FILED MAR 27 2015 1 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NC-14-1336-PaJuTa ) 6 TARRA NICHOLE CHRISTOFF, ) Bk. No. 13-10808 ) 7 Debtor. ) Adv. No. 13-3186 ___________________________________) 8 ) ) 9 INSTITUTE OF IMAGINAL STUDIES ) dba MERIDIAN UNIVERSITY, ) 10 ) ) 11 Appellant, ) ) 12 v. ) O P I N I O N ) 13 ) TARRA NICHOLE CHRISTOFF, ) 14 ) ) 15 Appellee. ) ___________________________________) 16 17 Argued and Submitted on February 19, 2015 at San Francisco, California 18 Filed - March 27, 2015 19 ____________ 20 Appeal from the United States Bankruptcy Court for the Northern District of California 21 Hon. Dennis Montali, U.S. Bankruptcy Judge, Presiding 22 23 Appearances: Scott D. Schwartz of Rust, Armenis & Schwartz, P.C. 24 argued for Appellant Institute of Imaginal Studies d/b/a Meridian University; Lindsay Torgerson of 25 Wine Country Family Law & Bankruptcy Office argued for Appellee Tarra Nichole Christoff. 26 27 28 Before: PAPPAS, JURY, and TAYLOR, Bankruptcy Judges. 1 PAPPAS, Bankruptcy Judge: 2 3 This appeal raises an important issue of first impression 4 concerning the scope of the exception to discharge for student 5 debts in bankruptcy. Creditor Institute of Imaginal Studies d/b/a 6 Meridian University (“Meridian”) appeals the summary judgment of 7 the bankruptcy court determining that the debt owed to Meridian by 8 chapter 71 debtor Tarra Nichole Christoff (“Debtor”) was not 9 excepted from discharge pursuant to § 523(a)(8)(A)(ii). Based 10 upon the plain language of the Bankruptcy Code, we AFFIRM. 11 I. FACTS2 12 A. Relationship of the Parties. 13 Meridian is a for-profit California corporation which 14 operates a private university licensed under California’s Private 15 Post Secondary Education Act of 2009, Cal. Educ. Code § 94800, et 16 seq. If a graduate of Meridian fulfills other post-graduate 17 requirements, the graduate may obtain a license from California to 18 practice as an independent, unsupervised psychologist. 19 Debtor applied for admission to Meridian in 2002. Meridian 20 agreed to admit Debtor and offered her $6,000 in financial aid to 21 pay a portion of the tuition for that school year. Under this 22 arrangement, Debtor did not receive any actual funds from 23 24 1 Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 25 to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. “Civil Rule” references are to the Federal Rules of Civil 26 Procedure 1-86. 27 2 This recitation of the undisputed facts is taken primarily from the bankruptcy court’s decision, which neither of the parties 28 has challenged.
-2- 1 Meridian, but instead she received a tuition credit. Debtor 2 signed an enrollment agreement acknowledging Meridian’s offer to 3 “finance” $6,000 of the tuition, and she signed a promissory note 4 in favor of Meridian evidencing her obligation. The promissory 5 note provided that the debt for the tuition credit was to be paid 6 by Debtor in installments of $350 per month after Debtor completed 7 her course work or withdrew from Meridian. Interest accrued on 8 the unpaid balance of the note at nine percent per annum, 9 compounded monthly. 10 In 2003, Debtor submitted a similar application, and Meridian 11 granted her a financial aid award of $5,000 for that school year. 12 As before, Debtor signed a promissory note for $5,000. Again, 13 Debtor did not receive any funds but instead received a tuition 14 credit. The promissory note contained payment terms identical to 15 those in the prior note. 16 Debtor completed her course work at Meridian, and Debtor’s 17 note payments began in October 2005. After making several 18 payments on the notes, in 2009, Debtor sought a deferral of her 19 payments for a period of one year. Meridian granted the 20 extension. Also in 2009, Debtor withdrew from Meridian without 21 completing her dissertation, a requirement for obtaining her 22 degree. 23 After the extension expired, Debtor did not pay the amounts 24 due under the two promissory notes. Thereafter, Meridian 25 unsuccessfully attempted to collect the balance due from Debtor. 26 Eventually, Meridian and Debtor agreed to submit Meridian’s claims 27 to arbitration under a provision in the enrollment agreement. In 28 July 2012, an arbitrator ordered Debtor to pay Meridian the unpaid
-3- 1 balance due on the promissory notes, $5,950, plus accrued 2 interest. 3 B. The Bankruptcy Case and Adversary Proceeding. 4 Debtor filed a chapter 7 bankruptcy petition on August 19, 5 2013. Debtor listed Meridian in schedule F as an unsecured, 6 nonpriority creditor. Meridian commenced an adversary proceeding 7 against Debtor seeking a determination by the bankruptcy court 8 that the debt owed by Debtor to Meridian was excepted from 9 discharge pursuant to § 523(a)(8). 10 On April 30, 2014, Meridian filed a motion for summary 11 judgment. In its motion, Meridian conceded that Debtor’s debt did 12 not qualify for an exception to discharge under either 13 § 523(a)(8)(A)(i) or (a)(8)(B).3 However, it argued that the debt 14 was excepted from discharge under § 523(a)(8)(A)(ii). Debtor 15 disputed that this Code provision applied to her debt to 16 Meridian.4 The parties appeared at a motion hearing on May 30, 17 2014, presented their arguments, and the bankruptcy court took the 18 issues under advisement. 19 On June 11, 2014, the bankruptcy court entered a Memorandum 20 Decision in which it held that Debtor’s debt to Meridian did not 21 22 3 We agree that Meridian cannot take advantage of these 23 discharge exceptions because it was neither a governmental unit nor a nonprofit institution as required for an exception under 24 § 523(a)(8)(A)(i), nor was the debt in this case a “qualified education loan” as defined by the Internal Revenue Code, a 25 condition for an exception to discharge under § 523(a)(8)(B). 26 4 The parties agreed that if the bankruptcy court determined that the Meridian debt qualified for an exception to discharge 27 under § 523(a)(8)(A)(ii), Debtor would be allowed to amend her answer and plead that she could not repay the debt without an 28 “undue hardship”.
-4- 1 qualify for an exception to discharge under § 523(a)(8)(A)(ii). 2 Inst. of Imaginal Studies dba Meridian Univ. v. Christoff (In re 3 Christoff), 510 B.R. 876, 884 (Bankr. N.D. Ca. 2014). In making 4 this ruling, the bankruptcy court noted that the question raised 5 by the motion was an issue of first impression in the Ninth 6 Circuit following enactment of the Bankruptcy Abuse Prevention and 7 Consumer Protection Act of 2005 (BAPCPA).5 After a thorough 8 review of amended § 523(a)(8) and the cases addressing the issue, 9 the bankruptcy court concluded: 10 [b]ecause Debtor’s obligations under applicable documents were to pay the amount 11 under the [p]romissory [n]otes, and thereafter the arbitration award, but did not flow from 12 ‘funds received’ either by her as the student or by Meridian from any other source, the debt 13 is not covered by [§ 523(a)(8)(A)(ii)] and is therefore eligible for discharge in Debtor’s 14 discharge. 15 In re Christoff, 510 B.R. at 884. 16 Interpreting the “funds received” requirement in 17 § 523(a)(8)(A)(ii), the bankruptcy court explained that “Meridian 18 simply agreed to be paid the tuition later . . . [i]t did not 19 receive any funds, such as from a third party financing source.” 20 Id. at 879. The bankruptcy court therefore concluded that, while 21 the transactions between Debtor and Meridian were clearly loans, 22 § 523(a)(8)(A)(ii) does not extend to loans but, instead, grants 23 an exception to discharge for “an obligation to repay funds 24 received.” Id. at 879. The bankruptcy court observed that BAPCPA 25 had amended the prior version of § 523(a)(8) and had created a 26 “newly separated [§ 523(a)(8)(A)(ii), which] refers to an 27 28 5 Pub. L. No. 109-8, 119 Stat. 23.
-5- 1 ‘obligation to repay funds received as an educational benefit, 2 scholarship[,] or stipend,’ without reference to educational loans 3 or any other kind of loan.” Id. 4 Meridian filed a notice of appeal concerning the Memorandum 5 Decision on June 26, 2014. The bankruptcy court, on July 2, 2014, 6 entered an order granting summary judgment in favor of Debtor and 7 denying Meridian’s motion for summary judgment; it also entered a 8 judgment incorporating these rulings. On July 11, 2014, Meridian 9 filed an amended notice of appeal to include the order and 10 judgment entered by the bankruptcy court. 11 II. JURISDICTION 12 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 13 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158. 14 III. ISSUE 15 Whether the bankruptcy court erred in holding that the 16 Meridian debt was not excepted from discharge under 17 § 523(a)(8)(A)(ii) because it was not an obligation for “funds 18 received.” 19 IV. STANDARDS OF REVIEW 20 We review a bankruptcy court’s grant of summary judgment de 21 novo. The President & Bd. of Ohio Univ. v. Hawkins (In re 22 Hawkins), 317 B.R. 104, 108 (9th Cir. BAP 2004), aff’d, 469 F.3d 23 1316 (9th Cir. 2006); Thorson v. Cal. Student Aid Comm’n (In re 24 Thorson), 195 B.R. 101, 103 (9th Cir. BAP 1996) (citing Jones v. 25 Union Pac. R.R. Co., 968 F.2d 937, 940 (9th Cir. 1992)). 26 According to Civil Rule 56, made applicable to adversary 27 proceedings in Rule 7056, summary judgment is appropriate if there 28 is a showing “that there is no genuine dispute as to any material
-6- 1 fact and the movant is entitled to judgment as a matter of law.” 2 Civil Rule 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 3 (1986). A trial court, in the exercise of its discretion, may 4 grant a summary judgment for a nonmovant pursuant to Civil Rule 5 56(f)(1). 6 “We review de novo the bankruptcy court’s application of the 7 legal standard in determining whether a student loan debt is 8 dischargeable.” Educ. Credit Mgmt. Corp. v. Jorgensen (In re 9 Jorgensen), 479 B.R. 79, 85 (9th Cir. BAP 2012) (citing Rifino v. 10 United States (In re Rifino), 245 F.3d 1083, 1087 (9th Cir. 11 2001)). “To the extent the bankruptcy court interpreted statutory 12 law, we review the issues of law de novo.” In re Thorson, 195 13 B.R. at 103. 14 V. DISCUSSION 15 A. Arguments of the Parties. 16 Meridian argues that the bankruptcy court erred when it 17 interpreted § 523(a)(8)(A)(ii) to require that actual funds be 18 received by a debtor in order for a debt to qualify for an 19 exception to discharge under that provision. According to 20 Meridian, “funds received,” as that language is used in 21 § 523(a)(8)(A)(ii), is the equivalent to “loans” received by the 22 debtor, as described in the other provisions of § 523(a)(8). To 23 support this argument, Meridian cites to McKay v. Ingleson, 558 24 F.3d 888 (9th Cir. 2009), and to Johnson v. Mo. Baptist Coll. (In 25 re Johnson), 218 B.R. 449 (8th Cir. BAP 1998), a decision cited 26 and relied upon by the Ninth Circuit in McKay. Meridian argues 27 that the bankruptcy court erred in distinguishing these cases 28 because those decisions determined that a “loan” under § 523(a)(8)
-7- 1 required no funds to be transferred to a debtor. Meridian argues 2 that since the terms “loan” and “funds received” are synonymous as 3 used in § 523(a)(8), McKay and In re Johnson control the outcome 4 in this case. 5 Debtor points to the difference in the language employed by 6 Congress to delineate what types of student debts are excepted 7 from discharge under § 523(a)(8). While § 523(a)(8)(A)(i) and (B) 8 indeed make “loans” nondischargeable in bankruptcy, absent undue 9 hardship, § 523(a)(8)(A)(ii) applies to a different type of debt: 10 a debtor’s “obligation to repay funds received as an educational 11 benefit, scholarship, or stipend [.]” Because Congress did not 12 refer to “loans” in this subsection of the Code, Debtor urges that 13 it was intended to apply to a distinctly different type of debt, 14 an obligation to repay the creditor for “funds received.” 15 Therefore, Debtor argues, it is inappropriate to borrow from the 16 logic of the cases construing the “loan” language used in the 17 other student debt exceptions to construe the meaning of “funds 18 received” in § 523(a)(8)(A)(ii). 19 We agree with Debtor. 20 B. Statutory Interpretation and Exceptions to Discharge. 21 Any analysis of the Bankruptcy Code begins with the text of 22 the statute. Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 69 23 (2011); Danielson v. Flores (In re Flores), 735 F.3d 855, 859 (9th 24 Cir. 2013) (en banc) (citing Miranda v. Anchondo, 684 F.3d 844, 25 849 (9th Cir. 2011). “Furthermore, ‘the words of [the Code] must 26 be read in their context and with a view to their place in the 27 overall statutory scheme.’” In re Flores, 735 F.3d at 859 28 (quoting Gale v. First Franklin Loan Servs., 701 F.3d 1240, 1244
-8- 1 (9th Cir. 2012)). “If the statutory language is unambiguous and
2 the statutory scheme is coherent and consistent, judicial inquiry
3 must cease.” Fireman’s Fund Ins. Co. v. Plant Insulation Co. (In
4 re Plant Insulation Co.), 734 F.3d 900, 910 (9th Cir. 2013)
5 (citations and internal quotation marks omitted).
6 Courts must limit the provisions granting exceptions to
7 discharge to those plainly expressed in § 523(a). Bullock v.
8 BankChampaign, N.A., 133 S. Ct. 1754, 1760 (2013) (noting the
9 “long-standing principle that exceptions to discharge should be
10 confined to those plainly expressed”) (internal quotations marks
11 and citations omitted); Hawkins v. Franchise Tax Bd. of Cal., 769
12 F.3d 662, 666 (9th Cir. 2014) (reminding that “the Supreme Court
13 has interpreted exceptions to the broad presumption of discharge
14 narrowly”); Sachan v. Huh (In re Huh), 506 B.R. 257, 263 (9th Cir.
15 BAP 2014) (en banc) (stating “the exception to discharge
16 provisions of the Bankruptcy Code are interpreted strictly in
17 favor of debtors”); Benson v. Corbin (In re Corbin), 506 B.R. 287,
18 291 (Bankr. W.D. Wa. 2014) (observing, in a § 523(a)(8) case, that
19 “[c]ourts construe exceptions to discharge strictly against a
20 creditor and liberally in favor of the debtor”).
21 B. The Pre-BAPCPA § 523(a)(8).
22 The student debt exception to discharge, embodied in
23 § 523(a)(8), has been amended several times over the years, most
24 recently by BAPCPA in 2005.
25 Prior to BAPCPA, § 523(a)(8) provided that a bankruptcy
26 discharge would not apply to a debt for:
27 an educational benefit overpayment or loan made, insured or guaranteed by a governmental 28 unit, or made under any program funded in
-9- 1 whole or in part by a governmental unit, or nonprofit institution, or for an obligation to 2 repay funds received as an educational benefit, scholarship, or stipend, unless 3 excepting such debt from discharge under this paragraph will impose an undue hardship on the 4 debtor and the debtor’s dependents. 5 In re Hawkins, 317 B.R. at 108 (quoting § 523(a)(8)). 6 Interpreting this version of § 523(a)(8), the Panel stated, 7 [g]enerally speaking, debts that are potentially nondischargeable under § 523(a)(8) fall into two 8 categories: 1) debts for educational benefit overpayments or loans made, insured, or guaranteed by a 9 governmental unit or nonprofit institution; or 2) debts for obligations to repay funds received as an 10 educational benefit, scholarship[,] or stipend. 11 Id. at 109 (citing Mehlman v. N.Y. City Bd. of Educ. (In re 12 Mehlman), 268 B.R. 379, 383 (Bankr. S.D.N.Y. 2001)). 13 In In re Hawkins, the Panel examined an agreement between the 14 debtor and Ohio University wherein the debtor agreed, in exchange 15 for admission to the University’s medical school, that when she 16 completed her studies she would practice medicine in Ohio for at 17 least five years after licensure. 317 B.R. at 107. If she failed 18 to do this, the agreement provided that she would pay liquidated 19 damages to the University. Id. The debtor graduated but promptly 20 moved to a different state. Id. The University sued the debtor 21 in state court and obtained a money judgment for the liquidated 22 damages specified in the agreement. Id. The debtor filed for 23 chapter 7 relief, and the University sought a determination from 24 the bankruptcy court that the judgment debt was excepted from 25 discharge under § 523(a)(8). Id. at 108. Applying § 523(a)(8) to 26 these facts, the Panel addressed both categories of debt covered 27 by the discharge exception. Id. at 110-11. 28 First, the Panel concluded that the agreement between the
-10- 1 debtor and the University was not an “educational loan” because 2 “while an educational loan need not include an actual transfer of 3 money . . . to [the d]ebtor, in order for it to fall within the 4 definition of . . . § 523(a)(8), the loan instrument must 5 sufficiently articulate definite repayment terms and the repayment 6 obligation must reflect the value of the benefit actually received 7 [by the debtor], rather than some other ill defined measure of 8 damages or penalty.” Id. at 110 (emphasis deleted). 9 Next, the Panel considered whether the agreement created a 10 debt for “an obligation to repay funds received as an educational 11 benefit.” Id. at 112. The Panel quickly concluded that it did 12 not, “because the plain language of this prong of the statute 13 requires that a debtor receive actual funds in order to obtain a 14 nondischargeable educational benefit.” Id. (citing Cazenovia 15 Coll. v. Renshaw (In re Renshaw), 229 B.R. 552, 555 n.5 (2d Cir. 16 BAP 1999), aff’d, 222 F.3d 82 (2d Cir. 2000)). The University 17 appealed the BAP’s decision and the Ninth Circuit affirmed, 18 adopting the opinion of the BAP as its own. See Ohio Univ. v. 19 Hawkins (In re Hawkins), 469 F.3d 1316, 1317 (9th Cir. 2006) (“We 20 adopt the opinion of the BAP, which is reported at 317 B.R. 104, 21 and affirm its judgment.”). 22 A few years later, the Ninth Circuit again addressed whether 23 an agreement between a student and a college constituted a “loan” 24 for purposes of the pre-BAPCPA version of § 523(a)(8). In McKay 25 v. Ingleson, 558 F.3d 888, 889 (9th Cir. 2009), the court reviewed 26 an agreement between the debtor and Vanderbilt University that 27 deferred payment of the debtor’s tuition and costs of other 28 “educational services” to monthly bills to be sent to the debtor.
-11- 1 Id. If the debtor did not pay the bills as they became due, a 2 late fee would be assessed. Id. The debtor did not pay the bills 3 as agreed and later filed for bankruptcy relief. A couple of 4 years after the debtor received her discharge, the University sued 5 the debtor in state court to recover the amounts owed under the 6 agreement. In response, the debtor commenced an adversary 7 proceeding against the University in the bankruptcy court claiming 8 that the University violated the discharge injunction of § 524(a) 9 by prosecuting the state court action. Id. The bankruptcy court, 10 and later the district court on appeal, concluded that no 11 violation of the discharge injunction occurred because the debt at 12 issue was excepted from discharge under § 523(a)(8). Id. The 13 Ninth Circuit affirmed, reasoning that the agreement between the 14 parties was a nondischargeable “loan” under § 523(a)(8), and that 15 it did not matter that no actual money had changed hands between 16 the parties under their arrangement. Id. at 890. In explaining 17 its decision, the court cited to In re Johnson, 218 B.R. 449 (8th 18 Cir. BAP 1998). Id. The court also cited to the BAP’s opinion in 19 In re Hawkins for the proposition that the amount of the loan must 20 be based on the amount of benefit the debtor received; the court 21 concluded that the “loan” in McKay complied with that requirement. 22 Id. at 891. 23 In re Johnson, the decision relied upon by the Ninth 24 Circuit in McKay, addressed what constituted a “loan” under the 25 pre-BAPCPA version of § 523(a)(8): “Since the parties stipulate 26 that the [c]ollege is a non-profit institution and that the credit 27 was extended for educational purposes . . . the only issue 28 presently on appeal is whether the [c]ollege’s extension of credit
-12- 1 was a loan.” In re Johnson, 218 B.R. 450-51. In re Johnson 2 focused on a debt represented by a promissory note, executed to 3 evidence the debtor’s obligation to a college to pay for tuition, 4 books, and other expenses. Id. at 450. The debtor defaulted on 5 the note and filed a chapter 13 case. Id. The college filed an 6 adversary proceeding in the debtor’s bankruptcy case asking the 7 bankruptcy court to declare that the debt represented by debtor’s 8 note was excepted from discharge. Id. The bankruptcy court 9 concluded that the debt was a “loan” for purposes of § 523(a)(8), 10 and the Eighth Circuit BAP agreed. Id. The panel rejected the 11 debtor’s argument that the note was not a “loan” because no funds 12 had ever been given to him by the college: 13 [W]e conclude[] that the arrangement between [the debtor] and the [c]ollege constitutes a loan . . . . 14 [B]y allowing [the debtor] to attend classes without prepayment, the [c]ollege was, in effect, ‘advancing’ 15 funds . . . to [the debtor] . . . [and i]t is immaterial that no money actually changed hands. 16 17 Id. at 457. 18 It is important to note that the BAP in In re Johnson, as 19 relied upon by the Ninth Circuit in McKay, acknowledged that 20 another avenue may have existed for the college to obtain an 21 exception to discharge under § 523(a)(8), characterizing the note 22 as “an obligation to repay funds received as an educational 23 benefit”; however, the panel determined it need not venture down 24 that path because the debt arising from the agreement with the 25 debtor was determined to be an educational benefit “loan” made by 26 a nonprofit or a governmental unit.6 218 B.R. at 450. By 27 28 6 Of course, the college/creditor in In re Johnson was a nonprofit organization. See In re Johnson, 218 B.R. 450. (stating the “parties stipulate that the [c]ollege is a non-profit institution”). Similarly, Vanderbilt University is a nonprofit institution.
-13- 1 contrast, in In re Hawkins, the Panel was required to decide 2 whether the agreement before it created “an obligation to repay 3 funds received as an educational benefit” because it had concluded 4 the agreement was not a “loan” under the statute. 317 B.R. at 5 112. In addressing this issue, the Panel stated “the plain 6 language of this prong of the statute requires that a debtor 7 receive actual funds in order to obtain a nondischargeable 8 benefit.” Id. (citations omitted; emphasis added). The Panel 9 found this requirement was not satisfied because no “actual funds” 10 were received by the debtor in consideration of her admission and 11 education at the medical school. Id. 12 C. Enter BAPCPA. 13 As a result of the Code amendments in BAPCPA, since 2005, 14 § 523(a)(8) has provided that a debtor may not discharge a debt: 15 unless excepting such debt from discharge under this paragraph would impose an undue 16 hardship on the debtor and the debtor’s dependents, for— 17 (A)(i) an educational benefit overpayment or 18 loan made, insured, or guaranteed by a governmental unit or nonprofit institution; or 19 (ii) an obligation to repay funds received as 20 an educational benefit, scholarship, or stipend; or 21 (B) any other educational loan that is a 22 qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code 23 of 1986, incurred by a debtor who is an individual.7 24 25 7 Under § 523(a)(8)(B) to be a “qualified education loan” 26 under 26 U.S.C. § 221(d)(1), it must, among other things, be a debt for a “qualified higher education expense,” as defined by 26 27 U.S.C. § 221(d)(2), which is the “costs of attendance . . . at an eligible educational institution.” An “eligible educational 28 institution” is one as defined by 26 U.S.C. § 25A(f)(2), which provides an “‘eligible educational institution’ means an (continued...)
-14- 1 As can be seen, many of the statute’s former attributes survived 2 BAPCPA’s revisions. On the other hand, there were some additions 3 to its text, and there was also a clear restructuring of the 4 statute. 5 Since enactment of BAPCPA, neither the Ninth Circuit nor this 6 Panel has published decisions interpreting § 523(a)(8)(A)(ii). 7 And only one published decision, other than the bankruptcy court’s 8 decision at issue in this appeal, was located from bankruptcy 9 courts in the Ninth Circuit interpreting § 523(a)(8)(A)(ii). 10 Benson v. Corbin (In re Corbin), 506 B.R. 287 (Bankr. W.D. Wa. 11 2014).8 In In re Corbin, the bankruptcy court explained that, 12 post-BAPCPA, this Code provision: 13 protects four categories of educational claims from discharge: (1) loans made, insured, or 14 guaranteed by a governmental unit; (2) loans made under any program partially or fully 15 funded by a governmental unit or nonprofit institution; (3) claims for funds received as 16 an educational benefit, scholarship, or stipend; and (4) any “qualified educational 17 loan” as that term is defined in the Internal Revenue Code. 18 19 506 B.R. at 291 (citing Rumer v. Am. Educ. Servs. (In re Rumer), 20 469 B.R. 553 (Bankr. M.D. Pa. 2012)). The bankruptcy court 21 explained that § 523(a)(8)(A)(ii) “was added, covering loans made 22 7 23 (...continued) institution - (A) which is described in section 481 of the Higher 24 Education Act of 1965 (20 U.S.C. 1088) . . . (B) which is eligible to participate in a program under title IV of such Act.” An 25 “eligible program” is further defined at 20 U.S.C. § 1088(b). 8 26 In addition, only one unpublished decision in this circuit has tackled this chore. In a case that involved Meridian, relying 27 heavily upon the bankruptcy court’s decision here, the bankruptcy court declined to grant an exception to discharge. Inst. of 28 Imaginal Servs. v. Coelho (In re Coelho), No. 13-10975, 2014 WL 3858514 (Bankr. N.D. Ca. Aug. 4, 2014).
-15- 1 by nongovernmental and profit-making organizations . . . .” Id. 2 at 296. Canvassing the out-of-circuit bankruptcy court decisions, 3 the court noted that they “pay no attention to who the lender is, 4 but focus instead [under § 523(a)(8)(A)(ii)] on whether, in the 5 plain language of the subsection, the obligation is ‘to repay 6 funds received as an educational benefit’ as reflected by the 7 debtor’s agreement and intent to use the funds at the time the 8 obligation arose.” Id. at 296-97 (citing Roy v. Sallie Mae (In re 9 Roy), 2010 WL 1523996 (Bankr. D.N.J. Apr. 15, 2010); Carow v. 10 Chase Student Loan Serv. (In re Carow), 2011 WL 802847 (Bankr. 11 D.N.D. Mar. 2, 2011); Skipworth v. Citibank Student Loan Corp. (In 12 re Skipworth), 2010 WL 1417964 (Bankr. N.D. Ala. Apr. 1, 2010)). 13 Given the lack of case law, the bankruptcy court set out to 14 apply post-BAPCPA § 523(a)(8)(A)(ii) to the facts before it. In 15 re Corbin involved cash advances from a third-party lender to the 16 debtor to attend college made, in part, because the debtor’s co- 17 worker had agreed to co-sign the loan. 506 B.R. at 290. The 18 lender later notified the co-signer that the debtor was not paying 19 the loan. Id. The co-signer paid the loans and sued the debtor 20 in state court to recover the amounts he had paid the lender. Id. 21 The debtor then filed a bankruptcy case, and the co-signer 22 commenced an adversary proceeding against the debtor arguing that 23 the debt owed by the debtor to the co-signer was excepted from 24 discharge under both § 523(a)(8)(A)(i) and (a)(8)(A)(ii). Id. 25 The bankruptcy court declined to hold that this arrangement 26 qualified for an exception from discharge under § 523(a)(8)(A)(i) 27 based upon Ninth Circuit authority on subrogated claims. Id. at 28 295-96 (citing Nat’l Collection Agency v. Trahan, 624 F.2d 906
-16- 1 (9th Cir. 1980)). However, the bankruptcy court concluded that 2 the debt was excepted from discharge under § 523(a)(8)(A)(ii), 3 reasoning that because the debtor 4 intended to and did use the funds she received to pay for educational expenses . . . this 5 [c]ourt concludes that the provisions of an accommodation, in order to secure for a 6 student funds for the purpose of paying educational expenses, gives rise to an 7 obligation on the part of the debtor to repay funds received as an educational benefit once 8 the co-signer is required to honor its obligation to pay the debt. 9 10 Id. at 297-98. 11 Of course, the In re Corbin debtor actually received funds 12 from the lender to pay for her education; the facts here are 13 different. 14 D. Application of § 523(a)(8)(A)(ii) to Meridian’s Debt 15 We agree with the bankruptcy court that the language of 16 § 523(a)(8) is plain and that it must be read in context with a 17 view to the overall statutory scheme. Moreover, as instructed by 18 the Supreme Court and Ninth Circuit, we must construe § 523(a) 19 narrowly, limiting this discharge exception to those debts 20 described in the statute. Bullock, 133 S. Ct. at 1760; Hawkins, 21 769 F.3d at 666; In re Huh, 506 B.R. at 263. Finally, we must 22 construe the provisions of § 523(a)(8) that were found in the pre- 23 BAPCPA version of that statute in accord with the Ninth Circuit 24 authorities interpreting them. Doing all this, we conclude that 25 the debt represented by Meridian’s arbitration award against 26 Debtor is not excepted from discharge under § 523(a)(8)(A)(ii). 27 As a result, the bankruptcy court did not err in granting summary 28 judgment to Debtor, and denying Meridian’s motion for summary
-17- 1 judgment. 2 Section 523(a)(8)(A)(ii) plainly provides that a bankruptcy 3 discharge will not impact “an obligation to repay funds received 4 as an educational benefit, scholarship, or stipend.” It is 5 undisputed that the agreements between Meridian and Debtor 6 constitute an “obligation to repay” “educational benefits” 7 provided by Meridian to Debtor. However, § 523(a)(8)(A)(ii) 8 requires more. To except a debt from discharge under this 9 subsection, the creditor must demonstrate that the debtor is 10 obliged to repay a debt for “funds received” for the educational 11 benefits. The phrase “funds received” has been interpreted by the 12 BAP, in an opinion which was as adopted by the Ninth Circuit as 13 its own, to require “that a debtor receive actual funds in order 14 to obtain a nondischargeable benefit.” In re Hawkins, 317 B.R. at 15 112 (emphasis added); accord In re Oliver, 499 B.R. 617, 625 16 (Bankr. S.D. Ind. 2013) (holding under § 523(a)(8)(A)(ii), “[i]n 17 order to be obligated to repay funds received, [the] [d]ebtor had 18 to have received funds in the first place.”) (emphasis in 19 original). Because the In re Hawkins decision construed the very 20 same language of the statute implicated here, we conclude that In 21 re Hawkins controls the outcome in this case notwithstanding that 22 BAPCPA later amended § 523(a)(8). See Ball v. Payco-General Am. 23 Credits, Inc. (In re Ball), 185 B.R. 595, 597 (9th Cir. BAP 1995) 24 (“We will not overrule our prior rulings unless a Ninth Circuit 25 Court of Appeals decision, Supreme Court decision or subsequent 26 legislation has undermined those rulings.”). That the arrangement 27 between the parties in In re Hawkins was dissimilar to the 28 agreement in this case is of no consequence, and renders that
-18- 1 decision no less binding, concerning the proper construction of 2 § 523(a)(8)(A)(ii). This is so because In re Hawkins construed 3 the very same statutory language implicated here, and because the 4 Panel and the Circuit have concluded that this language requires 5 that “a debtor receive actual funds.” Id. at 112. 6 This result is bolstered by the changes made to § 523(a)(8) 7 by Congress in BAPCPA. As noted above, the exact wording used in 8 amended § 523(a)(8)(A)(ii) was formerly a part of § 523(a)(8). 9 However, BAPCPA set off the “obligation to repay funds received” 10 language from the other provisions of § 523(a)(8) in a new 11 subsection. We agree with the bankruptcy court, that in 12 restructuring the discharge exception in this fashion, Congress 13 created “a separate category delinked from the phrases 14 ‘educational benefit or loan’ in § 523(a)(8)(A)(i) and ‘any other 15 educational loan’ in § 523(a)(8)(B).” In re Christoff, 510 B.R. 16 at 882. Put another way, “new” § 523(a)(8)(A)(ii), now standing 17 alone, excepts from discharge only those debts that arise from “an 18 obligation to repay funds received as an educational benefit,” and 19 must therefore be read as a separate exception to discharge as 20 compared to that provided in § 523(a)(8)(A)(i) for a debt for an 21 “educational overpayment or loan” made by a governmental unit or 22 nonprofit institution or, in § 523(a)(8)(B), for a “qualified 23 education loan.” 24 Meridian’s arguments conflating “loan” as used in 25 § 523(a)(8)(A)(i) and (a)(8)(B), and as interpreted by McKay and 26 In re Johnson with “an obligation to repay funds received” as 27 provided in § 523(a)(8)(A)(ii), are unconvincing. According to 28 Meridian, “[t]here is no reason why the word ‘funds’ should not be
-19- 1 interpreted in the same light that ‘loans’ has been interpreted in 2 prior cases in the Ninth Circuit . . . .” Appellant’s Op. Br. at 3 14. In effect, Meridian argues that we should read 4 § 523(a)(8)(A)(ii) to say “loans received” as opposed to “funds 5 received.” But this we must not do. See Conn. Nat’l Bank v. 6 Germain, 503 U.S. 249, 253-54 (1992) (“[I]n interpreting a statute 7 a court should always turn first to one, cardinal canon before all 8 others. We have stated time and again that courts must presume 9 that a legislature says in a statute what it means and means in a 10 statute what it says there.”) (citations omitted). Instead, we 11 must presume that, in organizing the provisions of § 523(a)(8) as 12 it did in BAPCPA, Congress intended each subsection to have a 13 distinct function and to target different kinds of debts.9 14 We are also unpersuaded by Meridian’s reliance on those 15 bankruptcy cases that, perhaps inadvertently, imprecisely quote 16 the provisions of the discharge exception statute as applying to 17 “loans received,” as opposed to the “obligation to repay funds 18 received” dealt with by § 523(a)(8)(A)(ii). See, e.g., In re 19 Rumer, 469 B.R. at 561 (stating “loans received as an educational 20 benefit, scholarship, or stipend” are excepted from discharge); 21 9 22 On this point, we agree with Debtor’s counsel’s statement at oral argument that § 523(a)(8)(A)(ii) is not a “catch-all” 23 provision designed to include every type of credit transaction that bestows an educational benefit on a debtor. Instead, this 24 subsection includes a condition, distinct from those in the other subsections of § 523(a)(8), that must be fulfilled. In re Hawkins 25 held that this unique requirement, that “funds [be] received” by the debtor, mandates that cash be advanced to or on behalf of the 26 debtor. In light of the many programs available to students which provide cash benefits to students, like veteran’s educational 27 benefits, stipends for teaching assignments, and cash scholarships, it is not absurd to assume that Congress intended 28 the scope of § 523(a)(8)(A)(ii) to target obligations other than those arising from traditional student loans.
-20- 1 see also Beesley v. Royal Bank of Canada (In re Beesley), 2013 WL 2 5134404 (Bankr. W.D. Pa. Sept. 13, 2013) (quoting Rumer and its 3 misstatement of the law); Liberty Bay Credit Union v. Belforte (In 4 re Belforte), 2012 WL 4620987 (Bankr. D. Mass. 2012) (same). In 5 addition, as observed by the bankruptcy court, the other cases 6 relied upon by Meridian are distinguishable because they all dealt 7 with cases where the debtor actually received funds. See, e.g., 8 In re Corbin, 506 B.R. at 287; Brown v. Rust (In re Rust), 2014 WL 9 1796154 (Bankr. E.D. Ky. May 6, 2014); Maas v. Northstar Educ. 10 Fin., Inc. (In re Mass), 497 B.R. 863 (Bankr. W.D. Mich 2013); In 11 re Beesley, 2013 WL 5134404; In re Belforte, 2012 WL 4620987; In 12 re Carow, 2011 WL 802847; Sensient Techs. Corp. v. Baiocchi (In re 13 Baiocchi), 389 B.R. 828 (Bankr. E.D. Wis. 2008). Finally, while 14 we have reviewed the other decisions cited by Meridian that, 15 arguably, reach a different conclusion than we do here, because 16 the courts’ analysis and reasoning in those cases is not fully 17 developed, we find them unpersuasive. See In re Roy, 2010 WL 18 1523996; The Rabbi Harry H. Epstein School, Inc. v. Goldstein (In 19 re Goldstein), 2012 WL 7009707 (Bankr. N.D. Ga. Nov. 25, 2012). 20 Simply put, because Debtor did not actually receive any 21 funds, Meridian’s debt is not excepted from discharge under 22 § 523(a)(8)(A)(ii). 23 VI. CONCLUSION 24 The bankruptcy court did not err in granting summary judgment 25 to Debtor. We therefore AFFIRM the decision of the bankruptcy 26 court. 27 28
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