Cazenovia College v. Renshaw
| Decision Date | 01 August 1999 |
| Docket Number | V,N,DEFENDANT-APPELLEE,PLAINTIFF-APPELLAN,No. 99-5018,99-5018 |
| Parties | (2nd Cir. 2000) IN RE: KEVIN RENSHAW, DEBTOR. CAZENOVIA COLLEGE,KEVIN RENSHAW, IN RE: DAVID W. REGNER, DEBTOR. THE COLLEGE OF SAINT ROSE,DAVID W. REGNER,o. 99-5019 |
| Court | U.S. Court of Appeals — Second Circuit |
David D. MacKNIGHT, Rochester, New York (Stephen M. O'Neill, Lacy, Katzen, Ryen & Mittleman, Llp, Rochester, New York, of counsel), for Plaintiff-Appellant Cazenovia College.
Robert H. Lawler, DeWitt, New York, for Defendant-Appellee Kevin Renshaw.
Rudolph J. Meola, Albany, New York (Richard J. Miller & Associates, P.C., Albany, New York, of counsel), for Plaintiff-Appellant The College of Saint Rose.
Daniel J. Gallagher, Glens Falls, New York (Newell & Toomey, Glens Falls, New York, of counsel), for Defendant-Appellee David W. Regner.
Before: Oakes, Cardamone, and Cabranes, Circuit Judges.
Cazenovia College and the College of St. Rose appeal respectively from an order of the United States Bankruptcy Appellate Panel for the Second Circuit that affirmed the dismissal of Cazenovia College's complaint against Kevin Renshaw, and from the judgment of the United States District Court for the Northern District of New York affirming the grant of summary judgment in favor of David W. Regner.
Kevin Renshaw and David W. Regner (debtors, students or defendants) both were college students, the former attending Cazenovia College, the latter the College of St. Rose. Each failed to pay college tuition when due, yet both were nevertheless allowed to attend classes thereafter. Both students subsequently declared bankruptcy. In each case, the college intervened in the bankruptcy proceedings to object to the debtors obtaining a discharge of the debts the colleges claimed the students owed them. The colleges contend that by permitting the students to attend classes they had extended to them educational loans exempt from discharge in bankruptcy. Cazenovia College also asserts that Renshaw's class attendance was an "educational benefit," also exempt from discharge.
Thus, these two appeals, argued together, concern the scope of 11 U.S.C. § 523(a)(8) (1994) that excepts from discharge in bankruptcy certain educational obligations. While similar disputes have often been resolved in bankruptcy courts, these are issues of first impression in this Circuit.
The meaning of the term "educational loan" used in the statute lies at the heart of these appeals. Although the word "loan" is not defined in § 523(a)(8), under the common law it means generally speaking a contract whereby one party transfers to another money or its equivalent that the latter agrees to repay later. While various contracts were entered into in these cases between the debtors and the colleges, none of those casual covenants meets the definition of loan. We hold therefore that such contracts do not constitute either educational loans or educational benefits within the meaning of § 523(a)(8).
In resolving these two appeals, we set out the background of each separately. But, inasmuch as we are affirming in each case and the issues raised in both cases are essentially the same, much of the discussion that follows encompasses both appeals.
Cazenovia College is a small, nonprofit, undergraduate college located in the bucolic village of Cazenovia, New York. On February 8, 1992 defendant Kevin Renshaw signed and returned to Cazenovia a "Reservation Agreement" (Agreement) the college had previously executed. The Agreement obligated Cazenovia to hold a place open for Renshaw, provided he paid the amounts billed when due, and not to charge him more for tuition than the amount that was in effect on the applicable registration date. The Agreement further required Renshaw to pay a $285 reservation fee when he returned it, to pay tuition, room, and board for the 1992 summer session and 1992-93 academic year, and to be bound by various payment-related provisions set out on the back of the Agreement and in the college catalog. These provisions included an obligation to pay a "service charge" with an effective annual rate of 19.2 percent if payments on the student's account were not made by their due dates. Tuition for the fall 1992 semester was due by September 1, 1992, and tuition for the spring 1993 semester was due by January 1, 1993. All incoming students at Cazenovia signed identical agreements.
Although Renshaw failed to pay Cazenovia's charges when due, the college nonetheless allowed him to register, live in college housing, eat his meals there and attend classes for the 1992 summer and fall sessions. For personal reasons, Renshaw did not return to college for the spring 1993 semester. He did not notify Cazenovia of his withdrawal.
On March 17, 1993 Renshaw still owed Cazenovia $5,027.16, a sum that included several monthly service charges. The college sued and obtained a default judgment against him on December 4, 1996 in the amount of $9,999.87, including $3,169.99 in accrued service charges from July 1993, plus an award of attorneys' fees of $1,339.18. Two months later, on February 25, 1997, Renshaw filed for bankruptcy under Chapter 7 of the Bankruptcy Code. On May 8, 1997 Cazenovia initiated an adversary proceeding in the debtor's bankruptcy proceeding, seeking a determination that his obligation to Cazenovia was non-dischargeable under 11 U.S.C. § 523(a)(8).
On March 9, 1998 the Bankruptcy Court for the Northern District of New York (Gerling, C.B.J.) entered judgment denying Cazenovia College's motion for summary judgment and dismissing its complaint. In re Renshaw, No. 97-60985 (Bankr. N.D.N.Y. Mar. 9, 1998). The Bankruptcy Appellate Panel for the Second Circuit (Ninfo, Bucki, Gallet, B. JJ.) affirmed the bankruptcy court's judgment on February 5, 1999. In re Renshaw, 229 B.R. 552 (B.A.P. 2d Cir. 1999).
The College of Saint Rose (St. Rose) is a small, nonprofit four-year college located in Albany, New York. David W. Regner began attending St. Rose in the fall of 1991. Regner regularly paid his tuition through financial aid, until he enrolled for the fall 1993 semester. St. Rose permitted him to attend that semester without fully prepaying its $4,721.00 tuition fee. When St. Rose realized that Regner had failed to process necessary financial aid paperwork, it sent him a letter dated April 20, 1994 asking him to contact the college's Business Office about his "past due balance." Regner acknowledged his obligation to the college and made some payments, but did not pay his tuition bill in full.
On November 10, 1994 Regner stipulated in state court that he owed St. Rose $4,445.32 in tuition costs, not including interest. The college ultimately obtained a default judgment against him for $5,133.06. On March 13, 1997 Regner filed for bankruptcy under Chapter 7, and on May 5, 1997 St. Rose began an adversary proceeding in the bankruptcy court seeking a declaratory judgment that Regner's debt was non-dischargeable. Both parties stipulated that the "arrangement was pursuant to a 'program' within the meaning of 11 U.S.C. § 523(a)(8)." In re Regner, No. 97-11645, slip op. at 2, (Bankr. N.D.N.Y. June 10, 1998).
The Bankruptcy Court for the Northern District of New York (Littlefield, B.J.) granted summary judgment in favor of Regner on June 10, 1998. See id. at 7-8. The District Court for the Northern District of New York (McAvoy, C.J.) affirmed this disposition in a judgment entered February 4, 1999. College of Saint Rose v. Regner, 229 B.R. 270 (N.D.N.Y. 1999).
For nearly 100 years it has been the primary purpose of the old Bankruptcy Act and now the new Bankruptcy Code to "relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh," Williams v. U.S. Fidelity & Guar. Co., 236 U.S. 549, 554-55 (1915), by providing the debtor "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt." Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). Yet, there are circumstances where giving a debtor a fresh start in life is not the paramount concern and protection of the creditor becomes more important. For that reason, Congress in the Bankruptcy Code created several exceptions to the general rule that debts may be discharged in bankruptcy. For example, none of the following are dischargeable: a debt incurred for a tax or customs duty, for property obtained by the debtor's fraud, a debt for child support or alimony, or a debt incurred for unpaid educational loans. See 11 U.S.C. § 523(a)(1), (2)(A), (5), (8) (1994 & Supp. III 1998). These exceptions to discharge, which further a variety of social policies, are narrowly construed. See In re Hayes, 183 F.3d 162, 167 (2d Cir. 1999). Because bankruptcy is both a right of the debtor, and a remedy for the creditor, see, e.g., In re Hayes, 183 F.3d 162, 166 (2d Cir. 1999); Matter of Marchiando, 13 F.3d 1111, 1115 (7th Cir. 1994), a proper balancing of those competing interests requires the creditor to prove by a preponderance of the evidence that its claim is one that is not dischargeable. See Grogan v. Garner, 498 U.S. 279, 287, 291 (1991).
The issue that we must resolve in these appeals is whether...
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