In rе Kurt Carl KIELISCH; In Re: Jean Renee Kielisch, Debtors. Kurt Carl Kielisch; Jean Renee Kielisch, Plaintiffs-Appellees, v. Educational Credit Management Corporation, Defendant-Appellant. United States of America, Amicus Curiae. In re David Rufus Lawrence; Elizabeth Lawrence, Debtors. David Rufus Lawrence; Elizabeth Lawrence, Plaintiffs-Appellees, v. Educational Credit Management Corporation, Defendant-Appellant. United States of America, Amicus Curiae.
Nos. 00-2187, 00-2188
United States Court of Appeals, Fourth Circuit
July 26, 2001
258 F.3d 315
V.
In sum, we affirm the NLRB‘s findings that Hyatt was constructively discharged by Coca-Cola and that Pepsi did not carry its burden of showing that his constructive discharge was caused by an offense involving moral turpitude. We further affirm the NLRB‘s rejection of Pepsi‘s contention that Hyatt voluntarily removed himself from the labor market by taking a lower-paying job after his separation from Coca-Cola. We deny enforcement on the present record and remand, however, for further development of the record regarding Pepsi‘s drug testing policies, and the circumstances of Hyatt‘s failure of the Coca-Cola drug test insofar as they bear on the question of whether Hyatt would have failed a Pepsi drug test and been terminated by Pepsi for this reason at some point* had he not been terminated earlier by Pepsi in violation of the Act. We further deny enforcement on the record before us and remand the calсulation of Munn‘s backpay amount to the NLRB for reconsideration, so that the NLRB can resolve the apparent tension between its use of the representative employee formula and the lack of any finding that this formula is more accurate than the alternative used by the ALJ in this case.
REMANDED WITH INSTRUCTIONS.
Decided July 26, 2001.
Before WILKINSON, Chief Judge, and WILLIAMS and MOTZ, Circuit Judges.
Reversed by published opinion. Judge WILLIAMS wrote the opinion in which Chief Judge WILKINSON and Judge DIANA GRIBBON MOTZ joined.
OPINION
WILLIAMS, Circuit Judge:
This consolidated appeal, which involves the cases of Kurt and Jean Kielisch and David and Elizabeth Lawrence (collectively, the Debtors), requires us to resolve whether their creditor, Educational Credit Management Corporation (ECMC), is precluded from applying Chapter 13 plan payments from the Debtors’ bankruptcy estates to postpetition interest on their nondischargeable student loan debts. The bankruptcy courts in the Debtors’ cases each held that ECMC violated
I.
A. The Kielisches
On December 9, 1991, Kurt and Jean Kielisch submitted a Chapter 13 petition for relief pursuant to the United States Bankruptcy Code. On February 21, 1992, Great Lakes Higher Education Guaranty Corporation (Great Lakes) filed
After the discharge, ECMC, the assignee of the Kielisches’ student loans, pursued collection efforts against them. ECMC asserted that, notwithstanding the payments made under the amended plan and the discharge order, its claims were never fully paid because postpetition interest continued to accrue during the pendency of the Chapter 13 proceedings. ECMC also argued that it was proper to apply plan payments first to accrued postpetition interest before principal and that, as a result, the Kielisches still owed a substantial amount on their loans. The Kielisches, in response to ECMC‘s claims, filed a complaint in bankruptcy court to determine the dischargeability of their student loan debt and the proper application of plan payments to that debt.
After a hearing, the bankruptcy court held that although ECMC was entitled to postpetition interest on the nondischargeable student loans, it was improper to apply any of the plan payments to postpetition interest. Accordingly, the bankruptcy court required ECMC to recalculate and reapply the payments received by Great Lakes from the estate to determine what amount of postpetition interest on the loans, if any, remained unpaid. The bankruptcy court left it to the parties to determine the extent to which ECMC‘S claim has been satisfied.
On January 31, 2000, ECMC filed a notice of appeal to the district court. The district court, after reviewing the briefs and the record and without oral argument, affirmed the bankruptcy court‘s decision.
B. The Lawrences
On May 4, 1993, David and Elizabeth Lawrence filed a Chapter 13 bankruptcy petition. Listed in their schedules was student loan debt consisting of two promissory notes. These notes were held by American Student Loan Assistance (ASLA) and Consumers Bank and were subsequently transferred to the guarantor, ECMC, which now holds the notes. In their Chapter 13 plan, which was confirmed July 13, 1993, the Lawrences provided for their student loans as follows:
The debtors shall pay 100% of the following student loans inside their Chapter 13 Plan, as they are nondischargeable in Chapter 7; American Student Loan Assistance = $2,851.00. Consumer‘s Bank = $2,818.00.
(J.A. at 187.) These amounts included only principal and prepetition interest. The Lawrences’ Chapter 13 trustee there-
After a hearing, the bankruptcy court held that although ECMC was entitled to recover from the Lawrences accrued postpetition interest on its claims,
II.
The sole issue on appeal is whether the lower courts properly determined that ECMC was precluded from applying the Debtоrs’ Chapter 13 plan payments to post-petition interest on the Debtors’ nondischargeable student loans. “We review the district court‘s decision by applying the same standard of review that it applied to the bankruptcy court‘s decision. That is, we review findings of fact for clear error and conclusions of law de novo.” In re Deutchman, 192 F.3d 457, 459 (4th Cir. 1999) (internal citations omitted). Whether the application of plan payments to postpetition interest on nondischargeable student loans violates
We begin our analysis with a review of the relevant statutory provisions. “Under the Guaranteed Student Loan Program the federal government serves as guarantor of unsecured student loans and subsidizes interest payments on those loans.” Student Loan Mktg. Assoc. v. Riley, 104 F.3d 397, 400 (D.C. Cir. 1997). Pursuant to
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) 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 non-profit 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 debtor‘s dependents....
Section 523(a)(8) “was enacted to prevent indebted college or graduate students from filing for bankruptcy immediately upon graduation, thereby absolving themselves of the obligation to repay their student loans.” In re Hornsby, 144 F.3d 433, 436-37 (6th Cir. 1998). The nondischargeability of student loans originally applied only to Chapter 7 bankruptcies and not Chapter 13 bankruptcies. This provided debtors seeking to discharge student loan debt an incentive to file Chapter 13 plans because courts permitted borrowers to discharge their student loan debts under Chapter 13 without a showing of undue hardship. See In re Klein, 57 B.R. 818, 820 (9th Cir. BAP 1985) (permitting discharge of student loan under Chapter 13 because “a reasonable construction of the statute requires reading Chapter 13 discharge provisions separately from Chapter 7 and that Congress intended student loans to be dischargeable under Chapter 13” (internal citations omitted)). In 1990, Congress responded by extending the nondischargeability of student loans to Chapter 13 filings. See In re Andersen, 179 F.3d 1253, 1260 n. 12 (10th Cir. 1999) (stating that “prior to 1990, student loan obligations were dischargeable in chapter 13 after completion of plan payments” but that [i]n 1990, Congress amended
Section 682.404(f) of Title 34 of the Code of Federal Regulations addresses the manner in which a creditor must apply payments from a student loan debtor such as the Debtors; it provides,
(f) Application of borrower payments. A payment made to a guaranty agency by a borrower on a defaulted loan must be applied first to the collection costs incurred to collect that amount and then to other incidental charges, such as late charges, then to aсcrued interest and then to principal.
Section 502 provides,
(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that-
(2) such claim is for unmatured interest . . . .
A.
The lower courts in each case reasoned that although the Debtors’ postpetition interest remained nondischargeable and could be recovered from the debtors personally upon completion of the Chapter 13 plans, ECMC could not apply payments to postpetition interest from the bankruptcy estates because
The lower courts and the Debtors rely on Bruning v. United States, 376 U.S. 358 (1964), and Leeper v. Pennsylvania Higher Educ. Assistance Agency, 49 F.3d 98, 100-01 (3d Cir. 1995), for the proposition that “under
In Bruning, the Supreme Court addressed “whether the United States is entitled to recover, out of assets acquired by a debtor after his adjudication of bankruptcy, post-petition interest on a tax assessment which (under § 17 of the Federal Bankruptcy Act, 30 Stat. 544, 550, as amended,
Initially, one would assume that Congress, in providing that a certain type of debt should survive bankruptcy proceedings as a personal liability of the debtor, intended personal liability to continue as to the interest on that debt as well as to its principal amount. Thus, it has never been seriоusly suggested that a creditor whose claim is not provable against the trustee in bankruptcy loses his right to interest in a postbankruptcy action brought against the debtor personally. In most situations, interest is considered to be the cost of the use of the amounts owing a creditor and an incentive to prompt repayment and, thus, an integral part of a continuing debt. Interest on a tax debt would seem to fit that description. Thus, logic and reason indicate that post-petition interest on a tax claim excepted from discharge by § 17 of the Act should be recoverable in a later action against the debtor personally, and there is no evidence of any congressional intent to the contrary.
Id. at 360. The Court also stated,
We find no indication in the wording or history of § 6873(a) that the section was meant to limit the Government‘s right to continuing interest on an undischarged and unpaid tax liability. Nor is petitioner aided by the now-familiar principle that one main purpose of the Bankruptcy Act is to let the honest debtor begin his financial life anew. As the Court of Appeals noted, § 17 is not a compassionate section for debtors. Rather, it demonstrates congressional judgment that certain problems-e.g., those of financing government-override the value of giving the debtor a wholly fresh start. Congress clearly intended that personal liаbility for unpaid tax debts survive bankruptcy. The general humanitarian purpose of the Bankruptcy Act provides no reason to believe that Congress had a different intention with regard to personal liability for the interest on such debts.
Id. at 361 (internal footnote omitted).
The Debtors argue that Bruning clearly distinguishes between personal liability and liability of the estate for purposes of postpetition interest on nondischargeable debts and, therefore, that Bruning supports their argument that ECMC cannot apply estate payments to postpetition interest even though they remain personally liable for the postpetition interest. Bruning, however, only addressed whether Bruning could be personally liable for
In Leeper, the Third Circuit concluded that Bruning applied to the Chapter 13 context and that postpetition interest did accrue on nondischargeable student loan debt during the pendency of Chapter 13 proceedings. Leeper, 49 F.3d at 104. Leeper, however, addressed only whether postpetiton interest could accrue on a nondischargeable student loan after the filing of a Chapter 13 bankruptcy petition and not whether the creditor could apply estate payments to postpetition interest. Moreover, the Leeper court explicitly recognized that the creditor did not argue that plan payments mаde by the debtors could be applied beyond its bankruptcy claims, which only included outstanding principal and prepetition interest. Id. at 100 (noting that in its answer, the creditor “conceded that all plan payments made by the debtors should be applied only to their bankruptcy claims, which include the outstanding principal balances of the loans and all pre-petition interest“). Thus, Leeper did not address the issue before us, which is whether
B.
Section 502 bars creditors from making claims from the bankruрtcy estate for unmatured interest; it is undisputed, therefore, that ECMC could not have included the Debtors’ postpetition interest in its proofs of claim to their bankruptcy estates. Section 101(5) of the bankruptcy code defines a “claim” as follows:
(5) “claim” means-
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured . . . .
We believe that the lower courts conflated these two concepts by effectively treating a “claim” as the equivalent of a “debt” for purposes of
We believe that adopting the Debtors’ position would, in essence, permit them partially to discharge the interest on their nondischargeable student loan debts without a showing of undue hardship, as required by
Because
Our conclusion is bolstered by the fact that the Court in Bruning recognized that “the basic reasons for the rule denying
Here, as in Bruning, the “reasons-and thus the rule” are inapplicable to ECMC‘s application of estate payments to postpetition interest. No matter how long the proceedings take, ECMC still receives only the amount that it sought in its proofs of claim for principal and prepetition interest, even if that amount is later applied to postpetition interest; because the amount claimed from the estate remains the same no matter how ECMC applies the payments, ECMC‘s method of application simрly has no effect on the rights of other creditors. Because the purpose of
III.
In conclusion,
REVERSED.
Elton Fitzgerald ELLIS, Plaintiff-Appellee, v. WEASLER ENGINEERING INC.; et al., Defendants, Nut Hustler Inc., Defendant-Appellant.
No. 99-30965
United States Court of Appeals, Fifth Circuit
July 11, 2001