Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00910/USCOURTS-caed-1_05-cv-00910-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 11:101 Bankruptcy

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

GARY D. HATCHER,

 Plaintiff-Appellant,

 v. 

UNITED STATES OF AMERICA,

 Defendant-Appellee.

1:05-CV-0910 OWW 

ORDER AFFIRMING THE JUDGMENT

OF THE BANKRUPTCY COURT 

I. INTRODUCTION

Plaintiff Gary D. Hatcher, M.D. (“Dr. Hatcher” or

“Appellant”), appeals the judgment of the bankruptcy court

denying his request for discharge of his National Health Service

Corps (NHSC) scholarship debt. 

II. PROCEDURAL HISTORY

Dr. Hatcher filed the complaint in bankruptcy court on

August 12, 2003. Defendant United States of America

(“Defendant”) filed the answer on March 11, 2004. Trial was

conducted on March 31, 2004, and judgment entered on June 30,

2004.

 III. BACKGROUND

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The National Health Service Corps Scholarship Program, see

42 U.S.C. §§ 254d-254t, was enacted in 1976 to remedy the problem

of maldistribution of health care professionals in the United

States. See H.R.Rep. No. 266, 94th Cong., 2d Sess., pt. 1, 22

(1976), reprinted in 1976 U.S.C.C.A.N. 4947, 4964. Under this

program, students of medicine and related professions are granted

scholarships but must enter into written agreements to provide

one year of “obligated service” for each year of educational

support (with a minimum service obligation of two years). 42

U.S.C. §§ 254l (f)-(g). This service must be performed “in a

health professional shortage area (designated under [42 U.S.C.

§ 254e]) to which [the scholar] is assigned by the Secretary [of

Health and Human Services].” 42 U.S.C. § 254l (f)(1)(B)(iv)

(emphasis added). Each scholarship recipient must also agree in

writing that, if he or she breaches this commitment, he or she

will be liable for liquidated damages of three times the amount

of scholarship support received, as well as interest. 42 U.S.C.

§ 254o(b)(1)(A).

Dr. Hatcher received $73,657 through the program to finance

his medical education. Upon graduating from medical school in

1984, however, Dr. Hatcher refused to discharge his service

obligation. In 1989, he was adjudicated to be in default, and

judgment in the amount of $502,580.46 was entered against him in

United States v. Hatcher, 716 F.Supp. 447 (S.D. Cal. 1989), aff’d

United States v. Hatcher, 922 F.2d 1402 (9th Cir. 1991).

 After the affirmance, Dr. Hatcher requested a placement

with the NHSC in order to pay the judgment through service. He

was assigned through the Bureau of Prisons to a correctional

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facility in El Reno, Oklahoma, starting in August 1992. In

September 1995, Dr. Hatcher was fired for unprofessional conduct,

having served all but eleven months remaining in his obligation. 

He was later allowed to resign.

Dr. Hatcher then sought placement at an Indian Health

Service facility in Lawton, Oklahoma. When he obtained the

placement from the NHSC in 1996, however, he again refused to

serve.

In 2003, Dr. Hatcher reopened his 1996 bankruptcy to bring

an adversary proceeding seeking discharge of his NHSC debt,

alleging that it is “unconscionable,” within the meaning of Title

42, Section 254o(d)(3)(A), of the United States Code to require

him to pay the remainder of the 1989 judgment despite his

willingness to pay by service. The bankruptcy court rejected

this argument.

The court has jurisdiction under Title 28, Section

158(a)(1), of the United States Code. 

IV. LEGAL STANDARD

The bankruptcy court’s construction or interpretation of a

statute is reviewed de novo. United States v. Shipsey, 363 F.3d

962, 968 n.4 (9th Cir. 2004). Mixed questions of law and fact

are reviewed de novo. United States v. Asarco, Inc., 430 F.3d

972, 978 (9th Cir. 2005). The bankruptcy court’s findings of

fact are reviewed for clear error. Beck v. Pace Int’l Union, 427

F.3d 668, 674 (9th Cir. 2005).

V. ANALYSIS

Title 42, Section 254o(d)(3)(A), of the United States Code

provides:

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Any obligation of an individual under the Scholarship

Program (or a contract thereunder) or the Loan

Repayment Program (or a contract thereunder) for

payment of damages may be released by a discharge in

bankruptcy under Title 11 only if such discharge is

granted after the expiration of the 7-year period

beginning on the first date that payment of such

damages is required, and only if the bankruptcy court

finds that nondischarge of the obligation would be

unconscionable.

42 U.S.C.A. § 254o(d)(3)(A) (emphasis added).

The statute does not define “unconscionable.” Matthews v.

Pineo, 19 F.3d 121, 124 (3rd Cir. 1994), cert. denied 513 U.S.

820 (1994). 

In ordinary usage, the term “unconscionable” means

“excessive, exorbitant,” “lying outside the limits of

what is reasonable or acceptable,” “shockingly unfair,

harsh, or unjust,” or “outrageous.” Webster's Third

New International Dictionary 2486 (1977). In the

absence of contrary indications, we presume that

Congress, in employing the term “unconscionable” in

Section 254o(d)(3)(A), meant to adopt this definition. 

See Smith v. United States, 508 U.S. 223, ----, 113

S.Ct. 2050, 2054, 124 L.Ed.2d 138 (1993); Perrin v.

United States, 444 U.S. 37, 42, 100 S.Ct. 311, 314, 62

L.Ed.2d 199 (1979). 

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Matthews, 19 F.3d at 124. 

Dr. Hatcher argues that it would be unconscionable to

require him to pay his remaining debt under the Program when he

could discharge the debt with less than one year of service. He

concedes that he has no legal right to such placement, see, e.g.,

United States v. Fowler, 659 F.Supp. 624 (N.D. Cal. 1987), aff’d

849 F.2d 1476 (9th Cir. 1988); 42 U.S.C. § 254o (upon breach,

“the United States shall be entitled to recover from the

individual [amounts due]”), but argues that equity requires that

he be granted relief. Nor does he seek equitable relief based on

his inability to pay. In particular, he seeks to justify his

refusal to accept placement at the Lawton facility on the grounds

that the NHSC only assigned him there after a delay of six

months, during which time he moved with his family to California. 

Dr. Hatcher’s view of the bankruptcy court’s equity powers

is both expansive and erroneous. “A court in equity may not do

that which the law forbids. Wherever the rights or the situation

of parties are clearly defined and established by law, equity has

no power to change or unsettle those rights or that situation,

but in all such instances the maxim equitas sequitur legem

[equity follows the law] is strictly applicable.” Petersen v.

E.F. Johnson Co., 366 F.3d 676, 680 (8th Cir. 2004) (citations

and internal quotation marks omitted); accord East Tennessee

Natural Gas Co. v. Sage, 361 F.3d 808 (4th Cir. 2004). See also

In re Smart World Technologies, LLC, 423 F.3d 166, 183-84 (2nd

Cir. 2005) (bankruptcy court’s equitable powers do not allow it

to disregard specific provisions of the Bankruptcy Code); In re

Slater Health Center, Inc., 398 F.3d 98, 104 (1st Cir. 2005)

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(bankruptcy court’s equitable powers cannot be used so as to

alter substantive rights defined under non-bankruptcy law). 

Here, the parties’ relative rights are clearly defined by

statute. When Dr. Hatcher breached his agreement with the NHSC

in 1984 by refusing to discharge his obligation by service, he

forfeited his right to do so. To require the NHSC to place him

would create a substantive right which the law does not

recognize. 

Furthermore, though Dr. Hatcher seeks equity, he has not

done equity. See In re Gardenhire, 209 F.3d 1145, 1152 n.11 (9th

Cir. 2000) (taking note of the “time-honored maxim” that “he who

seeks equity must do equity”) (citing McQuiddy v. Ware, 87 U.S.

14 (1873)). The bankruptcy court heard evidence that Dr. Hatcher

earned approximately $1,180,000 between 1996 and 2002. During

that same period, he paid only $104,754 toward his debt, of which

more than $46,000 was collected through garnishment of his wages. 

In 1997, Dr. Hatcher earned in excess of $192,000, yet paid

nothing on the debt. After refusing for a second time to serve,

in 1996, his debt stood at approximately $239,000. Evidence was

admitted to show that monthly payments totaling $30,000 per year

would have retired this debt in fifteen years, leaving Dr.

Hatcher and his family with an average of $138,000 on which to

live. Dr. Hatcher has already been afforded two chances to

retire his debt through service, one more than he was entitled to

by law. The third time is not the charm. 

VI. CONCLUSION

It is not “shockingly unfair, harsh, or unjust” to require

Dr. Hatcher, who has already twice refused to fulfill his service

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obligation, to discharge his debt by payment. The bankruptcy

court is AFFIRMED. 

SO ORDERED

DATED: January _31__, 2006.

/s/ OLIVER W. WANGER

____________________________

OLIVER W. WANGER

United States District Judge

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