United Student Aid Funds Inc. v. Espinosa

PETITIONER: United Student Aid Funds Inc.
RESPONDENT: Francisco J. Espinosa
LOCATION: U.S. Capitol Building

DOCKET NO.: 08-1134
DECIDED BY: Roberts Court (2009-2010)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 559 US 260 (2010)
GRANTED: Jun 15, 2009
ARGUED: Dec 01, 2009
DECIDED: Mar 23, 2010

ADVOCATES:
Michael J. Meehan - for the respondent
Madeleine C. Wanslee - for the petitioner
Toby J. Heytens - Assistant to the Solicitor General, Department of Justice, for the United States as amicus curiae, supporting the petitioner

Facts of the case

Francisco J. Espinosa filed for Chapter 13 bankruptcy and proposed a plan that provided for the repayment of student loans to United Student Aid Funds, Inc. ("Funds"). After Funds was notified, it filed a proof of claim roughly $4,500 greater than that was included in the plan. The bankruptcy court approved the original plan and Funds was notified it would be paid the lower figure. Mr. Espinosa subsequently completed the plan and his loans were discharged by the court. Three years later, Funds began intercepting Mr. Espinosa's income tax refunds to satisfy the unpaid portion of his student loans (the $4,500 figure). Mr. Espinosa petitioned the bankruptcy court for an order holding Funds in contempt for violating the discharge injunction. In response, Funds argued that Mr. Espinosa's student loans were improperly discharged because student loans cannot be discharged unless the debtor can show "undue hardship." This can only be shown in an adversary proceeding, which did not take place. Moreover, it argued the lack of an adversary proceeding denied Funds its Fourteenth Amendment due process rights. These arguments were rejected by the bankruptcy court, but, on appeal, were accepted by the Arizona federal district court.

On appeal, the U.S. Court of Appeals for the Ninth Circuit reversed. It held that simply because Mr. Espinosa failed to comply with additional procedures required by the Bankruptcy Code to discharge student loan debt was not sufficient to set aside the discharge of his student loans, considering Funds had actually been notified of the Chapter 13 plan. It also held that Fund's due process rights were not violated because Fund's had received actual notice of Mr. Espinosa's Chapter 13 plan, even though he had not commenced the adversary proceedings.

Question

1) Does the procedure by which a debtor merely includes the discharge of his student loans in his Chapter 13 plan, which is then mailed to the creditor, sufficient to meet the requirements of due process?

2) Are Chapter 13 plans that discharge student loans void if the debtor fails to prove "undue hardship" in an adversary proceeding?

Media for United Student Aid Funds Inc. v. Espinosa

Audio Transcription for Oral Argument - December 01, 2009 in United Student Aid Funds Inc. v. Espinosa

Audio Transcription for Opinion Announcement - March 23, 2010 in United Student Aid Funds Inc. v. Espinosa

John G. Roberts, Jr.:

Justice Thomas has our opinion this morning in case 08-1134, United Student Aid Funds versus Espinoza.

Clarence Thomas:

This case comes to us on the writ of certiorari to United States Court of Appeals for the Ninth Circuit.

The bankruptcy code provides that, a debtor in Chapter 13 proceeding may obtain a discharge of certain student loan debts, only if the failure to discharge that debt would impose an undue hardship on the debtor and his dependence.

According to the Federal rules of bankruptcy procedure, the bankruptcy court must make this determination of undue hardship in an adversary proceeding which the parties seeking the termination must initiate by filing a summons and complaint on those who could be adversely affected by the discharge.

Francisco Espinoza, the debtor in this case filed a Chapter 13 plan with the Bankruptcy Court and that proposed to discharge a portion of his student loan debt but he failed to initiate an adversary proceeding to determine undue hardship.

His creditor United Student Aid Funds received notice of his plan but did not object to its contents or Espinoza's failure to initiate an adversary proceeding.

The Bankruptcy Court confirmed Espinoza’s plan as written and United did not appeal.

Years later United filed a motion under Federal Rule of Civil Procedure 60 (b) (4), asking the Bankruptcy Court to declare its confirmation order void.

United argued that the order was void for two reasons.

First, because it was premised on a violation of the bankruptcy code and rules, specifically the bankruptcy court's failure to find undue hardship in an adversary proceeding and second because United’s Due Process rights were violated when Espinoza failed to serve United with the required summons and complaint.

The Bankruptcy Court ruled on the motion and parties sought review in the District Court and ultimately in the Court of Appeals for the Ninth Circuit.

The Court of Appeals ruled for Espinoza.

In an opinion filed with the clerk today, we affirm that judgment.

The Bankruptcy Court's order confirming Espinoza's plan is not void under rule 60 (b) (4), the rule is a narrow exception to finality that applies only in rare instance in which a judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives the party of notice or the opportunity to be heard.

The error alleged by United falls in neither category.

United does not argue that the bankruptcy court’s error was jurisdictional and Espinoza's failure to serve united with a summons and complaint did not violate United's due process rights because United received actual notice of the filing and contents of Espinoza's plan.

For reasons set out in our opinion we decline to expand the availability of relief under rule 60 (b) (4), to cover other types of judgment defects.

The opinion of the court is unanimous.