Law on Rice

I got a little frustrated with my Espinosa paper over the weekend. I’m in that in between period where I know a lot, but I’m unhappy with what I’ve got…

So, I want to simplify this next draft. To me, procedure really drives the case, and the paper should be structured around the procedural posture here. The posture is that the creditor attacks the bankruptcy court’s judgment under Federal Rule of Civil Procedure 60(b)(4). Under that Rule, the creditor must establish that the judgment was void.

As such, the creditor must prove the court lacked jurisdiction or that there was a due process defect because simple error is insufficient. I think it’s a stretch to argue that the court lacked jurisdiction. I think it’s more likely that the plan was simply confirmed in error (i.e., failure to enter an undue hardship finding under 523(a)(8)).

The due process argument is a little stronger, however. Under Mullane, the standard for due process is pretty low and, worse, the creditor had actual notice–they just chose to ignore it. A stronger argument might be, however, that the Bankruptcy Rules and Code changed the creditor’s expectation and thus, altered the totality of the circumstances under Mullane. So far, that’s the only way I can think of to make the creditor win.

As far as I’m concerned, the central issue in Espinosa remains whether Congress and the judicial rule writers can change constitutional due process minimums. It has to be central because due process has really minimal requirements under Mullane and because the creditor in this case had actual notice.

I was almost convinced tonight when I read the amicus brief from the International Municipal Lawyers Association. They argued that “the due process clause requires that notice be given as, and to the extent, required by statute,” citing City of New York v. New York, New Haven & Hartford R.R., 344 U.S. 293 (1953), a Supreme Court bankruptcy case.

I said, “now we’re getting somewhere,” but when I read New York, New Haven, I was disappointed. That case turned on whether notice by publication was reasonable or not when the debtor clearly knew how to give the creditor actual notice of a pending claims bar date. Worse, the case has nothing to do with constitutional due process when a creditor received service of process, and that portion of the case the brief relies upon is dicta.

Indeed, there was a modern case that distinguished New York, New Haven for some of those reasons. In Matter of Sam, 894 F.2d 778 (5th Cir. 1990), the Fifth Circuit summarily said, “The case apparently was decided on statutory rather than constitutional grounds.”

That said, I think the Municipal Lawyers missed a valuable lesson offered by New York, New Haven but noticed by Sam. In Sam, the court reasoned that New York, New Haven turned on whether the notice received by the creditor (via publication) required additional “burdensome” steps, or not. I think had the amici picked up on that, they’d have a much stronger argument.

Some bankruptcy issues can end up in state court, so I just learned. It turns out that a creditor can sue a debtor for, say, not paying student loans. Even if the debtor asserted that the loans were discharged in the debtor’s prior bankruptcy via 11 U.S.C. 523(a)(8), the creditor can sue in state court.

Prior to talking to my professor this morning, I would have assumed anytime a party raised the issue, the case would have to go back to the bankruptcy court. That’s what happened in Espinosa, but Espinosa had to reopen the bankruptcy case to do it.

I found one such case, Southwest Student Services Corp. v. Ma, 5 Misc.3d 884, 786 N.Y.S.2d 727 (N.Y.City Civ.Ct. 2004). In Ma, the debtor had a credit card called a “CollegeCard” issued by an Arizona lender. The court ruled that the credit card was an educational loan because it was “issued as a medium for an educational loan, as evidenced in several places on the application Defendant signed, and Plaintiff is a nonprofit organization authorized to issue such educational loans.” Id. at 885-86.  Since the debtor didn’t seek an “undue hardship” determination from the bankruptcy court, Id. at 884, the creditor could sue here.

I wonder if Mr. Ma’s bankruptcy lawyer just assumed that because it was a credit card, it was discharged. I also wonder if Mr. Ma were represented by a bankruptcy attorney in this case (he was pro se) whether that lawyer would have made more of the issue.

My professor cautioned that this can be risky for the creditor because if they lose, then they’ll be liable for violating the automatic stay. That might explain why I only found 35 written opinions anywhere in the U.S. on the matter.

If you recall, last weekend I was feverishly working on the first draft of my independent study paper on Espinosa. That feverish work got the bones on the paper. Now, I can leisurely work through some of the more interesting issues raised by the case.

First among these leisurely reads is Prof. Pardo’s amicus brief (which I read as the Angels gave up their last gasp tonight). Prof. Pardo is a professor at the law school, and he submitted an amicus brief in Espinosa.

His argument is complex but interesting–especially for someone who likes procedure, like me.

Because section 1330 compelled the creditor, United Student Aid Funds, to object to the plan’s confirmation within 180 days, the bankruptcy court lost subject matter jurisdiction when the creditor objected to the plan ten years later. Prof. Pardo points to a recent non-bankruptcy case, Bowles v. Russell, 127 S. Ct. 2360 (2007), authored by Justice Thomas. Here is the summary of Bowles from Westlaw:

Having failed to file a timely notice of appeal from the Federal District Court’s denial of habeas relief, petitioner Bowles moved to reopen the filing period pursuant to Federal Rule of Appellate Procedure 4(a)(6), which allows a district court to grant a 14-day extension under certain conditions, see 28 U.S.C. § 2107(c). The District Court granted Bowles’ motion but inexplicably gave him 17 days to file his notice of appeal. He filed within the 17 days allowed by the District Court, but after the 14-day period allowed by Rule 4(a)(6) and § 2107(c). The Sixth Circuit held that the notice was untimely and that it therefore lacked jurisdiction to hear the case under this Court’s precedent. Held: Bowles’ untimely notice of appeal-though filed in reliance upon the District Court’s order-deprived the Sixth Circuit of jurisdiction.

So, on that summary alone, I think Prof. Pardo seems to have a compelling argument that Espinosa is analgous to Bowles. Or does he?

Just a quick post to let you know I am still here. I’ve been working feverishly to finish a first draft in my independent study project on Espinosa v. United Student Aid Funds. After writing a seven page outline, I typed out twelve pages, 3,243 words, 19,712 characters (including spaces), sixty-four paragraphs, and 264 lines. Oh, and there are already forty six footnotes.

Not bad, but I’ve done better. For instance, it took me 578 minutes to get this far. Surely I could have been a lot more productive.

I’d say I’m about 55% done, so I’ll have a lot of work to do tomorrow to meet my own deadline.

This is just a quick post to tell you that you absolutely must listen to the oral arguments in Espinosa at the Ninth Circuit. I’ve been listening to the arguments in the car of the past few weeks, and I can’t get enough. I listen to it over and over again.

It’s a great lesson for a law student (like me) to hear just how visceral arguments about the law can be. Sometimes that’s hard to pick up in when you’re reading the cases, but when you hear Judge Kozinski talk through his arguments, you get a much stronger sense of just how alive the law really is.

The link is here.

I haven’t read the whole case yet, but I was so excited to find a progeny of Espinosa that I couldn’t resist blogging it. I was looking for due process cases in the context of bankruptcy, and there it was: In re Joye, 578 F.3d 1070 (9th Cir. Aug. 21, 2009), decided just a few months ago.

Here is the quote that compelled me to blog (on page 1079 of the Federal Register):

We assessed the constitutional adequacy of the official notice provided in bankruptcy proceedings in Matter of Gregory, 705 F.2d 1118 (9th Cir.1983). There, a creditor argued that its claim in bankruptcy should not be discharged because it had received inadequate notice of the debtor’s bankruptcy plan. Id. at 1120. It was undisputed, however, that the creditor had received official notice of the bankruptcy case and the scheduled meeting of creditors. Id. We rejected the creditor’s constitutional challenge, holding that “[w]hen the holder of a large, unsecured claim [in bankruptcy] … receives any notice from the bankruptcy court that its debtor has initiated bankruptcy proceedings, it is under constructive or inquiry notice that its claim may be affected, and it ignores the proceedings to which the notice refers at its peril.” Id. at 1123. We added that “[i]f [the creditor] had made any inquiry following receipt of the notice, it would have discovered that it needed to act to protect its interest.” Id.; see also Espinosa v. United Student Aid Funds, Inc., 545 F.3d 1113, 1122 (9th Cir.), amended by 553 F.3d 1193 (2008) (holding that Gregory is “entirely consistent with Mullane and the more than a half century of due process caselaw that follows it”).

I think, although I need to read it a little more closely, that Joye dealt with taxes discharged by declaration, not unlike Espinosa.

So, it turns out that I have to dig up my old 1L books on civil procedure.

To me, the question in Espinosa v. United Student Aid Funds, Inc. is whether the creditor is entitled to heightened due process. Yes, I know. The creditors are entitled to the adversary proceeding under bankruptcy law and procedure, but does that mean that they are allowed to challenge a confirmed plan?

Are creditors allowed to challenge the confirmed plan when a plan confirmation is deemed final judgment? If they are, then what does it mean for final judgment jurisprudence?

Should the plan’s confirmation be something other than final judgment?

I have to write an outline for Monday, so I’ve clearly got my work cut out for me.