Opinion
Case No. 8:17-bk-09345-RCT Adv. No. 8:17-ap-00800-RCT
11-20-2020
In re: Julie Anne Quintanilla, Plaintiff. Julie Anne Quintanilla, Plaintiff, v. Nelnet Servicing LLC d/b/a Firstmark Services, Defendant.
Chapter 7 ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT , AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Before the Court are cross-motions for summary judgment filed by Plaintiff-Debtor Julie Anne Quintanilla (the "Debtor") and Nelnet Servicing, LLC d/b/a Firstmark Services ("Nelnet") and Nelnet Private Loan Funding, LLC's ("NPELF") (together, the "Defendants"). Both parties seek summary judgment on Debtor's Third Amended Complaint (the "Complaint"). In the Complaint, Debtor seeks a declaration that, pursuant to § 523(a)(8) of the Bankruptcy Code, the private student loan debt that she incurred while a student at Florida Metropolitan University ("FMU") and that is now owned and serviced by Defendants (the "Loan") was not excepted from her chapter 7 discharge.
Doc. 185.
Doc. 210.
11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code").
Doc. 69.
At a June 23, 2020 hearing, Defendants and Debtor stipulated that the dispositive issue is whether the Loan is "a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986..." within the meaning of § 523(a)(8)(B) (the "Dispositive Issue"). Defendants argue that the Loan is a "qualified education loan" and thus was not discharged when Debtor obtained her chapter 7 discharge. Debtor disagrees.
Background
Debtor attended FMU from October 16, 2006 to October 6, 2007. She was enrolled in an online criminal justice associate degree program. Per her academic transcript, Debtor completed four twelve-week terms, taking eight credits each term. It is unclear whether Debtor was classified as a part- or full-time student by FMU.
Doc. 210 Ex. 2.
Id.
While Debtor attended FMU, the school received Federal Work-Study and Federal Supplemental Educational Opportunity Grants. FMU also appeared on the U.S. Department of Education's ("DOE") Federal School Code List with a Federal School Code of 001534.
Doc. 210 Ex. 1 Attach. D at 24.
Doc. 210 Ex. 1 Attach. C. Defendants submitted Federal School Code Lists from the 2001-2002 through 2005-2006 and 2007-2008 academic years. No list was proffered for the 2006-2007 academic year. However, Defendants submitted the DOE's 2006-2007 Award Year Campus-Based Program Data by School table, which demonstrated that FMU, under its then new name "Everest University," received Title IV funds during the 2006-2007 academic year (Doc. 210 Ex. 1 Attach. D at 24). This means by implication that FMU was on the Federal School Code List during the 2006-2007 academic year because the Federal School Code List is comprised of the schools that participate in Title IV programs.
After enrolling at FMU, Debtor applied for and received a private student loan of $1,650, the Loan at issue in these proceedings. To receive the Loan, Debtor electronically signed an application and promissory note with College Loan Corporation, the originator of the Loan. The Loan was referred to on the application as a "CLC Premier Loan." The "CLC Premier Loan - Terms and Conditions" provided that "[t]he proceeds of this loan will be used for the educational expenses incurred at the school as listed on my Application and Promissory Note." On the application, "Florida Metropolitan University - Brandon" was listed under school name, along with FMU's six-digit federal school code. Although Debtor requested $2,500, the application contained a disclaimer that the "Final approved loan amount is contingent upon certification by your school." Per a Federal Truth-in-Lending Disclosure Statement, Commerce Bancorp disbursed $1,500 in mid-December 2006 with $150 in origination fees, for a total loan amount of $1,650.
The record is unclear how Debtor financed her education at FMU or what her cost of attendance was. Nonetheless, in her Complaint, Debtor acknowledges that FMU received "significant amounts of federally-backed money from loans and Pell Grants for [her] Cost of Attendance" and these funds "were fully kept by the school at least three out of four terms." Doc. 69 at 4.
Doc. 210 Ex. 3 Attach. A.
Id. at 8.
Id. at 10.
Debtor contends she did not receive the Loan proceeds until some months later citing email correspondence between her and an FMU business manager and student finance officer. Debtor does not dispute that she received the Loan proceeds while enrolled at FMU. However, Debtor denies using the Loan proceeds to pay for tuition, supplies, or the costs of her education at FMU.
Doc. 173 at 3.
Doc. 201.
In late 2007, Debtor left FMU. She ultimately went on to enroll at Florida Institute of Technology where she received degrees in 2012 and 2014.
Doc. 215 at 4.
In 2016, Nelnet became the servicer of Debtor's Loan. In November 2017, Debtor commenced this adversary proceeding by complaint filed contemporaneously with her bankruptcy petition. Initially, Debtor made an undue hardship argument under § 523(a)(8) but abandoned that argument at the June 23, 2020 hearing. What remains to be resolved from the Complaint is the Dispositive Issue.
Doc. 210 Ex. 3 ¶ 4.
Doc. 1.
Summary Judgment Standard
Summary judgment is appropriate "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." The existence of a factual dispute will not defeat a properly supported motion for summary judgment. "Only the existence of a genuine issue of material fact will preclude summary judgment." The initial burden of showing that there are no genuine issues of material fact is borne by the moving party. "When the moving party has discharged its burden, the nonmoving party must then designate specific facts showing the existence of genuine issues of material fact." "If there is a conflict between the parties' allegations or evidence, the nonmoving party's evidence is presumed to be true and all reasonable inferences must be drawn in the nonmoving party's favor."
Fed. R. Civ. P. 56(a) made applicable here by Fed. R. Bankr. P. 7056.
Koehler v. Waypoint Res. Grp, LLC, No. 8:18-cv-2017-T-60AAS, 2019 WL 5722117, at *1 (M.D. Fla. Nov. 5, 2019) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).
Id.
Id. (citing Hickson Corp. v. N. Crossarm Co., Inc., 357 F.3d 1256, 1260 (11th Cir. 2004)).
Id. (citing Jeffery v. Sarasota White Sox, Inc., 64 F.3d 590, 593-94 (11th Cir. 1995)).
Id. (citing Shotz v. City of Plantation, Fla. 344 F.3d 1161, 1164 (11th Cir. 2003)).
"The standard for cross-motions for summary judgment is not different from the standard applied when only one party moves for summary judgment." The Court considers each motion separately, "resolving all reasonable inferences against the party whose motion is under consideration." "Cross-motions for summary judgment will not, in themselves, warrant the court in granting summary judgment unless one of the parties is entitled to judgment as a matter of law on facts that are not genuinely disputed."
Id. (citing Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328, 1331 (11th Cir. 2005)).
Id.
Id. (quoting U.S. v. Oakley, 744 F.2d 1553, 1555 (11th Cir. 1984)).
Discussion
Both parties move for summary judgment on the Dispositive Issue, i.e. whether the Loan is a "qualified education loan" under § 523(a)(8)(B) of the Bankruptcy Code and therefore excepted from discharge. Defendants bear the burden of establishing the Loan qualifies for the exception from discharge under § 523(a)(8).
Vuini v. Zions Bank (In re Vuini), 2012 Bankr. LEXIS 5326, 2012 WL 5554406 at *7 (Bankr. M.D. Fla. 2012).
Section 523(a)(8)(B) of the Code provides that a debtor does not get a discharge (except where undue hardship can be shown) for "a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986 ..." As other courts have noted, resolving what a "qualified education loan" is requires a trip through a series of nested definitions located in different titles, chapters, and sections of the United States Code.,
Salgado v. Pastor (In re Pastor), 2018 Bankr. LEXIS 1973 at *4 (Bankr. S.D. Fla. June 28, 2018) ("Pastor"); Wiley v. Wells Fargo Bank, N.A. (In re Wiley), 579 B.R. 1, 11-12 (Bankr. D. Me. 2017) ("Wiley"); Rizor v. Acapita Educ. Fin. Corp. (In re Rizor), 553 B.R. 144, 150-51 (Bankr. D. Alaska 2016).
For ease of reference, the Court has bolded and italicized relevant terms within quoted portions of code sections below.
A. Relevant Definitions
1. Qualified education loan
Under Internal Revenue Code ("IRC") § 221(d)(1), a "qualified education loan" is defined as:
... any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses —
(A) which are incurred on behalf of the taxpayer ... as of the time the indebtedness was incurred,The key terms "qualified higher education expenses" and "eligible student" are further defined within IRC § 221(d)(2) and (3).
(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and
(C) which are attributable to education furnished during a period during which the recipient was an eligible student.
a. Qualified higher education expenses
IRC § 221(d)(2) defines "qualified higher education expenses" as:
the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997 [enacted Aug. 5, 1997]) at an eligible educational institution , reduced by the sum of [various deductions for scholarships, payments, and educational assistance excluded from gross income].Put succinctly, "qualified higher education expenses" are the "cost[s] of attendance" at an "eligible educational institution."
(i) Cost of attendance
Section 472 of the Higher Education Act of 1965 ("HEA") explains that "cost of attendance" includes tuition and fees, and allowances "as determined by the institution" for, inter alia, transportation, room and board, and miscellaneous personal expenses.
20 U.S.C § 1087ll (1997).
(ii) Eligible educational institution
Per IRC § 221(d)(2), an "eligible educational institution" is defined by reference to 26 U.S.C § 25A(f)(2), which provides that:
The term " eligible educational institution " means an institution—
(A) which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. § 1088), as in effect on the date of the enactment of this section [enacted Aug. 5, 1997], andConsequently, an "eligible educational institution" must be two things: (1) an institution described in § 481 of the HEA, and (2) eligible to participate in a Title IV program.
(B) which is eligible to participate in a program under title IV of such Act [20 U.S.C. §§ 1070 et seq.].
(1) An institution described in section 481 of the HEA
Section 481 of the HEA describes "institutions of higher education" as institutions covered by 20 U.S.C. § 1141(a) along with three additional types of institutions. An institution covered by 20 U.S.C. § 1141(a) must be a public or private not-for-profit institution. The three additional types of institutions described are (1) a proprietary institution of higher education; (2) a post-secondary vocational institution; and (3) an institution outside the United States comparable to a 20 U.S.C. § 1141(a) institution.
20 U.S.C. § 1088 (1997).
20 U.S.C. § 1088(a)(1) (1997).
(2) Eligible to participate in a Title IV program
Under Title IV, the government "operates a number of programs that disburse funds to help students defray the costs of higher education." These programs include the Federal Pell Grant Program, the William D. Ford Federal Direct Loan Program, the Federal Work-Study Program, and the Federal Supplemental Educational Opportunity Grant Program. 20 U.S.C § 1094(a) provides in relevant part that to be eligible to participate in a Title IV program, an institution:
Urquilla-Diaz v. Kaplan Univ., 780 F. 3d 1039, 1043 (11th Cir. 2015) (citing 20 U.S.C. §§ 1070-1099d).
See 20 U.S.C. §§ 1070a-1070a-6, 1087a-1087j, 1087-51-1087-58, and 1070b-1070b-4 respectively.
... must be an institution of higher education ... and shall ... enter into a program participation agreement with the Secretary [of Education].
b. Eligible student
IRC § 221(d)(3) defines an "eligible student" by reference to 26 U.S.C. § 25A(b)(3), which explains that an "eligible student" is:
a student who—The requirements of § 484(a)(1) of the HEA concern student eligibility for Title IV programs and provide that:
(A) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of this section [enacted Aug. 5, 1997], and
(B) is carrying at least 1/2 the normal full-time work load for the course of study the student is pursuing.
(a) In general [i]n order to receive any grant, loan, or work assistance under [Title IV], a student must—
(1) be enrolled or accepted for enrollment in a degree, certificate, or other program ... leading to a recognized educational credential at an institution of higher education that is an eligible institution in accordance with the provisions of section 487 [20 U.S.C. § 1094] except as provided in subsections (b)(3) and (b)(4), and not be enrolled in an elementary or secondary school; [§§ (b)(3) and (b)(4) address eligibility for student loans for students carrying at least a half-time work load in a non-degree bearing course of study];
20 U.S.C. § 1091(a)(1) (1997).
Put simply, to be an "eligible student," and thus to be able to receive funds under a Title IV program, a student must be enrolled in a program leading to a recognized educational credential at a Title IV eligible school and carrying at least 1/2 the normal full-time work load for their program.
A Title IV eligible school is also known as an "eligible educational institution" under IRC § 221(d)(2).
B. Navigated Definitions
To summarize, a "qualified education loan" under § 523(a)(8)(B) requires (i) a "taxpayer;" (ii) to incur debt solely to pay for "qualified higher education expenses;" (iii) with such expenses attributable to education furnished when the recipient was an "eligible student;" (iv) and for there to be a temporal relationship between the expenses and the incursion of the debt. "[Q]ualified higher education expenses" are comprised of the "cost of attendance" at an "eligible educational institution." And an "eligible student" is a student enrolled or accepted in an appropriate program at an "eligible educational institution" who meets certain course load requirements.
With these nested definitions and their respective requirements in mind, Defendants are only entitled to partial summary judgment on the record before the Court, while Debtor is not entitled to summary judgment.
1. Defendants' cross-motion for summary judgment
Defendants established most but not all the elements of a "qualified education loan." Defendants lay out the statutory framework of § 523(a)(8)(B) and its numerous nested definitions, but only in part. Defendants primarily focus on whether FMU was an "eligible educational institution" and whether Plaintiff incurred the debt solely to pay for "qualified higher education expenses." But Defendants do not address whether Plaintiff was an "eligible student" or a "taxpayer."
In fact, "eligible student" does not appear once in Defendants' motion.
Defendants established FMU was an "eligible educational institution." Defendants assert "[i]t is widely accepted that any school listed on the [DOE's] Federal School Code List is an 'eligible educational institution.'" While this proposition is not supported by the cases they cite, it is supported by what a school's presence on the Federal School Code List means and the definition of an "eligible educational institution." Though a school's presence on the Federal School Code List is not a part of the nested definition structure of IRC § 221(d)(2)), it does establish a school's eligibility to participate in a Title IV program. In turn, if a school is eligible to participate in a Title IV program, it must also be an institution described in § 481 of the HEA. This is because, by definition, to be eligible to participate in a Title IV program, in addition to being required to enter a program participation agreement with the Secretary of Education, a school must be described in § 481 of the HEA. Here, it is undisputed that FMU was on the Federal School Code List when Debtor attended. As a result, FMU must have been eligible to participate in a Title IV program, and therefore was an "eligible educational institution" for the purposes of IRC § 221(d)(2).
In Weissmuller and Nunez, the court identified that the schools at issue were not on the Federal School Code List and found that they were not "eligible educational institutions" under § 523(a)(8)(B). Weissmuller v. Tech Ed. Serv. (In re Weissmuller), 2019 Bankr. LEXIS 2721, 2019 WL 4072815 at *1 (Bankr. M.D. Fla. 2019). In re Nunez v. Key Educ. Res./GLESI (In re Nunez), 527 B.R. 410, 416 (Bankr. D. Or. 2015) ("Nunez"). Similarly, in Pastor, the court characterized a veterinary school in the Caribbean that was not on the Federal School Code List as an unqualified educational institution. Pastor, 2018 Bankr. LEXIS 1973 at *5.
The Federal School Code List identifies schools that are eligible to participate in Title IV programs. Decena v. Citizens Bank (In re Decena), 549 B.R. 11, 21 (Bankr. E.D.N.Y. 2016), rev'd in part on other grounds by Citizens Bank v. Decena, 562 B.R. 202 (E.D.N.Y. 2016); Nunez, 527 B.R. 410 at 415.
See 20 U.S.C § 1094(a).
FMU not only was eligible but participated in Title IV programs as evidenced by its receipt of Federal Work-Study and Federal Supplemental Educational Opportunity Grants for the 2006-2007 academic year.
The Court also agrees with Defendants that to determine whether the Loan was solely to pay for "qualified higher education expenses," a debtor's stated purpose in taking out the Loan should be examined rather than how the debtor actually spent the funds. Here, the undisputed facts show the Loan was made for educational expenses and based on Debtor's status as a student at FMU. The terms and conditions of the Loan are clear that the "proceeds of this loan will be used for the educational expenses incurred at [FMU]."
Conti v. Arrowood Indem. Co., 612 B.R. 877, 881 (E.D. Mich. 2020); Kelly v. Mich. Fin. Auth. (In re Kelly), Ch. 7 Case No. 6:12-bk-05288-KSJ, Adv. No. 6:12-ap-00102-KSJ (Bankr. M.D. Fla. Jan. 28, 2013).
In turn, "educational expenses incurred at [FMU]" fall under the broad umbrella of "cost of attendance." FMU's certification of the Loan amount further shows the Loan fell within Debtor's "cost of attendance." Consequently, the Court finds that Debtor incurred the Loan solely to pay for her "cost of attendance" and by extension her "qualified education expenses" because FMU was an "eligible educational institution."
Similarly, the temporal requirements of a "qualified education loan" have been met for the Loan. Debtor applied for and received the Loan while attending FMU. And based on the purpose of the Loan, Debtor presumptively used its proceeds to pay educational expenses.
Defendants' motion is only partially granted because they did not show as a matter of law that Debtor was an "eligible student" under IRC § 221(d)(3) or that Debtor was a "taxpayer" during the relevant period. To be an "eligible student," Debtor must have met the requirements of § 484(a)(1) of the HEA and have been taking at least half the full-time work load for her course of study at FMU. The requirements of § 481(a)(1) of the HEA concern a student's eligibility to receive a grant, loan, or work assistance under a Title IV program. Debtor's acknowledgement that she received a Pell Grant while at FMU, a Title IV program, establishes she met those requirements.
The requirements of § 481(a)(1) of the HEA are that a student be (i) enrolled in a degree program leading to a recognized educational credential (ii) at a school that is eligible to participate in a Title IV program. Beyond Debtor's receipt of a Pell Grant demonstrating she satisfied the requirements of § 481(a)(1) of the HEA, as discussed above, FMU was eligible to participate in a Title IV program. Additionally, Debtor's pursuit of an associate degree in criminal justice at FMU appears to satisfy (i).
However, no evidence has been presented to establish the eight credits Debtor took per academic term were at least 1/2 the normal full-time work load for the course of study Debtor was pursuing. Accordingly, and because the Court must draw all reasonable inferences from the facts in the light most favorable to the non-moving party, the Court cannot conclude Debtor's course load in pursuit of her associate degree at FMU satisfies this requirement.
Likewise, with respect to § 523(a)(8)(B)'s "taxpayer" requirement, Defendants did not address whether Debtor was a "taxpayer" when she obtained the Loans. Defendants offered no argument or pointed to any evidence that Debtor filed 2006 or 2007 tax returns or paid federal taxes in either of these years. Without such evidence, this Court also "cannot at this juncture conclude that the [Debtor] was a taxpayer when [s]he took out the Loan[]."
Wiley, 579 B.R. 1 at 10. --------
For these reasons, it is only appropriate to grant partial summary judgement in the Defendants' favor on the Dispositive Issue.
2. Debtor's motion for summary judgment
Debtor is not entitled to summary judgment on the Dispositive Issue. Debtor argues the Loan is not a "qualified education loan" because she obtained it while attending FMU, which she contends was not an eligible institution. Therefore, in Debtor's view, the Loan was not excepted from discharge under § 523(a)(8)(B). To the extent Debtor's Motion addresses § 523(a)(8)(B), it is based on Debtor's summary conclusions and personal beliefs. Debtor directs the Court to § 221(d) of the IRC but offers no argument concerning why the Loan does not qualify. Debtor also directs the Court to her eight exhibits. The exhibits, none of which were submitted in admissible form, confirm she attended FMU, but do not address why the Loan should not be excepted from discharge under § 523(a)(8)(B).
Therefore, Debtor's motion is denied on Rule 56(c)(1)(A) grounds.
Accordingly, it is
ORDERED:
1. Defendants' Cross-Motion for Summary Judgment on the Dispositive Issue is GRANTED, in part, and DENIED, in part, as follows.
2. Defendants are entitled to summary judgment on the elements of a "qualified education loan" they established, which are:
a. FMU was a "qualified educational institution;"
b. Debtor incurred the Loan solely to pay for her "qualified education expenses;"
c. the appropriate temporal relationship between the expenses and the incursion of the debt existed;
d. the expenses were attributable to education furnished; and
e. the requirements of § 481(a)(1) of the HEA for the Debtor to be an "eligible student" were met.
3. Defendants are denied summary judgment on the elements of a "qualified education loan" they failed to establish, which are:
i. Debtor was a "taxpayer" for the relevant time period.
ii. Debtor was carrying at least 1/2 the normal full-time work load for the course of study the she was pursuing at FMU.
4. Debtor's Motion for Summary Judgment on the Dispositive Issue is DENIED, without prejudice.
5. The Court will hold a pretrial conference on December 15, 2020 at 2:30 pm.
ORDERED. Dated: November 20, 2020
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Service of this Decision and Order other than by CM/ECF is not required. Local Rule 9013-3(b).