Homaidan v. Sallie Mae, Inc.

• Decision Date: 15 July 2021
• Docket Number: No. 20-1981,August Term 2020,20-1981
• Citation: 3 F.4th 595
• Parties: Hilal K. HOMAIDAN, Plaintiff-Appellee, v. SALLIE MAE, INC., Navient Solutions, LLC, Navient Credit Finance Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

3 F.4th 595

Hilal K. HOMAIDAN, Plaintiff-Appellee,

v.SALLIE MAE, INC., Navient Solutions, LLC, Navient Credit Finance Corporation, Defendants-Appellants.¹

No. 20-1981

August Term 2020

United States Court of Appeals, Second Circuit.

Argued: May 19, 2021

Decided: July 15, 2021

George F. Carpinello, Boies Schiller Flexner LLP, Albany, NY (Adam R. Shaw, Robert C. Tietjen, Jenna C. Smith, on the brief), for Plaintiff-Appellee.

Austin C. Smith, Smith Law Group, New York, NY (on the brief), for Plaintiff-Appellee.

Lynn E. Swanson, Peter Freiberg, Jones, Swanson, Huddell & Garrison, L.L.C., New Orleans, LA (on the brief), for Plaintiff-Appellee.

Jason W. Burge, Fishman Haygood L.L.P., New Orleans, LA (on the brief), for Plaintiff-Appellee.

Thomas M. Farrell, McGuire Woods LLP, Houston, TX (K. Elizabeth Sieg, McGuire Woods LLP, Richmond, VA, on the brief), for Defendants-Appellants.

Before: JACOBS, CHIN, NARDINI, Circuit Judges.

Dennis Jacobs, Circuit Judge:

The Bankruptcy Code immunizes certain liabilities from discharge, including much educational debt. See 11 U.S.C. § 523(a)(8). The question in this case is whether the private educational loans that Plaintiff-Appellee Hilal K. Homaidan took out from Defendant-Appellants Sallie Mae Inc., Navient Solutions, LLC, and Navient Credit Finance Corporation (collectively, "Navient") were dischargeable.

Homaidan received the loans (the "Navient loans"), graduated from Emerson College, and later filed for Chapter 7 bankruptcy. The bankruptcy court's 2009 discharge order was ambiguous as to whether the Navient loans were discharged. Navient pursued repayment after the discharge order was issued, and Homaidan complied. After paying off the loans in full, Homaidan reopened the bankruptcy case and commenced this adversary proceeding against Navient seeking, among other things, actual damages for Navient's alleged violation of the discharge order. The United States Bankruptcy Court for the Eastern District of New York (Stong, B.J. ) determined that the Navient loans were not excepted from discharge under 11 U.S.C. § 523(a)(8)(A)(ii) and therefore denied Navient's motion to dismiss. See Homaidan v. SLM Corp. (In re Homaidan), 596 B.R. 86, 107 (Bankr. E.D.N.Y. 2019).

Navient maintains that § 523(a)(8)(A)(ii) prevented the loans from being discharged in Homaidan's bankruptcy. That provision excepts from discharge "obligation[s] to repay funds received as an educational benefit, scholarship, or stipend." 11 U.S.C. § 523(a)(8)(A)(ii). Under Navient's reading of that provision, the term "educational benefit" would encompass virtually all private student loans. But that reading cannot be reconciled with the text and structure of § 523(a)(8), both of which confirm that § 523(a)(8)(A)(ii) excepts from discharge a far narrower category of debt.

Accordingly, we AFFIRM the bankruptcy court's denial of Navient's motion to dismiss.

I

Homaidan attended Emerson College from 2003-2007 and took out several loans to finance his education there. Among them were two direct-to-consumer Tuition Answer Loans, totaling $12,567, from Sallie Mae Inc., a corporation to which Navient is the successor. Although the loans helped underwrite Homaidan's college education, they were not made through Emerson's financial aid office, nor—Homaidan alleges—were they made solely to cover Emerson's cost of attendance. They went straight to Homaidan's bank account, and the loan proceeds exceeded the cost of Emerson's tuition.

Soon after graduating, Homaidan filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of New York. The petition listed the Navient loans as liabilities. Homaidan eventually obtained a discharge order from the bankruptcy court, but the order did not specify which debts were discharged. Rather, it observed that some "common types of debts" including "[d]ebts for most student loans," are not dischargeable in a Chapter 7 proceeding. App'x 59 (alterations omitted).

After the bankruptcy proceeding was closed, Navient hired a collection firm to pester Homaidan about paying back his Tuition Answer Loans. These demands for repayment caused Homaidan to assume that the loans had not been discharged; so he paid Navient in full, allegedly "under the mistaken belief that he had a legal obligation to do so." App'x at 26 (Compl. ¶ 51).

In 2017, Homaidan moved to reopen his bankruptcy case to seek a determination that the Navient loans were in fact discharged during the original proceeding. (This would allow him to sue Navient for violating the discharge order.) Once the case was reopened, Homaidan commenced the instant adversary proceeding against Navient, which is styled as a putative class action. According to Homaidan, Navient has employed a scheme of issuing dischargeable loans to unsophisticated student borrowers and then demanding repayment even after those loans are discharged in bankruptcy.

Navient moved to dismiss the adversary proceeding under Federal Rule of Civil Procedure 12(b)(6), arguing, inter alia, that Homaidan's Tuition Answer Loans were excepted from discharge under 11 U.S.C. § 523(a)(8)(A)(ii). The bankruptcy court rejected that argument, concluding that "both by its terms and read in context, [ § 523(a)(8)(A)(ii) ] does not sweep in all education-related debt." In re Homaidan, 596 B.R. at 102. The district court (Block, J. ) then certified the bankruptcy court's order for interlocutory appeal.

II

We have jurisdiction over this interlocutory appeal pursuant to 28 U.S.C. § 158(d)(2)(A). That provision gives us jurisdiction to review an interlocutory order from a bankruptcy court if: (1) the district court certifies (inter alia ) that the order involves a question of law for which no controlling precedent exists; and (2) this Court authorizes the appeal. See 28 U.S.C. § 158(d)(2)(A) ; Weber v. United States, 484 F.3d 154, 157 (2d Cir. 2007). The district court so certified, and a motions panel of this Court authorized the appeal.

Our review of the bankruptcy court's order, which involves a pure question of law, is de novo. See Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir. 2003).

III

The sole question is one of statutory interpretation: whether the loans at issue constitute "an obligation to repay funds received as an educational benefit" and were therefore excepted from discharge under § 523(a)(8)(A)(ii). Homaidan contends that Navient is estopped from advancing its interpretation of § 523(a)(8)(A)(ii). But we reach it for the reasons set forth in the margin,² and conclude that Homaidan's loans fall outside the scope of § 523(a)(8)(A)(ii).

Our inquiry begins (and in this case ends) with the statutory text. See Saks v. Franklin Covey Co., 316 F.3d 337, 345 (2d Cir. 2003). The Bankruptcy Code lays out several categories of educational debt that cannot be discharged in bankruptcy absent a showing of undue hardship. See 11 U.S.C. § 523(a)(8). Because the federal bankruptcy system is designed to "aid the unfortunate debtor by giving him a fresh start in life," Lamar, Archer & Cofrin, LLP v. Appling, ––– U.S. ––––, 138 S. Ct. 1752, 1758, 201 L.Ed.2d 102 (2018) (internal quotation marks omitted), discharge exceptions such as § 523(a)(8) are "confined to those plainly expressed in the Bankruptcy Code," Bethpage Fed. Credit Union v. Furio (In re Furio), 77 F.3d 622, 624 (2d Cir. 1996) (internal quotation marks and alteration omitted). The creditor bears the burden of establishing that a debt is excepted from discharge. Cazenovia Coll. v. Renshaw (In re Renshaw), 222 F.3d 82, 90 (2d Cir. 2000).

Section 523(a)(8) excepts from discharge:

(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.

11 U.S.C. § 523(a)(8). This dense language means that three categories of educational debt cannot be discharged in bankruptcy: (1) loans and benefit overpayments backed by the government or a nonprofit; (2) obligations to repay funds received as an educational benefit, scholarship, or stipend; and (3) qualified private educational loans.³

Navient does not argue (in this appeal, at least) that the loan it made to Homaidan falls into either the first or third categories. Nor does Navient argue the loan constitutes a "scholarship" or "stipend." Therefore, the only question remaining is whether Navient's loan is "an obligation to repay funds received as an educational benefit" under § 523(a)(8)(A)(ii).

Navient argues that its loan agreement constitutes an "obligation to repay funds" and that Homaidan obtained those funds for the purpose of advancing his education, thereby deriving from them an "educational benefit." Navient endeavors to bolster this textual argument by pointing to a line of cases holding (without much textual analysis) that a private loan is covered by § 523(a)(8)(A)(ii) if the debtor obtained the funds to pay for educational expenses. See, e.g., Benson v. Corbin (In re Corbin), 506 B.R. 287, 296–97 (Bankr. W.D. Wash. 2014). Finally, Navient relies on a summary order of this Court, which is by definition non-precedential, and in any event, beside the point.⁴

According to Homaidan (and the other two circuit courts that have addressed the question), § 523(a)(8)(A)(ii) excepts from discharge only a narrow category of conditional grant payments, not all private student loans.

A

Navient's interpretation violates several rules of statutory construction. First, it is unsupported by plain meaning. Navient argues that the ordinary public meaning of "an obligation to repay funds received as an educational benefit" includes student loans. But as the...