In re Christopher BANKS; In re Diane M. Banks, Debtors. Christopher Banks, Plaintiff-Appellant, v. Sallie Mae Servicing Corporation; Educational Credit Management Corporation, Defendants-Appellees.
No. 02-1005.
United States Court of Appeals, Fourth Circuit.
Argued June 5, 2002. Decided Aug. 5, 2002.
299 F.3d 296
In closing, we note that even when a conspiracy constitutes “foreign conduct,” an antitrust plaintiff still has access to the federal courts to challenge it. The district court did not dismiss Dee-K‘s lawsuit because its claim involved foreign conduct. The court merely required Dee-K to prove that the foreign conduct had a substantial effect on United States commerce in order to recover. Other litigants who claim that foreign conduct, which violates our antitrust laws, has harmed them may also have their dаy in court, and the federal courts will provide redress for those who can show that the harm of which they complain had a substantial effect on our commerce. For Dee-K, that day in court has come and gone.
IV.
For the reasons given herein, the judgment of the district court is
AFFIRMED.
United States of America, Amicus Curiae.
Before WILKINSON, Chief Judge, MOTZ, Circuit Judge, and BALDOCK, Senior Circuit Judge of the United States Court of Appeals for the Tenth Circuit, sitting by designation.
Affirmed by published opinion. Senior Judge BALDOCK wrote the opinion, in which Chief Judge WILKINSON and Judge DIANA GRIBBON MOTZ, joined.
BALDOCK, Circuit Judge.
Plaintiff-Appellant Christopher Banks brought an adversary proceeding befоre the United States Bankruptcy Court for the Western District of Virginia, seeking a declaratory judgment that, pursuant to the provisions of his confirmed Chapter 13 plan, he was not liable for post-petition interest on his student loan debt. Banks and Defendant Appellee Educational Credit Management Corporation (ECMC) filed cross motions for summary judgment. The bankruptcy court ruled in Banks’ favor. ECMC appealed and the district court reversed. Banks appeals the district court order. We have jurisdiction pursuant to
I.
In 1994, Banks filed a Chapter 13 petition seeking bankruptcy protection from a variety of debts including approximately $23,000 in federally guaranteed student loans. His initial and amended Chapter 13 plans treated Sallie Mae, the holder of his student loan notes, as the sole member of a separate class of unsecured creditors.1 The plans each provided:
During the pendency of this case, no interest, penalties, late charges, or costs of collection, including attorneys fees, shall accrue.... Upon his discharge, Debtor ... shall be liable for only the unрaid balance of his prepetition debt.
Copies of the plans, along with a notice of the confirmation hearing, were mailed to Sallie Mae at a general address Banks provided. Sallie Mae and its assignees filed no objections to the plan and did not appear at the hearing.
On November 21, 1994, the bankruptcy court issued and mаiled to creditors a confirmation order adopting the plan. The confirmation order provided the Trustee would pay Sallie Mae $4,103.23, which “SHALL BE APPLIED TO PRINCIPAL. NO INTEREST, PENALTIES, LATE CHARGES, OR COSTS OF COLLECTION (INCLUDING ATTORNEY‘S FEES) SHALL ACCRUE.” ECMC, Sallie Mae‘s assignee, does not dispute that it received the proposed plans, the hearing notice, and the confirmation order.
In 1999, the bankruptcy court issued a discharge order, closing thе Chapter 13 case. Shortly thereafter, ECMC informed Banks by letter that it had applied the $4,103 in payments to interest rather than principal, had capitalized the remaining interest, and that he still owed $43,341.95.2 Banks moved to reopen his Chapter 13 case, and filed an adversary proceeding seeking a declaration that the confirmation and dischаrge orders had discharged all post-petition interest that accrued during the pendency of the Chapter 13 proceeding.
The bankruptcy court ruled in Banks’ favor, holding the confirmation order is res judicata, barring ECMC from challenging its enforcement. The court agreed with ECMC that post-petition interest should not have been ordered discharged absent an advеrsary hearing in which Banks proved undue hardship. Nevertheless, the court concluded “the finality of confirmation makes the post-petition interest tolling provision res judicata.” The court relied on the Tenth Circuit decision in Andersen v. UNIPAC NEBHELP (In re Andersen), 179 F.3d 1253, 1258 (10th Cir. 1999), and the Ninth Circuit Bankruptcy Panel‘s decision in Great Lakes Higher Educ. Corp. v. Pardee (In re Pardee), 218 B.R. 916 (9th Cir.BAP1998), aff‘d, 193 F.3d 1083 (9th Cir.1999), in which each court held the judicial policy favoring finality of confirmation must prevail even if the plan contained provisions contrary to the Bankruptcy Code.
ECMC appealed and the district court reversed, holding ECMC‘s claim for post-petition interest survived the discharge order. Although recognizing the conflict with Ninth and Tenth Circuit precedent, the district court held the confirmed plan did not operate as res judicata to bar collection of the interest. The court reasoned that while ECMC received copies of Banks’ Chaptеr 13 plans, due process required a heightened degree of notice. The court also noted Banks’ failure to initiate an adversary proceeding which would have provided such notice, and which is required under the Bankruptcy Code and Rules. The court concluded: “While the Court recognizes that sophisticated lenders such as ECMC, Great Lakеs, and Sallie Mae should not turn a blind eye to the confirmation process, ... neither should
On appeal, Banks asserts: (1) the district court erred in concluding the plan provision mandating the non-accrual of post-petition interest required an adversary hearing; and (2) the district court erred in concluding the confirmation process violated ECMC‘s due process rights.
II.
Where a district court acts in its capacity as a bankruptcy appellate court, we review the bankruptcy court‘s decision independently. See Kielisch v. Educ. Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 319 (4th Cir.2001). We review the bankruptcy court‘s factual findings for clear error. Id. We review de novo the bankruptcy court‘s legal conclusions. Id. Whether a Chapter 13 plan provision required an adversary proceeding and whether the confirmation process violated a creditor‘s due process rights are both legal questions we review de novo.
A.
Student loans are nondischargeable in bankruptcy unless the Debtor can prove excepting the debt from discharge would impose an undue hardship. See
The Bankruptcy Code and Rules require Debtors to bring an adversary proceeding to determine the dischargeability of their student loans.
Allowing the Debtor to pay off loan principal without first permitting the application of the payment to satisfy postpetition interest would reduce the overall amount that the Debtors would have to pay ... thus allowing the Debtors to accomplish indirectly what they could not accomplish directly under the plain language of
§ 523(a)(8) , i.e., a partial discharge of the interest on their student loan debts without a showing of undue hardship.
Id. at 324. The district court correctly concluded the plan provisiоn mandating the non-accrual of post-petition interest required an adversary hearing.
B.
The Bankruptcy Code and Rules place the burden on the Debtor to file adversary
In this case, Banks did not initiate an adversary proceeding. Instead, he included language in his Chapter 13 plan which purported to discharge post-petition interest. The creditor received “notice” of the plan provision pursuant to Bankruptcy Rule 2002 rather than service of prоcess under Bankruptcy Rule 7004. Under Rule 2002, the bankruptcy court must insure “parties in interest” receive not less than 25 days notice by mail of the time fixed for filing objections and the hearing to consider confirmation of the plan. See
The process of seeking a discharge without an adversary proceeding to establish undue hardship is called “discharge by declaration.” See In re Evans, 242 B.R. 407, 413 (Bankr.S.D.Ohio 1999). The number of Debtors seeking to improperly discharge, nondischargeable debt increased significantly following the decisions of our sister Circuits in In re Andersen and In re Pardee. See id. (citing cases and noting frustration with the trend). In In re Andersen, 179 F.3d 1253, the Tenth Circuit rejected a studеnt loan creditor‘s post-confirmation attempt to challenge a discharge provision contained in a confirmed Chapter 13 plan. The Debtor‘s confirmed plan included a provision which purported to discharge the balance of an unpaid student loan. Id. at 1254. The creditor failed to object to or appeal the bankruрtcy court‘s confirmation order. Id. The Tenth Circuit concluded the debt was discharged by the creditor‘s failure to challenge the plan during the bankruptcy court proceedings, along with the res judicata effect of the confirmed plan and the strong policy favoring the finality of confirmation orders. Id. at 1260.
The Ninth Circuit adopted the Tenth Circuit‘s reasoning in In re Pardee, 193
We agree a bankruptcy court confirmation order generally is afforded a preclusive effect.3 But we cannot defer to such an order if it would result in a denial of due process in violation of the Fifth Amendment to the United States Constitution. Piedmont Trust Bank v. Linkous (In re Linkous), 990 F.2d 160, 162 (4th Cir.1993). Where the Bankruptcy Code and Bankruptcy Rules specify the notice required prior to entry of an order, due process generally entitles a party to receive the notice specified before an order binding the party will be afforded preclusive effect. See id. (quoting Mullane v. Central Hanover Bank and Trust, 339 U.S. 306, 314 (1950)); Cen-Pen Corp. v. Hanson (In re Hanson), 58 F.3d 89, 93 (4th Cir.1995).
In In re Linkous, the creditor received “notice” pursuant to Rule 2002, but was not served with a summons and motion as required under Rule 7004. Id. at 163. We held the notice was insufficient and refused to accord finality to thе bankruptcy court‘s confirmation order. Specifically, we ruled due process entitled the creditor to receive notice of a hearing as provided by the Bankruptcy Rules. Id. In In re Hanson, we held where an adversary proceeding “is required to resolve the disputed rights of the parties, the potential defendant has the right to expect that the proper procedures will be followed.” 58 F.3d at 93. In In re Deutchman, we confirmed that a Debtor‘s failure to give specific notice of his intent to discharge nondischargeable debts violates the creditor‘s due process rights and, as a result, the confirmation order discharging the debt will not be given preclusive effect. 192 F.3d at 461.
The district court properly concluded due process entitles a student loan creditor to specific notice of the Debtor‘s intent to discharge any portion of the debt.
III.
Banks failed to initiate an adversary proceeding to establish undue hardship as required to discharge student loan debt under the Bankruptcy Code. As a result, the student loan creditor did not receive adequate notice of Banks’ intent to discharge post-petition interest on his student loan debts. The provision in Banks’ confirmed Chapter 13 plan purporting to discharge the interest violated ECMC‘s due process rights and is not entitled to preclusive effect. Accordingly, the judgment of the district court is affirmed.
AFFIRMED.
BALDOCK
UNITED STATES CIRCUIT JUDGE