In re Boyer

• Decision Date: 03 February 2004
• Docket Number: Bankruptcy No. 96-43032.,Adversary No. 03-7025.,Bankruptcy No. 98-41940.,Bankruptcy No. 98-41327-13.,Adversary No. 02-7141.,Bankruptcy No. 96-42993.
• Citation: 305 B.R. 42
• Parties: In re Dean Alan BOYER Karla Joy Boyer, Debtors. Educational Credit Management Corporation, Plaintiff, v. Dean Alan Boyer and Karla Joy Boyer, Defendants. In re Connie Ann Seiwert, Debtor. In re Timothy James Nelson Shannon Deanne Nelson, Debtors. Educational Credit Management Corporation, Plaintiff, v. Timothy James Nelson, Defendant. In re Patti Jan Mersmann, Debtor.
• Court: U.S. Bankruptcy Court — District of Kansas

305 B.R. 42

In re Dean Alan BOYER Karla Joy Boyer, Debtors.

Educational Credit Management Corporation, Plaintiff, v. Dean Alan Boyer and Karla Joy Boyer, Defendants.

In re Connie Ann Seiwert, Debtor.

In re Timothy James Nelson Shannon Deanne Nelson, Debtors.

Educational Credit Management Corporation, Plaintiff, v. Timothy James Nelson, Defendant.

In re Patti Jan Mersmann, Debtor.

Bankruptcy No. 96-42993.

Bankruptcy No. 96-43032.

Bankruptcy No. 98-41327-13.

Bankruptcy No. 98-41940.

Adversary No. 02-7141.

Adversary No. 03-7025.

United States Bankruptcy Court, D. Kansas.

February 3, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lynn D. Lauver, Topeka, KS, for debtors.

E. Lou Bjorgaard Probasco, N. Larry Bork, Topeka, KS, Elizabeth W. Eckhart, Overland Park, KS, Steven A. Stockard, Girard, KS, Jeff A. VanZandt, VanZandt & Associates, Chtd., Wichita, KS, for creditors.

MEMORANDUM AND ORDER

JANICE MILLER KARLIN, Bankruptcy Judge.

These matters are before the Court on stipulated facts filed by the parties in each case. The Court has reviewed the pleadings filed by the parties and the law governing the issues, and is ready to rule. The Court has jurisdiction under 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(b), as these are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I).

I. Background

The issue common to each of these four cases is whether a debtor can properly discharge any part of a student loan obligation through the use of the Chapter 13 confirmation process, or whether discharge can occur only after completion of an adversary proceeding brought pursuant to Federal Rule of Bankruptcy Procedure 7001(6). The more important subset of that issue is whether the confirmation order, which calls for the discharge, without objection by the impacted creditor for more than 180 days, is res judicata to any later proceeding concerning the contents of the plan that improperly attempts to discharge a student loan, notwithstanding debtor's failure to file an adversary proceeding.

In each of these cases, the debtor filed bankruptcy petitions while owing student loans held by various lenders. The creditor now holding each student loan is Educational Credit Management Corporation (ECMC). Each debtor filed a plan containing language that provided the debtor would be entitled to the discharge of all or part of the remaining balance owed on the student loan(s) at the completion of the plan.¹ None of the debtors claim that their loan(s) could have been discharged because of the old "seven year" rule, although each of these cases was filed before October 7, 1998,² and thus the only proper way to discharge these student loans, under 11 U.S.C. § 523(a)(8)³, was for the debtor to prove that the exception of the student loan from discharge would impose an undue hardship.⁴

In each case, the plan was served on the student loan creditor at the post office box addresses provided by the Debtor(s) in the Schedule of Liabilities, as required by § 342(a). The student loan creditors received actual notice of the filing of the bankruptcy, and presumably the plan, since they are mailed to all creditors listed on the matrix. It is clear these creditors received notice because in each case at least one proof of claim was filed by the student loan creditor within two months of confirmation of the plan. ECMC makes no argument that its predecessor failed to timely receive a copy of the plan in any of these cases. However, none of the creditors was served in the fashion required by Fed. R. Bankr.P. 7004(b)(5). That Rule requires service by mail of a copy of the summons and complaint to the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process when the creditor is a corporation.

None of the student loan creditors objected to confirmation of the respective original plans, or in the Mersmann and Nelson cases, the amended plans, and each of the plans was completed with all debtors receiving a discharge. Furthermore, in the Boyer and Seiwert cases, the debtors objected to some of the proofs of claim filed by the creditor, and those objections were sustained without response from the creditor, after notice and an opportunity for a hearing. Instead of actively participating at the confirmation stage of each case, the student loan creditors waited until after the debtors had made all the payments required under the confirmed plans and had received a discharge before raising the issue of dischargeability. In each of these cases, therefore, between 4 and 5 years expired after confirmation of the plan before the debtors became aware that their expectations — that their student loans had been partly or fully discharged — were in question.

II. Procedural Posture

Each of these cases is before the Court in a different procedural posture. In the Boyer, Nelson and Mersmann cases, ECMC has used different methods to attack the confirmation orders that were entered several years earlier.⁵ In Boyer, ECMC filed both an adversary proceeding to determine whether the student loan had been discharged and a motion under Fed.R.Civ.P. 60(b)(4) and (6) to amend the order granting discharge. In Nelson, ECMC filed an adversary proceeding to determine whether the student loan had been discharged, also pursuant to Fed.R.Civ.P. 60(b)(4) and (6), and in response, Debtor filed a motion to amend the discharge order under Fed.R.Civ.P. 60(a). In Mersmann, ECMC filed, in the main case, a Fed.R.Civ.P. 60(b)(4) or (6) motion, requesting the court find that the confirmation orders of the original and amended plans were void, and Debtor responded with a motion to amend the discharge order under Fed.R.Civ.P. 60(a).⁶ Finally, in Seiwert, it was the Debtor who sought judicial intervention to prevent collection activity by the creditor; she filed an Application for Citation in Contempt.

III. Standard of Review

Once an order or judgment of the court becomes final, the only remedy available to have it set aside is under Rule 60 of the Federal Rules of Civil Procedure. Rule 9024 of the Federal Rules of Bankruptcy Procedure makes Rule 60 applicable to bankruptcy cases. ECMC relies on Fed.R.Civ.P. 60(b)(4) or (6), and Nelson and Mersmann on 60(a), to void the particular orders they find offensive. Bankruptcy Rule 9024 provides that "Rule 60 F.R. Civ. P. applies in cases under the Code except that ... (3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by ... § 1330." Section 1330(a) allows "a party in interest at any time within 180 days after the date of the entry of an order of confirmation under section 1325 of this title, and after notice and a hearing" to revoke the order of confirmation "if such order was procured by fraud."

There is no true allegation of fraud in any of these cases, and ECMC would have the burden of proving any fraud by clear and convincing evidence,⁷ so ECMC essentially relies on the provisions of Fed.R.Civ.P. 60(b)(4) and (6). These provisions are not subject to the one year limitation set forth in Fed.R.Civ.P. 60(b)(1)-(3). These sections provide that a court may relieve a party from a final judgment, order, or proceeding if "(4) the judgment is void" or for "(6) any other reason justifying relief from the operation of the judgment."

Relief under Rule 60(b) is "an extraordinary remedy that allows the court `to preserve the delicate balance between the sanctity of final judgments and the incessant command of a court's conscience that justice be done in light of all the facts.'"⁸ Relief under Rule 60(b) is not available when used to avoid the consequences of a party's decision to forego an appeal.⁹ ECMC must establish that it qualifies for Rule 60(b) relief by "clear and convincing evidence."¹⁰

Nelson and Mersmann rely on Fed.R.Civ.P. 60(a) to set aside the conflicting discharge orders in each of their cases, on the basis that the student loan non-discharge language in each order was simply a clerical mistake. Rule 60(a) deals with errors, oversights, omissions and unintended acts or failures that result in a record that does not properly reflect the intention of the parties or the court. In other words, Rule 60(a) exists not to alter a judgment, but rather to make it state accurately what the judgment is. Rule 60(a) may be invoked to make a judgment or order reflect the actual intentions of the court, plus necessary implications. The court thus has much wider latitude under Rule 60(a) motions to insure that its orders do not contain such errors and oversights in this respect than it does under Rule 60(b).¹¹ Nelson and Mersmann have the burden to show that the language in the discharge orders is such an error or oversight, and that it does not properly reflect the intention of the parties or the court.

IV. Discussion

This Court does not write on a clean slate in considering the pivotal issues in these cases. In In re Andersen,¹² the Tenth Circuit Court of Appeals considered a substantially similar case. Andersen had filed a plan quite similar to those at issue in these cases, proposing to pay ten percent of the debt during the term of the plan, and providing for the discharge of the balance upon completion of the plan. Andersen's plan contained language that confirmation would constitute a finding that excepting the student loan from discharge would impose an undue hardship on the debtor. Conversely, three of the four plans herein simply called for the discharge without any such "finding." The Mersmann case, in its amended plan, does contain the "finding."

As with each of the cases currently before the Court, the creditor in Andersen had received actual notice of the plan, as demonstrated by its filing an untimely objection to confirmation. A confirmation order had also been entered, judicially adopting the plan, and debtor had completed the plan payments. Finally, in Andersen, as here, the debtor had received a...