Dorsey v. U.S. Department of Education et al
Filing
22
ORDER AND REASONS re 1 Bankruptcy Appeal filed by Mick Dorsey. It is ORDERED that the bankruptcy court's Final Judgment is AFFIRMED. Signed by Judge Carl Barbier.(gec)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
MICK DORSEY
CIVIL ACTION
VERSUS
NO: 15-5988
U.S. DEPARTMENT OF EDUCATION,
ET AL.
SECTION: “J” (5)
ORDER AND REASONS
Before the Court is a Notice of Appeal from Bankruptcy Court
(Rec.
Doc.
1)
filed
by
Appellant
Mick
Dorsey
(“Appellant”).
Appellant filed an Opening Brief (Rec. Doc. 12) on February 25,
2016. Appellee Educational Credit Management Corp. (“ECMC”) filed
its brief on April 27, (Rec. Doc. 19), and Appellee the United
States Department of Education (“the Department” or “DOE”) filed
its brief on May 26, (Rec. Doc. 20). Appellant subsequently filed
a reply brief (Rec. Doc. 21). Having considered the briefs, the
parties’ submissions, the record, and the applicable law, the Court
finds, for the reasons expressed below, that the bankruptcy court’s
decision should be AFFIRMED.
PROCEDURAL HISTORY AND BACKGROUND FACTS
Appellant filed a Chapter 7 no-asset voluntary petition on
March 3, 2013 in the Eastern District of Louisiana. (Bankr. Case
1
No. 13-10831.) After determining that Appellant had no assets to
distribute to creditors, the Bankruptcy Court granted a discharge
on July 10, 2013. The Bankruptcy Court officially closed the case
on October 18, 2013. On November 3, 2015, the Department filed a
motion to reopen the case for the purpose of filing proof of claim
of non-dischargeable student loan debt and interest. ECMC filed a
similar motion on November 9, 2015. The Bankruptcy Court granted
both motions. Appellant filed a motion to reconsider the orders
reopening the case and allowing Appellees to file proofs of claim,
which the court denied. Appellant subsequently initiated this
appeal.
Before receiving a discharge in the original case, Appellant
filed an adversary proceeding in the Eastern District of Louisiana
on July 9, 2013, seeking an “undue hardship” discharge of his
student loan debt. (Bankr. Case No. 13-1047). Appellant claimed a
total and permanent disability (“TPD”) based on an unspecified
mental
health
Solutions
United
f/k/a
Student
issue.
SLM
Aid
Appellant
Corporation
Funds
(“USA
named
as
defendants
(“Sallie
Mae”
Funds”),
and
Navient
or
“Navient”),
the
Department.
Appellee ECMC intervened in the case as the successor to Sallie
Mae/Navient and USA Funds. ECMC filed an answer in the adversary
proceeding on August 2, 2013. The Department’s counsel filed a
2
motion to stay the case due to a government shutdown on October
10, 2013. The Court granted the motion and stayed the case for
forty-five days. Appellant filed a motion for summary judgment on
November 25. On the same day, the Court held a pretrial status
conference and ordered Appellant to serve summons on the U.S.
Attorney’s Office. The Court also ordered Appellant to submit TPD
applications “with the appropriate agencies” within sixty days and
threatened dismissal as a sanction for failure to comply with the
order. After Appellant repeatedly failed to comply, the Court held
a show cause hearing. After Appellant failed to appear, the Court
dismissed the adversary proceeding.
Appellant appealed the dismissal of his adversary case on May
20, 2014. (Case No. 14-1402.) The District Court reversed the
dismissal and remanded the matter to the Bankruptcy Court. Dorsey
v. U.S. Dep’t of Ed., 528 B.R. 137, 150 (E.D. La. 2015) (Morgan,
J.). Plaintiff filed a Motion for Entry of Default on May 11, 2015
and a Motion for Default Judgment on July 16, 2015, requesting
that the Court grant default judgment in his favor against Sallie
Mae and USA Funds. The Bankruptcy Court set the motions for hearing
on October 19, 2015. Appellant sought to appeal the Bankruptcy
Court’s scheduling order, as well as several other interlocutory
orders, to this Court. (Case No. 15-2898). This Court denied his
3
Motion to Appeal on October 23, 2015. Dorsey v. Navient Solutions,
Inc., No. 15-2898, 2015 WL 6442572 (E.D. La. Oct. 23, 2015)
(Barbier, J.).
After extensive motion practice in the Bankruptcy Court, the
Court scheduled trial for December 10, 2015. Appellant failed to
comply with the Court’s discovery schedule and failed to appear at
trial. Thus, the Court denied Appellant’s request for an undue
hardship discharge. The Bankruptcy Court entered a final judgment
on December 16, 2015. Appellant did not appeal the final judgment.
The Bankruptcy Court officially closed the case on March 17, 2016.
PARTIES’ ARGUMENTS
In his opening brief, Appellant lists a total of thirteen
issues facing the Court. According to Appellant, the issues are:
1. Whether “a reasonable person of the general public
would agree that there is an appearance of
impropriety, a showing of discretionary abuse, and/or
impartiality” on the part of the Bankruptcy Court
Judge, Elizabeth Magner;
2. Whether the Bankruptcy Court erred “by preventing the
parties from first attempting to reconcile the matter
prior to opening discovery and later refusing to allow
. . . [Appellant’s] motion to discuss the nature and
basis of their claims and defenses . . .”;
3. Whether the Bankruptcy Court erred “by not setting
aside ruling with reason as to why Entry of
Default/Default Judgment needed to be delayed for
several months”;
4. Whether the Bankruptcy Court erred “by not allowing
the [Appellees] to do a cost benefit analysis when it
appeared that it would exceed 1/3 the cost to oppose
the suit”;
4
5. Whether the Bankruptcy Court erred “by allowing ECMC
to file a late request for party substitution”;
6. Whether the Bankruptcy Court erred “by allowing the
[Appellees] to reopen [Appellant’s] Chapter 7 case to
file their late proof of claims . . .”;
7. Whether the Bankruptcy Court erred by not ordering
ECMC’s counsel to redact all of Appellant’s personal
identifying information and by denying Appellant’s
motion for sanctions;
8. Whether the Bankruptcy Court erred by dismissing
“several parties from the suit”;
9. Whether Judge Magner erred by denying Appellant’s
motion to recuse her;
10. Whether the Bankruptcy Court erred by not ordering
Appellees “to state with clarity any straightforward
evidence that would resolve or settle the dispute in
question”;
11. Whether the Bankruptcy Court erred by “not allowing
[Appellant’s] subpoenas to be fulfilled . . .”;
12. Whether the Bankruptcy Court erred by denying
Appellant’s
“Motion
to
Determine
Defendant’s
Compliance and Right of Claim”; and
13. Whether Appellant presented enough evidence to
support a hardship discharge or other discharge of
his student loan debt.
(Rec. Doc. 12, at 2-3.) Despite listing the foregoing thirteen
issues, Appellant only argues four issues in the Argument section
of his brief. Appellant’s Argument section consists of issues 1,
3, 6, and 9 listed above. First, Appellant argues that Appellees
failed to file formal or informal proof of claim until two years
after Appellant’s Chapter 7 case was closed. Thus, Appellant claims
that the Appellees waived their rights to any defenses. Second,
Appellant argues that the Bankruptcy Court should have entered
default
judgments
against
USA
5
Funds
and
Sallie
Mae,
notwithstanding the fact that ECMC substituted in the stead of the
improperly joined parties.
Third, Appellant contends that the Bankruptcy Court can only
reopen a closed case to administer assets, accord relief to the
debtor, or for “other cause.” Appellant argues that Appellees did
not show “other cause” for reopening his closed Chapter 7 case. He
implies that only the debtor can reopen a closed bankruptcy case.
Fourth, Appellant argues that Judge Magner should have recused
herself because her impartiality might reasonably be questioned.
Appellant does not specify the grounds for disqualification or for
Judge Magner’s alleged partiality. Appellant concludes by arguing
that Appellees and student loan debt collectors are exploiting the
working class and the poor.
In its brief, ECMC argues that only two issues are properly
before the Court: “(1) whether the Bankruptcy Court erred in
granting the Motion to Reopen Plaintiff’s Chapter 7 bankruptcy
case and (2) whether the Bankruptcy Court erred in granting the
Motion for Leave to File a Proof of Claim.” (Rec. Doc. 19, at 1.)
Because
Appellant
did
not
file
an
appeal
in
his
adversary
proceeding, ECMC contends that the Court need not decide any issues
arising from the adversary proceeding. Rather, because Appellant
6
filed an appeal in his Chapter 7 case, ECMC argues that only the
issues arising from that case are before the Court.
Further, ECMC claims that the Bankruptcy Court did not abuse
its discretion by reopening the Chapter 7 case. ECMC emphasizes
that good cause for reopening the case existed. The reopening was
for the limited purpose of filing proofs of claim in connection
with the adversary proceeding. Moreover, ECMC argues that the Court
did not abuse its discretion by allowing Appellees to file proofs
of claim. ECMC points out that ECMC’s late filing had no impact on
the bankruptcy estate, the debtor, or any creditor because the
case is a no-asset case. Finally, ECMC contends that Appellant’s
other arguments, even if properly before the Court, are without
merit.
The Department echoes ECMC in its brief. First, the Department
argues that only the two issues arising from the Chapter 7 case
are properly before the Court. Further, the Department claims that
Appellant failed to adequately brief the issues. Therefore, to the
extent that the issues arising from the adversary proceeding are
before the Court, the Department argues that Appellant waived the
issues by failing to properly brief them.
Second, the Department contends that the Bankruptcy Court did
not abuse its discretion by reopening the Chapter 7 case and
7
allowing Appellees to file proofs of claim. The Department argues
that Appellees provided “other cause” for reopening the case.
Specifically, the Department claims that allowing Appellees to
file
proofs
of
claim
would
establish
their
standing
in
the
adversary proceeding and allow Appellant to obtain a “clean”
hardship discharge against the correct creditors, which would bar
other potential creditors from pursing Appellant for his debts.
The Department also notes that Appellant failed to correctly
identify it as a student loan creditor and omitted ECMC from his
Chapter 7 petition. Further, the Department notes that creditors
are not required to file a proof of claim in a no-asset Chapter 7
case. Finally, the Department argues that Judge Magner should not
have
recused
herself
and
that
the
Court
should
affirm
the
Bankruptcy Court’s final judgment denying Appellant a hardship
discharge.
Appellant filed a reply brief. First, he argues that the
issues stemming from his adversary proceeding are properly before
the Court. Appellant contends that he filed an Amended Statement
of the Issues and Designation of the Record on Appeal after
receiving a final judgment in the adversary proceeding. (See Rec.
Doc. 5.) Second, Appellant provides reasons for questioning Judge
Magner’s impartiality. He contends that she attended an American
8
Conference Institute meeting along with ECMC’s counsel, Heather
LaSalle Alexis. Further, Appellant contends that ECMC violated
“ECMC Group’s Code of Conduct.” Third, Appellant argues that no
creditors opposed the discharge and closing of the original Chapter
7 case. Further, he contends that the Bankruptcy Court should not
have allowed Appellees to file proof of claims because no assets
were available to be distributed to them. Appellant also argues
that Appellees did not meet the five requirements for filing an
informal proof of claim. Fourth, Appellant contends that the
Bankruptcy Court should not have reopened his Chapter 7 case
because Appellees did not provide “other cause” for doing so.
Finally, Appellant criticizes the “creditability” of Appellees.
LEGAL STANDARD & DISCUSSION
This Court has jurisdiction over this case pursuant to Title
28,
United
States
Code,
section
158(a)
and
Federal
Rule
of
Bankruptcy Procedure 8001. See 28 U.S.C. § 158(a); Fed. R. Bankr.
P. 8001. The standard of review for a bankruptcy appeal by a
district court is the same as when a court of appeals reviews a
district court proceeding. See 28 U.S.C. § 158(c)(2). Accordingly,
the Court reviews the bankruptcy court's conclusions of law de
novo, findings of fact for clear error, and mixed questions of law
and fact de novo. See In re Nat'l Gypsum Co., 208 F.3d 498, 504
9
(5th Cir. 2000). The Court reviews discretionary decisions for
abuse of discretion. Matter of Mendoza, 111 F.3d 1264, 1270 (5th
Cir. 1997). A bankruptcy court abuses its discretion when its
ruling is based on “an erroneous review of the law or on a clearly
erroneous assessment of the evidence.” In re Yorkshire, LLC, 540
F.3d 328, 331 (5th Cir. 2008) (quoting Chaves v. M/V Medina Star,
47 F.3d 153, 156 (5th Cir.1995)).
Only two issues are properly before the Court: (1) whether
the Bankruptcy Court erred by reopening the Chapter 7 case and (2)
whether the Bankruptcy Court erred by allowing Appellees to file
proofs of claims in the Chapter 7 case. Appellant attempts to argue
issues arising from his adversary proceeding, but he never filed
a notice of appeal in that case. “[A] notice of appeal must be
filed with the bankruptcy clerk within 14 days after entry of the
judgment, order, or decree being appealed.” Fed. R. Bankr. P. 8002.
“An appeal from a judgment, order, or decree of a bankruptcy court
to a district court . . . may be taken only by filing a notice of
appeal with the bankruptcy clerk” in the appropriate time frame.
Fed. R. Bankr. P. 8003 (emphasis added). Further, “the main
bankruptcy
case
and
adversary
proceeding
must
be
treated
as
distinct for the purpose of appeal. They have separate docket
10
numbers, separate issues, and separate parties.” In re Dietrich,
490 F. App'x 802, 804 (6th Cir. 2012).
To appeal the final judgment in the adversary case, Appellant
needed to file a notice of appeal within fourteen days of the
issuance of the final judgment. He did not do so. Filing a notice
of appeal is the exclusive way to raise the adversary proceeding
issues in this Court. Appellant’s attempt to raise these issues by
filing an Amended Statement of the Issues and Designation of the
Record on Appeal is unavailing. Thus, the Court may only decide
the issues properly appealed—those arising from the reopening of
the Chapter 7 case.
First, the Court must consider whether the Bankruptcy Court
erred by reopening the Chapter 7 case. The Court reviews the
reopening
of
the
case,
a
discretionary
act,
for
abuse
of
discretion. See In re Endlich, 47 B.R. 802, 804 (Bankr. E.D.N.Y.
1985). “A case may be reopened in the court in which such case was
closed to administer assets, to accord relief to the debtor, or
for other cause.” 11 U.S.C. § 350(b). “A case may be reopened on
motion of the debtor or other party in interest . . . .” Fed. R.
Bankr. P. 5010. Motions to reopen bankruptcy cases are not subject
to the one-year limitation of Federal Rule of Civil Procedure
60(c). Fed. R. Bankr. P. 9024. The Department moved to reopen the
11
case for the sole purpose of filing a proof of claim. The DOE noted
that reopening the case would afford relief to the debtor because
Appellant had requested that the parties file proof of his student
loan obligation. The Bankruptcy Court granted the motion and
reopened the case. After reviewing the law and the facts, the Court
finds that the Bankruptcy Court’s decision to reopen the case was
not based on a clearly erroneous review of the law or of the
evidence. Thus, it did not abuse its discretion by reopening the
case.
Second, Appellant argues that the Bankruptcy Court erred by
allowing Appellees to file proofs of claim in the Chapter 7 case.
Appellant argues that Appellees waited too long to file their
proofs. Further, Appellant claims that Appellees did not meet the
five-step test for informal proofs of claim contained in In re
Nikoloutsos, 199 F.3d 233 (5th Cir. 2000). In a Chapter 7 no-asset
case, creditors are not required to file proofs of claim. 11 U.S.C.
§ 501(a); Fed. R. Bankr. P. 2002(e); Matter of Smith, 21 F.3d 660,
663 (5th Cir. 1994) (“In a Chapter 7 no-asset case, the creditor
has no obligation to file a proof of claim . . . .”) In fact, the
Notice
of
Creditors
distributed
in
this
case
specified
that
creditors were not to file proofs of claim unless they received
notices
telling
them
to
do
so.
12
Therefore,
Nikoloutsos
is
inapposite. In that case, the Fifth Circuit evaluated whether a
creditor had timely filed a proof of claim and adopted a fivefactor test for evaluating an informal proof of claim. In re
Nikoloutsos, 199 F.3d. at 236. In this case, it is unnecessary to
consider whether Appellees’ proofs of claim met the Nikoloutsos
test because the proofs were not filed late.
The Bankruptcy Court had the discretion to permit Appellees
to file their proofs of claim in the Chapter 7 case. Both ECMC and
the Department filed proofs of claims of non-dischargeable student
loan debt. As the Appellees point out, filing the proofs of claim
had no impact on the estate, the debtor, or the other creditors.
ECMC notes that “[t]he proof of claim was filed merely to ‘record’
the debt as a response to a demand from [Appellant] and to provide
prima facie evidence of the debt for purposes of the trial on the
Adversary Proceeding.” (Rec. Doc. 19, at 13.) After reviewing the
law and facts, the Court finds that the Bankruptcy Court’s decision
to
allow
Appellees
to
file
proofs
of
claim
was
not
clearly
erroneous. Thus, the Bankruptcy Court did not abuse its discretion.
CONCLUSION
Accordingly,
IT
IS
HEREBY
ORDERED
that
Judgment is AFFIRMED.
13
the
bankruptcy
court’s
Final
New Orleans, Louisiana this 12th day of August, 2016.
CARL J. BARBIER
UNITED STATES DISTRICT COURT
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