596 B.R. 86
Bankr. E.D.N.Y.2019Background
- Debtor Hilal Homaidan filed Chapter 7 in 2008, listed two "Tuition Answer" loans from Sallie Mae on Schedule F, received a discharge on April 9, 2009, and later reopened the case in 2017 to challenge nondischargeability and alleged post‑discharge collections.
- Homaidan sued Navient/Sallie Mae entities in an adversary proceeding seeking a declaratory judgment that the Tuition Answer loans were discharged, and damages/fees for willful violations of the discharge injunction; he also asserted putative class claims.
- Defendants moved to compel arbitration (denied earlier) and alternatively to dismiss, arguing the loans are nondischargeable under 11 U.S.C. § 523(a)(8)(A)(ii) as "obligations to repay funds received as an educational benefit."
- Plaintiff contends the loans were direct‑to‑consumer, not "qualified education loans" under § 523(a)(8)(B), and therefore were discharged; he alleges defendants misrepresented dischargeability and continued collection after notice.
- The court treated whether § 523(a)(8)(A)(ii) categorically bars Homaidan’s claims at the pleading stage and whether the complaint sufficiently alleges a discharge‑injunction violation and meets pleading rules.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 523(a)(8)(A)(ii) ("obligation to repay funds received as an educational benefit") bars Homaidan's declaratory claim | Homaidan: loans were direct‑to‑consumer, not "educational benefits" or "qualified education loans," so they were discharged | Defendants: loan proceeds enabled attendance and thus conferred an "educational benefit," so loans are nondischargeable under § 523(a)(8)(A)(ii) | Denied dismissal — court adopts narrower reading of § 523(a)(8)(A)(ii); allegations that loans are consumer (non‑benefit) loans render claim plausible |
| Whether plaintiff's claim for damages/fees for violation of the discharge injunction may proceed in an adversary proceeding | Homaidan: adversary is proper vehicle; alleged discharge, notice to defendants, and willfulness suffice at pleading stage | Defendants: relief is contempt‑based and discharge order is too vague; no liability until dischargeability adjudicated | Denied dismissal — adversary proceeding permissible; complaint alleges discharge, notice, and intentional collection; whether debt was discharged is factual and not resolved on motion |
| Whether portions of complaint alleging widespread misconduct should be struck under FRCP 12(f) | Homaidan: background and misconduct allegations relevant; discovery may support them | Defendants: paragraphs are redundant, immaterial, scandalous and allege nonspecific fraud | Denied — allegations relevant to willfulness and knowledge; not shown to be entirely inadmissible or irrelevant |
| Whether fraud‑style background allegations must meet FRCP 9(b) particularity or be struck | Homaidan: he does not plead a fraud cause and thus 9(b) inapplicable | Defendants: complaint’s substance alleges fraud and lacks particularity | Denied — court finds 9(b) not triggered as pleaded causes are dischargeability and injunction violations, not fraud claims |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not accepted as true on motion to dismiss)
- Kawaauhau v. Geiger, 523 U.S. 57 (exceptions to discharge construed narrowly)
- In re Campbell, 547 B.R. 49 (Bankr. E.D.N.Y. 2016) (adopts narrow view of "educational benefit" in § 523(a)(8)(A)(ii))
- In re Decena, 549 B.R. 11 (Bankr. E.D.N.Y. 2016) (similar analysis distinguishing loans from conditional educational benefits)
- In re Desormes, [citation="569 F. App'x 42"] (2d Cir. 2014) (summary disposition treating private bar‑study loan as nondischargeable under § 523(a)(8)(A)(ii))
- In re McDaniel, 590 B.R. 537 (Bankr. D. Colo. 2018) (denying dismissal; § 523(a)(8)(A)(ii) does not encompass ordinary loans)