McDaniel v. Navient Solutions, LLC (In re McDaniel)

• Decision Date: 31 August 2020
• Docket Number: No. 18-1445,18-1445
• Citation: 973 F.3d 1083
• Parties: IN RE: Byron Patterson MCDANIEL, Jr.; Laura Paige McDaniel, Debtors. Byron Patterson McDaniel, Jr.; Laura Paige McDaniel, Plaintiffs - Appellees, v. Navient Solutions, LLC, Defendant - Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

973 F.3d 1083

IN RE: Byron Patterson MCDANIEL, Jr.; Laura Paige McDaniel, Debtors.Byron Patterson McDaniel, Jr.; Laura Paige McDaniel, Plaintiffs - Appellees,

v.Navient Solutions, LLC, Defendant - Appellant.

No. 18-1445

United States Court of Appeals, Tenth Circuit.

FILED August 31, 2020

Thomas M. Farrell, McGuireWoods LLP, Houston, Texas (K. Elizabeth Sieg, McGuireWoods LLP, Richmond, Virginia; Eric E. Johnson and Carla R. Martin, Sherman & Howard LLC, Denver, Colorado, on the briefs), for Defendant-Appellant.

Austin C. Smith, Smith Law Group LLP, New York, New York, for Plaintiffs-Appellees.

Before BRISCOE, HOLMES, and EID, Circuit Judges.

HOLMES, Circuit Judge.

The Bankruptcy Code excepts from discharge "an obligation to repay funds received as an educational benefit," unless doing so imposes undue hardship on the debtors and their dependents. 11 U.S.C. § 523(a)(8)(A)(ii). Plaintiffs-Appellees Byron and Laura McDaniel claim that they discharged some private student loans in their Chapter 13 bankruptcy. Defendant-Appellant Navient Solutions, LLC ("Navient"), the loans' creditor, moved to dismiss the McDaniels' claim under Federal Rule of Civil Procedure 12(b)(6), contending that the loans are excepted from discharge under § 523(a)(8)(A)(ii). This case raises a question of first impression in this circuit: does an educational loan constitute "an obligation to repay funds received as an educational benefit," within the meaning of § 523(a)(8)(A)(ii) ?¹ We conclude that it does not. Exercising jurisdiction under 28 U.S.C. § 158(d)(2)(A), we affirm the bankruptcy court's interlocutory order denying Navient's motion and remand the case for further proceedings.

I

The McDaniels filed a voluntary Chapter 13 bankruptcy petition in 2009. They acknowledged that they had, among other debts, eleven accounts with Sallie Mae, owing about $200,000 on them. They categorized their debts to Sallie Mae as "[e]ducational." Aplt.'s App., Vol. I, at 41–43 (Ch. 13 Pet., filed Dec. 24, 2009). It is undisputed that those Sallie Mae accounts covered six private student loans ("Tuition Answer Loans") that Laura McDaniel had used to pay her college expenses. Despite disclosing those loans in their petition, the McDaniels asserted in their proposed Chapter 13 plan that they had "[n]o student loans."² Id. at 71 (Ch. 13 Plan, filed Dec. 24, 2009).

The Chapter 13 Trustee objected to the McDaniels' proposed bankruptcy plan on several grounds, including that it made "no provision for [their] nondischargeable student loan." Id. at 75 (Ch. 13 Trustee's Obj. to Confirmation of Ch. 13 Plan, filed Jan. 28, 2010). Whether or not the Tuition Answer Loans were nondischargeable, the parties do not dispute that the McDaniels had other, federally insured student loans that were nondischargeable.

The bankruptcy court never had occasion to take up the merits of the Trustee's objections. A little more than one month after the objections were filed, in a hearing, the McDaniels told the court—without mentioning the Trustee's objections—that they needed to amend their plan: more specifically, through review of documents, they were learning that the numbers reflected in their proposed plan for charitable contributions and other matters were not completely accurate. See Tr. of Mar. 11, 2010 Continued Confirmation Hr'g & the Ch. 13 Trustee's Obj. Thereto at 3, In re McDaniel , No. 09-37480 (Bankr. D. Colo. Oct. 17, 2018) [hereinafter Tr. of Continued Confirmation Hr'g] ("[B]ased on the information we received even as late as this week, it's clear that we're going to have to file an amended plan. ... We've got numbers going both ways ....").³ Consequently, the bankruptcy court denied the McDaniels' original proposed plan, granted them time to file an amended plan, and deemed the Trustee's objections to their original plan "moot." Aplt.'s App., Vol. I, at 77 (Minutes of Mar. 11, 2010 Continued Confirmation Hr'g & Ch. 13 Trustee's Obj. Thereto, filed Mar. 11, 2010).

In their amended proposed Chapter 13 plan, the McDaniels changed how much they would pay towards certain classes of debt claims. And they no longer alleged they had no student loans. Their amended plan provided instead, "[s]tudent loans are to be treated as an unsecured Class Four claim or as follows: deferred until end of plan." Id. at 83 (Am. Ch. 13 Plan, filed Apr. 1, 2010). The plan, as amended, defined Class Four claims as "[a]llowed unsecured claims not otherwise referred to in the Plan." Id. at 82. It did not indicate whether certain Class Four claims, deferred claims, or educational-loan debts were excepted from discharge. No one objected to the amended plan on a ground relevant to the issues before us. Sallie Mae, Inc.—which later became Navient—then filed several debt claims against the McDaniels, and the bankruptcy court allowed them all in full.

The bankruptcy court confirmed the McDaniels' amended Chapter 13 plan in 2010. In early 2015, the McDaniels certified that they had carried out all of their plan's payments and obligations. According to the Trustee's final report and account, the McDaniels had paid nearly $27,000 in principal towards Navient's debt claims under their confirmed plan.

In March 2015, the bankruptcy court granted the McDaniels a discharge of their debts under 11 U.S.C. § 1328(a). Its brief order, however, did not identify which of their debts were thereby discharged. As relevant here, it simply stated that "[d]ebts for most student loans" were not discharged. Id. at 98 (Order Providing Discharge of Debtor After Completion of Ch. 13 Plan, filed Mar. 3, 2015). In June 2015, the court deemed the McDaniels' bankruptcy estate "fully administered" and closed their case. Order, In re McDaniel , No. 09-37480 (Bankr. D. Colo. June 2, 2015). Over the next two years, however, the McDaniels paid Navient an additional $37,460 on their Tuition Answer Loans.

In June 2017, the McDaniels moved the bankruptcy court to reopen their case. After the court did so, the McDaniels filed a complaint against Navient, seeking 1) a declaratory judgment that their Tuition Answer Loans were discharged in bankruptcy, and 2) damages based on Navient's collection activities on those loans in violation of 11 U.S.C. § 524(a). The McDaniels stated that the loans "were not ‘qualified education loans’ " under 11 U.S.C. § 523(a)(8)(B) because they "were not made solely for the ‘cost of attendance’ " at Laura McDaniel's college. Aplt.'s App., Vol. II, at 142 (Pls.' Compl., filed July 12, 2017). Although the McDaniels' complaint repeatedly classified the loans as mere "consumer loans," see, e.g. , id . at 144, they have since acknowledged that the loans were also "student loans," Aplees.' Resp. Br. at 5. The bankruptcy court docketed the McDaniels' complaint as a new action—i.e., under its own docket number, No. 17-01274—instead of as a new proceeding within the docket number for their earlier Chapter 13 bankruptcy, No. 09-37480.

Navient moved the bankruptcy court to dismiss the McDaniels' complaint under Rule 12(b)(6), arguing 1) it is res judicata that their Tuition Answer Loans are excepted from discharge because their confirmed plan provided as much, and 2) the loans in any event are nondischargeable under 11 U.S.C. § 523(a)(8)(A)(ii) because they constitute "an obligation to repay funds received as an educational benefit." Aplt.'s App., Vol. II, at 219–40 (Def.'s Mot. to Dismiss, filed Oct. 10, 2017) (quoting § 523(a)(8)(A)(ii) ). The McDaniels opposed Navient's motion.

The court denied the motion in a written order, rejecting Navient's res judicata argument because the McDaniels' confirmed plan "did not specify one way or the other whether the Tuition Answer Loans were—or were not—discharged" and rejecting Navient's statutory argument because "the plain language of [ § 523(a)(8)(A)(ii) ]" establishes that educational loans are not obligations to repay funds received as an educational benefit. Id. , Vol. III, at 605, 612 (Order on Mot. to Dismiss, filed Sept. 24, 2018).

Navient timely filed a notice of appeal from the bankruptcy court's order denying its motion. Navient and the McDaniels then jointly certified under 28 U.S.C. § 158(d)(2)(A) that this appeal warrants this court's direct, interlocutory review. The bankruptcy court also certified that we should grant Navient leave to appeal its interlocutory order directly. We granted Navient leave to appeal the order and now affirm and remand for further proceedings.

II

Navient contends that the McDaniels' confirmed Chapter 13 plan makes it res judicata that its Tuition Answer Loan are excepted from discharge. We discern nothing in that plan, however, showing that their Tuition Answer Loans are excepted from discharge. Navient maintains next that these student loans are nondischargeable because, under 11 U.S.C. § 523(a)(8)(A)(ii), they constitute "an obligation to repay funds received as an educational benefit." We agree, however, with the bankruptcy court's contrary view: viz. , it is plain to us from the unambiguous language of § 523(a)(8)(A)(ii) that educational loans do not constitute such an obligation. Reviewing de novo the bankruptcy court's denial of Navient's motion to dismiss for failure to state a claim, Cohen v. Chernushin (In re Chernushin ), 911 F.3d 1265, 1269 (10th Cir. 2018) ; see also Lewis v. BNC Mortg., Inc. (In re Lewis ), 247 F. App'x 998, 1002 (10th Cir. 2007) (unpublished), we thus reject both arguments and affirm the bankruptcy court's interlocutory order.

A

By statute, "[t]he provisions of a confirmed plan bind the debtor and each creditor." 11 U.S.C. § 1327(a). Because a bankruptcy court's "order confirming a chapter 13 plan represents a binding determination of the rights and liabilities of the parties," a confirmed plan, once final, "is res judicata and its terms are not subject to collateral attack." United States v. Richman (In re Talbot ), 124 F.3d 1201, 1209 (10th Cir. 1997) (quoting 8 COLLIER ON BANKRUPTCY ¶ 1327.02[1] (Lawrence P....