DECISION
In this аdversary proceeding, plaintiff Lesley Campbell (“Plaintiff’ or “Campbell”) seeks a determination that funds she borrowed under a CitiAssist Bar Exam Loan (“Bar Loan”) in April, 2009 is dis-chargeable. Citibank, N.A. and The Student Loan Corporation (collectively, “Defendants”), two of the five defendants in this action, seek dismissal pursuant to Fed. R. Civ. P. 12(b)(6), made applicable to this adversary proceeding by Rule 7012(b).
In the amended complaint (“Complaint”), Campbell asserts five claims for relief against Defendants. In counts one and two, Campbell seeks a determination of dischargeability and a declaratory judgment that the Bar Loan is dischargeable. Beсause the Bar Loan is not an “educational benefit” within the meaning of § 523(a)(8)(A)(ii), and is not encompassed in any other exception to discharge set forth in § 523(a)(8), the Bar Loan is dis-chargeable, and Defendants’ motion to dismiss these claims is denied.
Count four of the Complaint seeks damages, attorneys’ fees, and costs for violation of the Truth In Lending Act; count six seeks exemplary damages, attorneys’ fees and costs for fraudulent misrepresentation; and count seven seeks disgorgement of unjust enrichment. Because none of these counts states a claim under applicable law, Defendants’ motion to dismiss these claims is granted.
Background
The facts aré not in dispute. In April 2009, Plaintiff, then a student at Pace University Law School, applied for and received the Bar Loan in the amount of $15,000. (Mot. to Dismiss, Declaration of Robert Carson (“Carson Decl.”), p. 2-3, Adv. Pro. No. 15-01038, ECF 18-2; Carson Decl., Ex. A, Adv. Pro. No. 15-01038, ECF 18-3.)
Jurisdiction
This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1996, as amended by order dated December 5, 2012. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
Legal Standard
To overcome a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must set forth “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
When deciding a motion under Fed. R. Civ. P. 12(b)(6), the Court must limit its review to facts and allegations contained in the complaint, documents incorporated into the complaint by reference or attached as exhibits, any document on which the complaint heavily relies, and matters of which the Court may take judicial notice. In re Thelen LLP,
Discussion
Plaintiffs Complaint asserts five claims •for relief against the moving Defendants. Each will be analyzed in turn.
A. Count One: Determination of Dis-chargeability and Count Two: Declaratory Judgment
Counts one and two of the Complaint seek a determination of discharge-ability, pursuant to Rule 4007, and a declaratory judgment, pursuant to 28 U.S.C. § 2201 and Rule 7001(9), stating that none of the exceptions to discharge set forth in § 523(a)(8) is applicable to the Bar Loan, and that the Bar Loan was therefore discharged by the discharge order in Plaintiffs bankruptcy case. (Compl., ¶¶ 24-32, p. 6-7, Adv. Pro. No. 15-01038, ECF 9.)
Section 523(a)(8) provides, in relevant part:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual; ...
“[W]hen [a] statute’s language is plain, the sole function of the courts — at least where the disposition required by the text is not absurd — is to enforce it according to its terms.” Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A.,
In determining whether Congress has specifically addressed the question at issue, a reviewing court should not confine itself to examining a particular statutory provision in isolation. The meaning — or ambiguity — of certain words or phrases may only become evident when placed in context. See Brown v. Gardner,513 U.S. 115 , 118,115 S.Ct. 552 ,130 L.Ed.2d 462 (1994) (“Ambiguity is a creature not of definitional possibilities but of statutory context”). It is a “fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” Davis v. Michigan Dept. of Treasury,489 U.S. 803 , 809,109 S.Ct. 1500 ,103 L.Ed.2d 891 (1989). A court must therefore interpret the statute “as a symmetrical and coherent regulatory scheme,” Gustafson v. Alloyd Co., 513 U.S. 561, 569,115 S.Ct. 1061 ,131 L.Ed.2d 1 (1995), and “fit, if possible, all parts into an harmonious whole,” FTC v. Mandel Brothers, Inc.,359 U.S. 385 , 389,79 S.Ct. 818 ,3 L.Ed.2d 893 (1959).
Food & Drug Admin, v. Brown & Williamson Tobacco Corp.,
In addition, it is axiomatic that exceptions to discharge “should be confined to those plainly expressed,” and construed narrowly against the creditor. Kawaauhau v. Geiger,
Some courts have decided without explanation, or assumed, that “educational benefit,” as used in § 523(a)(8)(A)(ii), encompasses any loan which relates in some way to education. See, e.g., In re Roy, No. 08-33318,
Section 523(a)(8)(A)(ii) sets forth a list of nondischargeable obligations, as follows: “an obligation to repay funds received as [1] an educational benefit, [2] a scholarship, or [3] a stipend.” The canon оf statutory construction known as noscitur a sociis instructs that when a statute contains a list, each word in that list presumptively has a “similar” meaning. Yates v. United States, — U.S. -,
This interpretation is consistent with legislative history. The phrase “educational benefit” first appeared in § 523(a)(8) of the Bankruptcy Code in 1990, as codification of the holding in U.S. Dep’t of Health & Human Servs. v. Smith, where the 8th Circuit determined that a conditional grant to a medical student was a nondischargeable loan within the meaning of § 523(a)(8). U.S. Dep’t of Health & Human Servs. v. Smith,
Finding that on these facts there was no “loan,” both the bankruptcy court and the district court found Smith’s financial obligation to the Department of Health and
After the 1990 amendments, § 523(a)(8) provided, in rеlevant part:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(8) for an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or, made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend ...
11 U.S.C. § 523 (1990). At the congressional hearing on the 1990 amendments to the Code, Bob Wortham, U.S. Attorney for the Eastern District of Texas, explained:
This section adds to the list of non-dischargeable debts, obligations to repay eduсational funds received in the form of benefits (such as VA benefits), scholarships (such as medical service corps scholarships) and stipends. These obligations are often very sizeable and should receive the same treatment as a “student loan” with regard to restrictions on dischargeability in bankruptcy. See U.S. Department of Health and Human Services v. Smith,807 F.2d 122 (8th Cir.1986).
Federal Debt Collection Procedures of 1990: Hearing on P.L. 101-647 Before the H. Subcomm. on Econ. and Commercial Law, H. Judiciary Committee 101st Cong. 74-75 (June 14, 1990), (Mr. Brooks’ Questions for the Record for Mr. Wortham).
After the 1990 amendments went into effect, for-profit lenders argued that loans they made for educational purposes shоuld be excepted from discharge pursuant to the amended § 523(a)(8). For example, a number of bankruptcy courts were required to determine whether loans made by for-profit trucking schools, to their students, were excepted from discharge as “an obligation to repay funds received as an educational benefit.” Though these courts generally ruled on the basis that § 523(a)(8) could not be invoked by a for-profit lender, they noted the statutory interpretation issue presented in the instant case. See e.g., In re Meinhart,
If the third provision of section 523(a)(8)3 were interpreted to mean thatall educational loans were excepted from discharge then the first two categories (extending an exception to only governmental entities and nonprofit institutions) would certainly be rendered meaningless and superfluous. [...] The third category would subsume the first two provisions and make them completely unnecessary. Such an interpretаtion is contrary to statutory interpretation and to common sense.
The third provision clearly has a plain meaning. It does not need to be construed broadly to except all loans for educational benefits from discharge. The provision grants protection to “obligations to repay funds received as an educational benefit.” An example of such an obligation would be for funds provided as grants that must be repaid only under certain conditions (like the failure of a medical student grant recipient to practice in a physician shortage area after graduation).
Circuit courts have issuеd opinions which, while not addressing the issue directly, indicate that interpreting the word “benefit” as synonymous with “loan” is inappropriate. In re Segal,
In 2005, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), the phrase “an obligation to repay funds receivеd as an educational benefit, scholarship, or stipend” was placed in a separate subsection, and new text was added as § 523(a)(8)(B). There is no reason to conclude that the meaning of the term “educational benefit” was changed as a result of the BAPCPA amendments. Whether designated as (ii), or separated from the rest of the text by a comma and the word “or,” a subsection cannot reasonably be interpreted to swallow the rest of the section.
In re Baiocchi,
However, Baiocchi is a case about a conditional grant, with facts analogous to those in Smith, which does not expand the meaning of “educational benefit” in § 523(a)(8)(A)(ii) to encompass commercial or consumer loans. In Baiocchi, the Debt- or worked for a company which reimbursed its employees 50% of the cost of attending school; on the condition that if
In holding the reimbursement obligation nondischargeable, the Baiocchi court stated that the creation • of subsection 523(a)(8)(A)(ii) “must be read as encompassing a broader range of educational benefit obligations.” It is clear, however, that the court was referring to an expansion under the statute of the type of organization that may provide nondischargeable benefits, not the meaning of the term “educational benefit.” In re Baiocchi, at 832.
Many courts, citing Baioechi, have found that as a consequence of the 2005 amendments the category оf “educational benefits” excepted from discharge is no longer limited to those funded, insured or guaranteed by governmental units or non-profits. See, e.g., In re Belforte, No. 10-22742-JNF,
I see no basis to untether the language in § 523(a)(8)(A)(ii) to apply the student loan exception to discharge to “all obligations to repay funds received as an educational benefit, scholarship or stipend,” without limitation. Such an interpretation would render § 523(a)(8)(B), the provision that Congress added to § 523(a)(8) in BAPCPA, superfluous and makes no sense. After all, if any educational loans of any kind are excepted from discharge by § 523(a)(8)(A)(ii), what addition does excepting qualified eduсational loans under the Internal Revenue Code make to the discharge exception? The educational loans excepted from discharge under § 523(a)(8)(B) would be no more than a subset of such loans already excepted from discharge under § 523(a)(8)(A)(ii). Accordingly, I reject the conclusion of some courts that the addition of letter subsection identifiers and a semicolon to familiar language in § 523(a)(8) “must be read as encompassing a broader range of educational benefit obligations.” See, e.g., Sensient Technologies Corp. v.Baiocchi (In re Baiocchi), 389 B.R. 828 , 831-32 (Bankr.E.D.Wis.2008).
In re Nunez,
Baiocchi and Nunez arrived at opposite conclusions regarding whether a nondis-chargeable “obligation to repаy funds received as an educational benefit, scholarship, or stipend” under § 523(a)(8)(A)(ii) must meet one of the requirements of § 523(a)(8)(A)(i); i.e., be “made, insured, or guaranteed by a government unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution.” Here, however, the determination that the Bar Loan is not encompassed in § 523(a)(8)(A)(ii) is based on the conclusion that “educational benefit,” as used in that provision, cannot properly be understood to include a consumer loan such as the Bar Loan. Given the determination that the Bar Loan is not an “educational benefit” under 523(a)(8)(A)(ii), it is unnecessаry to decide whether the Nunez court is correct in concluding that nondis-chargeable obligations under 523(a)(8)(A)(ii) must also involve a governmental unit or nonprofit institution as required by 523(a)(8)(A)(i). For this reason that question is not reached.
In re Skipworth, cited by Defendants, presents facts similar to those of the instant case. In re Skipworth, No. ADV. 09-80149-JAC-7,
Defendants attempt to argue that the Bar Loan can be found nondischargeable without broadening the meaning of § 523(a)(8)(A)(ii) to an extent that would render the rest of § 523(a)(8) superfluous, by asserting that the “educational benefit” in this case can be found in the fact that eligibility for the Bar Loan was dependent on Plaintiff being a law student. (Reply, p.10, Adv. Pro. No. 15-01038, ECF 34.) However, this argument could be advanced by the myriad private lenders who provide funds to borrowers who are taking educational or training courses. Compare, In re Scott,
The legislative history and legislative purpose of § 523(a)(8) buttresses the conclusion that a consumer loan such as the Bar Loan is not what is meant by “benefit.” The original impetus for including an exception to discharge for education loans made by the government was the concern that if debtors were allowed to discharge such loans, the solvency of government education loan programs would be undermined, in effect “discriminating against fu
In a House Report leading to the enactment of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549, Congress recognized the unique nature of educational loans:
“[Educational loans are different from most loans. They are made without business considerations, without security, without cosigners, and relying for repayment solely on thе debtor’s future increased income resulting from the education. In this sense, the loan is viewed as a mortgage on the debtor’s future. In addition, there have been abuses of the system by those seeking freedom from educational debts without ever attempting to repay.”
H.R.Rep. No. 595, 95th Cong., 2d Sess. 133, reprinted in 1978 U.S. Code Cong. & Ad.News 5963, 6094.
U.S. Dep’t of Health & Human Servs. v. Smith,
This is not to say that only conditional grants can constitute an educational benefit under § 523(a)(8)(A)(ii). The precise contours of this exception need not be decided today. In this case, the Bar Loan, a product of an arm’s-length agreement on commercial terms, is not an “educational benefit” under § 523(a)(8)(A)(ii). Therefore, Defendants’ motion to dismiss counts one and two of the Complaint is denied.
B. Count H Violation of the Truth In Lending Act, Count 6: Fraudulent Misrepresentation, and Count 7: Unjust Enrichment
The claims asserted in counts four, six and seven of the Complaint are property of the bankruptcy estate, and unless these claims are abandoned, they can only be asserted by the Chapter 7 Trustee. Mendelsohn v. Ozer,
Plаintiff asserts a claim under two sections of the Code of Federal Regulations which elaborate the Truth In Lending Act (“Regulation Z”), 12 C.F.R. 226.17(c) and 12 C.F.R. 226.46(e)(1). (Compl. ¶¶ 40-44, p. 8-9, Adv. Pro. No. 15-01038, ECF 9.)
12 C.F.R. 226.17(c)(1) provides that “[t]he disclosures shall reflect the terms of the legal obligations between the parties,” and 12 C.F.R. 226.46(e)(1) provides: “Basis of disclosures and use of estimates — (1) Legal Obligation. Disclosures shall reflect the terms of the legal obligation between the parties.”
Plaintiff has asserted that Defendants have misrepresented the legal obligations between the parties by representing that the Bar Loan is a nondischargeable loan, when in fact it is dischargeable. In this case, there is no occasion to decide whether such a misrepresentation could allow a plaintiff to state a claim under the Truth in Lending Act, because Defendants never made any representation to Plaintiff regarding dischargeability. Plaintiff asserts that such a representation was made because the promissory note was titled “Master Student Loan Promissory Note,” even though the promissory note makes no mention of dischargeability in bankruptcy. (Carson Decl., Ex. B, Adv. Pro. No. 15-01038, ECF 18-4.) The only mention of bankruptcy in the promissory note (aside from references, not relevant here, in the arbitration clause) is that filing for bankruptcy (or the filing of an involuntary bankruptcy proceeding against the borrower) constitutes an event of default. (Carson Decl., Ex. B, Adv. Pro. No. 1501038, ECF 18-4.)
To say that titling a promissory note “Master Student Loan Promissory Note” constitutes an assertion of the parties’ legal rights with regard to a discharge in bankruptcy is inconsistent with § 523(a)(8), which does not except from discharge all student loans. Two subsections of § 523(a)(8) deal specifically with student loans. In the absence of hardship, § 523(a)(8)(A)(i) excepts from discharge “an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under аny program funded in whole or in part by a governmental unit or nonprofit institution,” and § 523(a)(8)(B) excepts “any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.” Simply calling the Bar Loan a student loan is not a declaration that the Bar Loan comes within the ambit of these provisions, and says nothing about the dischargeability of the Bar Loan in bankruptcy.
Because Plaintiff has failed to plead facts sufficient to establish that Defendants have misrepresented the legal oblL gations of the parties, Defendants’ motion to dismiss Plaintiffs claim for a violation of the Truth in Lending Act is granted, and the claim is dismissed.
2. Count Six: Fraudulent Misrepresentation
Plaintiff asserts a claim for fraudulent misrepresentation based on Defendants’ representation that the Bar Loan was a nondischargeable student loan. (Compl. ¶¶ 50-57, p. 9-10, Adv. Pro. No. 15-01038, ECF 9.) “[I]n a claim for fraudulent misrepresentation, a plaintiff must allege ‘a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.’ ” Mandarin Trad
Because Plaintiff has not alleged facts sufficiеnt to satisfy the elements of a claim for fraudulent misrepresentation, Defendants’ motion to dismiss with respect to this claim is granted, and this claim is dismissed.
3. Count Seven: Unjust Enrichment
In order to “prevail on a claim for unjust enrichment in New York, a plaintiff must establish (1) that the defendant benefitted; (2) at the plaintiffs expense; and (3) that equity and good conscience require restitution.” Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of New Jersey, Inc.,
Here, Plaintiff does not allege that she conferred a benefit on Defendants for which she has not been compensated. Rather, Plaintiff alleges that Defendants were enriched when they sold the Bar Loan on the secondary market because, allegedly, the purchase price they received was enhanced by the assertion that the Bar Loan was nondischargeable. (Compl. ¶¶ 58-45(sic), p.10-11, Adv. Pro. No. 15-01038, ECF 9.) However, Plaintiff cannot state a cause of action for unjust enrich ment by alleging that the Defendants were unjustly enriched at the expense of the third party purchaser. Fid. Nat. Title Ins. Co. v. N.Y. Land Title Agency LLC,
In this case, Plaintiff does not allege that Defendants improperly received any funds from her; rather, the injury she claims is that she “[w]as forced to bear the legal and financial consequences of the Defendants’ misrepresentation.” (Mem. of Law in Opp’n, p. 15-16, Adv. Pro. No. 15-01038, ECF 32.) This is insufficient to state a claim for unjust enrichment, and
Conclusion
For the reasons set forth above, Defendants’ motion to dismiss with regard to counts one and two of the Complaint is denied. Defendants’ motion to dismiss with regard to counts four, six and seven of the Complaint is granted, and these claims are dismissed. A separate order will issue.
Notes
. All statutory references are to the United States Bankruptcy Code, 11 U.S.C. et seq. ("Bankruptcy Code" or "Code”), and all Rule references are to the Federal Rules of Bankruptcy Procedure, unless otherwise noted.
. Citations to "ECF” are to documents filed on docket of this proceeding, identified by docket number. Plaintiffs statement in the Complaint that she borrowed $15,900 in February 2009 appears to be a typographical error; the parties agree that the amount of the loan was $15,000, disbursed in April 2009. (Compl., ¶ 15, p.4-5, Adv. Pro. No. 15-01038, ECF 9; Cf. Mem. of Law in Opp’n, p. 2, Adv. Pro. No. 15-01038, ECF 32.)
. Further revisions were made to § 523(a)(8) throughout the 1990s, which do not impact the analysis of the meaning of "educational benefit.” At the time In re Scott was decided, § 523(a)(8) provided that a discharge under § 727 did not discharge an individual from any debt:
for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any progrаm funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debt- or's dependents.
§ 523(a)(8) (1998) (italics indicate the “third provision” discussed in Scott,
. The fourth case Defendants point to in their memorandum of law in support of their motion to dismiss (In addition to Baiocchi, Roy and Skipworth) is In re Kesler,