In Re Debtor Laura E. Pierson

Filing 21

MINUTE ORDER IN CHAMBERS REVERSING Bankruptcy Court's Grant of Summary Judgment and REMANDING for Further Proceedings by Judge Dale S. Fischer: The bankruptcy court's order granting summary judgment in favor of National Collegiate is REVERSED and the matter is REMANDED for further proceedings. (MD JS-6. Case Terminated). (SEE MEMORANDUM FOR SPECIFICS) (bp)

JS-6
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
MEMORANDUM

Case No.

Title

CV 16-2880 DSF; 14-bk-21848-DS

Date

10/28/16

In re Laura Pierson

Present:
 The Honorable

DALE S. FISCHER, United States District Judge
Debra Plato

Deputy Clerk

Court Reporter

Attorneys Present for Plaintiffs

Attorneys Present for Defendants

Not Present

Not Present

Not Present

Proceedings:

(In Chambers) REVERSING Bankruptcy Court’s Grant of Summary
Judgment and REMANDING for Further Proceedings

I.

INTRODUCTION

Appellant Laura Pierson appeals the bankruptcy court’s order granting summary
judgment in favor of Appellees National Collegiate Student Loan Trust 2007-2 and
National Collegiate Student Loan Trust 2006-03 (National Collegiate), thereby denying
Pierson’s request to discharge student debt.1
II.

LEGAL STANDARD

A district court reviews a bankruptcy court’s grant of summary judgment de novo.
In re Caneva, 550 F.3d 755, 760-61 (9th Cir. 2008). “The court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “This
burden is not a light one.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir.

1

Pierson owed National Collegiate $65,933.15 when National Collegiate moved for summary
judgment. Appendix at 173.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
MEMORANDUM

2010). But the moving party need not disprove the opposing party’s case. Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986). Rather, if the moving party satisfies this burden, the
party opposing the motion must set forth specific facts, through affidavits or admissible
discovery materials, showing that there exists a genuine issue for trial. Id. at 323-24;
Fed. R. Civ. P. 56(c)(1). A non-moving party who bears the burden of proof at trial as to
an element essential to its case must make a showing sufficient to establish a genuine
dispute of fact with respect to the existence of that element of the case or be subject to
summary judgment. See Celotex Corp., 477 U.S. at 322. “[A] district court is not
entitled to weigh the evidence and resolve disputed underlying factual issues.” Chevron
Corp. v. Pennzoil Co., 974 F.2d 1156, 1161 (9th Cir. 1992). Rather, “the inferences to be
drawn from the underlying facts must be viewed in the light most favorable to the party
opposing the motion.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574, 587-88 (1986) (internal quotation marks and ellipsis omitted).
To determine whether a debtor in bankruptcy may discharge a student loan, the
Ninth Circuit follows the test adopted by the Second Circuit in Brunner v. N.Y. State
Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987). In re Pena, 155 F.3d 1108, 1112
(9th Cir. 1998). In Brunner, the Second Circuit held that deciding whether a party can
discharge her student loans requires a determination of whether discharging the loans
would impose an “undue hardship” under 11 U.S.C. § 523(a)(8). See Brunner, 831 F.2d
at 396. The Second Circuit’s standard for “undue hardship” requires a three-part
showing: (1) that the debtor cannot maintain, based on current income and expenses, a
“minimal” standard of living for the debtor and his or her dependents if forced to repay
the loans; (2) that additional circumstances exist indicating that this state of affairs is
likely to persist for a significant portion of the repayment period of the student loans; and
(3) that the debtor has made good faith efforts to repay the loans. Id. Here, the
bankruptcy court found that there were genuine issues of fact as to the first two prongs,2
but found that Pierson could not show “good faith.”
III.

DISCUSSION

“‘Good faith is measured by the debtor’s efforts to obtain employment, maximize
income, and minimize expenses.’ Courts will also consider ‘[a] debtor’s effort – or lack
thereof – to negotiate a repayment plan,’ although a history of making or not making
payments is, by itself, not dispositive.” In re Mason, 464 F.3d 878, 884 (9th Cir. 2006)
(alteration in original) (citations omitted). The bankruptcy court granted summary
judgment for National Collegiate because Pierson made no payments and failed to

2

Because the parties do not appeal these issues, this Court does not address them.
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present evidence that she made an effort to “work out a payment plan or anything of that
nature.” Appendix at 217. 3 The bankruptcy court thus relied on more than Pierson’s
payment history. See In re Roth, 490 B.R. 908, 917 (B.A.P. 9th Cir. 2013) (whether
debtor made payments, whether debtor attempted to negotiate a repayment plan, and
whether debtor sought deferments or forbearances are separate inquiries).4 Pierson’s
argument to the contrary is incorrect.
There is support for a finding that, when a debtor both fails to make payments and
fails to attempt to negotiate a repayment plan, the debtor has not met her burden on the
“good faith” prong. See In re Nichols, No. ADV 11-00784, 2013 WL 3497666, at *5
(B.A.P. 9th Cir. July 9, 2013), aff’d, 605 F. App’x 660 (9th Cir. 2015) (debtors failed to
establish prima facie case for undue hardship where debtors failed to meet their burden
on the third prong because they “did not provide any evidence of payments, deferrals, or
attempts to consolidate”); In re Blackbird, No. ADV 07-04039, 2008 WL 8444793, at *7
(B.A.P. 9th Cir. July 11, 2008) (evidence that debtor does not lack good faith is not
affirmative proof of good faith; where record does not show debtor took any steps to
negotiate an alternative repayment method or repay any amount of his loan, “[t]he
evidence did not add up to an affirmative demonstration of good faith”); In re Berryhill,
No. CV 10-8006-VBF, 2011 WL 3861598, at *4 (C.D. Cal. Aug. 31, 2011) (debtor’s
“failure to present any evidence or testimony that he has explored [alternative repayment]
options is fatal to his request to discharge”).
However, those cases are distinguishable based on other evidence – related to
efforts to obtain employment, maximize income, and minimize expenses – that the Ninth
Circuit has instructed courts to consider. See In re Nichols, 2013 WL 3497666, at *2
(debtors “provided no evidence to show a repayment effort, nor did they address that
prong in argument”); In re Blackbird, 2008 WL 8444793, at *7 (debtor failed to
maximize his income); In re Berryhill, 2011 WL 3861598, at *3 (debtor failed to

3

Pierson may not argue the bankruptcy court failed to consider evidence of post-filing efforts to
negotiate a repayment plan. Pierson’s counsel admitted he did not submit any such evidence.
See Appendix at 211-12. The bankruptcy court appears to have considered it nonetheless, but
found it insufficient. See id. at 217.
4

Pierson fails to support her argument that payment on other loans constitutes evidence of good
faith. While using what income the debtor has to pay one loan over another may not negate
good faith as to the unpaid loan, cf. In re Pena, 155 F.3d at 1114, Pierson provides no support
that it can affirmatively demonstrate good faith as to that unpaid loan. Instead, it seems the
purpose of the third prong would be undermined if a debtor could obtain numerous student loans
knowing she would be able to discharge all based only on payments made toward one. See id. at
1111.
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demonstrate minimized expenses). Here, Pierson has presented evidence she claims
demonstrates a good faith effort to obtain employment, maximize income, and minimize
expenses in light of her Bipolar I diagnosis. Pierson claims that, even with maximizing
income and minimizing expenses, she earns $551.15 per month less than her monthly
expenses and obligations. Appendix at 155-56. The bankruptcy court found there were
factual disputes that, although analyzed under Brunner’s other prongs, also seem to
influence whether Pierson has maximized income and minimized expenses under the
third prong. See Appendix at 216 (disputed facts exist as to whether “this is a situation
that many people are able to deal with, and to work productively and to earn a significant
income”; “what expenses are necessary and what are not”; and “whether [Pierson] would
be able to live in a less expensive apartment”); see also Appendix at 174-76 (disputed
issues of fact regarding Pierson’s income and expenses).
The bankruptcy court’s acknowledgement of these disputed facts that may impact
“good faith” should have prevented it from granting summary judgment – particularly
given the need to view the evidence in the light most favorable to Pierson. Cf. Hedlund
v. Educ. Res. Inst. Inc., 718 F.3d 848, 852, 855 (9th Cir. 2013) (bankruptcy court’s ruling
withstood de novo review of the legal issues where it properly applied all three Brunner
prongs and “it considered the various factors that are relevant to good faith,” which
included: efforts to obtain employment, maximize income, and minimize expenses, as
well as efforts to negotiate a payment plan and make payments). This is particularly so,
given that courts in the Ninth Circuit have observed that a debtor’s financial
circumstances may impact her ability to repay and the futility of a repayment plan, and
thus influence the weight accorded to those “good faith” factors. See In re Roth, 490
B.R. at 918 (“lack of even minimal voluntary payments is not lack of good faith if the
debtor did not have the financial wherewithal to make them”); id. at 919-20 (failure to
seek forbearance or enroll in repayment plan may not weigh against debtor’s good faith if
such efforts would have been futile “especially given her age, poor health, and limited
income prospects”); cf. In re Mandighomi, 242 F. App’x 401, 404 (9th Cir. 2007)
(unpublished) (affirming “good faith” finding where debtor maximized income and
minimized expenses, despite debtor’s failure to make any payments and failure to explore
repayment alternatives where “all of the payment options suggested by [the lender] are
far beyond [the debtor’s] ability to pay”). The bankruptcy court here erred by ruling on
“good faith” without reference to Pierson’s individual circumstances – which it
acknowledged were in dispute.
Because evidence related to Pierson’s good faith attempts to obtain employment,
maximize income, and minimize expenses was in dispute – and resolution could affect
the other factors analyzed under “good faith” – summary judgment was not appropriate.

MEMORANDUM

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
MEMORANDUM

The bankruptcy court’s order granting summary judgment in favor of National Collegiate
is REVERSED and the matter is REMANDED for further proceedings.
IT IS SO ORDERED.

MEMORANDUM

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