De La Rosa v. Kelly (In re Kelly)

• Decision Date: 23 March 2018
• Docket Number: CASE NO. 17–32295–H4–13,ADVERSARY NO. 17–03320
• Citation: 582 B.R. 905
• Parties: IN RE: Leonard Shawn KELLY and Tabitha Renee Kelly, Debtors. Mary A.V. De La Rosa, Plaintiff, v. Tabitha Renee Kelly, formerly known as, Tabitha R. Miller, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Texas

582 B.R. 905

IN RE: Leonard Shawn KELLY and Tabitha Renee Kelly, Debtors.

Mary A.V. De La Rosa, Plaintiff,

v.Tabitha Renee Kelly, formerly known as, Tabitha R. Miller, Defendant.

CASE NO. 17–32295–H4–13

ADVERSARY NO. 17–03320

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed March 23, 2018

H. Brad Parker, H. Brad Parker, P.C., Houston, TX, for Plaintiff.

J. Thomas Black, Attorney at Law, Houston, TX, for Defendant.

MEMORANDUM OPINION REGARDING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON HER CLAIM UNDER 11 U.S.C. § 523(a)(8)(A)(ii) THAT THE DEBT OWED TO HER BY THE DEBTOR IS NONDISCHARGEABLE

Jeff Bohm, United States Bankruptcy Judge

I. FACTUAL AND PROCEDURAL BACKGROUND

On or about December 4, 2002, Tabitha Renee Kelly ("Defendant") executed a promissory note (the "Note") for a College Access Loan payable to the Texas Higher Education Coordinating Board ("THECB"). [Adv. Doc. No. 1, ¶ 8, p. 2 of 6]. Defendant promised to pay the sum of $6,292.00, plus interest on the unpaid balance until paid in full at the rate of 7.5% per annum simple interest. [Adv. Doc. No. 1, ¶ 8, p. 2 of 6]. The specific purpose of the Note was for the Defendant to pursue higher education. [Adv. Doc. No. 1, ¶ 9, p. 3 of 6].

On the Note, Mary A.V. De La Rosa ("Plaintiff") signed her name as the guarantor, making her responsible for all deficiencies if the Defendant defaulted in the payment. [Adv. Doc. No. 1, ¶ 12, p. 3 of 6]. Subsequently, the Defendant defaulted in the payment of the Note, and the State of Texas, through THECB, sued the Plaintiff, as guarantor, on May 26, 2016, for the balance of the Note in Cause # J5–CV–16–242005; The State of Texas v. Mary Delarosa aka Mary A.V. Delarosa , in the Justice of the Peace Court, Precinct 5, Travis County, Texas (the "State Court Lawsuit"). [Adv. Doc. No. 1, ¶ 14, p. 3 of 6]; [Adv. Doc. No. 1, Ex. No. 1]. The Plaintiff resolved the State Court Lawsuit on July 6, 2016, by paying in full the unpaid balance due under the Note of $12,136.80. [Adv. Doc. No. 9, Ex. No. 8].

On April 13, 2017, the Defendant, along with her husband, filed a Chapter 13 petition, thereby initiating the main Chapter 13 case. [Case 17–32295, Doc. No. 1]. On May 11, 2017, the Plaintiff filed a proof of claim in the main case, identifying the sum paid in the State Court Lawsuit on the Note as an outstanding debt owed to her by the Defendant (the "Debt"). [Adv. Doc. No. 9, Ex. 3].

The Plaintiff initiated this Adversary Proceeding by filing a complaint on July 30, 2017, seeking a determination that the Debt is nondischargeable. [Adv. Doc. No. 1, ¶ 7, p. 2 of 6]. The Plaintiff's Complaint requests a judgment declaring that the Debt is nondischargeable under 11 U.S.C. § 523(a)(2), (4), (6), and/or (8).¹ [Adv. Doc. No. 1, ¶ 7, p. 2 of 6]. On January 26, 2018, the Plaintiff filed her Motion for Summary Judgment, relating only to her claim that the Debt is nondischargeable under § 523(a)(8)(h). [Adv. Doc. No. 9, ¶ 5, p. 2 of 15]. On February 16, 2018, the Defendant filed her Response opposing the Plaintiff's Motion for Summary Judgment. [Adv. Doc. No. 10]. This Court held a hearing on March 15, 2018, to listen to oral arguments of each party's counsel, and then took the matter under advisement. The Court now issues this Memorandum Opinion explaining why it has decided to grant the Motion for Summary Judgment.²

II. CONCLUSIONS OF LAW

A. Jurisdiction, Venue, Constitutional Authority to Enter a Final Order, and Summary Judgment Standard of Review

1. Jurisdiction

This Court has jurisdiction over this dispute pursuant to 28 U.S.C. §§ 157(a) and 1334(b). Section 1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 [the Bankruptcy Code], or arising in or related to cases under title 11." District courts may, in turn, refer these proceedings to the bankruptcy judges for that district. 28 U.S.C. § 157(a). In the Southern District of Texas, General Order 2012–6 (entitled General Order of Reference) automatically refers all eligible cases and proceedings to the bankruptcy courts.

This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) and by Rule 7001(b). This suit is also a core proceeding under the general "catch-all" language of 28 U.S.C. § 157(b)(2) because such a suit is the type of proceeding that can only arise in the context of a bankruptcy case. See Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.) , 163 F.3d 925, 930 (5th Cir. 1999) ("[A] proceeding is core under § 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.") (citation omitted). Preventing the discharge of a specific debt—here, the Debt—can only occur in a bankruptcy court. There is no state law equivalent of this action.

2. Venue

Venue is proper in this Court pursuant to 28 U.S.C. § 1409(a). 28 U.S.C. § 1409(a) provides that "a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending." The Debtor's main Chapter 13 case is presently pending in this Court; therefore, venue of this adversary proceeding is proper.

3. Constitutional Authority to Enter a Final Order

The Supreme Court's decision in Stern v. Marshall recognized certain limitations on bankruptcy courts' authority to enter final orders. 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Therefore, this Court has a duty to question its constitutional authority to enter a final order for any matter brought before it. The Court concludes that the facts in the pending suit are distinguishable from those in Stern , and that this Court has the authority to enter a final order in this suit.

In Stern , the debtor filed a counterclaim based solely on state law, and the resolution of this counterclaim did not resolve the validity, or invalidity, of the claim held by the defendant. Id. Here, the matter before the Court is not a counterclaim by the Debtor or the estate brought pursuant to state law, but rather is an adversary proceeding brought by a judgment creditor (i.e., the Plaintiff) against the Debtor to determine the nondischargeability of a specific debt pursuant to § 523(a)(8)(A)(ii) —an express provision of the Code. "Determining the scope of the debtor's discharge is a fundamental part of the bankruptcy process[,]" and was unchanged by the decision in Stern .

Farooqi v. Carroll (In re Carroll), 464 B.R. 293, 312 (Bankr. N.D. Tex. 2011). Therefore, this Court has the constitutional authority to enter a final order in this adversary proceeding.

In the alternative, this Court has the constitutional authority to enter a final order because the Plaintiff and the Defendant have expressly consented to adjudication of this dispute by this Court. Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1947, 191 L.Ed.2d 911 (2015) ("Sharif contends that to the extent litigants may validly consent to adjudication by a bankruptcy court, such consent must be expressed. We disagree. Nothing in the Constitution requires that consent to adjudication by a bankruptcy court be expressed. Nor does the relevant statute, 28 U.S.C. § 157, mandate express consent ...."). Indeed, the Plaintiff explicitly stated in her Original Complaint that "Plaintiff consents to the entry of a final order or a final judgment by this Court." [Adv. Doc. No. 1, ¶ 6, p. 2 of 6]. Approximately a month later, the Defendant filed her Original Answer to Complaint, and explicitly stated that "Defendant consents to the entry of a final order or a final judgment by this Court." [Adv. Doc. No. 7, ¶ 6, p. 1 of 3]. If this language does not constitute consent, then nothing does.

4. Summary Judgment Standard of Review

Federal Rule of Civil Procedure 56(c) applies to this proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056(c). Rule 56(c) provides that summary judgment is appropriate when the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party carries the burden of proof and must therefore show the absence of genuine material issues. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All reasonable inferences are to be drawn in the non-moving party's favor. See Baton Rouge Bldg. & Constr. Trades Council v. Jacobs Constructors, Inc., 804 F.2d 879, 881 (5th Cir. 1986) (per curiam) (holding that courts "must review the evidence and any inferences to be drawn therefrom in the light most favorable to the non-moving party").

B. Nondischargeability under § 523(a)(8)(A)(ii)

Despite alleging several claims in the Original Complaint, the Plaintiff asks this Court only to resolve her claim under § 523(a)(8)(A)(ii) on this Motion for Summary Judgment. In its entirety, § 523(a)(8) balances two competing policy objectives: (1) the debtor's right to a fresh start; and (2) the need to protect the financial integrity of educational loan programs and to induce lenders to lend to students who cannot qualify for loans under traditional underwriting standards. Brown v. Rust (In re Rust) , 510 B.R. 562, 566 (Bankr. E.D. Ky. 2014) ; Gorosh v. Posner (In re Posner) , 434 B.R. 800, 803 (Bankr. E.D. Mich. 2010). The creditor bears the initial burden of proof that the debt is nondischargeable under § 523(a)(8). If this burden is met, the debtor can still discharge the debt if the debtor proves that repayment would constitute an undue hardship. See Barrett v. Educ. Credit Mgmt. Corp. (In re Barrett) , 487 F.3d 353, 358–59 (6th Cir. 2007) ; Educ. Credit Mgmt. Corp. v. Savage (In re Savage) , 311 B.R. 835, 839 (1st Cir. BAP 2004).

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