in order to underscore the fundamental

importance for both debtors and the creditor body

to uphold the finality of confirmation orders under

chapters 9, 11, 12, and 13, and to bar attacks upon

such orders by creditors who choose not to object

: The Amici file this brief with the written consent of all

parties. No counsel for a party has authored this brief in whole

or in part. No person or entity, including the Amici or their

counsel, made a monetary contribution for the preparation or

submission of this brief; it has been prepared pro bono.

: The Amici are Richard Aaron, Professor of Law at Uni-

versity of Utah-S.J.Quinney College of Law; Jagdeep S. Bhan-

dari, Professor of Law at Florida Coastal Law School; Susan

Block-Lieb, Professor of Law at Fordham Law School; Robert

D’ Agostino, Professor of Law at John Marshall Law School; Ken-

neth N. Klee, Professor of Law at UCLA School of Law; George

W. Kuney, Professor of Law at University of Tennessee College

of Law; Jonathan C. Lipson, Professor of Law at Temple Uni-

versity-James E. Beasley School of Law; Lois Lupica, Professor

of Law at University of Maine Schoo! of Law; Ralph R. Mabey,

Professor of Law at University of Utah-S.J.Quinney College of

Law; C. Scott Pryor, Professor of Law at Regent University

School of Law: Michael D. Sousa, Professor of Law at University

of Denver-Sturm College of Law; and Robert M. Zinman, Pro-

fessor of Law at St. John’s University School of Law.

J Title 11 of the United States Code is hereinafter referred

to as the Bankruptcy Code.

to them during proceedings for confirmation,

whether the subsequent challenge to the confirma-

tion order is based on subject matter jurisdictional]

or substantive bankruptcy law claims.

The Amici support the Respondent’s analysis

upholding the confirmation order and the Respon-

dent’s discharge of student loan debt, and offer addi-

tional grounds in support of that result. They urge

that the Court’s holding four months ago in Travel-

ers Indemnity Company v. Bailey, ___ U.S. ___, 129

S.Ct. 2195, 2205 (2009), is controlling. There, the

Court held that the doctrine of res judicata barred

creditors in a subsequent proceeding in the same

reorganization case from challenging an earlier con-

firmation order, and ruled that provisions of a con-

firmation order could not be later attacked, whether

or not the order constituted a proper exercise of

bankruptcy court jurisdiction or of its substantive

bankruptcy law power. The Amici urge the Court to

hold that a creditor who chooses to remain silent at

the confirmation stage after receiving adequate

notice that a proposed chapter 13 plan will dis-

charge student loan debt, is barred by res judicata

from challenging the confirmation order in a later

proceeding in the same bankruptcy case.

SUMMARY OF ARGUMENT

The Amici urge two independent bases for

upholding the confirmation order and discharge at

issue:

First: A collateral attack on a confirmation order

is barred by res judicata even if it is predicated

cither on a claimed lack of subject matter jurisdic-

tion or of substantive power of the bankruptcy

court. Such a post-confirmation collateral challenge

is barred, whether made in the same bankruptcy

case or in another case. Moreover, the Amici urge

that §§ 523(a)(8) and 1328(a)(2) of the Bankruptcy

Code (the “Student Loan Provisions”) and F. R.

Bankr. P. 7001(6) are not jurisdictional in nature,

and that the violation of or non-compliance with

those provisions does not void an order.

Second: By reason of Bankruptcy Code § 1327(a),

each creditor is bound by the discharge provision of

a confirmation order to which it did not object after

receiving adequate notice of the proposed plan and

an opportunity to assert its objection to such pro-

vision.

1. Summary of the res judicata argument: The

doctrine of res judicata applies in a subsequent pro-

ceeding in the same bankruptcy case. Each of the

elements for applicability of the doctrine of res

judicata is satisfied in this case. Petitioner was

served with adequate notice of the confirmation pro-

ceeding and of the proposed plan’s provision for the

discharge of student loan debt, and thereby became

a party to that proceeding. It had a full opportunity

for a hearing on any objection to confirmation that

it might interpose. Bankruptcy Code § 1324(a); F. R.

Bankr. P. 2002(b). Moreover, Petitioner was

expressly warned that its rights could be impaired

by the proposed plan. Nevertheless, it failed to

object to confirmation or to appeal from the order

confirming the plan. As such, the confirmation order

became final and binding on all parties under

Bankruptcy Code § 1327(a). Petitioner was thus

barred by res judicata from raising its claims in

Respondent's post-confirmation proceeding to con-

firm his discharge.

Res judicata is a foundational doctrine of the law,

designed to provide certainty for the parties and

reliability for the judicial system. The doctrine is of

prime importance not only in chapter 13 debt

restructuring cases, but also in bankruptcy reorga-

nization cases under chapters 9, 1l and 12. Oncea

plan has been confirmed, a creditor who receives

adequate notice of the confirmation hearing but

chooses not to object to confirmation or to appeal

the confirmation order, is barred by res judicata

from attacking the confirmation order on any

ground, whether the challenge is based on an

asserted lack of subject matter jurisdiction or sub-

stantive power of the bankruptcy court. These prin-

ciples were made clear by the Court in Travelers v.

Bailey, which the Amici urge is controlling. Under

the Court’s holding in that case, Petitioner’s attack

on the confirmation order must fail.

In Travelers v. Bailey, the Court held that a cred-

itor was barred by res judicata from challenging a

confirmation order in a post-confirmation proceed-

ing in the same bankruptcy case. Although the doc-

trine of res judicata has long been applied to bara

subsequent challenge asserted in a different case,

Travelers v. Bailey applied the doctrine to an attack

ona confirmation order made in a proceeding in the

same bankruptcy case in which the confirmation

order had been issued. As ruled by 7ravelers v. Bailey,

all attacks, whether made by a post-confirmation

proceeding filed in the same bankruptcy case or ina

different case in a non-bankruptcy court, constitute

collateral attacks made impermissible by the doc-

trine of res judicata. The Court made clear in that

case that the basic reason for the doctrine is to pro-

vide finality for confirmation orders.

Travelers v. Bailey, moreover, also makes clear

that the doctrine of res judicata applies to bar all

claims, whether based on an asserted lack of juris-

diction for a provision of the confirmation order or

a lack of substantive power of the bankruptcy court.

Thus, even if the Student Loan Provisions were

viewed as jurisdictional or beyond the power of the

bankruptcy court, which Amici believe they are not,

res judicata precludes a challenge to a confirmation

order based on them. Petitioner’s fundamental posi-

tion on this appeal never comes to grips with the

impact of res judicata, and does not address or

even cite the Court's decision in Travelers v. Bailey.

Petitioner also argues that the bankruptcy court

lacked the jurisdiction to confirm a plan for dis-

charge of student loan debt without an undue hard-

ship determination made in an adversary proceeding

pursuant to F. R. Bankr. P. 7001(6). That contention

is likewise flawed because that provision cannot be

viewed as jurisdictional in nature in light of deci-

sions of this Court and F. R. Bankr. P. 9030.

2. Summary of the argument based on § 1327(a).

Independent of the bar of res judicata, the Amici

urge that a challenge to a discharge of a student

loan debt provided for by a confirmed chapter 13

plan cannot be made because of § 1327(a) of the

Bankruptcy Code. Section 1327(a), like its analogue

in chapters 9, 11 and 12 (set forth in Bankruptcy

Code §§ 944(a), 1141(a), and 1227(a)), states that,

“the provisions of a confirmed plan. . .bind. .

cach creditor, . . . whether or not such creditor has

objected to... the plan.” The plain text of § 1327(a)

should be applied as written. Congress has been

both clear and emphatic in the language it chose for

$ 1327(a) to make all provisions of a confirmed plan

binding on each creditor. To allow a creditor’s post-

confirmation attack on the confirmation order

would require the Court to disregard that statute.

That statute makes no exception for provisions of

any type. Thus, no provision of a confirmed plan

may be attacked by a creditor after confirmation if

the creditor has not objected to the plan proposed

for confirmation or appealed the confirmation order.

POINT I

PETITIONER’S CLAIM IS BARRED BY

RES JUDICATA, WHICH PRECLUDES A

CHALLENGE TO A CONFIRMATION ORDER

IN A POST-CONFIRMATION PROCEEDING

IN THE SAME BANKRUPTCY CASE

The doctrine of res judicata bars all post-confir-

mation objections to a confirmed plan. The Court

left no doubt about the total bar of the doctrine of

res judicata by its broad and unqualified language

in Travelers v. Bailey, 129 S.Ct. 2195, decided

scarcely four months ago. Travelers v. Bailey is

controlling.

A. Travelers v. Bailey Bars Collateral Attack

of Confirmation Orders in the Same Bank-

ruptcy Case

Under the doctrine of res judicata, “a final judg-

ment on the merits of an action precludes the par-

ties or their privies from relitigating issues that were

or could have been raised in that action.” Federated

Dept. Stores, Inc. v. Moitie, 452 U.S. 394, 398

(1981). A bankruptcy court's order confirming a plan

of reorganization is a final order entitled to res judi-

cata effect. Stoll v. Gottlieb, 305 U.S. 165, 171-72

(1938). Res judicata precludes a collateral attack

upon a confirmation order even when the bank-

ruptcy court entering the order lacked subject mat-

ter jurisdiction to do so. Chicot County Drainage

Dist. v. Baxter State Bank, 308 U.S. 371, 376 (1940).

The Court’s prohibition on the collateral attack of

confirmation orders has usually arisen in response

to post-confirmation objections raised outside the

debtor’s bankruptcy case in an action brought in a

non-bankruptcy court. See e.g., Stoll v. Gottlieb, 305

U.S. 165 (applying res judicata to preclude collat-

eral attack of confirmation order in Illinois state

court action); Chicot County Drainage District v.

Baxter State Bank, 308 U.S. 371 (applying res judi-

cata to preclude collateral attack of confirmation

order in United States district court). In Travelers v.

Bailey, the Court held that res judicata also pre-

cludes collateral attack upon a confirmation order

in a later proceeding in the same bankruptcy case.

Travelers v. Bailey, 129 S.Ct. at 2206.

The circumstances in the present case regarding

res judicata mirror those in Travelers v. Bailey. In

Travelers v. Bailey, the Court granted certiorari to

review whether the Court of Appeals had erro-

neously held, in a post-confirmation proceeding in

the chapter 11 bankruptcy case of Johns-Manville

Corporation, that the bankruptcy court did not have

subject matter jurisdiction to issue a confirmation

order enjoining the prosecution of claims against

non-debtors that did not directly affect the res of the

bankruptcy estate.

The Court, however, did not decide the issue for

which it had granted certiorari in that case. Trav-

elers v. Bailey, 1298S. Ct. at 2207. Instead, the Court

determined the appeal on the basis of the paramount

importance of the doctrine of res judicata, holding

that res judicata barred the post-confirmation

attack in Manville’s bankruptcy case on the injunc-

tion included in the confirmation order. In the pre-

sent case, certiorari was granted to review whether

a chapter 13 confirmation order erroneously con-

firmed a plan that provided for the discharge of stu-

dent loan debt without a determination of undue

hardship, and to consider a related notice issue.

Here, as in Travelers v. Bailey, the attack on the

confirmation order was made in a subsequent pro-

ceeding in the bankruptcy case. As in Travelers v.

Bailey, the Court in the present case should not

address the substantive issue it accepted for review,

but instead should bar Petitioner’s attack on the

confirmation order on the basis of res judicata.

In Travelers v. Bailey, a plan of reorganization

providing for the treatment of massive asbestos

related personal injury claims, was confirmed. Years

after confirmation of Manville’s plan of reorganiza-

tion, certain asbestos-injured claimants brought law-

suits in state courts across the country against

Petitioner, who was Manville’s insurer. Petitioner

then brought a proceeding within Manville’s bank-

ruptcy case for an interpretation that the injunctive

provision built into the confirmation order was

intended to bar those lawsuits. The Court of Appeals

for the Second Circuit held that the bankruptcy

court lacked subject matter jurisdiction to grant the

injunction.

The Court reversed. Under the Court’s ruling, it

did not matter whether or not the bankruptcy court

lacked subject latter jurisdiction or power to issue

the order, holding that under either circumstance

the later attack on the order in the same bankruptcy

case was barred by res judicata. The Court made it

crystal clear that res judicata bars all post-confir-

mation challenges to confirmation orders. As stated

by the Court: “[O]nce the 1986 orders became final

on direct review (whether or not [they were] proper

exercises of bankruptcy court jurisdiction and

power), they became res judicata,” and the Court

barred the assertion of any matter that could have

been raised in the proceeding for confirmation in

opposition to the provision in question. Travelers v.

Bailey, 129 S. Ct at 2205 (emphasis added). The

Court went on to state:

So long as respondents or those in privity with

them were parties to the Manville bankruptcy

proceeding, and were given a fair chance to

challenge the Bankruptcy Court’s subject-matter

jurisdiction [to issue the injunction incorpo-

rated into the confirmation order], they cannot

challenge it now [in the subsequent proceeding

for an interpretation of the scope of that provi-

sion] by resisting enforcement of the 1986

Orders.

Id. at 2206.

The Court’s broad view of res judicata and its

importance is unmistakably clear:

The willingness of the Court of Appeals to

entertain this sort of collateral attack cannot be

squared with res judicata and the practical

necessity served by that rule.

Id. at 2206 (citing, inter alia, In re Optical Tech-

nologies, Inc., 425 F.3d 1294, 1308 (11th Cir. 2005)

(barring collateral attack of confirmation order in

later proceeding in same bankruptcy case and not-

ing that if “courts could evaluate the jurisdiction

that they may or may not have had to issue a final

judgment, the rules of res judicata . . . would be

entirely short-circuited.” )).

Like the unsuccessful respondents in Travelers v.

Bailey, Petitioner in the present case seeks to

attack a confirmation order in a subsequent pro-

ceeding in the same bankruptcy case, essentially

claiming a lack of jurisdiction. Even if jurisdiction

were lacking, Travelers v. Bailey is controlling to

bar Petitioner’s attack. See Travelers v. Bailey, 129

S. Ct. at 2206 (“[T]his sort of collateral attack can-

not be squared with res judicata. .. .”).

The fact that Respondent commenced the instant

proceedings by reopening the chapter 13 case in

order to bring his proceeding to reconfirm the dis-

charge of his student loan debt does not change the

impermissible nature of Petitioner’s attack on the

confirmation order. See id. at 2206 n.7 (“Respon-

dents point out that it is Travelers, not they, who

moved the Bankruptcy Cotrt to enforce the 1986

Orders. But who began the present proceedings has

no bearing on the application of res judicata

. . .”). Based ona straightforward application of

Travelers v. Bailey, Petitioner's post-confirmation

attack on the confirmation order is barred by the

doctrine of res judicata.

B. The Finality of Confirmed Plans Ensures

the Efficient Administration of the Bank-

ruptcy Process

The finality of confirmed plans and the prohibi-

tion on their collateral attack reflects a strong pol-

icy in favor of bringing an end to litigation. See Willy

v. Coastal Corp., 503 U.S. 131, 137 (1992) (“[T]he

practical concern with providing an end to litigation

justifies a rule preventing collateral attack on sub-

ject-matter jurisdiction”); Stoll v. Gottlieb, 305 U.S.

at 172 (“It is just as important that there should bea

place to end as that there should be a place to begin

litigation.”); see also Federated Dept. Stores, Inc. v.

Moitie, 452 U.S. at 401 (overturning Ninth Circuit

anti-trust decision for failure to apply res judicata

and noting that “[the] doctrine of res judicata is not

a mere matter of practice or procedure inherited

from a more technical time than ours. It is a rule of

fundamental and subst«ntial justice, of public policy

and of private peace, which should be cordially

regarded and enforced by the courts. . . .”) (citing

Hart Steel Co. v. Railroad Supply Co., 244 U.S. 294,

299 (1917) (internal quotation marks omitted)).

The finality of confirmed plans is just as impor-

tant in chapter 13 cases as it is in epic asbestos

cases like that at issue in Travelers v. Bailey. The

sound administration of the bankruptcy law requires

that the provisions of plans of reorganization and

for debt adjustment be immune from challenge once

the plan has been confirmed and the appeal period

has expired. When such plans have been confirmed

without objection, the debtor and creditors must be

able to rely on their finality. Confirmation orders are

at the heart of recrganization and debt adjustment

bankruptcy cases, and the bankruptcy system could

not function if a confirmation order could be upset

in a later proceeding. Credit is extended to the reor-

ganized debtor and other relationships are formed in

reliance on the finality of confirmation orders. Par-

ties to debt adjustment and reorganization cases

must be confident that their conduct in reliance on

court-ordered confirmation will not be undercut by

later attacks on the confirmed plan.

POINT II

EVEN IF RES JUDICATA WERE HELD NOT

TO BAR AN ATTACK ON A PROVISION OF

A CONFIRMATION ORDER FOR LACK OF

JURISDICTION OR SURSTANTIVE POWER

OF A BANKRUPTCY COURT, THE STUDENT

LOAN PROVISIONS AND F. R. BANKR. P.

7001(6) ARE NON-JURISDICTIONAL AND

DO NOT VOID THE ORDER. A CREDITOR

FORFEITS NON-JURISDICTIONAL OBJEC-

TIONS BY NOT RAISING THEM AT THE

CONFIRMATION STAGE, AND THUS CAN-

NOT RAISE THEM THEREAFTER

Petitioner contends that the order providing for

the discharge of Respondent’s student loan debt is

void. Petr’s Br. 31-32. To support its “voidness”

claim, Petitioner asserts that the bankruptcy court

lacked the power to enter a confirmation order with

a provision for the discharge of student loan debt in

contravention of §§ 523(a)(8) and 1328(a)(2) and F.

R. Bankr. P. 7001(6). As demonstrated in Point I, res

judicata bars a challenge to a confirmation order

for lack of subject matter jurisdiction or substantive

power of the bankruptcy court. Because a confir-

mation order is made fully effective by the doctrine

of res judicata despite a lack of subject matter

jurisdiction, it obviously cannot be “void.” Moreover,

if a collateral attack upon a confirmation order can-

not be based on a claimed lack of subject matter

jurisdiction, then such an attack surely cannot be

sustained on the basis of non-jurisdictional errors of

law in the issuance of such an order. In that regard,

§§ 523(a)(8) and 1328(a)(2) and F. R. Bankr. P.

7001(6) are non-jurisdictional in nature. They are

substantive and procedural bankruptcy law provi-

sions, noncompliance with which does not render an

order void. It is fundamental that the remedy to cor-

rect an error of law is to object and appeal if nec-

essary.

Title 28 of the United States Code provides the

bankruptcy courts, by referral from the district

courts, with jurisdiction to enter confirmation

orders and grant discharges. 28 U.S.C. § 157(a) and

§ 1334(b). Sections 523(a)(8) and 1328(a)(2) do not

limit the scope of the bankruptcy court’s jurisdic-

tion. Those statutes are not jurisdictional under the

governing test provided by the Court in Arbaugh v.

Y & H Corp., 546 U.S. 500 (2006). To be jurisdic-

tional under the Arbaugh test, a statute must itself

clearly manifest Congressional intent to implicate

the subject matter jurisdiction of the court. Fur-

thermore, F. R. Bankr. P. 7001(6) is a non-jurisdic-

tional claims processing rule under the Court’s

decision in Kontrick v. Ryan, 540 U.S. 443 (2004).

In the present case, the bankruptcy court had

jurisdiction to enter a confirmation order, including

its arguably erroneous provision for the discharge of

student loan debt. Neither the Student Loan Provi-

sions nor F. R. Bankr. P. 7001(6) abrogate that juris-

diction. Because the bankruptcy court had subject

matter jurisdiction to issue the confirmation order,

that order cannot be considered to be void, and thus

is not subject to an attack predicated on F. R. Civ. P.

60(b)(4). Any interest Petitioner had in avoiding the

provision for the discharge of its claim set forth in

the confirmed plan is overridden by the need for

finality and repose expressed in the doctrine of res

judicata, as well as by § 1327 of the Bankruptcy

Code and the Court’s decisions in Kontrick v. Ryan

and Arbaugh.

A. The Student Loan Provisions of §§ 523(a)(8)

and 1328(a)(2) Are Not Jurisdictional In

Light of the “Readily Administrable Bright

Line” Test Set Forth In Arbaugh v. Y & H

Corp., Requiring That To Be Jurisdictional

A Statute Must, By Its Own Text, Clearly

Evidence Congress’ Intent To Implicate the

Bankruptcy Court’s Subject Matter Juris-

diction

Sections 523(a)(8) and 1328(a)(2) of the Bank-

ruptcy Code are not jurisdictional under the test

delineated by the Court in Arbaugh v. Y & H Corp.,

546 U.S. at 515-516, as applied by the Eleventh Cir-

cuit in Jn re Trusted Net Media Holdings, 550 F.3d

1035, 1039 (11th Cir. 2008). In determining the juris-

dictional nature of a statute, the Court instructed

the lower courts in the following manner:

If the Legislature clearly states that a threshold

limitation on a statute’s scope shall count as

jurisdictional, then courts and litigants will be

duly instructed and will not be left to wrestle

with the issue. But when Congress does not

rank a statutory limitation on coverage as juris-

dictional, courts should treat the restriction as

non-jurisdictional in character.

Arbaugh, 546 U.S. 500, 515-516 (emphasis added)

(citations omitted). The Court has called this

approach a “readily administrable bright line” test.

Id. at 516.

Petitioner's argument that the bankruptcy court

lacked jurisdiction to confirm a plan for the dis-

charge of student loan debt, is flawed. It is predi-

cated on Petitioner’s erroneous reliance on cases

which pre-date Arbaugh, except for one case, Jn re

Mersmann, 505 F.3d 1033 (10th Cir. 2007), which

failed to apply or even cite Arbaugh. See Petr’s Br.

31-32. Instead, under the “readily administrable

bright line” test, the Student Loan Provisions are not

jurisdictional because Congress did not “clearly

state” that they were jurisdictional in nature.

A brief discussion of the jurisdiction of bank-

ruptcy courts is warranted in order to fully under-

stand the scope of their power. Similar to the other

provisions in the Bankruptcy Code, §§ 523(a)(8) and

1328(a)(2) are substantive law provisions for

bankruptcy cases. However, the subject matter juris-

diction of the bankruptcy courts is governed by 28

U.S.C. § 1334, not by the Bankruptcy Code codified

by Title 11. In re Trusted Net Media Holdings, 550

F.3d at 1039 (citing Kontrick v. Ryan, 540 U.S. at

453). Title 28 provides that the “district courts shall

have original and exclusive jurisdiction of all cases

under title 11 [Bankruptcy Code},” and “original but

not exclusive jurisdiction of all civil proceedings

arising under title 11, or arising in or related to

cases under title 11.” 28 U.S.C. § 1334(a)-(b) (empha-

sis added)). Pursuant to §§ 151 and 157 of Title 28,

bankruptcy court jurisdiction to adjudicate “core

proceedings” exists by reference from the district

courts to the bankruptcy judges for the district,

including “core” jurisdiction for “confirmations of

plans” and “objections to discharges.” 28 U.S.C.

§ 157(b)(2)(J), (L). The Student Loan Provisions and

F. R. Bankr. P. 7001(6), however, do not abrogate

such jurisdiction of the bankruptcy courts because

the “clearly states” requirement of Arbaugh is

absent from those provisions. Indeed, those provi-

sions contain no language suggesting that Congress

intended them to be jurisdictional. They thus are not

jurisdictional in nature.

The issue in Arbaugh was whether Title VII's

requirements that an employer have fifteen or more

employees affected subject matter jurisdiction or,

instead, related only to the substantive adequacy of

a Title VII plaintiff’s claim for relief, and thus could

not be raised for the first time post-trial. Arbaugh,

546 U.S. at 503-04. The Court held that “the thresh-

old number of employees for application of Title VII

is an element of a plaintiff's claim for relief, not a

jurisdictional issue.” Jd. at 515 (emphasis added).

The Court reasoned that the “15-employee thresh-

old” requirement did not “speak in jurisdictional

terms or refer in any way to the jurisdiction of the

district courts.” /d. at 510 (citing Zipes v. Trans

World Airlines, Inc., 455 U.S. 385, 394 (1982)).

Therefore, defendant forfeited his right to object on

the basis of this defense and could not raise the

issue after the entry of judgment. Arbaugh, 546 U.S.

at 510.

Following the Supreme Court’s decision in

Arbaugh, the Eleventh Circuit, in 7rusted Net Media

Holdings, followed the “readily administrable bright

line” test to determine whether provisions in the

Bankruptcy Code are jurisdictional. The court in Jn

re Trusted Net Media Holdings considered whether

the number of creditors and the amounts of claims

of creditors required to file an involuntary petition

under § 303(b) was jurisdictional or were elements

simply constituting “‘substantive matters which

must be proved or waived for petitioning creditors

to prevail in involuntary proceedings.’” Jn re

Trusted Net Media Holdings, 550 F.3d at 1041 (quot-

ing Rubin v. Belo Broad. Corp., 769 F.2d 611, 614 n.

3 (9th Cir. 1985)). The Court held that § 303(b) is not

jurisdictional because Congress did not include

jurisdictional language in the statute and that there

was no congressional intent to implicate the

bankruptcy court's subject matter jurisdiction. In re

Trusted Net Media Holdings, 550 F.3d at 1043. Fur-

ther, § 303(b) never makes an explicit or implicit ref-

erence to its requirements being jurisdictional and

never used the word “jurisdiction.” Jd. Rather, the

Court explained that the Bankruptcy Code provision

at issue merely states that a case “is commenced

against a person by the filing with the bankruptcy

court of a petition under chapter 7 or 11” by the req-

uisite number of persons holding the requisite

claims. Id.

In sum, under the reasoning set forth in Jn re

Trusted Net Media Holdings, which applied the

Arbaugh test, the Student Loan Provisions are not

jurisdictional for a number of reasons. First,

Congress did not “clearly state” any words consti-

tuting jurisdictional language in §§ 523(a)(8) and

1328(a)(2). Further, under Trusted Net’s analysis,

the “undue hardship” requirement in the Student

Loan Provisions is an element that merely relates to

substantive matters which must be proved, and an

objection based on a lack of such proof is forfeited

by a failure to make it at the confirmation stage. Jd.

at 1041. The Bankruptcy Code creates the substan-

tive rights and obligations of both debtors and cred-

itors, and in this case, Petitioner forfeited its rights

under the Student Loan Provisions. See, e.g., In re

Trusted Net Media Holdings, 550 F.3d at 1041; see

also Point Il. B infra.

Moreover, Jn re Trusted Net Media Holdings is

not cited in Petitioner's brief even though it is a Cir-

cuit Court case that applies the Court’s test in

Arbaugh, and a leading treatise states that the “bet-

ter view” is that Bankruptcy Code provisions are not

jurisdictional. See 5 COLLIER ON BANKRUPTCY,

9546.02[4] (Allen N. Resnick et al. 15th ed. rev.

2006) (stating that the “better view” is that § 546(a)

is non-jurisdictional); 2 COLLIER ON BANKRUPTCY,

q 303.08[2] (stating that the better argument is that

§ 303(b) may be waived; and 9 303.02 (stating that

§ 109(a)’s requirements for a person to be a debtor

under the Bankruptcy Code, may be waived) (Allen

N. Resnick et al. 16th ed. (2009). Further, Peti-

tioner’s brief does not even mention Arbaugh.

In enacting the Student Loan Provisions, Congress

merely indicated that in order for a student debt to

be dischargeable, undue hardship should be proven,

and that a manner in which it is demonstrated is by

commencing an adversary proceeding. However,

there is no language in the Bankruptcy Code which

makes such a procedure jurisdictional and manda-

tory, nor anything which precludes a forfeiture of

the right to object bascd on the failure to bring an

adversary proceeding. See 4 KEITH M. LUNDIN, CHAP-

TER 13 BANKRUPTCY, § 346.1, at 346-33 (3d ed. 2000

& Supp. 2004) (citing Tennessee Student Assistance

Corp. v. Hood, 541 U.S. 440, 453-54 (2004)).

It is clear that the Student Loan Provisions are not

jurisdictional, and Petitioner forfeited its rights

thereunder by not asserting them at the confirma-

tion stage.

B. F. R. Bankr. P. 7001(6) is a Non-Jurisdic-

tional Claims Processing Rule Under the

Court’s Decision in Kontrick v. Ryan

Nothing in F. R. Bankr. P. 7001(6) implicates the

jurisdiction of the bankruptcy courts. Non-compli-

ance with Rule 7001(6) does not void a judgment or

order. As discussed in Section Il. A, Congress con-

ferred jurisdiction on the bankruptcy courts over

proceedings for confirmation of plans and dis-

charges of debts under §$§ 1334(b), 157(b)(1)(J),(L)

of Title 28 of the United States Code. F. R. Bankr. P.

9030 prevents the Bankruptcy Rules from being con-

strued to expand or limit the jurisdiction of the

bankruptcy courts. The confirmation order for the

discharge of Petitioner's student loan debt was not

void because entry of the order was within the sub-

ject-matter jurisdiction of the bankruptcy court as

prescribed by Congress.

The Court recently underscored the non-jurisdic-

tional nature of the Bankruptcy Rules in Kontrick v.

Ryan, 540 U.S. at 447. The Court there noted that

courts have been “less than meticulous” in their

characterization of rules as “jurisdictional,” and

reaffirmed that “{o]nly Congress may determine a

lower federal court’s subject-matter jurisdiction.” Jd.

at 452-53. Procedural rules promulgated by the

Court for bankruptcy cases, on the other hand, are

claims processing rules which “shall not be con-

strued to extend or limit the jurisdiction of the

courts.” Id. at 453-54 (quoting F. R. Bankr. P. 9030).

These claims processing rules, “even if unalterable

on a party’s application, can nonetheless be for-

feited if the party asserting the rule waits too long to

raise the point.” Kontrick v. Ryan, Id. at 444-45. The

Court concluded that F. R. Bankr. P. 4004 was a non-

jurisdictional claims-processing rule “adopted by the

Court for the orderly transaction of its business

.. . 540 U.S. at 447, 454; see also Schacht v.

U nited States, 398 U.S. 58, 64 (1970) (*[T}he proce-

dural rules adopted by the Court for the orderly

transaction of its business are not jurisdictional’ ).

Petitioner’s argument that F. R. Bankr. P. 7001(6)

requires an adversary proceeding to discharge stu-

dent loans under § 523(a)(8) fails to account for the

claims-processing nature of procedural rules. An

adversary proceeding is not required by statute or

the Constitution for discharge of student loan debts.

Hood, 541 U.S. at 453-54. To hold that Rule 7001(6)

is a jurisdictional requirement, would require the

Court to ignore the scope of the authority conferred

by Congress by 28 U.S.C. § 2075, which only autho-

rizes the promulgation of rules of “practice and pro-

cedure” for bankruptcy cases. It would also require

the Court to disregard the plain language of F. R.

Bankr. P. 9030, which precludes interpreting Rule

7001(6) as a limitation on the jurisdiction of the

bankruptcy courts.

Petitioner failed to object to Respondent's chapter

13 plan despite receiving notice of the plan confir-

mation hearing and notice of the treatment of its

claim under the plan. Under Kontrick v. Ryan, by

this failure to object, Petitioner forfeited its right to

a determination of undue hardship in an adversary

proceeding under F. R. Bankr. P. 7001(6). Because

Rule 7001(6) is non-jurisdictional in nature, there is

no basis for a claim that noncompliance with it

voided the confirmation order and discharge.

C. Concepts of Finality and Repose Dictate

that a Creditor Who Fails To Object Prior

to Confirmation of a Chapter 13 Plan For-

feits Its Right To Later Object That the

Plan Was Erroneously Confirmed

The Bankruptcy Code and Bankruptcy Rules gov-

erning objections to confirmation of a chapter 13

plan act as claims-processing limitations. See

Bankruptcy Code § 1324; F. R. Bankr. P. 2002(b),

3015(d), (f), 9014. Section 1324(a) provides that,

“after notice, the court shall hold a hearing on con-

firmation of the plan.” A creditor, as a party in inter-

est under § 1324, may object to the confirmation. F.

R. Bankr. P. 2002 requires that “the debtor, the

trustee, all creditors and indenture trustees

[receive] not less than 25 days notice by mail of the

time fixed. . . for filing objections and the hearing

to consider confirmation of a. . . chapter 13 plan.”

F. R. Bankr. P. 3015(d) provides that “[a]n objection

to confirmation of a plan shall be filed. . . before

confirmation of the plan.” (emphasis added). F. R.

Bankr. P. 2002(b) and 3015(f) are claims-processing

rules. See Kontrick v. Ryan, 540 U.S. at 454 (“In

short, the filing deadlines proscribed in [the]

Bankruptcy Rules ... are claims-processing

rules.”).

In the case at bar, compliance with this require-

ment was exceeded because Petitioner received

more than the required 25 days notice that it had a

right to be heard. Petitioner did not object before

the confirmation of Respondent’s plan, nor take an

appeal from the confirmation order.

Petitioner forfeited its right to object to the con-

firmed plan once it was confirmed and the time to

appeal from the confirmation order expired without

an appeal having been taken. This Court has held

that a creditor who fails to assert its rights within

the time constraints prescribed by the Bankruptcy

Rules forfeits its right to later argue that the

bankruptcy court’s decision was erroneous. See

Kontrick v. Ryan, 540 U.S. at 459 (*Ordinarily,

under the Bankruptcy Rules as under the Civil Rules,

a defense is lost if it is not [raised].”); see also Eber.

hart v. United States, 546 U.S. 12, 19 (2006)

(“[C]laims-processing rules thus assure relief to a

party properly raising them, but do not compel the

same result if the party forfeits them.”). Here, Peti-

tioner failed to file any objection to the confirma-

tion of Respondent’s chapter 13 plan or to appeal

the confirmation order. Therefore, Petitioner for-

feited its objection that §§ 523(a)(8) and 1328(a)(2)

prohibit a plan from discharging student loan debt

without a determination of undue hardship. Peti-

tioner likewise forfeited its rights under F. R. Bankr.

P. 7001(6).

Finally, under the principle of repose, this Court

should recognize the finality of confirmation of

plans of reorganization and of debt adjustment.

“Experience has disclosed, that for the security of

rights, and the preservation of the repose of society,

a limit must be imposed upon the faculties for liti-

gation.” Washington, A. & G. Steam Packet Co. v.

Sickles, 65 U.S. 333, 343 (1860); CHARLES A. WRIGHT,

ARTHUR R. MILLER, ET AL., FEDERAL PRACTICE &

PROCEDURE, § 4403 (3d ed. 1998) (“Repose is the

most important product of res judicala.”). The time

limitation provision found in F. R. Bankr. P. 2002

“serves the same ‘basic policies [furthered by] all

limitations provisions: repose, elimination of stale

claims, and certainty about a plaintiff's opportunity

for recovery and a defendant’s potential liabilities.’

" Young v. United States, 535 U.S. 42, 48 (2002); see

also El Paso Natural Gas Co. v. Neztsosie, 541 U.S.

473, 481-82 (1999) (“[Statutes of limitations are] not

there to penalize parties who fail to assert their

rights, but [are] meant to protect institutional inter-

ests in the orderly functioning of the judicial system

_and encouraging repose... .”). As stated by

the Court, there is “historic wisdom in the value of

repose.” City of Sherrill v. Oneida Indian Nation,

544 U.S. 197, 219 (2005).

POINT IIl

A PROVISION OF A CONFIRMED CHAPTER

13 PLAN THAT DISCHARGES STUDENT

LOAN DEBT IS BINDING AND EFFECTIVE

BY VIRTUE OF BANKRUPTCY CODE

§ 1327(a) WHERE THE CREDITOR HOLD-

ING THE CLAIM (1) RECEIVED ADEQUATE

NOTICE OF THE PROPOSED PLAN AND

THE PROCEEDING FOR ITS CONFIRMA-

TION, AND (2) CHOSE NOT TO OBJECT

Bankruptcy Code § 1327(a) provides that “[t]he

provisions of a confirmed plan bind. . . each cred-

itor, whether or not the claim of such creditor is

provided for by the plan, and whether or not such

creditor has objected to, has accepted, or has

rejected the plan.”* (emphasis added). The question

is whether the binding effect given by Congress to a

confirmation order will be applied as written, or

instead, narrowed by implying an exception where

the confirmed plan is not in accord with §§ 523(a)(8)

and 1328(a)(2).

This Court has often stated that when “the

statute’s language is plain, the sole function of the

courts—at least where the disposition required by

the text is not absurd—is to enforce it according to

its terms.” Hartford Underwriters Insurance Co. v.

Union Planters Bank, N.A., 530 U.S. 1, 6 (2000) (cit-

: Similar provisions that bind creditors to confirmed plans

are set forth in chapters Y, 11, and 12. See Bankruptcy Code

§§ 944(a), 1141(a), 1227(a).

ing United States v. Ron Pair Enterprises, Inc., 489

U.S. 235, 241 (1989) (quoting Caminetti v. United

States, 242 U.S. 470, 485 (1917))).

There is no room in the plain text of § 1327(a) to

limit or restrict the binding effect of a confirmed

chapter 13 plan by engrafting an exception for plans

that discharge student loan obligations without a

specific § 523(a)(8) undue hardship determination.

Congress explicitly provided in § 1327(a) that con-

firmed plans would be binding on creditors, and the

clear language of the statute bars post-confirmation

objections to all provisions in a confirmed plan.®

Congress could not have intended § 1327(a) to be

read other than in accordance with its plain text and

to upset the finality of confirmation orders issued

under any of the chapters of the Bankruptcy Code.

In that provision, Congress made its intent clear and

unmistakable that all provisions of a confirmed plan

bind “each creditor,” including creditors who have

not “objected.” Congress emphasized the extent of

§ 1327(a)’s binding effect on each creditor by pro-

viding that each is bound by the plan’s provisions,

even if the creditor has “rejected” the plan.

Congress’ purpose to preclude all post-confirmation

attacks on provisions of confirmed plans, as unam-

biguously written into § 1327(a), could not be more

clear.

No exception to the binding effect of all provi-

sions of a confirmed plan was written into § 1327(a).

The binding nature of confirmed chapter 13 plans

follows the structure under Chapter XII of the for-

mer Bankruptcy Act, which also stated that a con-

Bankruptcy Code § 1330 authorizes a prompt motion to

revoke confirmation, but only for fraud in procuring the con-

firmation order. No such motion or claim was made in this case.

firmed plan would be binding upon all creditors. See

Pub. L. No. 696, ch. 575, § 657, 52 Stat. 840, 935

(1938) (repealed 1978) (“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.”). Congress, however, strength-

ened the pre-Code provision by adding to § 1327(a)

language that expressly makes a confirmed plan

binding on creditors who have not “objected.”

Congress could have provided an explicit excep-

tion in §1327(a). It did not do so. The language

found in other chapters of the Bankruptcy Code illu-

minates that Congress knew how to create an excep-

tion in § 1327(a) if it wished to do so for student

loan debts. For example, § 1141(a) provides that a

plan of confirmation shall bind all creditors

“le]xcept as provided in subsections (d)(2) and

(d)(3) of this section.” Section 1141(d)(2) explicitly

states, “[a] discharge under this chapter does not

discharge a debtor who is an individual from any

debt excepted from discharge under section 523 of

this title,” which includes student loan debt where

there has been no determination of undue hardship.

Similarly, § 1227(a) binds creditors to the terms of a

confirmed plan “[e]xcept as provided in section

1228(a) of this title.” Section 1228(a) explicitly pro-

hibits a debtor from discharging a “debt of the kind

specified in section 523(a) of this title.” Congress

knew how to write exceptions into those statutes,

but did not provide any exception in § 1327(a) for

student loan claims. Such an exception should not

be grafted onto § 1327(a).

The Court should not find an exception to the

binding effect of a confirmed plan that provides for

the discharge of student loan debt, because that

would invite student loan creditors to defer object-

ing to a plan as not confirmable until after the cred-

itor received the benefit of the payments provided

for by the plan, as the Petitioner did in this case.

Creditors cannot have it both ways. They should not

be allowed to accept the benefits of a plan only to

attack its validity thereafter. Moreover, if the Court

allows such post-confirmation attacks on chapter 13

plans, creditors would be encouraged to collect pay-

ments under a chapter 9, 11, or 12 plan and allowed

to upset confirmed plans later on the basis of claimed

legal errors in granting confirmation. Congress could

not have intended § 1327(a) to be benign. See 8 COL-

LIER ON BANKRUPTCY, 4] 1327.02[1][c], at 1327-8 (Allen

N. Resnick et al. eds., 15th ed. rev. 2006) (“[Reading

an exception for section 523 violations into section

1327(a)] would render any chapter 9, 11, 12 or 13

plan subject to attack after confirmation, and even

after completion, for a violation of notice or service

rules, in contravention of section 1327(a).”). A cred-

itor should not be allowed to wait until an otherwise

non-confirmable plan has been completed by pay-

ment, and then for the first time to pursue collection

efforts and also to bring proceedings to undo con-

firmation.

To permit post-confirmation attacks on confir-

mation orders could result in voiding confirmation

orders containing a variety of provisions that may be

at odds with the Bankruptcy Code, but which are

nevertheless found in plans of reorganization con-

firmed in cases under chapters 9, 11 and 12. See e.g.,

In re Metromedia Fiber Network, Inc., 416 F.3d 136

(2d Cir. 2005) (upholding a confirmed chapter 11

plan that enjoined suits against third parties, which

violated § 524(e)); In re American Preferred Pre-

scriptions, Inc., 255 F.3d 87, 94-95 (2d Cir. 2001)

(sustaining the post-confirmation appointment ofa

chapter 11 trustee, although § 1104(a) authorizes

such appointment only before confirmation of a

plan); In re Penn-Dixie Industries, Inc., 32 B.R.

173, 177-79 (Bankr. S.D.N.Y. 1983) (upholding a

chapter 11 plan that failed to properly classify tax

debts, as required by § 1129(2)(9)); In re County of

Orange, 219 B.R. 543, 566-67 (Bankr. C.D. Cal. 1997)

(upholding a chapter 9 plan which subordinated a

creditor’s claim, in violation of § 1123(a)(4) as incor-

porated into chapter 9 by § 901(a)); In re Watkins,

240 B.R. 735 (Bankr. C.D. Ill. 1999) (upholding a

chapter 12 plan that treated a junior lien holder's

claim only as an unsecured claim, in violation of

§ 1225(a)(5)).

The sound administration of bankruptcy cases

requires that provisions of plans of reorganization

and of debt adjustment under the various chapters

not be subject to attack by a creditor who has not

objected to confirmation of the plan or appealed the

confirmation order. The debtor and creditors must

be able to rely on the confirmed plan and be confi-

dent that their post-confirmation conduct will not be

undercut by post-confirmation attacks on the con-

firmed plan. Credit is extended to the reorganized

debtor and other relationships are entered into in

reliance of the finality of confirmation orders. Such

orders are at the heart of reorganization and debt

relief cases, and the bankruptcy laws could not

function if they could be upset in a later proceeding,

whether initiated in another proceeding in a differ-

ent court, or in a later proceeding in the same

bankruptcy case. Section 1327(a) should be applied

as written, rather than interpreting it in a way that

could undercut reorganization under all of the chap-

ters of the Bankruptcy Code.

The interest of the debtor and creditors in finality

of confirmed plans is paramount. See Stoll v. Got-

tlieb, 305 U.S. 165, 172 (1938); In re Chicago, Mil-

waukee, St. Paul & Pac. R.R. Co., 891 F.2d 159, 162

(7th Cir. 1989) (citing cases). Finality is an essential

element of any successful reorganization under the

Bankruptcy Code, as evidenced by provisions in all

chapters that a plan of reorganization is binding on

all creditors.® Without finality, confirmation is mean-

ingless. Indeed, in chapter 11 cases, in which con-

firmation is put to a vote, creditors would be

unlikely to accept a plan, knowing that it could be

undone later.

The binding nature of § 1327(a) is further sup-

ported by the fundamental policy of equitable moot-

ness. When a party fails or neglects to diligently

pursue its available remedies, the doctrine of equi-

table mootness precludes a party from obtaining

° Bankruptcy Code §§ 944(a)(3), 1141(a), 1227(a), 1327(a).

See Bankruptcy Code § 944(a)(3) (“The provisions of a con

firmed plan bind the debtor and any creditor, whether or not

. such creditor has accepted the plan”); Bankruptcy Code

§ 1141(a) (with exceptions, “the provisions of a confirmed plan

bind the debtor. . . and any creditor. . . whether or not the

claim or interest of such creditor. . . has accepted the plan”);

Bankruptcy Code § 1227(a) (“the provisions of a confirmed plan

bind the debtor [and] each creditor. . . whether or not the claim

of such creditor is provided for by the plan, and whether or not

such creditor . . . has accepted, or has rejected the plan”);

Bankruptcy Code § 1327(a) (“The provisions of a confirmed plan

bind the debtor and each creditor, whether or not the claim of

such creditor is provided for by the plan, and whether or not

such creditor has objected to, has accepted, or has rejected the

plan.”).

appellate review. See, e.g., In re Continental Air-

lines, 91 F.3d 553, 559 n.1 (3d Cir. 1996); In re Pub-

lic Serv. Co., 963 F.2d 469, 472 (1st Cir. 1992); In re

Roberts Farms, 652 F.2d 793, 798 (9th Cir. 1981).

The passage of time and changes in parties’ posi-

tions after a confirmation order has been issued are

basic considerations that preclude efforts to over-

turn such an order. For these reasons, the doctrine

of equitable mootness has developed in bankruptcy

cases to dismiss appeals where relief could still be

fashioned after substantial consummation of a plan

of reorganization, but where it would be inequitable

to do so. Several factors are considered in deciding

whether an order has become equitably moot,

including “the public policy of affording finality to

bankruptcy judgments.” In re Continental Airlines,

Inc., 91 F.3d at 560. As stated by a commentator,

who is one of the Amici professors on this brief, the

doctrine of equitable mootness promotes “finality

and reliance upon the orders of a bankruptcy court

regarding matters such as... plan confirmation.”

George W. Kuney, Slipping Into Mootness, 2007

ANN. SURV. BANKR. LAW, ART 9, 267 at 279-80. Anal-

ogous to this long-standing doctrine, § 1327(a) binds

parties who do not exercise their rights to object to

confirmation or appeal a confirmation order.

CONCLUSION

For the foregoing reasons, the Court should sus-

tain the confirmation order and discharge in this

case, either on the basis of the doctrine of res judi-

cata, or by ruling that § 1327(a) should be applied as

written. The Amici thus urge the Court to affirm the

order below.

Respectfully submitted,

RICHARD LIEB

Research Professor of Law

ST. JOHN’S UNIVERSITY

SCHOOL OF LAW

8000 Utopia Parkway

Jamaica, New York 11439

(212) 479-6020 or (718) 990-2312

Counsel of Record for

Amici Curiae Professors

Of Counsel:

GEORGE KLIDONAS

JAMES A. NEWTON

JONATHAN M. PETTS

Dated: October 16, 2009

CURIAE

No. 08-1134

IN THE

Supreme Court of the United States

UNITED STUDENT AID FUNDS, INC.,

Petitioner,

FRANCISCO J. ESPINOSA,

Respondent.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF OF AMICUS CURIAE

G. ERIC BRUNSTAD, JR.

IN SUPPORT OF RESPONDENT

G. Enc Brunstad, Jr.

Counsel of Record

Collin O’Connor Udell

Matthew J. Delude

DECHERT LLP

90 State House Square

Hartford, Connecticut 06103

(860) 524-3999

Counsel for Amicus Curiae

Page

po gc ae ean l

TABLE OF AUTHORITIES .......................000 itl

INTEREST OF THE AMICUS CURIAE

STATEMENT

SUMMARY OF THE ARGUMENT

TABLE OF CONTENTS

Funds’ Position Irreconcilably

Conflicts with Sections 1327(a),

1330(a), and Prior Decisions of

Rae a CNT a tae Sb e

1. Travelers Indemnity

Re a ccasiomnonden

2. Celotex Corp. v. Edwards..............

3. Chicot County Drainage Dist.

uv. Baxter State Bank ...................4.

ee Ee eee

Funds’ Position Conflicts With

The Essential Logic and Operation

of the Bankruptcy Process.................

CCC TORE eee

TABLE OF CONTENTS

(continued)

LiL

TABLE OF AUTHORITIES

Page

FEDERAL CASES

Celotex Corp. v. Edwards,

DES CIF. Be CRD occcveecncsccssccscsesce 11, 17-19

Chicot County Drainage Dist. v. Baxter

State Bank,

Rs GSE CID icicssscinsccisinrciien 11, 20, 21

Hanover Nat'l Bank v. Moyses,

Ps IE I iiriekeicidteciniinasencesinceduniia 26

Insurance Corp. of Ireland, Ltd. v.

Compagnie des Bauxites de Guinee,

ey I I oa csancusiecuiaanesunetes 23

Oriel v. Russell,

SN I I ccraasnsDaidesinseirhaseesontaiachionee 18

Stoll v. Gottlieb,

ey ee en I op ccuneundeewebosunce passim

Straton v. New,

I ID sss sa caeentingsumiiensonenedenes 26

Tennessee Student Assistance Corp. v.

Hood, 541 U.S. 440 (2004)................... 26-28

TABLE OF AUTHORITIES

(continued)

Page

Travelers Indemnity Co. v. Bailey,

129 S. Ct. 2196 (2008)...................... passim

Trulis v. Barton,

107 F.3d 685 (9th Cir. 1997)..........000000000.. 27

Underwriters Nat'l Assurance Co. v. North

Carolina Life & Accident & Health

Ins. Guar. Ass'n, 455 U.S. 691 (1982)...... 21

Willy v. Coastal Corp..,

EE a 23

FEDERAL STATUTES AND RULES

Ue av acecindeciecinnccensovenenesosonnse 17, 18, 19

I ii sscsisesinsisceostoncsncntoveiinsernnecennsseseon 7

11 U.S.C. § 523(a)(8) ...cccccccccccesceeeseeeeeees 7, 8, 10, 25

SI I in cceseenennsnnnstvarenssennsvesosannes 7, 24

as ccs case ssecemsossonnaaoovaneneen 24

ee eT 6

IT locale binidlcd ein cil eaaasbeesides 4

TABLE OF AUTHORITIES

(continued)

Page

Rte See 5); | ENE 5, 6

Soe Coe o: 6

11 U.S.C. § 1325(b)(1) .occeccscccceccecesssscscseeseseseeee 3,5

RD WEG. § LBD cccnesscnsnsessesiisniuniaammanaiaal 5

PEF Cem D: .. Aeener ee passim

PEis (ch §° SaeRCMEMEMOINONN rr 4,7

REE Fe FRR eree NNT 7

NE USA. & DID sie csesssasncveccnsdsteuensnncuaeee 11

4 | S| |: Pe 8

Oe. GE. Te. F. TOG sn ceseecisicsnscssasssonneee 8

,. St 8 AS een ee 17,18

TABLE OF AUTHORITIES

(continued)

Page

Act of July 1, 1898, ch. 541, § 2, 30 Stat.

545, 11 U.S.C. § 11 (repealed 1979)......... 20

Act of July 1, 1898, ch. 541, § 16(a),

30 Stat. 550, 11 U.S.C. § 35

GE 25

Act of June 7, 1934, ch. 424, § 77B,

48 Stat. 912, 11 U.S.C. § 207

Teed iandewiidsins 24

Act of June 7, 1934, ch. 424, § 77B(g),

48 Stat. 920, 11 U.S.C. § 207(g)

a a ectusucens 24

Act of June 7, 1934, ch. 424, § 77Bch),

48 Stat. 920, 11 U.S.C. § 207(h)

I 24

ULL

TABLE OF AUTHORITIES

(continued)

Page

OTHER AUTHORITIES

5 COLLIER ON BANKRUPTCY 4 1141.01[1]

I os iceadlcmaeemedaelennins

R. LORD, WILLISTON ON CONTRACTS § 30:4

I a eaeeieieainial

18 JAMES WM. MOORE ET AL.,

MOORE’S FEDERAL PRACTICE

§ 131.30[1][d] [iii] (8d ed. 2009).................

18A ALAN WRIGHT & ARTHUR R. MILLER,

FEDERAL PRACTICE AND PROCEDURE

ey WE I HE Sidcccnceccrninsstensanananicnaxis

]

INTEREST OF THE AMICUS CURIAE!

The undersigned amicus curiae is the

Macklin Fleming Visiting Lecturer in Law at the

Yale Law School where he teaches courses on

bankruptcy law, domestic and international

business reorganizations, commercial transac-

tions, secured transactions, and argument and

reason. He began teaching at Yale in 1990 and

has also taught at the Harvard Law School. In

addition to his teaching, the undersigned is a

contributing author to COLLIER ON BANKRUPTCY,

responsible for writing several chapters of the

Treatise. He is also a partner at the law firm of

Dechert LLP; a prior Chair of the ABA Business

Bankruptcy Committee; a former member of the

Judicial Conference Advisory Committee on the

Federal Bankruptcy Rules; and a Fellow of the

American College of Bankruptcy.

The undersigned has briefed and argued

numerous bankruptcy matters before the Court,

including Florida Dep’t of Revenue v. Piccadilly

Cafeterias, Inc., 128 S. Ct. 2326 (2008); Travelers

! No counsel for any party has authored this brief in

whole or in part, and no party or counsel for a party has

made a monetary contribution to the preparation or sub-

mission of this brief. See Sup. Ct. R. 37.6. All parties

have been timely notified of the undersigned’s intent to

file this brief; both petitioner and respondent have con-

sented to the filing of this brief. Copies of petitioner's and

respondent's consents are filed herewith.

Cas. & Sur. Co. v. Pacific Gas & Elec. Co., 549

U.S. 443 (2007); Marrama v. Citizens Bank of

Massachusetts, 549 U.S. 365 (2007); Till v. SCS

Credit Corp., 541 U.S. 465 (2004); and Hartford

Underwriters Ins. Co. v. Union Planters Bank,

N.A., 530 U.S. 1 (2000). During this term, he

will be arguing Schwab v. Reilly, No. 08-538, and

Milavetz, Gallop & Milavetz, P.A. v. United

States, Nos. 08-1119, 08-1225. He has otherwise

participated as counsel for one of the parties in

numerous other bankruptcy matters before the

Court, including Central Virginia Community

College v. Katz, 546 U.S. 356 (2006); Rousey v.

Jacoway, 544 U.S. 320 (2005); Kontrick v. Ryan,

540 U.S. 443 (2004); Lamie v. United States

Trustee, 540 U.S. 526 (2004); FCC v. NextWave

Personal Comme'ns Inc., 537 U.S. 293 (2003);

and Connecticut Nat'l Bank v. Germain, 503 U.S.

249 (1992). In addition, he has prepared and

filed with the Court several amicus briefs in

bankruptcy cases, including Howard Delivery

Serv., Inc. v. Zurich American Ins., Co., 547 U.S.

651 (2006); Tennessee Student Assistance Corp.

v. Hood, 541 U.S. 440 (2004); Archer v. Warner,

538 U.S. 314 (2003); and Things Remembered,

Inc. v. Petrarca, 516 U.S. 124 (1995).

The undersigned is deeply interested in

the subject of bankruptcy law, and has written,

taught, and lectured on the subject of bank-

ruptcy plans, the proper treatment of claims un-

der plans, and the finality of orders confirming a

plan. The purpose of this brief is to address mat-

ters that bear on the Court’s determination of a

critically important issue of bankruptcy law:

whether a creditor who receives notice of a

debtor’s bankruptcy case, who fails to object to

the proposed treatment of its claim in the

debtor’s plan, and who then receives payments

under the plan following the plan’s confirmation,

may subsequently ignore the plan and violate

the debtor’s discharge on the basis of an alleged

defect in the plan that the creditor could and

should have raised prior to the plan’s confirma-

tion.

Bankruptcy courts confirm tens of thou-

sands of plans each year. Creditors routinely de-

cline to object to these plans even though they

may have a meritorious objection, in many in-

stances because they conclude that the plan of-

fers the best means of receiving the highest re-

covery on their claims. In the absence of a

timely and successful appeal from an order con-

firming a plan, confirmation of the plan results

in a final judgment that is binding on all parties.

Debtors rely on this finality, as do others who in-

teract with debtors following their emergence

from bankruptcy.

In this context, petitioners advocate an

untenable rule that would essentially defeat the

plan process: namely, that they need not assert

any objection they may have to a plan prior to

the plan’s confirmation, may receive payments

from the debtor for years in accordance with the

plan, and then, after the debtor believes he or

she is finished making all payments, assert their

objection in order to avoid the debtor’s discharge

and obtain perhaps even greater payment. If

this were the rule, our bankruptcy system would

collapse of its own weight because one of its most

essential underpinnings — finality — would be ef-

fectively eroded. But this is not the rule, as es-

tablished by several provisions of the governing

Bankruptcy Code and the precedents of this

Court. The undersigned presents this brief to

address these important matters.

STATEMENT

Between 1988 and 1989, respondent Fran-

cisco J. Espinosa (“Espinosa”) obtained $13,250

in student loans. Joint Appendix (“JA”) 16. He

apparently hoped that the educational training

that these loans funded would generate better

employment opportunities. Unfortunately, that

did not occur, and he found himself unable to

bear the burden of his debt. On December 7,

1992, he commenced a chapter 13 bankruptcy

case in the United States Bankruptcy Court for

the District of Arizona. JA 5.

The Bankruptcy Code requires each chap-

ter 13 debtor to propose a plan. 11 U.S.C. §

1321.2 The purpose of the plan is to describe the

debtor’s proposed treatment of his or her debts,

and the plan must provice that the debtor will

dedicate future earnings or other income as nec-

essary for the payment of claims as set forth in

the plan. 11 U.S.C. § 1322(a)(1). Although credi-

tors are not entitled to vote on a chapter 13 plan,

any creditor may insist that the debtor either

propose to pay the creditor’s claim in full, or, if

the debtor cannot pay claims in full, at least

dedicate all of the debtor's “disposable income” to

the payment of claims for not less than three

years. 11 U.S.C. § 1325(b)(1). As is relevant

here, the term “disposable income” is defined to

mean the amount of the debtor’s income that is

not reasonably necessary for the debtor’s main-

tenance and support. 11 U.S.C. § 1325(b)(2)(A).

At the time Espinosa commenced his bank-

ruptcy case, his student loans were held by peti-

tioner United Student Aid Funds, Inc. (“Funds”).

JA 16. Espinosa’s chapter 13 plan (the “Plan”)

provided for the payment in full of the original

principal amount of these loans. JA 26. To ac-

complish this, Espinosa proposed to dedicate

slightly more than his monthly disposable in-

come to pay off this amount over time. JA 22-23.

2 References to the Bankruptcy Code are to the provisions

of the Code in effect at the time of Espinosa’s pankruptcy

filing in 1992. Relevant provisions are reproduced in the

statutory appendix accompanying this brief.

Further, the plan obligated him to make his

monthly payments for a five-year period, rather

than the standard three-year term. See 11

U.S.C. § 1322(c) (providing that a plan ordinarily

cannot propose a payment period greater than

three years, and absolutely cannot propose a

payment period in excess of five years). In other

words, Espinosa proposed to pay the Funds more

than the maximum monthly amount a creditor

may require from the debtor in a chapter 13

case, and to make his payments for the maxi-

mum amount of time that chapter 13 permits.

Funds filed a proof of claim asserting tnat

the amount owed under the loans was approxi-

mately $17,832, a sum that exceeded the princi-

pal balance of the loans by roughly $4,582. JA

35. The Plan specifically provided, however, that

“[t]he amounts claimed by the [Funds] for capi-

talized interest, penalties, and fees shall not be

paid for the reasons that the same are penalties

and not provided for in the loan agreement be-

tween the Debtor and the lender.” JA 26. The

Plan further provided that “[a]ny amounts or

claims for student loans unpaid by this Plan

shall be discharged.” JA 26. Following the reso-

lution of a minor objection by the trustee, the

bankruptcy court issued an order confirming the

Plan on May 6, 1993. JA 42-43.3

Funds failed to object to the Plan, either

before or after the bankruptcy court entered its

confirmation order. Pet. App. 5-6. Indeed,

Funds failed to object to the Plan even after the

trustee specifically notified Funds that it would

receive less than the amount set forth in its proof

of claim under the provisions of the Plan. JA 44-

45.

By operation of law, after a debtor com-

pletes making payments under his chapter 13

plan, the debtor is entitled to a discharge. 11

U.S.C. § 1328. The effect of the discharge is to

release the debtor from personal liability for

most pre-petition monetary obligations, and the

discharge acts as a type of injunction against

further debt collection activity on discharged

debts. 11 U.S.C. § 1328(c); see also 11 U.S.C. §

524. The scope of a discharge is subject to cer-

tain exceptions. 11 U.S.C. §§ 523, 1328(c). Stu-

dent loans insured or guaranteed by a govern-

mental unit are among the _ exceptions,

“unless...excepting such debt from dis-

charge...will impose an undue hardship on the

' In chapter 13 cases, a trustee is appointed to supervise

the process and administer the confirmed plan. 11 U.S.C.

§ 1302.

debtor and the debtor’s dependents.” 11 U.S.C. §

523(a)(8).

A proceeding to declare the dischargeabil-

ity of a particular debt under section 523, includ-

ing a debt for a student loan that poses an undue

hardship, is customarily pursued as an “adver-

sary proceeding” commenced by either the debtor

or the creditor with the dling of a complaint.

Fed. R. Bankr. P. 7001(6); see also Fed. R. Bankr.

P. 4007. In this case, Espinosa did not com-

mence an adversary proceeding or file a motion

specifically seeking an undue hardship determi-

nation. Instead, as noted, Espinosa provideu in

his Plan for the full payment of the principal

amounts due on his student loans, and provided

for the discharge of any other amounts related to

the loans. JA 26. In addition, Espinosa pro-

posed to devote more than his available “dispos-

able income” to fund payment of this debt. In

other words, Espinosa essentially offered Funds

a compromise: he would devote all of his dispos-

able income (and then some) to pay his student

loan debt for five years, but beyond that the debt

would be extinguished.

As noted, Funds did not object to this

‘reatment — perhaps because it believed it was a

good deal under the circumstances — and the

bankruptcy court entered an order confirming

the Plan. On May 30, 1997, following Espinosa’s

successful completion of all payments required

under his Plan, including his payment in full of

the principal amounts due on his student loans,

the bankruptcy court granted Espinosa his dis-

charge. JA 46.4

By operation of law, “[t]he provisions of a

confirmed plan bind the debtor and each credi-

tor’ regardless of whether “the claim of such

creditor is provided for by the plan” and regard-

less of whether “such creditor has objected to,

has accepted, or has rejected the plan.” 11

U.S.C. § 1327(a). Likewise, following confirma-

tion of a plan, a party in interest may seek to re-

voke confirmation within 180 days “after the

date of the entry of an order of confirmation” and

only “if such order was procured by fraud.” 11

U.S.C. § 1330(a). At no time during the 180 days

following confirmation of Espinosa’s Plan did

Funds seek to revoke the order confirming the

Plan. Likewise, Funds did not appeal the order

confirming the Plan.

Three years after the bankruptcy court

granted Espinosa’s discharge, and eight years

after the Plan was confirmed, Funds (in conjunc-

4 While a clerical error in the bankruptcy court's order

erroneously included an exception to discharge for any

debt “for a student loan or educational benefit overpay-

ment as specified in 11 U.S.C. § 523(a)(8),” that error was

acknowledged and corrected by the bankruptcy court on

remand from the Ninth Circuit. JA 46, 48.

tion with the Education Department) began in-

tercepting Espinosa’s income tax refunds in an

effort to obtain the unpaid portion of its claim.

Pet. App. 6. Thereafter, Espinosa filed a motion

with the bankruptcy court requesting an order

holding Funds in contempt for violating the dis-

charge injunction. Pet. App. 6.

The bankruptcy court ruled in favor of

Espinosa. Pet. App. 7. On appeal, the district

court reversed, ruling that the confirmation or-

der was void for lack of due process. Pet. App. 7.

On appeal from the district court, the Ninth Cir-

cuit reversed and remanded the case to the

bankruptcy court for the resolution of a clerical

ervor.° Following the bankruptcy court’s resolu-

tion of the error, the Ninth Circuit reversed the

district court, explaining that “student loan

debts can be discharged by way of a Chapter 13

plan if the creditor does not object, after receiv-

ing notice of the proposed plan.” Pet. App. 26.

SUMMARY OF THE ARGUMENT

Sections 523(a)(8) and 1328(a)(2) provide

that student loans are dischargeable only upon a

showing of “undue hardship.” In contrast, sec-

tion 1327(a) provides that the provisions of a

confirmed plan “b nd” the debtor and creditors,

and section 1330(a, provides that a confirmation

’ See supra note 4.

order may be revoked within 180 days of its en-

try “if...procured by fraud.” Funds argues that

sections 523(a)(8) and 1328(a)(2) trump the

bankruptcy court’s order confirming Espinosa’s

Plan, and that Funds’ failure to object to the

Plan is therefore of no effect. But consistent

with sections 1327(a) and 1330(a), this Court has

repeatedly upheld the enforceability of a bank-

ruptcy court’s orders once they have become fi-

nal, including orders confirming bankruptcy

plans, and has turned away subsequent attempts

to challenge the enforceability of those orders for

procedural defects or substantive deficiencies

that could have been raised earlier. See, e.g.,

Travelers Indem. Co. v. Bailey, 129 S. Ct. 2195,

2198 (2009); Celotex Corp. v. Edwards, 514 U.S.

300, 313 (1995); Chicot County Drainage Dist. v.

Baxter State Bank, 308 U.S. 371, 376 (1940);

Stoll v. Gottlieb, 305 U.S. 165, 172 (1938).

Consistent with the Court’s precedents, as

well as the text, logic, history, and purpose of the

Bankruptcy Code, the better view is that sec-

tions 1327 and 1330 supply the correct rule of

decision here. If a creditor with notice has

grounds for objecting to a plan, including on the

basis that its claim is not being treated in a

manner consistent with the Code, the creditor

must assert those grounds prior to confirmation,

or forfeit any right to do so. A creditor with no-

tice may not wait until after confirmation to as-

sert an objection on the theory that the unarticu-

lated objection silently rendered the confirma-

tion order void.

Important reliance interests are at stake,

as well as interests of fundamental fairness. In

proposing their plans in good faith to resolve

their financial difficulties, chapter 13 debtors

rely on creditors to object if, in fact, a creditor in-

tends to oppose the debtor’s proposal. Likewise,

debtors rely on the finality of plans in making

their payments under them, as do other persons

who interact with these debtors. A creditor can-

not withhold an objection to confirmation, re-

ceive payments under a confirmed plan, and

then successfully assert its objection thereafter

in the hope of receiving still more. Such a rule

would only encourage creditors to ignore the con-

firmation process, and would essentially hobble

the bankruptcy system and the goals that it pro-

motes, including the debtor's fresh start. The

decision of the court below should be affirmed.

A. Funds’ Position Irreconcilably Con-

flicts with Sections 1327(a), 1330(a),

and Prior Decisions of this Court.

Section 1327(a) provides that “[t]he provi-

sions of a confirmed plan bind the debtor and

each creditor, whether or not the claim of such

creditor is provided for by the plan, and whether

or not such creditor has objected to, has ac-

cepted, or has rejected the plan.” 11 U.S.C. §

1327(a). By its plain terms, section 1327(a) thus

fixes the effect of a confirmed plan.

In turn, section 1330(a) provides that, on

request of a party in interest “at any time within

180 days after entry of an order of confirmation,”

the bankruptcy court may revoke the order if

“procured by fraud.” 11 U.S.C. § 1330(a). By its

plain terms, section 1330(a) thus prescribes the

parameters for revoking an order of confirma-

tion.

By design, sections 1327(a) and 1330(a) in-

ject strong rules of finality into the plan confir-

mation process. These rules mirror the prece-

dents of this Corrt, and likewise supply the rele-

vant rule of decision applicable in this contro-

versy.

1. Travelers Indemnity Co. v. Bailey

In Travelers Indemnity Co. v. Bailey, the

Court considered the finality of a bankruptcy

court’s orders barring claims against a debtor's

third party insurer entered in conjunction with

the debtor’s confirmed chapter 11 plan. 129 S.

Ct. at 2198. The case involved the Johns-

Manville Corporation (“Manville”), a processor of

asbestos and manufacturer of asbestos-

containing products. The Travelers Indemnity

Company and its affiliates (“Travelers”) were

Manville’s primary liabi'ity insurers. In 1982,

Manville filed for bankruptcy in response to a

deluge of lawsuits seeking to hold it responsible

for a broad variety of asbestos-related injuries.

Id. at 2198-99.

Manville’s reorganization plan created the

Manville Personal Injury Settlement Trust

(“Trust”) to pay asbestos claims filed against

Manville, and Manville’s plan provided that all

such claims would be “channeled” to the Trust,

leaving the reorganized Manville free from these

liabilities. Id. at 2199. The “cornerstone” of the

plan was a settlement whereby Manville’s insur-

ers, including Travelers, agreed to provide most

of the initial funding for the Trust. Jd. The set-

tlement was made possible by a December 18,

1986 order of the bankruptcy court (the “Settle-

ment Order’) approving the settlement agree-

ment and enjoining all persons from “commenc-

ing and/or continuing any suit, arbitration or

other proceeding of any type or nature for Policy

Claims against any or all members of the Set-

tling Insurer Group.” Jd. The bankruptcy

courts December 22, 1986 order confirming

Manville’s plan incorporated the Settlement Or-

der by reference, and both the confirmation order

and the Settlement Order were affirmed by the

district court and, subsequently, the court of ap-

peals. Jd. at 2219-20.

Over ten years later, plaintiffs filed vari-

ous asbestos actions against Travelers for liabil-

ity related to its provision of insurance to Man-

ville (the “Direct Actions”). Jd. at 2200. In 2002,

Travelers returned to the bankruptcy court, in-

voking the terms of the 1986 orders and moving

to enjoin the Direct Actions. Jd. The bankruptcy

court held an evidentiary hearing, made exten-

sive findings, and held that the Direct Actions

arose out of and were related to the insurance

policies, and were therefore barred under the

terms of the 1986 orders. Jd. at 2201. The dis-

trict court affirmed, but the Second Circuit re-

versed, holding that the bankruptcy court “mis-

took its jurisdiction when it enjoined ‘claims

brought against a third-party non-debtor solely

on the basis of that third-party’s financial con-

tribution to a debtor’s estate,’ because ‘a bank-

ruptcy court only has jurisdiction to enjoin third-

party non-debtor claims that directly affect the

res of the bankruptcy estate.” /d. at 2202. In

other words, the Second Circuit concluded that

the bankruptcy court lacked the authority to en-

join the actions against Travelers in the first

place.

On further review, this Court reversed the

Second Circuit, holding that “the 1986 Orders

became final on direct review over two decades

ago,’ and therefore “whether the Bankruptcy

Court had jurisdiction and authority to enter the

injunction in 1986 was not properly before the

Court of Appeals in 2008 and [likewise was] not

properly before [this Court].” /d. at 2203. The

Court held further that,

where the plain terms of a court

order unambiguously apply, as

they do here, they are entitled to

their effect... . If it is black-letter

law that the terms of an unambi-

guous private contract must be en-

forced irrespective of the parties’

subjective intent, see R. Lord, Wil-

liston on Contracts § 30:4 (4th ed.

1999), it is all the clearer that a

court should enforce a court order,

a public governmental act, accord-

ing to its unambiguous terms. This

is all the Bankruptcy Court did.

Id. at 2204 (internal citations omitted). In addi-

tion, the Court held that, even if it found the

1986 orders to be ambiguous, “it is far from clear

that respondents would be entitled to upset the

Bankruptcy Court’s interpretation of the 1986

Orders,” because a “bankruptcy court’s interpre-

tation of its own confirmation order is entitled to

substantial deference.” Jd. at 2204 n.4. Stress-

ing the need for finality, the Court concluded

that “fa]lmost a quarter-century after the 1986

Orders were entered, the time to prune them is

over. Id. at 2206.

The Court's decision in Bailey has direct

bearing here. Just as the plaintiffs in Bailey

could not ignore or avoid the bankruptcy court's

confirmation of Manville’s plan or its injunction

barring actions against Manville’s_ insurers,

Funds cannot ignore the bankruptcy court’s con-

firmation of Espinosa’s Plan or its order granting

Espinosa his discharge following completion of

his plan payments. Whatever merit Funds’ ob-

jection to the discharge of its claims might have

had prior to confirmation, Funds’ opportunity to

assert its objection has long since passed, and it

cannot now upset the finality of Espinosa’s Plan

or the bankruptcy court's order granting

Espinosa his discharge.

2. Celotex Corp. v. Edwards

In Celotex Corp. v. Edwards, 514 U.S. 300

(1995), plaintiffs sued Celotex in the federal dis-

trict court, alleging asbestos-related injuries. /d.

at 302. The district court entered a judgment

against Celotex, and, to stay execution pending

appeal, Celotex posted a supersedeas bond with

Northbrook Property and Casualty Insurance

Company (Northbrook) serving as surety. Id.

The Fifth Circuit affirmed the judgment, render-

ing it “final.” Jd. On the same day, Celotex com-

menced a chapter 11 bankruptcy case. /d.

Shortly thereafter, the bankruptcy court

entered an injunction pursuant to 11 U.S.C. §

105 staying all proceedings involving Celotex, in-

cluding any action against Northbrook. /d. at

303. Ignoring the injunction, plaintiffs filed a

motion with the district court seeking permission

to execute against Northbrook on the _ su-

persedeas bond pursuant to Fed. R. Civ. P. 65.1.

Id. Celotex and Northbrook argued that the

bankruptcy court’s injunction applied, barring

execution. Jd. The district court disagreed, and

permitted plaintiffs to execute on the bond

against Northbrook. /d. at 304. On appeal, the

Fifth Circuit affirmed, but this Court reversed.

Id. at 305-6.

The Court began by noting the well-settled

rule that “persons subject to an injunctive order

issued by a court with jurisdiction are expected

to obey that decree until it is modified or re-

versed, even if they have proper grounds to ob-

ject to the order.” Jd. at 306 (citation and inter-

nal quotation marks omitted) (citing Oriel v.

Russell, 278 U.S. 358 (1929)). Plaintiffs at-

tempted to argue that section 1334(b), vesting

the bankruptcy court with jurisdiction to apply

the provisions of the Bankruptcy Code, must be

“harmonized” with Fed. R. Civ. P. 65.1, providing

an expedited procedure for executing on su-

persedeas bonds. Celotex, 514 U.S. at 311. The

Court disagreed, holding that the bankruptcy

court’s order trumped the procedural rule: “This

Rule outlines a streamlined procedure for execut-

ing on bonds...Just because the Rule provides a

simplified procedure for collecting on a_ bond,

however, does not mean that such a procedure,

like the more complicated procedure of a full-

fledged lawsuit, cannot be stayed by a lawfully

entered injunction.” Jd. at 312.

The Court concluded that if plaintiffs de-

sired to challenge the injunction, “they should

have challenged it in the Bankruptcy Court.” /d.

at 313. Moreover, this Court explained that if

the plaintiffs were dissatisfied with the bank-

ruptcy court’s decision, they should have taken a

direct appeal to the district court and, if neces-

sary, to the Eleventh Circuit. Jd. What they

could not do was “collaterally attack the Bank-

ruptcy Court’s Section 105 injunction...without

seriously undercutting the orderly process of the

law.” Id.

The Court’s decision in Celote> also has

bearing here. Just as the plaintiffs in Celotex

could not ignore the bankruptcy court’s injunc-

tion and proceed to enforce their claim against

the debtor’s surety, Funds cannot ignore the

bankruptcy court’s confirmation of Espinosa’s

Plan and discharge order. To the extent Funds

desired to challenge the Plan and its provision

for the discharge of its claim, Funds was re-

quired to object to the Plan on a timely basis. If

Funds were dissatisfied with the bankruptcy

court’s resolution of its objection, Funds could

and should have taken a direct appe. | to the dis-

trict court or, if necessary, to the Ninth Circuit.

What Funds cannot do without seriously under-

cutting the orderly process of the law is ignore

the bankruptcy court’s discharge order, com-

mence debt collection activities against Espinosa

after Espinosa completed his payments under

his Plan, and then claim that the bankruptcy

court’s order was void on the basis of an alleged

defect that Funds could and should have as-

serted in the confirmation proceeding.

3. Chicot County Drainage Dist. v.

Baxter State Bank

In Chicot County Drainage Dist. v. Baxter

State Bank, 308 U.S. 371 (1940), the bankruptcy

court® approved the plan of reorganization of the

Chicot County Drainage District (“District”) can-

celing the bonds of Baxter State Bank (“Baxter”).

Chicot, 308 U.S. at 373. In reliance on the bank-

ruptcy court's jurisdiction to confirm the plan,

the Reconstruction Finance Corporation (“RFC”)

made a loan to the District and purchased a

number of the District’s old bonds. Jd. Subse-

quently, in an unrelated case, this Court de-

clared unconstitutional the provisions of the

Bankruptcy Act under which the bankruptcy

court had approved the District's plan. Td. at

® Under the pnor hankruptey acts, district courts were

vested with the jurisdiction of bankruptcy courts and

would sit as a court of bankruptcy in bankruptcy matters

See Act of July 1, 1898, ch. 541, § 2, 30 Stat. 545, 11

U.S.C. § 11 (repealed 1979). For clarity, the term “bank-

ruptey court” will be used to refer to such circumstances

in this brief.

373-74. Thereafter, Baxter sought to recover on

its bonds, arguing that the bankruptcy court

lacked jurisdiction to cancel them owing to the

unconstitutionality of the governing statutory

scheme. Id.

Rejecting Baxter's claim, the Court stated

bluntly: “We think the argument untenable.”

Id. at 376. As the Court recognized, “[t]he lower

federal courts are all courts of limited jurisdic-

tion, that is, with only the jurisdiction which

Congress has prescribed.” Jd. Nevertheless,

“they are courts with authority ... to determine

whether or not they have jurisdiction to enter-

tain the cause and for this purpose to construe

and apply the statute under which they are

asked to act.” Jd. The Court concluded that

“({t]heir determinations of such questions, while

open to direct review, may not be assailed collat-

erally.” Id; see also Underwriters Nat'l Assur-

ance Co. v. North Carolina Life & Accident &

Health Ins. Guar. Ass’n, 455 U.S. 691, 706 n.13

(1982) (“The need for finality within our federal

system...applies with equal force to questions of

jurisdiction.”) (citations omitted).

The Court's decision in Chicot is directly

analogous. Just as the creditor in Chicot could

not ignore the bankruptcy court’s confirmation

order cancelling its bonds on the belated theory

that the bankruptcy court's exercise of its au-

thority was unconstitutional, lf'unds cannot new

argue successfully long after the fact that the

bankruptcy court’s orders confirming Espinosa’s

Plan and granting him a discharge exceeded the

court’s authority. Once again, the need for final-

ity prevails.

4. Stoll v. Gottlieb

Finally, in Stoll v. Gottlieb, 305 U.S. 165

(1938), the bankruptcy court entered an order

confirming the plan of reorganization of the de-

btor Ten Fifteen North Clark Building Corp.

(“Ten Fifteen”). Jd. at 169. The plan and con-

firmation order enjoined creditor William

Gottlieb (“Gottlieb”) from pursuing a claim di-

rectly against third party J. O. Stoll (“Stoll”)

based on Stoll’s guaranty of Ten Fifteen’s debt to

Gottlieb. Jd. at 168-69. Notwithstanding the

bankruptcy court’s order extinguishing the liabil-

ity, Gottheb subsequently pursued his guaranty

claim against Stoll in a collateral proceeding. Id.

at 169. Gottlieb argued in the subsequent pro-

ceeding that the bankruptcy court lacked author-

ity to enter any order barring his pursuit of his

guaranty claim against Stoll. Jd. On review,

this Court held that, regardless of whether the

bankruptcy court had jurisdiction to enter its or-

der in the first place, the bankruptcy court's

original jurisdiction was not subject to challenge

in a collateral proceeding, but was binding on

Gottlieb. Jd. at 172.

The Court began its analysis by reciting

the familiar rule that “[a}] court does not have the

power, by judicial fiat, to extend its jurisdiction

over matters beyond the scope of the authority

granted to it by its creators.” Jd. at 171. None-

theless, the Court explained that “[t}here must

be admitted . . . a power to interpret the lan-

guage of the jurisdictional instrument and its

application to an issue before the court.” Jd. The

Court likewise explained that “[i]t is just as im-

portant that there should be a place to end as

that there should be a place to begin litigation.”

Id. at 172. Further, “[t]here is no reason to ex-

pect that the second decision will be more satis-

factory than the first.” Jd.; see also 183A CHARLES

ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL

PRACTICE AND PROCEDURE § 4428, at 23 (2d ed.

2002); 18 JAMES WM. MOORE ET AL., MOORRF’S

FEDERAL PRACTICE § 131.30[1][d][iii] (3d ed.

2009); see generally Willy v. Coastal Corp., 503

U.S. 131, 137 (1992) (describing the Stoll deci-

sion as one where “a judgment rendered in a case

in which it was ultimately concluded that the

District Court was without jurisdiction was

nonetheless res judicata on collateral attack

made by one of the parties”) (citing Stoll v.

Gottlieb, 305 U.S. 165 (1938)); Insurance Corp. of

Ireland, Ltd. v. Compagnie des Bauxites de

Guinee, 456 U.S. 694, 702 n.9 (1982).

The Court's decision in Stoll is directly

analogous. Just as the creditor in Stoll could not

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