Dudley v. S. Va. Univ. (In re Dudley)
| Decision Date | 16 April 2013 |
| Docket Number | Case No. 10-50840,No. 11-05040,11-05040 |
| Court | U.S. Bankruptcy Court — Western District of Virginia |
| Parties | In re: CYNTHIA ANNETTE RILEY DUDLEY Debtor. CYNTHIA ANNETTE RILEY DUDLEY, Plaintiff, v. SOUTHERN VIRGINIA UNIVERSITY, Defendant. |
Adversary Proceeding
On May 18, 2010, Cynthia Riley Dudley (the "Debtor") filed a bankruptcy petition under Chapter 13 of the Bankruptcy Code. Her case was converted on May 25, 2010 to a case under Chapter 7 of the Bankruptcy Code. Southern Virginia University ("SVU" or the "University") did not file a claim in her case, but the University and its counselappeared on the creditor mailing matrix. On September 21, 2010, the Court issued a discharge order for Ms. Dudley and, shortly thereafter, closed her case. Seven months later, on May 6, 2011, the Debtor filed a motion to re-open her case. She urged the court to reopen the case so that she could file a motion for contempt against SVU for continuing collection actionafter the issuance of the bankruptcy discharge order. The Court re-opened the case, and the Debtor filed her motion for contempt.SVU answered the motion by asserting that the debt it was trying to collect upon was a "qualified education loan" that is non-dischargeable under 11 U.S.C. § 523(a)(8).
The Debtor then filed a complaint alleging 2 counts: (1) that the Rockingham County default judgmenton the debt allegedly owed by the Debtor to SVU was void because the Debtor did not receiveactual notice of the judgment proceedings; and (2) even if the Rockingham County default judgment debt was not void, that the Court should find the debt owed by the Debtor to SVU had been discharged. On August 18, 2011, SVU filed its answer to the complaint and motion to dismiss Count 1. The contempt motion was continued generally until the adversary proceeding could be resolved because the motion for contempt hinged on the issue in contention in the adversary proceeding: whether the debt SVU was trying to collect had been discharged.
This Court abstained from hearing Count 1, finding that abstention was in the interest of justice and comity with state courts pursuant to 28 U.S.C. § 1334(c)(1).Shortly after the Court abstained from hearing Count 1, SVU filed a motion for summary judgment on Count II. SVU also filed a state court action in relation to Count 1 to determine if its judgment was valid despite the alleged notice deficiency. On September 20, 2011, SVU filed a second motion for summary judgment on Count 1 alleging that it had obtained a state court decision that affirmed the validity of its judgment debt. In October, the Debtor officially withdrew Count 1, thereby obviating the need for the Court to rule on the motion for summary judgment on Count 1.
The Debtor objected to SVU's motion for summary judgment on Count 2, arguing that the motion was improperly supported by a hearsay affidavit. The Debtor asserted that a motion for summary judgment cannot be supported by evidence that would be inadmissible at trial, citing Evans v. Technologies Applications & Service Co., 80 F.3d 954, 962 (4th Cir 1996) and Bankruptcy Rule 7056. The Debtor also requested that a hearing on the summary judgment motion be postponed until discovery could be completed. In November, the Debtor renewed her objection by filing an official response to the motion for summary judgment, which was heard by the Court on November 16, 2011.
The Court denied SVU's motion for summary judgment on Count 2. In denying SVU's motion for summary judgment, the Court took the following facts as true from the Debtor's complaint:
At one time, Ms. Dudley was a student at SVU. When she was a student at SVU, Ms.Dudley entered into a student loan agreement with Nellie Mae. The loan agreement included a note bywhich Ms. Dudley agreed to repay the money loaned. When Ms. Dudley failed to repay the loan, NellieMae charged the loan, plus interest against SVU's reserve account.
Decision and Order at 2, Dudley v. S. Va. Univ., No. 11-05040 (Bankr. W.D.Va. Dec. 20, 2011), ECF No. 26. The Court found that the loan originally made by Nellie Mae to the Debtor was a qualified education loan excepted from discharge under the provisions of 11 U.S.C. § 523(a)(8) id. The Court also found that SVU held a judgment debt against the Debtor Id. at 4 (). What the Court was unable to decide at that point was whether, as a matter of law, the debt that SVU held was the same debt as the loan made by Nellie Mae. Even if the Court had found that the debt held by SVU was the same debt as the original Nellie Mae loan, the Court would still have had to decide whether the debt retained its status as a qualified education loan after it had been transferred and reduced to a judgment. The Court concluded that there were unresolved material issues of fact and,therefore, SVU's motion for summary judgment had to be denied.In addition, SVU had supported its contentions solely with an affidavitthat was deficient because it failed to establish the personal knowledge of the affiant. Id. at 4-5.
Two months later, in February 2013, SVU filed a motion to reconsider the Court's denial of its first summary judgment motion. The motion for reconsideration alleged that a newly filed affidavit removed the "reliance on hearsay/personal knowledge" deficiency from its original motion for summary judgment on Count 2. The motion to reconsider also alleged that the removal of the hearsay objection combined with the Court's finding that "this is a student loan transaction," removed any remaining material factual disputes. The Debtor also filed a motion for summary judgment alleging that she was entitled to relief as a matter of law. The Debtor's motion for summary judgment reasoned that in order for SVU's debt to be excepted from discharge, SVU must show that the Nellie Mae debt was assigned to SVU, and since an assignment had not been produced, SVU could never prevail.
The Court heard SVU's motion to reconsider and the Debtor's motion for summary judgment and denied both motions. SVU's motion to reconsider misconstrued the Court's previous findings. The Court's order denying summary judgment found that the original debt owed by the Debtor to Nellie Mae was a qualified educational loan, however, the Court's denial of summary judgment did not determine if the debt on which SVU was attempting to collect was the same debt as the Nellie Mae qualifiededucational loan. Furthermore, in its order denying summary judgment, the Court did not determine what effect, if any, a transfer of the debt and reduction to judgment would have upon the debt's status as a qualified education loan excepted from discharge under section 523(a)(8). For these reasons, the Court denied SVU's motion to reconsider. The Court then considered the Debtor's motion for summary judgment. In her motion, the Debtor argued that SVU's failure to bring forward evidence of an assignment was fatal. The Court disagreed, holding that it is logically fallacious to conclude that absence of evidence is evidence of absence.
In October, the Court entered a pre-trial scheduling order requiring all discovery to be completed by November 30, 2012; exchange of witness lists and proposed exhibits to occur by January 8, 2013; and for any factual stipulations to be submitted by January 15. The order also allowed that any exhibits not objected to by January 15, 2013, would stand as admitted into evidence.
Both the Debtor and SVU waited until January 15 to file witness lists and exhibits. SVU did not object to the Debtor's exhibits or witness list. The Debtor, however, filed objections to 39 of SVU's 42 exhibits.1 Trial was scheduled for January 23 at 2:00 p.m. Concerned that it would be inefficient to hear the objections to exhibits at trial, the Court scheduled a pre-trial hearing on January 22 to allow the parties to be heard on the objections to the exhibits.
At the January 22 hearing, the Debtor withdrew 2of her objections2 leaving 37 remaining objections to be determined. Nearly all of the Debtor's objections cited Federal Rule of Evidence 401. The Debtor asserted that the exhibits were not relevant and should not be admitted3 primarily because the facts they purported to prove were not material, or of consequence, to the underlying complaint.4 The Debtor also cited Federal Rule of Evidence 403 asserting that even if relevant, the exhibits should not beadmitted on the grounds of prejudice, confusion or waste of time. Finally, the Debtor argued that the exhibits were hearsay, out of court statements offered to prove the truth of the matter asserted.5 At the January 22 hearing, the Debtor focused her argument on relevance and hearsay. The Debtor did not argue persuasively for any exhibit to be excluded under Federal Rule of Evidence 403.
SVU's counter to the charges of both hearsay and relevance was that the exhibits offered for admission would show the "business practices" of SVU in relation to Nellie Mae loans. See e.g.Hr'g Tr. at 16:6-9, 17:9-12, 18:17-19, 20:13-15, 21:1-22:4, 23:5-22, 25:7-12, 27:8, 29:12-17, 31:19-21, 33:17, 37:14, 40:3-5, Dudley v. S. Va. Univ., No. 11-05040 (Bankr. W.D. Va. January 22, 2013), ECF No. 81.6 The Court construed SVU's argument to meanthat the documents were offered toestablish a habit under Federal Rule of Evidence 406. If offered to establish a habit, the exhibits would no longer be offered for the truth of the matter asserted in the exhibits. SVU, however, never referenced Federal Rule of Evidence 406 at the January 22 hearing or at the trial on January 23, and instead insisted that the exhibits were admissible under Federal Rule of Evidence 807.See generallyHr'g Tr., Dudley v. S. Va. Univ., No. 11-05040 (Bankr. W.D. Va. January 23, 2013), ECF No. 82.7 SVU contended that many of the exhibits were admissible because the...
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