[i]t makes a mockery of the English language and common sense to say that [the creditor] wasn't given notice, or was somehow ambushed or taken advantage of." Although the creditor was not specifically told that it could insist on an adversary proceeding and a judicial determination of undue hardship, it was told, in plain terms, that its rights would be impaired by the proposed plan. The creditors in these student loan cases are sophisticated parties whose business it is to administer the very kinds of debts here in question, the Court of Appeals noted. Hence, unpersuaded by the reasoning of the Second or Tenth Circuits, the Ninth Circuit continued to follow Pardee.
Finally, the Court of Appeals turned to the creditor's argument that it was denied due process. "Three circuits have held, like the district court below, that a student loan debtor's failure to commence an adversary proceeding by serving the student loan creditor with a complaint and summons, denies the creditor due process," the Court of Appeals reported, citing In re Ruehle, 412 F.3d 679 (C.A.6 2005), In re Hanson, 397 F.3d 482 (C.A.7-Wis. 2005), and In re Banks, 299 F.3d 296 (C.A.4-Va. 2002). Beginning its analysis with Rule 60(b), "the gateway for setting aside any final judgment," the Ninth Circuit found subsections 4 and 6 to be possibilities. "If the opposing party is given no notice at all of the lawsuit, or notice is so inadequate as to violate due process, any judgment entered against that party would be void (subsection 4), and such constitutionally deficient service would certainly be a just reason for relief from the judgment (subsection 6)," the court reasoned. The standard for what amounts to constitutionally adequate notice, however, is "fairly low," namely "'notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objection.'"
The Court of Appeals found the reasoning of Matter of Gregory, 705 F.2d 1118 (C.A.9-Cal. 1983), to be controlling. In rejecting an argument that Chapter 13 notice of a proposed plan is constitutionally defective because it does not apprise each creditor of how its own claim will be disposed of by the plan, the Gregory court stated that, once a creditor is given notice of its debtor's bankruptcy proceedings, the creditor is under constructive or inquiry notice that its claim may be affected, and it ignores the proceedings to which the notice refers at its own peril. The Court of Appeals in the case at bar agreed. Here, the creditor received actual notice of the debtor's bankruptcy case. It also was warned of the consequences of failing to object, which was more than due process required. Nevertheless, the creditor failed to object or to appeal the order confirming the plan. "We cannot say that [the creditor] was taken by surprise or was denied due process," the court concluded. "Quite the contrary: [the creditor] appears to have been a willing participant, perfectly happy to receive the benefits of the Chapter 13 plan, but unwilling to suffer the consequences of its failure to file an objection."
"The three circuits that have held that the creditor is denied due process in circumstances such as these appear to have a different understanding of what due process requires," the Ninth Circuit remarked. "As best we can follow their reasoning, it is that a creditor who is entitled to heightened notice by statute is also entitled to such heightened notice as a matter of due process." The Ninth Circuit rejected this reasoning, finding it "both wrong and dangerous to hold that the standard for what amounts to constitutionally adequate notice can be changed by legislation." Although Congress may give rights to additional notice, this does not affect the "floor" provided by due process. The Court of Appeals thus overruled the decision of the Bankruptcy Appellate Panel (BAP) in In re Repp, 307 B.R. 144 (9th Cir.BAP 2004), as well as the cases that followed Repp.
"It is apparent that a number of courts in our circuit, including the district court below, are uncomfortable with the practice of some Chapter 13 debtors to seek to discharge their student debts by working them into their Chapter 13 plans," the Court of Appeals concluded. "Some bankruptcy judges have announced that they won't confirm plans that seek to discharge student loan debts without an adversary proceeding, even when the creditor fails to object to the plan," the court added, citing In re Patton, 261 B.R. 44 (Bankr.E.D.Wash. 2001), and In re Webber, 251 B.R. 554 (Bankr.D.Ariz. 2000). The Court of Appeals viewed matters differently. "We find it highly unlikely that a creditor whose business it is to administer student loans will be misled by the customary bankruptcy procedures or somehow be bamboozled into giving up its rights by crafty student debtors," the court stated. "If the creditor fails to object, it is doubtless the result of a careful calculation that this course is the one most likely to yield repayment of at least a portion of the debt." In such circumstances, the Court of Appeals instructed, bankruptcy courts have no business standing in the way. Accordingly, cases such as Patton and Webber were, to that extent, overruled. Espinosa v. United Student Aid Funds, Inc., 2008 WL 4426634 (C.A.9-Ariz.).
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Finally, the Court of Appeals turned to the creditor's argument that it was denied due process. "Three circuits have held, like the district court below, that a student loan debtor's failure to commence an adversary proceeding by serving the student loan creditor with a complaint and summons, denies the creditor due process," the Court of Appeals reported, citing In re Ruehle, 412 F.3d 679 (C.A.6 2005), In re Hanson, 397 F.3d 482 (C.A.7-Wis. 2005), and In re Banks, 299 F.3d 296 (C.A.4-Va. 2002). Beginning its analysis with Rule 60(b), "the gateway for setting aside any final judgment," the Ninth Circuit found subsections 4 and 6 to be possibilities. "If the opposing party is given no notice at all of the lawsuit, or notice is so inadequate as to violate due process, any judgment entered against that party would be void (subsection 4), and such constitutionally deficient service would certainly be a just reason for relief from the judgment (subsection 6)," the court reasoned. The standard for what amounts to constitutionally adequate notice, however, is "fairly low," namely "'notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objection.'"
The Court of Appeals found the reasoning of Matter of Gregory, 705 F.2d 1118 (C.A.9-Cal. 1983), to be controlling. In rejecting an argument that Chapter 13 notice of a proposed plan is constitutionally defective because it does not apprise each creditor of how its own claim will be disposed of by the plan, the Gregory court stated that, once a creditor is given notice of its debtor's bankruptcy proceedings, the creditor is under constructive or inquiry notice that its claim may be affected, and it ignores the proceedings to which the notice refers at its own peril. The Court of Appeals in the case at bar agreed. Here, the creditor received actual notice of the debtor's bankruptcy case. It also was warned of the consequences of failing to object, which was more than due process required. Nevertheless, the creditor failed to object or to appeal the order confirming the plan. "We cannot say that [the creditor] was taken by surprise or was denied due process," the court concluded. "Quite the contrary: [the creditor] appears to have been a willing participant, perfectly happy to receive the benefits of the Chapter 13 plan, but unwilling to suffer the consequences of its failure to file an objection."
"The three circuits that have held that the creditor is denied due process in circumstances such as these appear to have a different understanding of what due process requires," the Ninth Circuit remarked. "As best we can follow their reasoning, it is that a creditor who is entitled to heightened notice by statute is also entitled to such heightened notice as a matter of due process." The Ninth Circuit rejected this reasoning, finding it "both wrong and dangerous to hold that the standard for what amounts to constitutionally adequate notice can be changed by legislation." Although Congress may give rights to additional notice, this does not affect the "floor" provided by due process. The Court of Appeals thus overruled the decision of the Bankruptcy Appellate Panel (BAP) in In re Repp, 307 B.R. 144 (9th Cir.BAP 2004), as well as the cases that followed Repp.
"It is apparent that a number of courts in our circuit, including the district court below, are uncomfortable with the practice of some Chapter 13 debtors to seek to discharge their student debts by working them into their Chapter 13 plans," the Court of Appeals concluded. "Some bankruptcy judges have announced that they won't confirm plans that seek to discharge student loan debts without an adversary proceeding, even when the creditor fails to object to the plan," the court added, citing In re Patton, 261 B.R. 44 (Bankr.E.D.Wash. 2001), and In re Webber, 251 B.R. 554 (Bankr.D.Ariz. 2000). The Court of Appeals viewed matters differently. "We find it highly unlikely that a creditor whose business it is to administer student loans will be misled by the customary bankruptcy procedures or somehow be bamboozled into giving up its rights by crafty student debtors," the court stated. "If the creditor fails to object, it is doubtless the result of a careful calculation that this course is the one most likely to yield repayment of at least a portion of the debt." In such circumstances, the Court of Appeals instructed, bankruptcy courts have no business standing in the way. Accordingly, cases such as Patton and Webber were, to that extent, overruled. Espinosa v. United Student Aid Funds, Inc., 2008 WL 4426634 (C.A.9-Ariz.).
Might want to bookmark this site. They update every week cases of interest.
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