Queen v. John Does 1-10 et al
ORDER - The Bankruptcy Court's decision is reversed and remanded. Signed on 9/27/11 by District Judge Greg Kays. (Francis, Alexandra)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MISSOURI
ESTHER MAE WATKINS,
f/k/a Esther Mae Tigner, n/k/a Esther Mae Queen
ESTHER MAE QUEEN,
f/k/a Esther Mae Watkins,
EDUCATIONAL CREDIT MANAGEMENT
CORPORATION, et al.,
Bk. No. 90-41473
Adv. No. 10-4319-ABF
Case No. 11-00253-CV-W-DGK
Pending before the Court is the Plaintiff-Appellant’s (“Queen”) appeal from the United
States Bankruptcy Court for the Western District of Missouri’s Order dismissing her adversary
case. The Court has reviewed the Record on Appeal and the parties’ briefs. For the reasons
stated herein, the Bankruptcy Court’s decision is REVERSED AND REMANDED.
On June 11, 1990, Queen filed a voluntary petition for Chapter 7 bankruptcy. Her
amended schedules reflected a student loan in the amount of $4,800, incurred prior to April
1985. Queen received a general discharge on November 7, 1990. She did not file an adversary
proceeding to determine the dischargeability of the student loan. Queen was informed by her
attorney at the time that the loan had been discharged. In early 2010, Queen discovered that the
loan had not been discharged when the Defendant-Appellee Educational Credit Management
Corporation (“ECMC”) intercepted her 2009 tax refund. She then filed to reopen her 1990 case
and filed an adversary proceeding to determine the dischargeability of the loan under either (1) a
provision of the law in effect in 1990 allowing for discharge of student loans which come due
five years prior to discharge or (2) on the basis of undue hardship.
ECMC moved to dismiss the case for lack of subject matter jurisdiction and failure to
state a claim, claiming that the Bankruptcy Court lacked jurisdiction to amend the 1990
discharge. Queen countered citing a recent Bankruptcy Appellate Panel (“BAP”) decision which
rejected ECMC’s arguments. In re Walker, 427 B.R. 471 (B.A.P. 8th Cir. 2010) (Walker I).1 In
this case, the BAP held that Bankruptcy Rule 4007 gives the Bankruptcy Court jurisdiction to
decide student loan dischargeability “‘at any time’ and, if necessary, a closed bankruptcy case
may be reopened…” Id. at 478. It noted that ECMC—the defendant in both Walker cases as
well—had improperly designated this as a subject matter jurisdiction issue, reasoning that
because student loans are not discharged unless explicitly stated, a general order of discharge is
not final as to such loans. Id. at 479-80. In this case, the Bankruptcy Court distinguished Walker
I, noting that it regarded a situation in which a debtor could file a new bankruptcy case—as
here—as distinguishable.2 Id. at 479 n.19. The Bankruptcy Court granted ECMC’s Motion to
The Eighth Circuit recently affirmed Walker I. In re Walker, -- F.3d --, No 10-2032 (8th Cir. Aug. 18, 2011)
(Walker II) available at http://www.ca8.uscourts.gov/opndir/11/08/102032P.pdf. The only issue from this opinion
relevant to the Court’s analysis is the Eighth Circuit’s determination that “ignor[ing] what occurred in Walker’s life
after 2004 would be inconsistent with the first prong of the totality-of-circumstances test, which instructs a factfinding court to consider ‘the debtor’s past, present, and reasonably reliable future circumstances.’” Id. at 6 (quoting
In re Long, 322 F.3d 549, 554 (8th Cir. 2003)). This clearly indicates that Queen’s financial situation since 1990 is
relevant to undue hardship analysis and does not speak to her first claim for discharge under the 1990 version of the
B.A.P. opinions are not binding on the Bankruptcy or District Courts, however, they are persuasive authority. In re
Pepmeyer, 273 B.R. 782, 785 (N.D. Iowa 2002); In re Williams, 257 B.R. 297, 301 n.5 (Bankr. W.D. Mo. 2001)
(B.A.P. not binding on the Bankruptcy Court but “entitled to appropriate respect”).
dismiss and advised Queen to file a new case to determine dischargeability of the loan at issue.
Queen then filed a timely notice of appeal. The above-stated facts are undisputed. Doc. 9 at 6.
As mentioned above, the default rule is that student loans are not dischargeable in
bankruptcy and are not included in a general discharge. Educ. Credit Mgmt. Corp. v. Jesperson,
571 F.3d 775, 778 (8th Cir. 2009). They may be found dischargeable if the debtor can show
“undue hardship.” 11 U.S.C. § 523(a)(8). Undue hardship is determined in light of the “totalityof-the-circumstances…[including] the debtor’s past, present, and reasonably reliable future
financial resources, the debtor’s reasonable and necessary living expenses, and any other relevant
facts and circumstances.” Jesperson, 571 F.3d at 779 (internal quotations omitted). While not
true today, in 1990 a student loan was dischargeable if it came due more than five years prior to
the filing. 11 U.S.C.A. § 523(a)(8)(A) (West 1990) (“…unless…such loan first became due
before five years (exclusive of any applicable suspension of the repayment period) before the
date of the filing of the petition”). Absent some indication of Congressional intent for retroactive
application, the version of the law in effect at the time of filing applies. In re Shearer, 167 B.R.
153, 156 (Bankr. W.D. Mo. 1994).
The Federal Rules of Civil Procedure are applied to an adversary bankruptcy case via
Bankruptcy Rule 7012(b). The Court will analyze the Defendant’s Motion accordingly. Both
failure to state a claim and subject matter jurisdiction are legal issues which the Court reviews de
novo. In re Miell, 439 B.R. 704, 707 (B.A.P. 8th Cir. 2010) (failure to state a claim), In re
Farmland Indus., 567 F.3d 1010, 1016 (8th Cir. 2009) (subject matter jurisdiction).
ECMC’s first argument in support of its Motion is that the 1990 discharge is final and the
Bankruptcy Court therefore does not have subject matter jurisdiction to amend it. Walker I
dispenses with that argument concisely. 427 B.R. at 477 (“At the outset, this is not a subject
matter jurisdiction issue.”). The dischargeability of the loan at issue was never determined, and a
general discharge does not cover generally nondischargeable debts. 11 U.S.C. § 523(a) (“A
discharge under section 727 [Chapter 7]… does not discharge an individual debtor from [(a)(8)
educational loans].”) Walker I holds that Rule 4007(b) allows a debtor to file a dischargeability
determination case at any time, including after discharge. 427 B.R. at 477-78 (“ECMC asserts
that ‘at any time’ in Rule 4007 means ‘at any time before discharge is entered.’ We disagree.
Had that been the intent of the rule, the rule could have said that.”). Nor is there any bright line
time bar that prevents Queen from reopening her bankruptcy case after 20 years. See In re
Dunning Bros., 410 B.R. 877, 890 (Bankr. E.D. Cal. 2009) (“no defect in this court’s
jurisdiction” to reopen case after 73 years).
ECMC is likely correct that it will be difficult to determine Queen’s financial state as of
1990, although Walker II makes clear that her financial situation since is relevant to undue
hardship. Queen recognizes that—regardless of the exact time period to be considered—undue
hardship is hers to prove and she will lose if she fails to carry that burden. But the overall
likelihood of prevailing is not relevant to whether a plaintiff has stated a plausible claim for
relief. See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (noting that the requirement is
plausible not probable). The Bankruptcy Court noted that “ripeness, mootness or laches” might
apply to bar this suit. Regarding laches, this is an affirmative defense that must be pled and
proved by ECMC, and the case was dismissed before ECMC filed an answer. Fed. R. Civ. P.
8(c)(1); see also Joyce v. Armstrong Teasdale, LLP, 635 F.3d 364, 367 (8th Cir. 2011) (noting
the “general rule” that the possible existence of an affirmative defense is not grounds for
dismissal for failure to state a claim). This may be a successful defense for ECMC, given the 20year span between discharge and filing, but ECMC must prove that Queen “unreasonably
delayed or [was] negligent in asserting a claim so that [ECMC] has been prejudiced.” Strawn v.
Missouri Bd. of Educ., 210 F.3d 954, 956 n.3 (8th Cir. 2000) (citing Black’s Law Dictionary 879
(7th ed. 1999)); see also Jacobsen v. Deseret Book Co., 287 F.3d 936, 950 (10th Cir. 2002)
(noting that laches does not apply when a claimant is “justifiably ignorant of the facts creating
his…cause of action”) (ellipsis in original). Laches is not a basis for dismissal at this time.
Regarding mootness and ripeness, ECMC did not argue that either applies, and the Court
fails to see how they might. The case could be moot if the loan has been paid, which does not
appear to be the case, or ECMC would not have intercepted Queen’s tax refund. If anything, this
case is over-ripe for review.
Finally, the Bankruptcy Court noted Queen’s ability to file a new bankruptcy case and
advised her to do that. This, however, is unrelated to whether or not she has stated a claim.
Similarly, the Court has not considered the Plaintiff’s arguments regarding the extra-legal
consequences to her credit rating of filing a new case. Rather, the Court notes that judicial
economy weighs in favor of allowing this case to proceed on its merits, regardless of whether or
not Queen could file a new case. Walker I makes reference to this issue only briefly, as one of
several reasons for distinguishing In re Emhke, an unpublished Northern District of California
case. As a result, it is far from clear that this was intended to be a broad pronouncement about
when debtors must file a new bankruptcy versus an adversary case in an existing bankruptcy.
To summarize, ECMC’s arguments regarding subject matter jurisdiction are foreclosed
by Walker I. Though not binding, the Court finds Walker I persuasive and consistent with the
plain language of Rule 4007, which allows student loan dischargeability determinations “at any
time.” Neither the rule nor any case the Court is aware of establishes a bright line rule regarding
how much time can elapse between discharge and filing. Finally, Walker II undercuts ECMC’s
arguments regarding the difficulty of determining Queen’s financial situation in 1990 by
showing that subsequent events, including her current financial situation, are relevant to an
undue hardship determination. For these reasons, the judgment below is REVERSED and the
case is REMANDED for further proceedings consistent with this Order.
IT IS SO ORDERED.
Date: September 27, 2011
/s/ Greg Kays
GREG KAYS, JUDGE
UNITED STATES DISTRICT COURT