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In re Marston

United States Bankruptcy Court, E.D. Virginia
Dec 29, 1998
Case No. 97-17400-SSM, Adversary Proceeding No. 98-1008 (Bankr. E.D. Va. Dec. 29, 1998)

Opinion

Case No. 97-17400-SSM, Adversary Proceeding No. 98-1008

December 29, 1998

Glenn Alan Marston, Esquire, Chantilly, VA, for Plaintiff

Thomas J. Sippel, Esquire, Rockville, MD, of Counsel for PHEAA and TERI

William McCarren, Esquire, Gold Stanley, Alexandria, VA, of Counsel for ASA


MEMORANDUM OPINION


This matter is before the court on the motion of the plaintiff for a new trial, which the court treats in the alternative as a motion to alter or amend the judgment. Because meritorious grounds have not been shown for granting a new trial or for amending the judgment, the motion will be denied.

Background

This is an action to determine the dischargeability of ten student loans totaling $78,718 incurred by the plaintiff, Glenn A. Marston ("Mr. Marston") while obtaining a law degree. Mr. Marston filed a voluntary petition under chapter 7 of the Bankruptcy Code with his wife, Joanne Margaret Marston, in this court on October 6, 1997, and received a discharge of his dischargeable debts on January 16, 1998. On January 6, 1998, he commenced the present adversary proceeding against The Graduate Loan Center, Pennsylvania Higher Education Assistance Authority ("PHEAA"), Massachusetts Higher Education Assistance Corporation d/b/a American Student Assistance ("ASA"), and The Education Resource Institute, Inc. ("TERI"). PHEAA and TERI filed timely responses. ASA was subsequently granted leave to file a late answer. On PHEAA's motion, The Graduate Loan Center was dismissed without prejudice as a party defendant, since it was represented not to be a separate entity but rather a division of PHEAA and was in any event only a servicing agent and not the legal holder of any of the notes.

A trial was held on October 30, 1998, at which Mr. Marston represented himself, and PHEAA, TERI, and ASA were represented by counsel. The court made findings of fact and conclusions of law orally on the record and ruled that the loans were nondischargeable to the extent of the original face amount of the notes, but that any amounts due in excess of the face amount was excepted from discharge under the undue hardship test of § 523(a)(8)(B), Bankruptcy Code. The court also, based on a finding that Mr. Marston did not have the present financial ability to make any payments on the loans, imposed a three-year moratorium on payment and collection. A final judgment was entered on the docket on November 5, 1998, reflecting the court's ruling. Mr. Marston's motion for a new trial was filed on November 16, 1998, and is timely.

By the time of trial, accrued interest had increased the aggregate amount owed to more than $110,000.00.

Discussion

Under Rule 59(a), Federal Rules of Civil Procedure, made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 9023, a new trial may be granted on motion made within ten days of the entry of judgment. The rule does not specify the grounds for which a new trial may be granted, but among those grounds which have been recognized by case law are newly-discovered evidence, judicial error in the admission or rejection of evidence, or judicial error in permitting a party to present a claim or defense going beyond the issues framed by the pleadings. 10 Collier on Bankruptcy ¶ 9023.01 [1] and [2], p. 9023-2 and 3. Under Rule 59(e), which is similarly incorporated by Federal Rule of Bankruptcy Procedure 9023, a final judgment may be altered or amended upon motion made within 10 days of its entry on the docket. A motion under Rule 59(e) requires showing that relief is proper (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest injustice. Hutchinson v. Staton, 994 F.2d 1076, 1081 (4th Cir. 1993).

Mr. Marston raises four errors: (1) that the court erred in admitting, over his objection, testimony concerning a settlement demand he had made to PHEAA; (2) that the evidence did not prove that the PHEAA notes were actually in default; (3) that the court erred in failing to join unidentified parties who may have claimed rights under the various student loan notes in question; and (4) that the court erred in failing to award him costs, since he "partially prevailed" at trial. These contentions will each be briefly addressed in order.

A. The testimony concerning Mr. Marston's settlement demand

During cross examination, testimony was elicited from Mr. Marston, over his objection, that he had made a settlement demand on PHEAA that included a proposal that PHEAA loan him an additional $50,000. As Mr. Marston correctly notes, Federal Rule of Evidence 408 makes evidence of settlement negotiations inadmissable "to prove liability for or invalidity" of "a claim which was disputed as to either validity or amount." The testimony concerning his settlement demand on PHEAA, however, was not offered to prove liability but rather to demonstrate that Mr. Marston did not himself believe that his future earning prospects were hopeless. Rule 408 does not prohibit evidence of settlement negotiations when offered for "another purpose" other than proving liability or amount. In any event, the court, in framing its findings, did not give any weight to the testimony concerning the settlement proposal, and the court's finding that the debtor had not carried his evidentiary burden of demonstrating a "certainty of hopelessness" as to future ability to pay was based exclusively on the objective facts that he had completed law school with decent grades (graduating in the top half of his class), passed the Virginia Bar examination on the first try, had by his own admission good legal analytical skills, was obviously — as demonstrated by his performance in court — a capable litigator, and suffered under no disability (other than an asserted inability to market himself effectively) that would prevent him from earning a living as an attorney. Accordingly, even if the admission of the testimony was in error, the error was harmless.

B. Whether the PHEAA notes were in default

The evidence at trial was that Mr. Marston, in order to finance his law school education, took out four PHEAA-guaranteed student loans, each represented by a promissory note, during the period September 3, 1991, through July 23, 1992. Each note contained language requiring installment payments beginning 60 days after loan disbursement, but permitting loan payments to be deferred while the borrower remained in law school. Mr. Marston completed law school in April 1994. No evidence was offered by either party concerning Mr. Marston's payment history, but it was a fair inference from Mr. Marston's testimony that he had not been making regular payments on the notes. In any event, regardless of whether PHEAA's notes were technically in default and regardless of whether a formal notice of default had been given at the time the bankruptcy was filed, the dischargeability of the debt was not dependent on whether or not the loans were due by their terms. Under § 101(5), Bankruptcy Code, a "claim" is defined as any "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" (emphasis added). Unlike TERI, PHEAA did not seek entry of a money judgment, and the court's ruling concerning the PHEAA obligation was limited solely to a determination of dischargeability. Mr. Marston's complaint did not raise any issue concerning the enforceability of the loan obligation and sought only a determination of dischargeability. Thus, the issue of whether PHEAA was legally entitled to demand payment in full was simply not before the court, and the court did not err in failing to address that issue.

C. The failure to permit joinder of additional parties

Mr. Marston named as defendants The Graduate Loan Center, PHEAA, TERI, and ASA. As noted above, the court dismissed The Graduate Loan Center as a defendant without prejudice, since it was not a separate legal entity and appeared to be merely a servicing agent for the true parties in interest. Mr. Marston's testimony reflected that he took out ten student loans. It appears undisputed that four of those loans were guaranteed, and are now held by PHEAA; four by TERI; and two by ASA. Mr. Marston's argument at trial was that in the absence of the loan servicing agent as a formal party, any relief granted to him would be incomplete. But the rights of a loan servicing agent are at best derivative of, and can rise no higher than, the rights of the legal owner of the note. Consequently, this court's judgment would be res judicata on the issue of dischargeability even if a suit to collect the notes were brought in the name of the loan servicing agent rather than the note holder.

Mr. Marston also apparently wanted the court to include language in its judgment making it binding on unknown parties who might have an interest in the notes. The court is not unsympathetic to Mr. Marston's concern. Unrebutted testimony in the record reflects that he made numerous inquiries of The Graduate Loan Center to determine, at the time he filed his complaint, the identity of then-current noteholders so that they could be properly named and served, and that The Graduate Loan Center essentially gave him the runaround, refusing to provide the identity of the noteholder and simply telling him that it was the authorized point of contact for the loans. Nevertheless, in order to bind unknown or unbeatable parties, they must, at the very least, be served by an order of publication. The complaint did not name as defendants unknown parties having an interest in the notes, nor was there any service on such parties by publication or otherwise. Accordingly, the court was without power to decree relief as to unknown parties. In any event, an action to determine the dischargeability of a student loan debt may be brought "at any time," even after the bankruptcy case is closed.

F.R.Bankr.P. 4007(b). In the unlikely event, therefore, that a previously unknown noteholder should surface at some point in the future, Mr. Mars ton would retain the right at that time to bring an adversary proceeding in this court to determine the dischargeability of the debt.

It is only with respect to debts alleged to be nondischargeable under §§ 523(a)(2), (a)(4), (a)(6), and (a)(15), Bankruptcy Code, that a complaint to determine dischargeability must be filed within 60 days of the first date set for the meeting of creditors. § 523(c), Bankruptcy Code; F.R.Bankr.P. 4007(c).

D. The failure to award costs

The final issue raised by Mr. Marston is the court's failure to award him costs. As an initial matter, it is not clear that any significant taxable costs were incurred. A court may tax only those costs authorized by statute. DB Countryside v. Newell (In re DB Countryside), 217 B.R. 72, 75 (Bankr. E.D. Va. 1998). The relevant statute, 28 U.S.C. § 1920, provides only for the following costs to be taxed:

(1) Fees of the clerk and marshal;

(2) Fees of the court reporter for all or any part of the stenographic transcript necessarily obtained for use in the case;

(3) Fees and disbursements for printing and witnesses;

(4) Fees for exemplification and copies of papers necessarily obtained for use in the case;

(5) Docket fees under section 1923 of this title;

(6) Compensation of court appointed experts, compensation of interpreters, and salaries, fees, expenses, and costs of special interpretation services under section 1828 of this title[.]

As the debtor, Mr. Marston was not required to pay a filing fee to commence this adversary proceeding. Service of process was, as permitted by the Federal Rules of Bankruptcy Procedure, by first-class mail. No witness subpoenas were served by him, nor were any depositions taken by him for use in this proceeding. In any event, as this court has previously held, the award of costs in a bankruptcy adversary proceeding is discretionary with the court:

Under F.R.Bankr.P. 7054(b), "[t]he court may allow costs to the prevailing party [in an adversary proceeding] except when a statute of the United States or these rules otherwise provides" (emphasis added). While it is clear that Rule 7054 (b) is modeled on Fed.R.Civ.P. 54(d), there are significant differences. Fed.R.Civ.P. 54(d) mandates an allowance of costs "as of course" unless the court "otherwise directs," thereby creating a strong presumption in favor of taxing costs unless a statute provides otherwise. F.R.Bankr.P. 7054(b), however, contains no such standard. Samayoa v. Jodoin (In re Jodoin), 196 B.R. 845, 856 (Bankr. E.D. Cal. 1996), aff'd on other grounds, 209 B.R. 132 (Bankr. 9th Cir. 1997); 10 Moore's Federal Practice § 54.101 [1] [a], at 54-148 to 149 (3d ed. 1997). But see 10 Charles A. Wright et al., Federal Practice and Procedure, § 2668, at 197-201 2d 1983) (reasoning that an award of costs even under Fed.R.Civ.P. 54(d) is within the discretion of the court). Accordingly, whether to award costs is within the sound discretion of the bankruptcy court. Jodoin, 196B.R. at 856; Rathbone v. Lake (In re Consolidated Partners Investment Co.), 156 B.R. 982, 987 (Bankr. N.D. Ohio 1993); 10 Collier on Bankruptcy ¶¶ 7054.05 7054.RH, at 7054-8 7054-10 to 11 (Lawrence P. King, ed. 15th ed. rev. 1997).

D B Countryside, 211 B.R. at 75 (footnote omitted). It is certainly true that Mr. Marston partially prevailed, in that the court not only determined that a portion of the student loan debt was dischargeable but additionally granted him a three-year moratorium on payment of the nondischargeable portion. However, the student loan creditors also partially prevailed, in that the principal amount of their notes was determined to be nondischargeable. Accordingly an award of costs to Mr. Marston did not then and does not now appear appropriate, and the court therefore cannot find that its failure to award costs to Mr. Marston was in error. Disposition A separate order will be entered denying the motion for a new trial.


Summaries of

In re Marston

United States Bankruptcy Court, E.D. Virginia
Dec 29, 1998
Case No. 97-17400-SSM, Adversary Proceeding No. 98-1008 (Bankr. E.D. Va. Dec. 29, 1998)
Case details for

In re Marston

Case Details

Full title:In re: GLENN A. MARSTON JOANNE M. MARSTON, Chapter 7, Debtors GLENN A…

Court:United States Bankruptcy Court, E.D. Virginia

Date published: Dec 29, 1998

Citations

Case No. 97-17400-SSM, Adversary Proceeding No. 98-1008 (Bankr. E.D. Va. Dec. 29, 1998)