Alfes v. Educational Credit Management Corp. (In Re Alfes)
709 F.3d 631
6th Cir.2013Background
- Alfes incurred FFELP student loans, later consolidated; SunTrust was lender and obligee on the consolidated Note, PHEAA guarantor.
- Alfes filed Chapter 7 bankruptcy in 2005 and received a discharge of most debts; the Note was alleged to be nondischargeable under 11 U.S.C. § 523(a)(8).
- ECMC moved to substitute for PHEAA; PHEAA initially remained but a substitution occurred later; a default against PHEAA followed.
- Bankruptcy court later ruled in 2006 that ECMC/PHEAA’s rights as guarantor rendered the consolidated loan nondischargeable; Alfes did not appeal that judgment.
- ECMC later sought declaratory relief in 2010 to reaffirm nondischargeability; Alfes challenged amendments and relation-back; the courts ultimately affirmed ECMC’s position.
- Settlement in 2010 limited Alfes’s claim against SunTrust, and ECMC filed an amended complaint in 2010 arguing guarantor rights; the amended complaint related back and a final judgment in ECMC’s favor remained applicable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether guarantor rights survive discharge against the lender’s default judgment | Alf es contends res judicata bars ECMC as assignee from relitigating dischargeability | ECMC has separate, distinct guarantor rights not bound by SunTrust’s default | ECMC's guarantor rights survive; default does not bar guarantor claims |
| Whether a default judgment against SunTrust binds ECMC as guarantor | Default against SunTrust should bar ECMC's claims as assignee | Guarantor rights are independent and not bound by the lender’s default judgment | Default against SunTrust does not bind ECMC as guarantor |
| Whether the amended complaint relates back under Rule 15(c) despite a settlement deadline | Amendment introduces new theory; relation back questionable | Amendment asserts same substantive claims; no surprise to Alfes; relation back proper | Amendment related back; no new substantive claim; proper under Rule 15(e)/(c) |
| Whether res judicata forecloses Alfes’s second-adversary claims | Final ECMC judgment should block Alfes’s later claims | ECMC’s guarantor rights form a separate claim; prior judgments do not bar them | Final ECMC judgment has res judicata effect on Alfes’s claims; SunTrust default does not bar ECMC’s guarantor claims |
| Whether ECMC’s claims as guarantor were properly adjudicated as nondischargeable | Alfes argues non-guarantor discharge issues control | Guarantor rights and eligibility for nondischargeability were properly adjudicated in ECMC’s favor | Yes; ECMC’s guarantor claims were deemed nondischargeable |
Key Cases Cited
- United States v. Erkard, 200 B.R. 152 (N.D. Ohio 1996) (guarantor as creditor holds independent claim in bankruptcy)
- In re H & S Transp. Co., 939 F.2d 355 (6th Cir. 1991) (guarantor creditor rights in bankruptcy)
- In re Bernal, 207 F.3d 595 (9th Cir. 2000) (distinguishes timing of guarantor rights assignment after default judgment)
- In re Garmhausen, 262 B.R. 217 (Bankr. E.D.N.Y. 2001) (guarantor rights separate from lender-entity liability)
- In re Wedell, 329 B.R. 59 (W.D. Wash. 2005) (guarantor rights not automatically discharged by lender default)
- In re M.J. Waterman & Assocs., Inc., 227 F.3d 604 (6th Cir. 2000) (standard of review in bankruptcy appeals)
- Kane v. Magna Mixer Co., 71 F.3d 555 (6th Cir. 1995) (four elements of res judicata)
- Pertuso v. Ford Motor Credit Co., 233 F.3d 417 (6th Cir. 2000) (relation back and notice in bankruptcy amendments)
- Bonerb v. Richard J. Caron Found., 159 F.R.D. 16 (W.D.N.Y. 1994) (relation back doctrine and contracted limitations)
- Cange v. Stotler & Co., 826 F.2d 581 (7th Cir. 1987) (contractual limitations and limitations periods)