United Student Aid Funds, Inc. v. Espinosa, No. 08–1134.
Decision Date | 23 March 2010 |
Docket Number | No. 08–1134. |
Citation | 559 U.S. 260,130 S.Ct. 1367,176 L.Ed.2d 158 |
Parties | UNITED STUDENT AID FUNDS, INC., Petitioner, v. Francisco J. ESPINOSA. |
Court | U.S. Supreme Court |
Madeleine C. Wanslee, Phoenix, AZ, for the petitioner by Toby J. Heytens for the U.S. as amicus curiae, by special leave of the Court, supporting the petitioner.
Michael J. Meehan, Tucson, AZ, for the respondent.
R. Ted Cruz, Allyson N. Ho, Morgan, Lewis & Bockius LLP, Houston, Texas, David B. Boodt, Joni M. Anderson, Julie E. Ragsdale, United Student Aid Funds, Inc., Indianapolis, IN, Charles W. Wirken, Counsel of Record, Madeleine C. Wanslee, Séan P. O'Brien, Gust Rosenfeld P.L.C., Phoenix, AZ, for Petitioner.
James L. Robinson, Jr., Robinson & Rylander, P.C., Tucson, AZ, for Respondent.
Michael J. Meehan, Counsel of Record, Munger Chadwick P.L.C., Tucson, AZ, for Respondent.
John R. Kroger, Attorney General of Oregon, Mary H. Williams, Deputy Attorney General, Counsel of Record, Jerome Lidz, Solicitor General, Carolyn G. Wade, Assistant Attorney General, Salem, OR, for Amicus Curiae State of Oregon.
Under Chapter 13 of the Bankruptcy Code (Code), a debtor may obtain a discharge of certain government-sponsored student loan debts only if failure to discharge that debt would impose an “undue hardship” on the debtor and his dependents. 11 U.S.C. §§ 523(a)(8), 1328. The Federal Rules of Bankruptcy Procedure require bankruptcy courts to make this undue hardship determination in an adversary proceeding, see Rule 7001(6), which the party seeking the determination must initiate by serving a summons and complaint on his adversary, see Rules 7003, 7004, 7008. The debtor in this case filed a plan with the Bankruptcy Court that proposed to discharge a portion of his student loan debt, but he failed to initiate the adversary proceeding as required for such discharge. The creditor received notice of, but did not object to, the plan, and failed to file an appeal after the Bankruptcy Court subsequently confirmed the plan. Years later, the creditor filed a motion under Federal Rule of Civil Procedure 60(b)(4) asking the Bankruptcy Court to rule that its order confirming the plan was void because the order was issued in violation of the Code and Rules. We granted certiorari to resolve a disagreement among the Courts of Appeals as to whether an order that confirms the discharge of a student loan debt in the absence of an undue hardship finding or an adversary proceeding, or both, is a void judgment for Rule 60(b)(4) purposes.
Between 1988 and 1989, respondent Francisco Espinosa obtained four federally guaranteed student loans for a total principal amount of $13,250. In 1992, Espinosa filed a bankruptcy petition under Chapter 13. That Chapter permits individual debtors to develop a plan to repay all or a portion of their debts over a period of time specified in the plan. See Nobelman v. American Savings Bank, 508 U.S. 324, 327, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993); see also §§ 301(a), 1321; Fed. Rule Bkrtcy. Proc. 3015(b). A proposed bankruptcy plan becomes effective upon confirmation, see §§ 1324, 1325, and will result in a discharge of the debts listed in the plan if the debtor completes the payments the plan requires, see § 1328(a).
Espinosa's plan listed his student loan debt as his only specific indebtedness. App. 15–18. The plan proposed to repay only the principal on that debt, stating that the remainder—the accrued interest—would be discharged once Espinosa repaid the principal. Id., at 26.
As the Federal Rules of Bankruptcy Procedure require, the clerk of the Bankruptcy Court mailed notice and a copy of Espinosa's plan to petitioner United Student Aid Funds, Inc. (United), the creditor to whom Espinosa owed the student loan debt.1 Id., at 34; see Rules 2002(b), (g)(2), 3015(d). In boldface type immediately below the caption, the plan stated: “WARNING IF YOU ARE A CREDITOR YOUR RIGHTS MAY BE IMPAIRED BY THIS PLAN.” Id., at 23. The plan also noted the deadlines for filing a proof of claim or an objection to the plan. Id., at 26–27.
United received this notice and, in response, filed a proof of claim for $17,832.15, an amount representing both the principal and the accrued interest on Espinosa's student loans. Id., at 35. United did not object to the plan's proposed discharge of Espinosa's student loan interest without a determination of undue hardship, nor did it object to Espinosa's failure to initiate an adversary proceeding to determine the dischargeability of that debt.
In May 1993, the Bankruptcy Court confirmed Espinosa's plan without holding an adversary proceeding or making a finding of undue hardship. One month later, the Chapter 13 trustee mailed United a form notice stating that “[t]he amount of the claim filed differs from the amount listed for payment in the plan” and that “[y]our claim will be paid as listed in the plan.” Id., at 44. The form also apprised United that if United “wishe[d] to dispute the above stated treatment of the claim,” it had the “responsibility” to notify the trustee within 30 days. Ibid. United did not respond to that notice.
In May 1997, Espinosa completed the payments on his student loan principal, as required by the plan. Shortly thereafter, the Bankruptcy Court discharged Espinosa's student loan interest.2
In 2000, the United States Department of Education commenced efforts to collect the unpaid interest on Espinosa's student loans.3 In response, Espinosa filed a motion in 2003 asking the Bankruptcy Court to enforce its 1997 discharge order by directing the Department and United to cease all efforts to collect the unpaid interest on his student loan debt.
United opposed that motion and filed a cross-motion under Federal Rule of Civil Procedure 60(b)(4) seeking to set aside as void the Bankruptcy Court's 1993 order confirming Espinosa's plan. United made two arguments in support of its motion. First, United claimed that the provision of Espinosa's plan authorizing the discharge of his student loan interest was inconsistent with the Code, which requires a court to find undue hardship before discharging a student loan debt, §§ 523(a)(8), 1328(a), and with the Bankruptcy Rules, which require the court to make the undue hardship finding in an adversary proceeding, see Rule 7001(6). Second, United argued that its due process rights had been violated because Espinosa failed to serve it with the summons and complaint the Bankruptcy Rules require as a prerequisite to an adversarial proceeding. See Rules 7003, 7004, 7008.
The Bankruptcy Court rejected both arguments, granted Espinosa's motion in relevant part, denied United's cross-motion, and ordered all claimants to cease and desist their collection efforts. United sought review in the District Court, which reversed. That court held that United was denied due process because the confirmation order was issued without service of the summons and complaint the Bankruptcy Rules require.
Espinosa appealed to the Court of Appeals for the Ninth Circuit, which issued an initial per curiam opinion remanding the case to the Bankruptcy Court to consider correcting an apparent clerical error in its discharge order.4 530 F.3d 895, 899 (2008). The Bankruptcy Court corrected the error, after which the Court of Appeals resubmitted the case and reversed the judgment of the District Court. The Court of Appeals concluded that by confirming Espinosa's plan without first finding undue hardship in an adversary proceeding, the Bankruptcy Court at most committed a legal error that United might have successfully appealed, but that any such legal error was not a basis for setting aside the confirmation order as void under Rule 60(b).
553 F.3d 1193, 1198–1202 (2008).5 In addition, the Court of Appeals held that although Espinosa's failure to serve United with a summons and complaint before seeking a discharge of his student loan debt violated the Bankruptcy Rules, this defect in service was not a basis upon which to declare the judgment void because United received actual notice of Espinosa's plan and failed to object. See id., at 1202–1205.6
We granted certiorari. 557 U.S. ––––, 129 S.Ct. 2791, 174 L.Ed.2d 289 (2009).
A discharge under Chapter 13 “is broader than the discharge received in any other chapter.” 8 Collier on Bankruptcy ¶ 1328.01, p. 1328–5 (rev. 15th ed.2008). Chapter 13 nevertheless restricts or prohibits entirely the discharge of certain types of debts. As relevant here, § 1328(a) provides that when a debtor has completed the repayments required by a confirmed plan, a bankruptcy court “shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except,” inter alia, “any debt ... of the kind specified in [§ 523(a)(8) ].” § 1328(a)(2). Section 523(a)(8), in turn, specifies certain student loan debts “unless excepting such debt from discharge ... would impose an undue hardship on the debtor and the debtor's dependents.”7 As noted, the Bankruptcy Rules require a party seeking to determine the dischargeability of a student loan debt to commence an adversary proceeding by serving a summons and complaint on affected creditors. See supra, at 1374–1375. We must decide whether the Bankruptcy Court's order confirming Espinosa's plan is “void” under Federal Rule Civil Procedure 60(b)(4) because the Bankruptcy Court confirmed the plan without complying with these requirements.8
The Bankruptcy Court's order confirming Espinosa's proposed plan was a final judgment, see In re Optical Technologies, Inc., 425 F.3d 1294, 1300 (C.A.11 2005), from which United did not appeal. Ordinarily, “the finality of [a] Bankruptcy Court's orders following the conclusion of direct review” would “stan[d] in the way of challenging [their] enforceability.” Travelers Indemnity Co. v. Bailey, 557 U.S. 137, –––– – ––––, 129 S.Ct. 2195, 2198–98, 174 L.Ed.2d 99 (2009). Rule...
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