Dorsey v. U.S. Dep't of Educ.

• Citation: 528 B.R. 137
• Decision Date: 26 February 2015
• Docket Number: Civil Action No. 14–1402.
• Parties: Mick DORSEY, Appellant v. U.S. DEPARTMENT OF EDUCATION, et al., Appellees.
• Court: U.S. District Court — Eastern District of Louisiana

528 B.R. 137

Mick DORSEY, Appellant
v.
U.S. DEPARTMENT OF EDUCATION, et al., Appellees.

Civil Action No. 14–1402.

United States District Court, E.D. Louisiana.

Signed Feb. 26, 2015.

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Mick Dorsey, New Orleans, LA, pro se.

Paul Nicholls Debaillon, Debaillon & Miley, Lafayette, LA,

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Glenn Kenneth Schreiber, U.S. Attorney's Office, New Orleans, LA, for Appellees.

ORDER AND REASONS

SUSIE MORGAN, District Judge.

Before the Court is pro se appellant Mick Dorsey's (“Dorsey”) appeal from the United States Bankruptcy Court for the Eastern District of Louisiana (“the Bankruptcy Court”).¹ Dorsey is appealing the Bankruptcy Court's dismissal of his adversary proceeding seeking an undue hardship discharge of his student loan debt under § 523(a)(8) of the Bankruptcy Code (“undue hardship discharge”). The Bankruptcy Court's basis for dismissing the adversary proceeding was that Dorsey failed to prosecute and failed to comply with the court's order to file an application for administrative discharge of his student loan debt under the Federal Family Education Loan Program (“FFELP”) based on his being disabled (“disability discharge” or “administrative discharge”) before pursuing his undue hardship discharge adversary proceeding.² For the reasons set forth below, this Court REVERSES the Bankruptcy Court's dismissal of Dorsey's adversary proceeding and REMANDS the case for further proceedings consistent with this order.

BACKGROUND

Dorsey filed a voluntary petition for relief under Chapter 7 on March 3, 2013 and received his general discharge on July 10, 2013. On July 9, 2013, Dorsey filed an adversary proceeding against the U.S. Department of Education (“DOE”) and Educational Credit Management Corp. (“ECMC”) seeking an undue hardship discharge of his student loan debt under § 523(a)(8) of the Bankruptcy Code on the basis that his medical conditions prevent him from holding steady employment to meet his financial obligations, including the student loan debt in question.

ECMC filed its answer on August 2, 2013. In October of 2013, the DOE filed a consent motion to stay the proceedings due to the Government funding lapse, although the DOE had yet to answer at that time. On November 25, 2013, the day the stay expired, Dorsey filed a motion for summary judgment and the Bankruptcy Court held its first pre-trial conference. Following the conference, the Bankruptcy Court ordered Dorsey to serve summons on the U.S. Attorney's Office because the DOE had not yet been properly hailed into court. The Bankruptcy Court also ordered Dorsey to seek an administrative discharge of his student loan debt based on his being disabled by filing an application with the DOE (a “TPD application”) within 60 days of the court's order, by January 31, 2014, or his adversary proceeding would be dismissed.³

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Three days after the court's order, Dorsey filed a request that summons be issued on the U.S. Attorney's Office⁴ and also sent a letter to the Bankruptcy Court addressing why he believed requiring him to pursue an administrative discharge by filing a TPD application with the DOE, before he could proceed with his adversary proceeding under § 523(a)(8), was not appropriate in this case. Specifically, Dorsey argued that he and his physician could not fill out the TPD application because the application itself explicitly states it is not to be completed if the applicant does not have a medically determined physical or mental impairment as defined by the DOE. Dorsey contends he is not eligible for a disability discharge under the FFELP because he does not meet the DOE's requirements for being considered totally and permanently disabled and, in any case, he has the right to seek an undue hardship discharge under § 523(a)(8) of the Bankruptcy Code rather than pursuing an administrative disability discharge under the FFELP.

On January 24, 2014, the Bankruptcy Court held a status conference, which Plaintiff's counsel could not attend because she just had given birth. Upon learning Dorsey had not yet filed a TPD application with the DOE, the Bankruptcy Court issued an order for him to appear and show cause at a hearing on February 25, 2014 as to why his adversary proceeding should not be dismissed for failure to prosecute and for failure to file the application as ordered by the court. At the hearing on February 25, 2014, Dorsey appeared with his attorney and attempted to urge his position that requiring him to seek an administrative discharge by filing a TPD application with the DOE is not appropriate in this case. The court rejected his position and ordered that the hearing on the order to show cause be continued until March 11, 2014 and that Dorsey submit the TPD application before then or his adversary proceeding for an undue hardship discharge under § 523(a)(8) would be dismissed. Two days later, Dorsey sent another letter opposing the court's “ultimatum” that he fill out the TPD application or else his case would be dismissed. Dorsey stated he desired a fair opportunity at a later date for his attorney to be present and explain his position.

The Bankruptcy Court did not take any action in response to Dorsey's letter. On March 7, 2014, Dorsey filed into the record a TPD application, which noticeably had major portions struck through. On March 10, 2014, ECMC filed an objection to Dorsey's TPD application stating that Dorsey apparently was not reading the application correctly or had issues with the questions. ECMC requested the Bankruptcy Court to require Dorsey to properly execute and submit the application to the DOE rather than filing it in the record. At a hearing the following day, March 11, 2014, the Bankruptcy Court dismissed Dorsey's adversary proceeding for failure to prosecute and for failure to file a TPD application with the DOE as ordered by the court. Upon the Bankruptcy Court denying Dorsey's motion to reconsider the dismissal, Dorsey filed the instant appeal.

Dorsey presents twelve issues on appeal.⁵ These issues essentially boil down to three overarching issues: (1) was it proper for the Bankruptcy Court to order

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Dorsey to seek an administrative discharge pursuant to the FFELP by filing a TPD application with the DOE before he could proceed with his adversary proceeding under § 523(a)(8) of the Bankruptcy Code ; (2) did the Bankruptcy Court abuse its discretion by dismissing Dorsey's adversary proceeding for failure to prosecute and for failure to comply with the court's order; and (3) was the Bankruptcy Court obligated to consider Dorsey's motion for summary judgment prior to directing him to take other action in the proceeding.⁶

JURISDICTION AND STANDARD OF REVIEW

This Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a)(1), which authorizes appellate review of final orders, judgments, and decrees of a United States Bankruptcy Court entered consistent with 28 U.S.C. § 157.⁷ The standard of review applicable to this bankruptcy appeal is identical to the standard of review employed by a court of appeal reviewing a district court proceeding.⁸ The district court reviews the bankruptcy court's findings of fact for clear error and its conclusions of law de novo .⁹

Dorsey appeals a final order of the Bankruptcy Court dismissing his adversary proceeding under § 523(a)(8) of the Bankruptcy Code for failure to prosecute and for failure to file a TPD application with the DOE as ordered by the court.¹⁰ The Bankruptcy Court did not specify whether the suit was dismissed with or without prejudice. However, “unless an involuntary order of dismissal specifies that it is without prejudice ... it operates as an adjudication on the merits.”¹¹ Thus, this Court will consider the dismissal at issue in this case to be with prejudice under Rule 41(b) of the Federal Rule of Civil Procedure.¹²

DISCUSSION

Dorsey appeals the Bankruptcy Court's dismissal of his adversary proceeding in which he sought an undue hardship discharge of his student loan debt under § 523(a)(8) of the Bankruptcy Code. Student loan debts are generally nondischargeable in bankruptcy; however, the Bankruptcy Code provides an exception in

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cases where the debt “would impose an undue hardship on the debtor and the debtor's dependents.”¹³ The debtor bears the burden of proving undue hardship under § 523(a)(8) by a preponderance of the evidence.¹⁴ “Undue hardship” is not defined in the Bankruptcy Code.¹⁵ The circuits are split on which test to apply when determining undue hardship: the three-part Brunner test or the totality-of-the-circumstances test.¹⁶ The Fifth Circuit has adopted the Brunner test for purposes of evaluating undue hardship under § 523(a)(8).¹⁷ To obtain an undue hardship discharge under § 523(a)(8), the debtor must show:

(1) that [he] cannot maintain, based on current income and expenses, a “minimal” standard of living for [himself] and [his] dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely

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