547 B.R. 49
Bankr. E.D.N.Y.2016Background
- In April 2009 Campbell, a Pace law student, obtained a $15,000 CitiAssist "Bar Loan" and made payments through June 2012; she filed Chapter 7 in Nov. 2014 and received a discharge in March 2015.
- Campbell sued in an adversary proceeding seeking a declaration that the Bar Loan was discharged and that it is not nondischargeable under 11 U.S.C. § 523(a)(8); she also asserted TILA, fraudulent misrepresentation, and unjust enrichment claims.
- Defendants (Citibank and The Student Loan Corporation, later assigned to Square Two Financial) moved to dismiss under Fed. R. Civ. P. 12(b)(6).
- The central legal question was whether the Bar Loan is an "educational benefit" under § 523(a)(8)(A)(ii) (which would make certain obligations nondischargeable).
- The court accepted the complaint facts as pleaded, limited review to the complaint and incorporated exhibits, and evaluated statutory interpretation principles and legislative history.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Bar Loan is an "educational benefit" under § 523(a)(8)(A)(ii) (nondischargeable) | The Bar Loan is education-related and thus falls within § 523(a)(8)(A)(ii) and was not discharged | The Bar Loan is a consumer/commercial loan and not the kind of conditional grant/benefit Congress meant to except from discharge | Court: Bar Loan is not an "educational benefit" under § 523(a)(8)(A)(ii); counts 1–2 survive (motion to dismiss denied) |
| Truth in Lending Act claim (Regulation Z disclosures) | Defendants labeled documents "student loan" and thus misrepresented the parties' legal obligations (i.e., nondischargeability) | No express representation was made about dischargeability; title alone does not alter legal obligations under § 523(a)(8) | Court: Pleading insufficient; TILA claim dismissed |
| Fraudulent misrepresentation | Defendants represented the loan as nondischargeable and induced Campbell to borrow | Even if said, borrower would not plausibly rely on a representation that the loan was nondischargeable (that would be worse for borrower) | Court: Fraud claim insufficiently pleaded; dismissed |
| Unjust enrichment | Defendants were enriched (e.g., via resale premium) by asserting nondischargeability | Any alleged enrichment benefitted a third-party purchaser; plaintiff did not allege benefit conferred by her to defendants | Court: Unjust enrichment not pleaded properly; dismissed |
Key Cases Cited
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (exceptions to discharge construed narrowly)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for Rule 12(b)(6))
- U.S. Dep’t of Health & Human Servs. v. Smith, 807 F.2d 122 (8th Cir. 1986) (conditional grant treated as nondischargeable obligation)
- Gustafson v. Alloyd Co., 513 U.S. 561 (1995) (statutory context and noscitur a sociis principles)
- In re Baiocchi, 389 B.R. 828 (Bankr. E.D. Wis. 2008) (conditional reimbursement held nondischargeable; discussed but distinguished)
- In re Segal, 57 F.3d 342 (3d Cir. 1995) (Congress extended reach of § 523(a)(8) to include educational benefits)