Dufrane v. Navient Solutions, Inc. (In re Dufrane)

• Decision Date: 23 March 2017
• Docket Number: Adversary No. 9:15–ap–01074–PC,Case No. 9:15–bk–11839–PC
• Citation: 566 B.R. 28
• Parties: IN RE: Scott D. DUFRANE, Debtor. Scott D. Dufrane, Plaintiff, v. Navient Solutions, Inc., et al., Defendants.
• Court: U.S. Bankruptcy Court — Central District of California

566 B.R. 28

IN RE: Scott D. DUFRANE, Debtor.Scott D. Dufrane, Plaintiff,

v.Navient Solutions, Inc., et al., Defendants.

Case No. 9:15–bk–11839–PC

Adversary No. 9:15–ap–01074–PC

United States Bankruptcy Court, C.D. California, Northern Division .

Date: February 16, 2017

Signed March 23, 2017

Brian Nomi, Esq., Camarillo, CA, W. Mark Burnette, Esq., Ocala, FL, Attorneys for Plaintiff, Scott D. Dufrane.

Randall P. Mroczynski, Esq., Cooksey Toolen Gage Duffy & Woog, Costa Mesa, CA, Attorney for SunTrust Bank, N.A.

MEMORANDUM RE: DEFENDANT SUNTRUST BANK, N.A.'S MOTION TO DISMISS SECOND AMENDED COMPLAINT AS TO DEFENDANT SUNTRUST BANK, N.A. PURSUANT TO FED. R. CIV. PROC. 12(b)(6)

Peter H. Carroll, United States Bankruptcy Judge

Defendant, SunTrust Bank, N.A. ("SunTrust") seeks dismissal of the Second Amended Complaint by Debtor to Determine Dischargeability of Debt Pursuant to 11 U.S.C. § 523(a)(8)¹ ("Complaint") filed by Plaintiff, Scott D. Dufrane ("Dufrane") insofar as it seeks affirmative relief from SunTrust in this adversary proceeding. Having considered Dufrane's Complaint in light of the papers² and arguments of counsel, the court will deny SunTrust's motion based upon the following findings of fact and conclusions of law made pursuant to F.R.Civ.P. 52(a)(1), as incorporated into FRBP 7052 and applied to adversary proceedings in bankruptcy cases.

I. STATEMENT OF FACTS

Dufrane attended Thomas Jefferson School of Law ("TJSL") in San Diego, CA and graduated from Hofstra University's Maurice A. Deane School of Law ("Hofstra Law") in 2009. By the time he received his law degree, Dufrane had incurred debt of nearly $1,000,000. In his Complaint, Dufrane alleges that he "financed his legal education, as well as his undergraduate and other education, primarily through student loans guaranteed by the U.S. Government."³ On the petition date, Dufrane owed student loan debt through the U.S. Department of Education of approximately $400,000. Dufrane also owed approximately $500,000 on loans made to him by various private lenders between 2006 and 2009 (the "Private Loans"), including the balance due by Dufrane of approximately $90,000 owing on two loans made by SunTrust (the "SunTrust Private Loans").

On September 16, 2015, Dufrane filed a voluntary petition under chapter 7 of the Bankruptcy Code. Jerry Namba ("Namba") was appointed as trustee. Namba commenced and concluded a meeting of creditors on October 14, 2015, and filed a Chapter 7 Trustee's Report of No Distribution on November 3, 2015. On December 21, 2015, Dufrane received a discharge. The case was closed on December 29, 2015.

On October 6, 2015, Dufrane filed a complaint seeking a determination that the Private Loans, including the SunTrust Private Loans, fell outside the protection of 11 U.S.C. § 523(a)(8) and were dischargeable. In his Complaint, Dufrane alleges, in pertinent part, that:

2. Shortly after being accepted into Hofstra Law, [Dufrane] began receiving solicitations from the defendants named herein and their predecessors in interest offering private student loans. These solicitations generally stated that the money could be used for anything, and that it would be disbursed directly to the borrower and not through TJSL, Hofstra Law or any other school.

3. [Dufrane] applied for the Private Loans, and each of the loans was made without any inquiry from the lender regarding need, cost of tuition, or cost of any other education-related expense.

4. The proceeds of each of the Private Loans were disbursed directly to [Dufrane] without any input, knowledge or approval of the Financial Aid Office ...

6. None of the Private Loans that are the subject of this [Complaint] are of a type excepted from discharge pursuant to 11 U.S.C. § 523(a)(8).

7. None of the Private Loans that are the subject of this [Complaint] were made, insured or guaranteed by a governmental unit, nor were any of the Private Loans made under any program funded in whole or in part by a governmental unit or nonprofit institution. All of the Private Loans were made by for-profit entities.

8. None of the Private Loans that are the subject of this [Complaint] are an "educational benefit," "scholarship," or "stipend," as those terms are used in 11 U.S.C. § 523(a)(8).

9. None of the Private Loans that are the subject of this [Complaint] are a "qualified educational loan" as that term is used in 11 U.S.C. § 523(a)(8) and defined by the Internal Revenue Code of 1986 (26 U.S.C. § 221(d)(1) and 221(d)(2) ). To qualify under those statutes, among other requirements, the loan must be used "solely to pay qualified higher education expenses," which are defined as the "cost of attendance at an eligible educational institution" reduced by the sum of certain amounts excluded from gross income and the amount of any scholarship, allowance, or payment.

10. The cost of attendance at TJSL and Hofstra Law was far less than the amount of the Private Loans that were borrowed while [Dufrane] attended those schools, and the cost of attendance had already been covered by the federal loans (that are not the subject of this [Complaint] ) and other resources.⁴

On November 23, 2016, SunTrust filed its motion to dismiss pursuant to F.R.Civ.P. 12(b)(6) asserting that Dufrane's Complaint fails to state a claim upon which relief can be granted as to SunTrust because each of the SunTrust Private Loans is excepted from discharge as "an obligation to repay funds received as an educational benefit, scholarship or stipend" within the scope of 11 U.S.C. § 523(a)(8)(ii). Dufrane's Opposition was filed on January 9, 2017, to which SunTrust replied on February 9, 2017. After a hearing on February 16, 2017, the matter was taken under submission.

II. DISCUSSION

This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (I) and (O). Venue is appropriate in this court. 28 U.S.C. § 1409(a). "[E]xceptions to discharge ‘should be confined to those plainly expressed.’ " Kawaauhau v. Geiger , 523 U.S. 57, 62, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998) (citation omitted); see Quarre v. Saylor (In re Saylor) , 108 F.3d 219, 221 (9th Cir. 1997) ("[E]xceptions to discharge are to be narrowly construed.").

A. Standard for Dismissal Under Rule 12(b)(6) .

Rule 12(b)(6) authorizes the court, upon motion of the defendant, to dismiss a complaint for failure to state a claim upon which relief can be granted.⁵ F.R.Civ.P. 12(b)(6). " The purpose of F.R.Civ.P. 12(b)(6) is to enable defendants to challenge the legal sufficiency of complaints without subjecting themselves to discovery." Rutman Wine Co. v. E. & J. Gallo Winery , 829 F.2d 729, 738 (9th Cir. 1987).

Under Rule 8(a) a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief."⁶ F.R.Civ.P. 8(a)(2). "[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations,’ but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "[A] complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). "[A] complaint [that] pleads facts that are ‘merely consistent with’ a defendant's liability ... ‘stops short of the line between possibility and plausibility of entitlement to relief.’ " Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ). The trial court need not accept as true conclusory allegations in a complaint, or legal characterizations cast in the form of factual allegations. Twombly , 550 U.S. at 555–56, 127 S.Ct. 1955.

A Rule 12(b)(6) dismissal may be based on either the lack of a cognizable legal theory, or the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys. , 534 F.3d 1116, 1121 (9th Cir. 2008). A claim cannot be plausible when it has no legal basis.

B. Court's Inquiry is Limited to the Allegations of the Complaint .

"In deciding Rule 12(b)(6) motions, courts are not strictly limited to the four corners of complaints." Outdoor Cent., Inc. v. GreatLodge.com, Inc. , 643 F.3d 1115, 1120 (8th Cir. 2011). Courts may consider "matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint whose authenticity is unquestioned; these items may be considered by the [court] without converting the motion into one for summary judgment." Wright & Miller, Federal Practice and Procedure: Civil 3d § 1357, at 376 (2004). See, e.g. , U.S. v. Ritchie , 342 F.3d 903, 908 (9th Cir. 2003) ("A court may ... consider certain materials—documents attached to the complaint, documents incorporated by reference into the complaint, or matters of judicial notice—without converting the motion to dismiss into a motion for summary judgment."); Sears, Roebuck & Co. v. Metropolitan Engravers, Ltd. , 245 F.2d 67, 70 (9th Cir. 1956) ("[J]udicial notice may be taken of a fact to show that a complaint does not state a cause of action."); Branch v. Tunnell , 14 F.3d 449, 454 (9th Cir. 1994) ("[W]e hold that documents whose contents are alleged in the complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion...