Ayes v. U.S. Dept. of Veterans Affairs

• Decision Date: 27 December 2006
• Docket Number: No. 05-2263.,05-2263.
• Citation: 473 F.3d 104
• Parties: Taylor AYES; William P. Cutshall; Frank A. Ribar; Edward C. Smith; James F. Martin; William C. Terrio, Plaintiffs-Appellants, v. U.S. DEPARTMENT OF VETERANS AFFAIRS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

473 F.3d 104

Taylor AYES; William P. Cutshall; Frank A. Ribar; Edward C. Smith; James F. Martin; William C. Terrio, Plaintiffs-Appellants, v. U.S. DEPARTMENT OF VETERANS AFFAIRS, Defendant-Appellee.

No. 05-2263.

United States Court of Appeals, Fourth Circuit.

Argued: October 26, 2006.

Decided: December 27, 2006.

ARGUED: Trawick Hamilton Stubbs, Jr., Stubbs & Perdue, P.A., Raleigh, North Carolina, for Appellants. Neal Irving Fowler, Office of the United States Attorney, Raleigh, North Carolina, for Appellee. ON BRIEF: Laurie B. Biggs, Stubbs & Perdue, P.A., Raleigh, North Carolina, for Appellants. Frank D. Whitney, United States Attorney, Anne M. Hayes, Assistant United States Attorney, Office of the United States Attorney, Raleigh, North Carolina, for Appellee.

Before WILKINSON, NIEMEYER, and WILLIAMS, Circuit Judges.

Affirmed by published opinion. Judge WILLIAMS wrote the opinion, in which Judge WILKINSON and Judge NIEMEYER joined.

OPINION

WILLIAMS, Circuit Judge:

Taylor Ayes, William P. Cutshall, Frank A. Ribar, Edward C. Smith, James F. Martin, and William C. Terrio (collectively "Appellants") filed a class action complaint against the U.S. Department of Veterans Affairs (VA) on behalf of themselves and a putative class of veterans. The complaint alleged that the VA violated 11 U.S.C.A. § 525 (West 2004 & Supp.2006), the anti-discrimination provision of the Bankruptcy Code, by refusing to fully restore veteran home-loan guaranty entitlements to Appellants solely because of their previous discharges in bankruptcy. The district court granted the VA's motion to dismiss, made pursuant to Federal Rule of Civil Procedure 12(b)(6), because it concluded that § 525(a) does not apply to the veteran guaranty entitlement, which is set out at 38 U.S.C.A. § 3701 et. seq. (West 2002 & Supp.2006).

We affirm. Section 525(a) prohibits a governmental unit from denying a "license, permit, charter, franchise, or other similar grant" solely because an individual has filed for or received a discharge in bankruptcy. 11 U.S.C.A. § 525(a). Because Appellants concede that the veteran guaranty entitlement is not a "license," "permit," "charter," or "franchise" and we hold that it is not an "other similar grant," we conclude that § 525(a) does not apply to the veteran guaranty entitlement.

I.

Because the facts of this appeal are undisputed, we are left only to decide the legal question of § 525(a)'s applicability to the veteran guaranty entitlement. Pursuant to the Servicemen's Readjustment Act of 1944, codified at 38 U.S.C.A. § 3701 et seq., the VA provides housing assistance to certain veterans meeting length-of-service requirements by guarantying home loans made to them by private lenders. The VA "automatically guarantee[s]" loans for certain veterans when the loans will be used for, among other things, the purchase or construction of a home. 38 U.S.C.A. § 3710(a). Pursuant to 38 U.S.C.A. § 3703, the VA computes the guaranty amount as a percentage of the unpaid loan balance, with the percentage varying depending on the size of the original loan.¹ 38 U.S.C.A. § 3703(a)(1)(A). If the veteran later defaults on the loan, the VA pays the private lender the amount it guaranteed on behalf of the veteran. 38 U.S.C.A. § 3732(a)(1). In such cases, the VA becomes subrogated to the rights of the private lender for the amount paid by the VA on the guaranty. Id. While the regulations relating to the veteran guaranty program state that any amount paid by the VA in satisfaction of a guaranty made on behalf of a veteran "shall constitute a debt owing to the United States by such veteran," 38 C.F.R. § 36.4323(e) (2006), the VA acknowledges that it does not take any action to collect this debt.

There is no limit to the number of times a veteran may receive the guaranty entitlement, but the amount of guaranty available to the veteran is always limited by any previously used guaranty amount that has not been restored to the VA or does not otherwise qualify for exclusion. 38 U.S.C.A. § 3702(b). Specifically, § 3702(b) provides the following:

In computing the aggregate amount of guaranty or insurance housing loan entitlement available to a veteran under this chapter, the Secretary may exclude the amount of guaranty or insurance housing loan entitlement used for any guaranteed, insured, or direct loan under the following circumstances:

(1) (A) The property which secured the loan has been disposed of by the veteran or has been destroyed by fire or other natural hazard; and

(B) the loan has been repaid in full, or the Secretary has been released from liability as to the loan, or if the Secretary has suffered a loss on such loan, the loss has been paid in full.

38 U.S.C.A. § 3702(b)(1)(A)-(B).

In other words, the amount of guaranty available to a veteran upon a successive application for the benefit is reduced by the amount of loss that the VA suffered on any previous guaranty made on behalf of the veteran until that loss is repaid.² Absent an exercise of the VA's discretion to waive the repayment requirements, if a veteran wishes to receive the "full" guaranty amount after the VA previously suffered a loss on a guaranty made on his or her behalf, the veteran has no choice but to repay the loss in full.

Appellants are six veterans who allege that they sought home loans from various private lenders after having received discharges in bankruptcy under either Chapter 7 or Chapter 11 of the Bankruptcy Code and were denied these loans because the VA refused to extend "full" guaranties on their behalf. The VA refused to extend full guaranty amounts to Appellants because it had suffered losses on previous loan guaranties made on their behalf that had not been repaid. Appellants contend that as a result of the VA's decision not to fully reinstate loan guaranties to them following their discharges in bankruptcy, they were severely limited in their ability to obtain private home loans. We have jurisdiction over this appeal pursuant to 28 U.S.C.A. § 1291 (West 2006).

II.

We review de novo the district court's grant of the VA's motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6). Bominflot, Inc. v. The M/V Henrich S, 465 F.3d 144, 145 (4th Cir. 2006). "[A] Rule 12(b)(6) motion should only be granted if, after accepting all well-pleaded allegations in the plaintiff's complaint as true and drawing all reasonable factual inferences from those facts in the plaintiff's favor, it appears certain that the plaintiff cannot prove any set of facts in support of his claim entitling him to relief." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir.1999).

Section 525(a) of the Bankruptcy Code provides in pertinent part that "a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to . . . [or] discriminate with respect to such a grant against . . . a person that is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act . . . ." 11 U.S.C.A. § 525(a). The statute codified the result of Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971), in which the Supreme Court applied the Supremacy Clause to strike down an Arizona financial responsibility law that conditioned reinstatement of a debtor's driver's license on repayment of an accident-related judgment that had been discharged in bankruptcy. Id. at 656, 91 S.Ct. 1704. The Court held that the Arizona law violated the policy underlying the Bankruptcy Code, sometimes called the "fresh start" policy, that debtors be given a "new opportunity in life . . . unhampered by the pressure and discouragement of pre-existing debt" because it gave creditors a "powerful weapon with which to force bankrupts to pay their debts despite their discharge." Id. at 648, 654, 91 S.Ct. 1704 (internal quotation marks omitted).

To establish a violation of § 525(a), Appellants must show that (1) the VA is a governmental unit, (2) the veteran guaranty entitlement is an item covered by the statute, and (3) the VA discriminated against Appellants solely because of their discharges in bankruptcy. 11 U.S.C.A. § 525(a). The VA concedes that it is a "governmental unit" under the statute, but argues that Appellants cannot show that the veteran guaranty entitlement is an item covered by § 525(a) or that the VA discriminated against Appellants solely because of their prior discharges in bankruptcy.

Conceding that the veteran guaranty entitlement is not a "license," "permit," "charter," or "franchise," Appellants argue that the veteran guaranty entitlement comes within § 525's protections because it is an "other similar grant." The veteran guaranty entitlement is undoubtedly a "grant" as that term is used in the statute: a veteran satisfying the length-of-service requirements is entitled to the loan guaranty benefit. See Black's Law Dictionary 719 (8th ed.2004) (defining grant as "an agreement that creates a right of any description other than the one held by the grantor"). The question is whether it is a "similar" grant to those specific items listed in § 525(a).

In interpreting a statute, "a court should always turn first to one, cardinal canon [of construction] before all others": the plain meaning rule. Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). We must presume that "Congress says in a statute what it means and means in a statute what it says . . . ." Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000)(internal quotation marks omitted). When the words of a statute are unambiguous, then, "this first canon is also the last: `judicial inquiry is complete.'" Conn. Nat'l Bank, 503 U.S. at 254, 112 S.Ct. 1146 (quoting Rubin v. United States, 449 U.S. 424, 430, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981)). Of course, in looking to the plain meaning, we must consider the context in which the statutory...