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In re Crocker

United States Court of Appeals, Fifth Circuit

October 21, 2019

In re: Evan Brian Crocker, also known as Haas Legal, P.L.L.C. Debtor
NAVIENT SOLUTIONS, L.L.C.; NAVIENT CREDIT FINANCE CORPORATION, Appellants EVAN BRIAN CROCKER, on behalf of themselves and all those similarly situated, also known as Haas Legal, P.L.L.C, formerly known as Evan Brian Haas: MICHAEL SHAHBAZI, on behalf of themselves and all those similarly situated, formerly known as Montana Shahbazi; WENDY L. LANDES, on behalf of themselves and all those similarly situated; RAEGENA SEITZ-MOULDS, on behalf of themselves and all those similarly situated, Appellees

          Appeal from the United States District Court for the Southern District of Texas

          Before STEWART, SOUTHWICK and ENGELHARDT, Circuit Judges.


         An individual in Texas and another in Virginia separately obtained loans from the same lender to pay education expenses. Both later filed for bankruptcy in their respective states. In time, orders of discharge were entered. One of the discharged debtors then filed suit against the lender in the same Bankruptcy Court of the Southern District of Texas that had ordered the discharge of his debts. Later, the Virginia debtor joined the Texas suit. The suit seeks to certify a nationwide class of those who claim their education-loan debts were validly discharged but from whom this lender continues to demand payment. A declaratory judgment, injunction, and damages are sought.

         The lender filed a motion for summary judgment, arguing bankruptcy courts cannot enforce the injunctions arising from discharge orders entered by courts in other judicial districts, and these private-education-loan debts are statutorily excepted from discharge. The bankruptcy court held the opposite as to both, then certified the two holdings for interlocutory appeal.

         We conclude that a bankruptcy court does not have authority to enforce the discharge injunctions entered in other districts. On the other hand, we agree with the bankruptcy court that the particular education loans involved here are not statutorily excepted from discharge. The cause is REMANDED.


         In 2009, Evan Crocker[1] obtained a $15, 000 loan to fund his bar examination preparation. The lender was a subsidiary of SLM Corporation, d/b/a Sallie Mae, which is a for-profit, public corporation whose loans are not part of any governmental loan program. The loan documents informed Crocker that his repayment obligation "may not be dischargeable in bankruptcy." Crocker's loan was transferred to SLM Education Credit Finance Corporation, which subsequently became Navient Credit Finance Corporation. In the complaint, Navient Solutions is said to be the entity pursuing collection. We will not differentiate among Navient entities in our discussion.

         In 2015, Crocker filed for voluntary Chapter 7 bankruptcy in the United States Bankruptcy Court for the Southern District of Texas. He scheduled his bar-study loan claim as an "Educational . . . Private loan" and did not dispute the debt. In February 2016, the court granted him a discharge under 11 U.S.C. § 727, informed him that "[m]ost debts are covered by the discharge, but not all," and closed his case.

         Michael Shahbazi has a similar story. In 2002, Shahbazi obtained an $11, 658.99 loan from Sallie Mae for tuition and expenses while he attended a technical school. He was given notice that his loan was "an education loan that must be repaid." Exactly how Navient obtained its interest is unclear to us, but it is servicing this loan.

         In 2011, Shahbazi filed for voluntary Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia. He scheduled his Sallie Mae loan as a "Student Loan" and did not dispute the debt. In December 2011, the court granted him a discharge and closed his bankruptcy proceeding. This discharge order specifically listed "Debts for most student loans" as not being discharged.

         It is alleged that after both discharges, Navient had both of these plaintiffs contacted frequently by telephone and email to demand repayment. In August 2016, Crocker filed an adversary proceeding against Navient in the Bankruptcy Court for the Southern District of Texas, the same court that had granted him a discharge. He sought (1) a declaratory judgment that his private education debt had been discharged; (2) entry of judgment holding Navient in contempt for violating the injunction arising from his discharge; and (3) a temporary injunction. The court entered an agreed preliminary injunction on August 18, 2016, barring Navient from pursuing collection until further order.

         Crocker, with Shahbazi as an additional plaintiff, filed an amended complaint, seeking to certify a nationwide class of those who (1) obtained prepetition private education loans from Navient or related companies to cover expenses at an institution not accredited under Title IV; (2) later filed for bankruptcy and were issued discharge orders; (3) have never reaffirmed their prepetition private education loan debt; and (4) are being induced to pay their allegedly discharged private education loans. Damages were now also sought.

         Navient moved for summary judgment on these claims, arguing that a bankruptcy court has no jurisdiction to interpret and enforce discharge orders entered by courts in other judicial districts and that the plaintiffs' education loans were nondischargeable. The bankruptcy court denied the motion in March 2018.[2] It rejected that the general rule giving an issuing court sole authority to enforce its own injunctions applied to the automatic injunction created by statute when a bankruptcy court grants a discharge under 11 U.S.C. § 727. The court also determined that the kind of loans for educational purposes relevant here, which the parties refer to as "private loans," were not within the ambit of the Bankruptcy Code's bar on the discharge of some student loans. See 11 U.S.C. § 523(a)(8).

         In the same order, the bankruptcy court first authorized an interlocutory appeal, then certified the order for direct appeal to this court, eschewing the usual initial appellate review by a district court. A bankruptcy court may certify a ruling for direct review by a circuit court of appeals when, among other reasons, it "involves a question of law as to which there is no controlling decision" by that circuit court or the Supreme Court, or because an appeal at that stage in the proceedings "may materially advance the progress of the case." 28 U.S.C. § 158(d)(2)(A)(i), (iii). If a bankruptcy court so certifies, the circuit court of appeals then exercises its discretion. § 158(d)(2)(A). A motions panel of this court granted the unopposed motion to authorize the appeal.


         We review "grants and denials of summary judgment de novo. Summary judgment is appropriate when 'there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'" Lyda Swinterton Builders, Inc. v. Okla. Sur. Co., 903 F.3d 435, 444 (5th Cir. 2018) (quoting Fed.R.Civ.P. 56). Federal Rule of Civil Procedure 56 is incorporated into the Federal Rules of Bankruptcy Procedure. Fed.R.Bankr.P. 7056.

         Navient has two principal contentions on appeal. The first is that the bankruptcy court either has no jurisdiction to enforce the statutory injunctions arising from a bankruptcy discharge that another bankruptcy court ordered, or at least for prudential reasons may not do so. Second, Navient contends that the plaintiffs' education loans are within the category of loans that under the Bankruptcy Code are nondischargeable.

         There are no meaningful factual issues presented to us. Instead, we have legal issues of statutory interpretation. We now turn to those.

         I. Authority to enforce a Section 524 discharge order entered by a bankruptcy court in another judicial district

         In broad brush, these proceedings concern two closed Chapter 7 bankruptcies in which generic discharges, i.e., discharges not specifying the discharged debts, were issued at completion. A discharge "operates as an injunction" against an extensive list of actions that a creditor might take to collect on the discharged debt. 11 U.S.C. § 524(a)(2), (3). The discharge is a "substantive right," and that right is "often enforced by a motion for contempt, but [it is] also enforceable through a declaratory judgment action." Nat'l Gypsum Co. v. NGC Settlement Tr. & Asbestos Claims Mgmt. Corp. (In re Nat'l Gypsum Co.), 118 F.3d 1056, 1063 (5th Cir. 1997) (citations omitted). The declaratory judgment was sought in National Gypsum by the opening of an adversary proceeding in the bankruptcy court that had granted the debtor's discharge. Id. at 1060. Indeed, Federal Rule of Bankruptcy Procedure 7001(6) states that an adversary proceeding is, among other things, "a proceeding to determine the dischargeability of a debt."

         Thus, an available procedure under National Gypsum is a declaratory judgment action. A violation of the declaratory judgment will lead to its own remedies such as "damages or an injunction." United Teacher Assocs. Ins. Co. v. Union Labor Life Ins. Co., 414 F.3d 558, 570 (5th Cir. 2005); see also 28 U.S.C. § 2202. The issue for us is identifying the proper court or courts in which such an action can be brought. May a bankruptcy court other than the one that granted the discharge enforce the injunction?

         The closest this circuit has come to answering the question is to hold, in the class action context, that a bankruptcy judge in the Southern District of Texas may exercise 'jurisdiction over claims that arise in other cases administered by other judges" in the same judicial district. Wilborn v. Wells Fargo Bank, N.A. (In re Wilborn), 609 F.3d 748, 753 (5th Cir. 2010). The Wilborn court only briefly discussed the issue of enforcing an injunction arising from the discharge order of a different bankruptcy court in the same district. In the present proceedings, the bankruptcy court's understanding of its authority extended well beyond its home district. The question of a bankruptcy judge's injunctive reach within its own district has not been answered.

         The two plaintiff-debtors received general discharges in bankruptcy. Central to the dispute is that Congress has excepted from discharge, among other categories of debt, certain types of student-loan debt. 11 U.S.C. § 523(a)(8). We will deal with the issue of dischargeability in the second part of our opinion and will wait to quote the relevant statute until then.

         We have already summarized that the bankruptcy court at this stage answered only two questions. The first answer we review is the "yes" the court gave to the question of whether a bankruptcy court in a judicial district other than the one in which the discharge was entered has authority to interpret the discharge and enforce the injunction. The court rejected Navient's argument that the general rule should apply that the court issuing an injunction is the only one that can enforce it through contempt proceedings. The bankruptcy court first held that general rule was inapplicable because no discretion or individual judgment is exercised in creating the injunction.[3] The form order used for the discharges for the initial two plaintiffs here does not even mention an injunction. The injunction instead arises from this statutory command: "A discharge in a case under this title . . . operates as an injunction against the commencement or continuation of an action." § 524(a). Because there is "no subjective thought process that requires deference nor is there any risk of misinterpretation of a particular judge's reasoning," the bankruptcy court concluded that the general limitation on enforcement of injunctions only by the issuing court was inapplicable. The court did not cite any case authority to support its analysis. The basic point was that the bankruptcy statutes themselves make clear that no purpose is served by requiring a return to the issuing court to interpret a discharge injunction.

         Navient, of course, disagrees that discharge injunctions should be treated differently than others. A principal authority it cites is one of this court's precedents dealing with non-bankruptcy injunctions. There, Chief Judge Charles Clark explained in the context of a claim of securities fraud that "[e]nforcement of an injunction through a contempt proceeding must occur in the issuing jurisdiction because contempt is an affront to the court issuing the order." Waffenschmidt v. MacKay, 763 F.2d 711, 716 (5th Cir. 1985). A bankruptcy court does continue to have jurisdiction to enforce its orders, and that jurisdiction remains even after the bankruptcy case is closed. See, e.g., Galaz v. Katona, 841 F.3d 316, 322 (5th Cir. 2016). The issue for us arises because Galaz and other Fifth Circuit precedents do not hold that authority is exclusive in the original court. Navient also argues that regardless of jurisdiction, there are prudential reasons supporting its argument.

         Navient's appellate brief recounts the background for an injunction that arises from a discharge, drawing from a scholarly article. Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 Am. Bankr. L. J. 325 (1991). We look at parts of the background in order to understand how a bankruptcy discharge was enforced before a statute was enacted that imposed an injunction. Importantly, we also consider whether another part of the same statutory enactment arguably created a right of enforcement of the injunction by "foreign" courts. If so, then its repeal in 1978 has some meaning.

         There was no statutory injunction arising from a discharge until 1970. Id. at 326 n.3. A House Report on 1970 bankruptcy legislation explained problems with prior law, including the harassment of debtors:

The present discharge provisions of the Bankruptcy Act authorize the bankruptcy court to determine the right to a discharge, but do not give the bankruptcy court express jurisdiction to determine the effect of the discharge. . . . Under present practice, if a bankrupt is sued in State court on a discharged debt, the State court may determine whether the debt in question was or was not discharged. In other words, the jurisdiction over the granting and the enforcing of a discharge is divided, with the result that debtors are frequently harassed and coerced by creditors into paying debts that may have been discharged.

H.R. Rep. No. 91-1502, at 3 (1970).

         The 1970 legislation was adopted and provided for an injunction:

f. An order of discharge shall-
(1) declare that any judgment theretofore or thereafter obtained in any other court is null and void . . .; and
(2) enjoin all creditors whose debts are discharged from thereafter instituting or continuing any action or employing any process to collect such debts as personal liabilities of the bankrupt.

Act of Oct. 29, 1970, Pub. L. No. 91-467, § 3, 84 Stat. 990, 991 (amending Section 14 of the 1898 Bankruptcy Code, codified as 11 U.S.C. § 32(f)).

         The statutory detailing of the injunction that results from a discharge has been revised, but the meaning for our purposes is the same: the discharge "operates as an injunction against the commencement or continuation of an ...

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