Homaidan v. SLM Corp. (In re Homaidan)

• Decision Date: 31 January 2019
• Docket Number: Case No. 08-48275-ess,Adv. Pro. No. 17-01085-ess
• Citation: 596 B.R. 86
• Parties: IN RE: Hilal Khalil HOMAIDAN, aka Helal K Homaidan, Debtor. Hilal Khalil Homaidan, Plaintiff, v. SLM Corporation, Sallie Mae, Inc., Navient Solutions, LLC, and Navient Credit Finance Corporation, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of New York

596 B.R. 86

IN RE: Hilal Khalil HOMAIDAN, aka Helal K Homaidan, Debtor.Hilal Khalil Homaidan, Plaintiff,

v.SLM Corporation, Sallie Mae, Inc., Navient Solutions, LLC, and Navient Credit Finance Corporation, Defendants.

Case No. 08-48275-ess

Adv. Pro. No. 17-01085-ess

United States Bankruptcy Court, E.D. New York.

Signed January 31, 2019

George F. Carpinello, Esq., Adam Shaw, Esq., Boies Schiller Flexner LLP, 30 South Pearl Street (11th Floor), Albany, NY 12207, Attorneys for Plaintiff, Hilal Khalil Homaidan

Austin C. Smith, Esq., Smith Law Group, 3 Mitchell Place (Suite 5), New York, NY 10017, Attorneys for Plaintiff, Hilal Khalil Homaidan

Thomas M. Farrell, Esq., McGuire Woods LLP, JPMorgan Chase Tower, 600 Travis Street (Suite 7500), Houston, TX 77002, Attorneys for Defendants

Shawn R. Fox, Esq., McGuireWoods LLP, 1345 Avenue of the Americas (7th Floor), New York, NY 10105, Attorneys for Defendants

MEMORANDUM DECISION ON THE DEFENDANTS' MOTION TO DISMISS THE COMPLAINT

HON. ELIZABETH S. STONG, UNITED STATES BANKRUPTCY JUDGE

Introduction

Before the Court is the motion to dismiss of defendants Navient Solutions, LLC, Navient Credit Finance Corporation, and Sallie Mae, Inc. (the "Defendants"). The Defendants seek an order dismissing the claims set forth in Hilal Khalil Homaidan's Complaint, and argue in this motion that Mr. Homaidan's loans are student loans that come within a category of debt that is excluded from discharge under the applicable subsections of Bankruptcy Code Section 523(a)(8) – specifically, Section 523(a)(8)(A)(ii), which excludes from discharge "an obligation to repay funds received as an educational benefit, scholarship or stipend."

To set the stage for the Court's decision, it is worth noting that Mr. Homaidan does not identify or seek relief specifically with respect to this subsection of the Bankruptcy Code in his Complaint. Rather, he alleges, in substance, that his "Tuition Answer Loans" are not "qualified education loan[s]" under Bankruptcy Code Section 523(a)(8)(B), and for that reason, they were discharged in his Chapter 7 bankruptcy case.

In this motion, the Defendants urge that the Court does not need to reach Mr. Homaidan's dischargeability claim, and by implication, his claim that they have violated the discharge order entered in his case, because – they argue – Mr. Homaidan's Tuition Answer Loans are excluded from the scope of his bankruptcy discharge on these separate grounds. And they request the opportunity to address the adequacy of Mr. Homaidan's claims under Section 523(a)(8) at a later time, if necessary.

Mr. Homaidan responds that he has alleged adequately that his Tuition Answer Loans do not come within a category of debt that is excluded from discharge under any subsection of Bankruptcy Code Section 523(a)(8), including Section 523(a)(8)(a)(ii), and as specifically alleged in the Complaint, Section 523(a)(8)(B). He argues that he has alleged adequately his request for a declaratory judgment that his loans were discharged pursuant to the Court's discharge order in his Chapter 7 bankruptcy case, and also his request for damages, attorneys' fees, and costs, arising from the Defendants' violations of the discharge order entered in his case. For these reasons, he argues, the Court should not dismiss the Complaint, and the Defendants' motion should be denied.

Jurisdiction

This Court has jurisdiction over this adversary proceeding pursuant to Judiciary Code Sections 157(b)(1) and 1334(b), and the Standing Order of Reference dated August 28, 1986, as amended by the Order dated December 5, 2012, of the United States District Court for the Eastern District of New York. In addition, this Court may adjudicate these claims to final judgment to the extent that they are core proceedings pursuant to Judiciary Code Section 157(b), and to the extent that they are not core proceedings, pursuant to Judiciary Code Section 157(c) because the parties have stated their consent to this Court entering a final judgment. Tr. 6:25-7:15 (May 14, 2018), ECF No. 83. See Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1940, 191 L.Ed.2d 911 (2015) (holding that in a non-core proceeding, a bankruptcy court may enter final orders "with the consent of all the parties to the proceeding" (quoting 28 U.S.C. § 157(c)(2) ).

Background

Mr Homaidan's Bankruptcy Case

On December 4, 2008, Hilal Khalil Homaidan, aka Helal K. Homaidan, filed a petition for relief under Chapter 7 of the Bankruptcy Code, Case No. 08-48275. On December 19, 2008, Mr. Homaidan filed his schedules and statements, and on March 9, 2009, he filed certain amended schedules. ECF Nos. 11, 19. In his Schedule F, "Creditors Holding Unsecured Nonpriority Claims," he listed "Tuition Answer" loans owed to Sallie Mae in the amounts of $ 7,983.19 and $ 8,190.11. On January 15, 2009, the Chapter 7 Trustee filed a "no-asset" report stating that "[t]he estate has no non-exempt property to distribute." Case No. 08-48275, Doc. entry dated January 15, 2009. On April 9, 2009, the Court entered an order discharging Mr. Homaidan (the "Discharge Order"), and on that same day, his bankruptcy case was closed.

On April 14, 2017, Mr. Homaidan moved to reopen his bankruptcy case to obtain a determination of the dischargeability of certain of his student loans, and on May 26, 2017, the Court entered an order reopening the case.

This Adversary Proceeding

On June 23, 2017, Mr. Homaidan commenced this adversary proceeding as a putative class action, on behalf of himself and others similarly situated, by filing a complaint against SLM Corporation, Sallie Mae, Inc., Navient Solutions, LLC ("Navient Solutions"), and Navient Credit Finance Corporation ("Navient Credit"). As to himself, Mr. Homaidan seeks a determination that certain debts that he incurred as a student are not nondischargeable student loan debts under Bankruptcy Code Section 523(a)(8)(B), and an award of damages, including attorneys' fees and costs, for the Defendants' willful violations of the bankruptcy discharge order entered in his case. And as to the class, he seeks the same the relief. Compl., Adv. Pro. No. 17-01085, ECF No. 1.

On October 30, 2017, the Defendants filed this motion to compel arbitration, or in the alternative, to dismiss the Complaint. And on December 1, 2017, the Court approved a stipulation of dismissal as to defendant SLM Corporation.

By Memorandum Decision and Order dated July 25, 2018, the Court denied the motion to the extent that it sought to compel arbitration of these claims. Homaidan v. SLM Corp. (In re Homaidan) , 587 B.R. 428 (Bankr. E.D.N.Y. 2018).

The Allegations of the Complaint

Mr. Homaidan alleges that "[f]or the last ten years, [the Defendants] have ... engaged in a massive effort to defraud student debtors and to subvert the orderly working of the bankruptcy courts." Compl. ¶ 2. He claims that the "Defendants ... originat[ed] and service[ed] dischargeable consumer loans [while] disguising them as nondischargeable student loans." Id. Mr. Homaidan advances these allegations on behalf of an alleged class of "similarly situated individuals who have declared bankruptcy since 2005 [across the United States,] with loans originated and/or serviced by Defendants." Compl. ¶ 4. And he alleges that these loans "do not meet the definition of a nondischargeable qualified education loan" as set forth in Internal Revenue Code Section 221(d) and Bankruptcy Code Section 523(a)(8)(B). Id.

Mr. Homaidan alleges that the defendant Sallie Mae, Inc. is a business entity that services student loan debts, and it is a wholly-owned subsidiary of SLM Corporation. Compl. ¶ 6. He alleges that defendant Navient Solutions is a business entity that services consumer debts, with a principal place of business in Pennsylvania. Compl. ¶ 7. And he alleges that defendant Navient Credit is a business entity that originates, services, and collects consumer debt, with a principal place of business in Virginia. Compl. ¶ 8.

Mr. Homaidan alleges that Congress enacted Bankruptcy Code Section 523(a)(8) in order to "prohibit discharge of federal student loans ... [and] to address a growing concern that students were taking advantage of the Bankruptcy Code by incurring extensive student loan debt and then declaring bankruptcy soon after graduation." Compl. ¶ 13. He claims that as initially adopted in the 1978 Bankruptcy Act, Section 523(a)(8) excluded from discharge government-issued student loans that became due within the five years prior to the bankruptcy petition. Compl. ¶ 14. Mr. Homaidan claims that the purpose of this legislation was to insulate "government issued student loans from bankruptcy discharge," and states that "[s]ubsequent amendments, which lengthened and eventually eliminated the five-year non-dischargeability time frame for loans by the federal government, have made it ... increasingly difficult for debtors to ever attain discharges of those student loans." Compl. ¶ 15.

Mr. Homaidan also alleges that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 expanded the definition of nondischargeable student debt to include " ‘any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986.’ " Compl. ¶ 17 (quoting 11 U.S.C. § 523(a)(8)(B) ). The Complaint states that Internal Revenue Code Section 221(d)(1)"defines a qualified education loan as one that is used to pay for ‘qualified higher education expenses.’ In turn, a ‘qualified higher education expense’ is one that issued to pay for the cost of attendance at a qualified educational institution." Compl. ¶ 18 (quoting 26 U.S.C. § 221(d)(2) ). Mr. Homaidan alleges that "[o]riginally, the private lending mirrored the federal loans in that the loans were paid directly to the qualified educational institution, which would then ensure that the funds were used only for qualified expenses." Compl. ¶ 20. And he claims that "lenders initiated new programs that bypassed...