In re Kirkland

• Decision Date: 12 March 2010
• Docket Number: No. 09-1379.,09-1379.
• Citation: 600 F.3d 310
• Parties: In re Lisa M. KIRKLAND, Debtor. Educational Credit Management Corporation, Plaintiff-Appellant, v. Lisa M. Kirkland, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

600 F.3d 310

In re Lisa M. KIRKLAND, Debtor Educational Credit Management Corporation, Plaintiff-Appellant, v. Lisa M. Kirkland, Defendant-Appellee.

No. 09-1379.

United States Court of Appeals, Fourth Circuit.

Argued: January 26, 2010.

Decided: March 12, 2010.

ARGUED: Troy A. Gunderman, Educational Credit Management Corporation, Oakdale, Minnesota, for Appellant. Stephen Eldridge Dunn, Stephen E. Dunn, PLLC, Forest, Virginia, for Appellee. ON BRIEF: James C. Joyce, Jr., James C. Joyce, Jr., PLC, Roanoke, Virginia, for Appellant.

Before MOTZ, KING, and AGEE, Circuit Judges.

Reversed by published opinion. Judge AGEE wrote the majority opinion, in which Judge MOTZ joined. Judge KING wrote a dissenting opinion.

OPINION

AGEE, Circuit Judge:

Educational Credit Management Corporation ("ECMC") appeals the district court's determination that the bankruptcy court had jurisdiction to determine the post-petition interest and collection costs to which ECMC was entitled as the result of a default on a student loan that occurred after the Chapter 13 estate was closed and the debtor discharged. For the reasons set forth below, we conclude the bankruptcy court lacked subject matter jurisdiction as to the issues of collection costs and post-petition interest in this case, and we reverse the judgment of the district court.

I.

On eight separate occasions between 1989 and 1995, Lisa M. Kirkland borrowed money from Sallie Mae in order to finance her college education. ECMC, United Student Aid Funds, Inc. ("USAF"), and the New Jersey Higher Education Assistance Authority ("NJHEAA") guaranteed the loans.

In February 2001, Kirkland filed a Chapter 13 bankruptcy petition in the United States Bankruptcy Court for the Western District of Virginia, properly listing all of the loans as debts. Sallie Mae filed five proofs of claim, three of which were allowed: claim no. 6 in the amount of $8,126.72 (guaranteed by USAF), claim no. 7 in the amount of $2,680.59 (guaranteed by NJHEAA), and claim no. 9 in the amount of $4,737.27 (guaranteed by ECMC). At the time Kirkland filed her petition, none of the student loans were in default.

Kirkland's approved Chapter 13 bankruptcy plan provided for sixty monthly payments of $700. The plan was designed so that Kirkland would pay the three Sallie Mae loans in full, except for any interest that accrued on the loans during the pendency of the bankruptcy. Kirkland timely made 55 monthly payments, totaling $38,500.00, to the Chapter 13 Trustee.

For reasons not entirely clear from the record, the Chapter 13 Trustee scheduled lower amounts to be paid on each of Sallie Mae's claims than what the bankruptcy court had approved based on the filed proofs of claim. Compounding this error, sums that were scheduled to be paid toward claim no. 9 were actually paid toward claims no. 6 and 7, causing an overpayment on those claims, and no payment on claim no. 9. Sallie Mae refunded the amount that had been overpaid on claims no. 6 and 7 to the Chapter 13 Trustee. Because the Chapter 13 Trustee's records incorrectly showed that all the claims in the bankruptcy estate had been paid in full, he refunded the money received from Sallie Mae directly to Kirkland and did not require her to make the final five plan payments. Instead, the Chapter 13 Trustee filed a final report, the order of discharge was entered, and, in February 2006, the case was closed.¹

Following the close of her bankruptcy proceeding, Kirkland began receiving notices that she owed Sallie Mae approximately $5,000. Kirkland sought additional documentation, and Sallie Mae asserted that she still owed the entire principal loan amount reported in claim no. 9, plus the accrued interest.

In June 2007, Kirkland filed an adversary proceeding against ECMC in the bankruptcy court, styled a Complaint to Determine Dischargeability of Debt ("Complaint").² Kirkland asserted that since the loan had been properly listed as part of her Chapter 13 plan, it should have been paid in full by the Chapter 13 Trustee during the pendency of her bankruptcy estate, and the claim was thus discharged as part of the bankruptcy proceeding. Kirkland specifically acknowledged in her Complaint "that interest that accumulated during the term of the Chapter 13 would be non-dischargeable," and that she was responsible for paying the post-petition interest that had accrued on the loan. Accordingly, she asked the court to determine only that the loan principal had "been paid in full and discharged except to the extent of any interest that may have" accrued during the bankruptcy proceeding. J.A. 5.

ECMC responded that claim no. 9 had not been paid during Kirkland's bankruptcy proceeding and consequently the court could not declare that the loan had been discharged.³ ECMC further maintained that the bankruptcy court could not now adjudicate the student loan obligation as discharged unless it made a finding of undue hardship, which Kirkland had neither pled nor shown. Neither Kirkland nor ECMC asked the bankruptcy court to make any determination as to post-petition interest or collection costs.

In its memorandum and judgment, the bankruptcy court concluded that it had jurisdiction "over this matter" pursuant to 28 U.S.C. §§ 1334(a) and 157(a), also noting that the proceeding was a "core proceeding" under § 157(b)(2)(A). The court then noted that student loans are nondischargeable in bankruptcy absent proof of undue hardship, found that no amount had been paid on Kirkland's loan during her bankruptcy, and held that Kirkland owed ECMC the full amount of principal due on the loan, $4,737.27. It observed that the Chapter 13 Trustee "cannot unilaterally reduce the amount of an allowed claim," J.A. 86, and that although Kirkland "was not at fault for the return of funds to the chapter 13 trustee, she cannot keep the money refunded to her and, at the same time, claim that she paid it to Sallie Mae." J.A. 87.

The bankruptcy court then stated that Kirkland and ECMC "agree that some amount of interest has accrued to date since the filing of the bankruptcy petition. J.A. 87. It observed that Kirkland had not disputed the sum ECMC included in the documentation it filed with the court, and so it awarded ECMC $184.40 in post-petition interest.⁴ Lastly, the court stated that it was not awarding ECMC any collection costs because ECMC" has not provided any statutory or factual basis for the accrual of such costs. J.A. 87.

ECMC filed a motion to alter or amend, contending that it should have been awarded more than $184.40 in post-petition interest because that amount ignored the full amount of "interest incurred during the Bankruptcy and the capitalized interest since." J.A. 94. In addition, ECMC asserted it was entitled to collection costs under the applicable statute and implementing regulations, which set a fixed amount of costs to be imposed.⁵

The bankruptcy court denied ECMC's motion and held that although ECMC was legally entitled to post-petition interest, it was also responsible for providing the court with sufficient information to determine the amount of interest due. Consequently, it held that because ECMC had only provided documentation of accrued interest in the amount of $184.40, that was the only amount ECMC could recover. In addition, the court held that under its reading of the relevant statute and federal regulations, ECMC was only entitled to "reasonable" collection costs based on whatever amount would be incurred by a prudent creditor under the circumstances. Finding that ECMC had failed to act as a prudent creditor during the pendency of Kirkland's bankruptcy, the court held ECMC was partially responsible for the events resulting in post-petition default on the loan and concluded that no collection costs were appropriate.

On appeal to the district court, ECMC asserted for the first time that the bankruptcy court, and now the district court, lacked subject matter jurisdiction to make any determination as to either post-petition interest or collection costs. The district court rejected that contention, for the reasons discussed below. As did the bankruptcy court's, the district court's substantive analysis focused on ECMC's failure to prove that it was owed a greater amount of post-petition interest than $184.40. The district court also affirmed the bankruptcy court's determination to award no collection costs, observing that although a creditor was entitled under 20 U.S.C. § 1091a(b)(1) to reasonable collection costs, the statute did not guarantee a specific amount.

ECMC noted a timely appeal and this Court has jurisdiction based on 28 U.S.C. § 158(d).

II.

When reviewing a decision by a district court in its capacity as a bankruptcy appellate court, this Court examines factual findings of the bankruptcy court for clear error and reviews legal conclusions de novo. See IRS v. White (In re White), 487 F.3d 199, 204 (4th Cir.2007). Whether subject matter jurisdiction exists is a question of law that we also review de novo. See New Horizon of N.Y. LLC v. Jacobs, 231 F.3d 143, 150 (4th Cir.2000).

III.

On appeal, ECMC contends that the bankruptcy court, and consequently the district court, lacked subject matter jurisdiction to determine or award collection costs and post-petition interest. Specifically, ECMC asserts the bankruptcy court "lacked authority to discharge the post-petition interest and collection cost part of the student loan debt" because those obligations arose after Kirkland filed her bankruptcy petition and were unrelated to the loan principal represented by claim no. 9. Appellant's Br. 21.

Although ECMC failed to raise the issue of subject matter jurisdiction in the bankruptcy court, we can always consider whether subject matter jurisdiction exists. New Horizon, 231 F.3d at 150. Subject matter jurisdiction cannot be forfeited or waived, and can be raised by a party, or by the court sua sponte, at any time prior to final judgment. Arbaugh v. Y & H Corp., ...