Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_18-cv-00443/USCOURTS-casd-3_18-cv-00443-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (District or BAP)

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA 

JAIME YLASCO CLAVITO, 

Appellant,

v. 

U.S. DEPARTMENT OF VETERANS 

AFFAIRS, 

Appellee.

Case No.: 18cv443-MMA (NLS)

ORDER AFFIRMING DECISION OF 

BANKRUPTCY COURT 

 

 Appellant Jaime Ylasco Clavito (“Appellant”), proceeding pro se, appeals an order 

of the United States Bankruptcy Court for the Southern District of California 

(“Bankruptcy Court”) denying Appellant’s motion for contempt and sanctions, entered on 

February 16, 2018. See Doc. No. 1. Appellee U.S. Department of Veterans Affairs 

(“Appellee” or the “VA”) filed a responsive brief, to which Appellant replied. See Doc. 

Nos. 20, 21. The Court found the matter suitable for determination on the papers and 

without oral argument pursuant to Civil Local Rule 7.1.d.1. See Doc. No. 22. For the 

reasons set forth below, the Court AFFIRMS the decision of the Bankruptcy Court. 

/ / / 

/ / / 

/ / / 

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BACKGROUND

 The material facts of this case are not in dispute. See Doc. No. 19 at 18; Doc. No. 

20 at 6.1

 Appellant filed a petition for Chapter 7 bankruptcy on March 14, 2016. See 

Doc. No. 17-5 at 71. In his petition, Appellant listed, among other liabilities, a debt to 

the Department of Education in the amount of $65,831.82 for “[s]tudent loans” and a 

separate debt to the VA in the amount of $7,645 for an “[o]ver payment of [a] Post 9/11 

GI Bill benefit.” Id. at 25-26. On June 14, 2016, the Bankruptcy Court issued an Order 

of Discharge in a Chapter 7 case pursuant to 11 U.S.C. § 727.2

 See id. at 216-17. 

 On March 30, 2016, while the underlying bankruptcy case was pending, Appellant 

initiated an adversary proceeding against the Department of Education and Navient 

Solutions, Inc.3

 and sought to discharge his “student loans[.]” Doc. No. 17-3 at 3. 

Notably, Appellant did not reference the debt owed to the VA. See id. Several months 

later, Appellant filed a motion to change venue because he had relocated to Stockton, 

California. See id. at 83-88. The motion was unopposed. See id. at 97-98. On 

November 7, 2016, the Bankruptcy Court granted Appellant’s motion and transferred the 

case to the Eastern District of California, Sacramento Division. See id. The parties 

eventually stipulated to an entry of a judgment “granting discharge of the [Appellant’s] 

student loans pursuant to 11 U.S.C. § 523(a)(8)[.]”4

 Doc. No. 18-7 at 61. The 

                                               

1

 All citations to specific page numbers refer to the pagination assigned by the CM/ECF system. 

 2

 A discharge under Chapter 7 “discharges the debtor from all debts that arose” prior to the date 

of the bankruptcy petition. 11 U.S.C. § 727(b). After the discharge is issued, it “operates as an 

injunction against the commencement or continuation of an action . . . to collect, recover or offset any 

such debt as a personal liability of the debtor.” 11 U.S.C. § 524(a)(2). 

 3

 The Bankruptcy Court dismissed Navient Solutions, Inc. from the proceedings on October 14, 

2016. See Doc. No. 17-3 at 89-92. 

 4

 Section 523(a)(8) provides in relevant part that a Chapter 7 discharge does not discharge an 

individual’s debt “unless excepting such debt from discharge . . . would impose an undue hardship on 

the debtor . . . for . . . an educational benefit overpayment or loan made, insured, or guaranteed by a 

governmental unit, or made under any program funded in whole or in part by a governmental unit or 

nonprofit institution[.]” 11 U.S.C. § 523(a)(8)(A)(i). 

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Bankruptcy Court for the Eastern District of California entered judgment on August 8, 

2017, indicating that “the obligation of plaintiff to defendant [Department of Education] 

is declared to be discharged pursuant to 11 U.S.C. § 523(a)(8).” Id. at 63. 

 On January 2, 2018, Appellant returned to the Southern District and filed his 

“Motion For Order of Contempt and/or Sanction for Violation of Discharge Order and 

Judgment” against the VA. Doc. No. 17-3 at 102. Appellant sought a contempt order 

and sanctions against the VA because it garnished a portion of Appellant’s disability 

compensation to satisfy the pre-petition educational benefit overpayment debt. See id. at 

113 (“The VA required [Appellant] to pay $235.00 per month until [the debt] is paid 

off.”). Appellant argued that the VA’s renewed collection efforts violated both the 

Discharge Order and the Judgment. See id. at 104-05. The VA filed an opposition to 

Appellant’s motion, to which Appellant replied. See Doc. No. 17-4 at 5-12, 13-71. In 

connection with his reply brief, Appellant also filed two additional pleadings entitled 

“Cross Motion to Reopen Main Bankruptcy Case and Adversary Proceeding” and “Cross 

Motion to Add U.S. Department of Veterans Affairs and VA Debt Management Center as 

Defendants.” Id. at 72-75, 76-78. 

 On February 12, 2018, the Bankruptcy Court held a hearing on the matter. See 

Doc. No. 17-4 at 92. On February 16, 2018, the Bankruptcy Court issued an order 

denying Appellant’s motion for contempt and sanctions. See id. at 93-98. Specifically, 

the Bankruptcy Court held that the debt to the VA for overpayment of an educational 

benefit was “presumptively nondischargeable until a court order provided otherwise.” Id.

at 97. The court noted that Appellant commenced the adversary proceeding to have only 

his “student loans declared dischargeable[.]” Id. (emphasis in original). However, “the 

VA was not a defendant in the Adversary Proceeding” and “the educational benefit 

overpayment was not addressed in that suit[.]” Id. Thus, “[t]he Adversary Proceeding 

did not alter the educational benefit overpayment’s status in any way.” Id. The court 

concluded that it “cannot hold the VA in contempt or sanction it for violating an 

injunction that does not apply to it.” Id. The Bankruptcy Court instructed Appellant to 

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“bring a new adversary proceeding against the VA” to have the debt discharged. Id. The 

court explained that Appellant “cannot simply supplement the Adversary Proceeding, 

which has already gone to final judgment and is fully adjudicated.” Id.

 On February 14, 2018, Appellant filed a separate adversary proceeding against the 

VA seeking a discharge of his debt arising out of the educational benefit overpayment 

pursuant to 11 U.S.C. § 523(a)(8). See Doc. No. 17-6 at 1-2. The Bankruptcy Court 

issued an order staying the case pending resolution of the instant appeal. See id. at 348-

49 (noting that “the parties have agreed to stay the present adversary proceeding until the 

district court has decided Plaintiff’s appeal in the main bankruptcy case of the order 

denying motion for contempt and sanctions”). 

ISSUE ON APPEAL

 The issue on appeal is whether the Bankruptcy Court properly denied Appellant’s 

motion for contempt and sanctions against the VA for alleged violations of the discharge 

injunction.5

 See Doc. No. 1. 

JURISDICTION

 The Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a), 

                                               

5

 Appellant also argues that the bankruptcy judge erred in (1) failing to reopen the core 

bankruptcy case; (2) failing to added the VA as a defendant in the prior adversary case; (3) denying 

Appellant’s motion to amend his complaint; (4) failing to hold an evidentiary hearing; (5) violating 

Appellant’s constitutional rights; (6) failing to recuse himself for alleged bias; and (7) and failing to 

consider the constitutionality of 11 U.S.C. § 523(a)(8). See Doc. No. 19 at 1-2. With the exception of 

Appellant’s request to reopen the core bankruptcy case, Appellant did not raise any of these arguments 

below. See Doc. No. 17-3 at 102-210. District courts generally do not consider arguments raised for the 

first time on appeal, although the Court has the discretion to do so in exceptional circumstances. See In 

re Jan Weilert RV, Inc., 315 F.3d 1192, 1199 (9th Cir. 2003) (citing In re Am. W. Airlines, Inc., 217 F.3d 

1161, 1165 (9th Cir. 2000)). The record discloses no exceptional circumstances for not having raised 

these issues below; thus, the Court declines to address them. With respect to Appellant’s request to 

reopen the core bankruptcy case, Appellant filed a supplemental pleading in connection with his reply 

brief below entitled “Cross Motion to Reopen Main Bankruptcy Case and Adversary Proceeding.” Doc. 

No. 17-4 at 72-76. However, “[i]ssues raised for the first time in the reply brief are waived.” Bazuaye 

v. I.N.S., 79 F.3d 118, 120 (9th Cir. 1996). Thus because Appellant waived this argument before the 

Bankruptcy Court, and no exceptional circumstances exist for the Court to consider the argument for the 

first time on appeal, the Court similarly declines to address this argument. 

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which grants district courts jurisdiction to hear appeals from final orders of bankruptcy 

courts. See In re AFI Holding, Inc., 530 F.3d 832, 836 (9th Cir. 2008). “While civil 

contempt orders entered ‘during the course of a pending civil action’ are not appealable 

until final judgment, the Ninth Circuit has allowed immediate appeals of sanctions orders 

that dispose of the only issue before the court.” In re Stasz, 387 B.R. 271, 275 (B.A.P. 

9th Cir. 2008) (quoting SEC v. Elmas Trading Corp., 824 F.2d 732, 732 (9th Cir. 1987)). 

Thus, because the Bankruptcy Court’s order denying Appellant’s motion for contempt 

and sanctions “stands alone and requires no further action by the bankruptcy court, the 

order is a final order” and the Court has jurisdiction pursuant to § 158. Id. at 276. 

STANDARD OF REVIEW

 A district court reviews a bankruptcy court’s conclusions of law de novo, and its 

findings of facts for clear error. In re Levander, 180 F.3d 1114, 1118 (9th Cir. 1999). 

The Ninth Circuit applies “de novo review to ‘mixed questions’ of law and fact that 

require consideration of legal concepts and the exercise of judgment about the values that 

animate the legal principles.” In re Beverly, 374 B.R. 221, 230 (B.A.P. 9th Cir. 2007) 

(quoting In re Bammer, 131 F.3d 788, 791-92 (9th Cir. 1997) (en banc)). The Court 

“review[s] a bankruptcy court’s decision to deny a motion for contempt sanctions for an 

abuse of discretion.” In re Ramirez, 183 B.R. 583, 586 (B.A.P. 9th Cir. 1995); see also 

In re SMB Grp., Inc., BAP No. CC-11-1610-KiDMk, 2012 WL 5419275, at *7 (B.A.P. 

9th Cir. Nov. 7, 2012) (“An award or denial of sanctions . . . is reviewed for abuse of 

discretion.”).6

/ / / 

                                               

6

 It appears that the Ninth Circuit has not addressed the issue of whether the abuse of discretion 

standard also applies to a bankruptcy court’s denial of a motion for contempt and sanctions. See In re 

Taggart, 888 F.3d 438, 443 (9th Cir. 2018) (“The bankruptcy court’s decision to impose contempt 

sanctions is reviewed for an abuse of discretion.”) (emphasis added); In re Dyer, 322 F.3d 1178, 1191 

(9th Cir. 2003) (“We review the decision to impose contempt for an abuse of discretion, and underlying 

factual findings for clear error.”) (emphasis added). Even if the Court applied a de novo standard of 

review, the Court would reach the same result below. 

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DISCUSSION

 The standard set forth by the Ninth Circuit for finding a party in civil contempt “is 

well settled.” F.T.C. v. Affordable Media, 179 F.3d 1228, 1239 (9th Cir. 1999). “‘The 

moving party has the burden of showing by clear and convincing evidence that the 

contemnors violated a specific and definite order of the court. The burden then shifts to 

the contemnors to demonstrate why they were unable to comply.’” Id. (quoting Stone v. 

City and Cnty. of S.F., 968 F.2d 850, 856 n.9 (9th Cir. 1992)). “A bankruptcy court may 

enforce the discharge injunction by holding a party in contempt for knowingly violating 

the discharge.” In re Taggart, 888 F.3d at 443 (citing In re Zilog, Inc., 450 F.3d 996, 

1007 (9th Cir. 2006)). Thus, Appellant bore the burden below of demonstrating by clear

and convincing evidence that the VA violated either: (1) the Discharge Order; or (2) the 

Judgment. The Court addresses the orders in turn.

1. The Discharge Order 

 Appellant argues that the VA violated the Discharge Order by garnishing a portion 

of his disability compensation each month. See Doc. No. 19 at 20. Specifically, 

Appellant contends that “all of [his] educational debt [was] discharged in bankruptcy.” 

Id. 

 On June 14, 2016, the Bankruptcy Court entered an Order of Discharge in a 

Chapter 7 Bankruptcy case pursuant to 11 U.S.C. § 727. See Doc. No. 17-5 at 216-17. 

The Discharge Order expressly states that as a result of the discharge, “no one may make 

any attempt to collect a discharged debt from the debtors personally.” Id. at 216. 

However, the Discharge Order also explained that “[s]ome debts are not discharged[,]” 

including “debts for most student loans.” Id. at 217. 

 In his Chapter 7 bankruptcy petition, Appellant listed his debt to the VA as an 

“overpayment of [a] Post 9/11 GI Bill benefit.” Doc. No. 17-5 at 25-26. An 

overpayment of benefits under the GI Bill is an “educational benefit overpayment” as 

contemplated by 11 U.S.C. § 523(a)(8). See In re Renshaw, 229 B.R. 552, 556 n.8 

(B.A.P. 2d Cir. 1999) (“An ‘educational benefit overpayment’ is an overpayment from a 

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program such as the GI Bill where students receive periodic payments while they are 

enrolled in school, but if the students receive payments after they have left the school, 

that is an educational benefit overpayment.”), aff’d, 222 F.3d 82 (2d Cir. 2000). “Section 

523(a)(8) provides that certain kinds of educational debts are not discharged in 

bankruptcy unless repayment of the debt would result in undue hardship.” In re 

Kashikar, 567 B.R. 160, 164 (B.A.P. 9th Cir. 2017) (emphasis added). Section 523(a)(8) 

applies to “educational benefit overpayment[s].” Id.; see also 11 U.S.C. § 

523(a)(8)(A)(i). 

 Here, Appellant does not produce any evidence that his debt to the VA was 

somehow covered by the Discharge Order. In fact, Appellant produces records verifying 

the status of the debt to the VA as an educational benefit overpayment, which is not 

discharged in bankruptcy by a discharge order. For example, Appellant includes in the 

record on appeal a letter challenging the VA’s collection of a debt he describes as an 

“educational benefits loan [that] resulted from overpayment of the basic housing 

allowance.” Doc. No. 17-3 at 149. Moreover, Appellant asserts that the total debt owed 

to the VA was improperly calculated—an issue immaterial to the instant appeal—but 

does not challenge the characterization of the debt owed to the VA. See Doc. No. 19 at 

22-23. 

 Thus, because and educational benefit overpayment is presumptively not 

discharged under § 523(a)(8) until a court orders otherwise, the Bankruptcy Court did not 

abuse its discretion in concluding that Appellant did not meet his burden in showing that 

the VA violated the Discharge Order by continuing to collect on its debt. See In re 

Moon, No. 04-05679-LT13, 2010 WL 3186711, at *1 (Bankr. S.D. Cal. Aug. 9, 2010) 

(concluding that “[i]f [a student loan debt] was not discharged, then [the creditor] could 

not have violated the discharge injunction of § 524.”). 

2. The Judgment 

 Appellant further argues that the VA violated the Judgment by continuing to 

collect on its debt. Specifically, Appellant asserts that “Res Judicata and Collateral 

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Estoppel apply in this matter[.]” Doc. No. 19 at 25. Moreover, Appellant contends that a 

finding of undue hardship sufficient to support a discharge of a debt owned by one entity 

also supports a discharge of a separate debt owned by a different entity. See id. at 24 

(“Appellant met his burden of proof . . . in discharging all of his student loan debts . . . . 

Therefore, Appellant is also entitled to discharge ‘educational debt’ that VA claimed him 

to owe.”). 

 Here, the Court finds that Appellant’s arguments are misplaced. First, regardless 

of whether the Judgment has any res judicata or collateral estoppel effect, Appellant’s 

burden below was to show that the VA violated a definite order of the court. See 

Affordable Media, 179 F.3d at 1239 (noting that the “moving party has the burden of 

showing by clear and convincing evidence that the contemnors violated a specific and 

definite order of the court.”). By his contempt motion, Appellant claimed that the VA’s 

renewed efforts to collect on the pre-petition debt violated the Judgment. See 17-3 at 

104-05. The Bankruptcy Court noted that the two creditors held entirely separate debts, 

and concluded that the Judgment entered by the Eastern District only “discharged the 

debt [Appellant] owed the Department of Education” and “had no effect on other 

educational benefit overpayments or the VA.” Doc. No. 17-4 at 97. On appeal, 

Appellant admits that the VA was not a party in the prior adversary action. See Doc. No. 

19 at 26 (noting the “VA was not [a] party in adversary proceeding 16-90059.”); Doc. 

No. 17-4 at 81 (“I made a mistake that I did not include the VA . . . in the adversary 

proceeding”).7

 Thus, it was not an abuse of discretion for the Bankruptcy Court to 

conclude that Appellant had not shown that the VA violated the Judgment by continuing 

                                               

7

 As such, the Court finds Appellant’s argument that the Department of Education and the VA 

were in “privity” for res judicata purposes unpersuasive. See United States v. Wanland, 830 F.3d 947, 

956 (9th Cir. 2016) (“Courts have not assumed that all federal agencies are in privity for res judicata 

purposes, and instead look to the substance of claims.”); United States v. Ledee, 772 F.3d 21, 30 (1st 

Cir. 2014) (“[C]ourts have recognized in the preclusion context the folly of treating the government as a 

single entity in which representation by one government agent is necessarily representation for all 

segments of the government.”). 

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to collect on its debt. 

 Second, Appellant appears to suggest that a showing of undue hardship as to one 

educational debt is sufficient to discharge all educational debts. See Doc. No. 19 at 24. 

The Ninth Circuit has indicated that “it is now generally recognized that an all-or-nothing 

approach to the dischargeability of student debt contravenes Congress’ intent in granting 

bankruptcy courts equitable authority to enforce the provisions of the Bankruptcy Code.” 

In re Saxman, 325 F.3d 1168, 1174 (9th Cir. 2003). 

 Moreover, In re East, a case from the Bankruptcy Court for the Eastern District of 

California, is particularly instructive on this issue. 270 B.R. 485 (Bankr. E.D. Cal. 2001). 

There, the debtor sought to discharge two separate student loan obligations pursuant to 11 

U.S.C. § 523(a)(8). See id. at 487. Specifically, the debtor sought to discharge his debt

to Education Credit Management Corporation (“ECMC”) for his undergraduate 

education, as well as his debt to the Department of Education for his law school 

education. See id. at 487-88. The debtor filed separate adversary proceedings against 

each creditor, but because “the legal and factual issues raised by the adversary 

proceedings are identical,” the bankruptcy court permitted the proceedings to be tried 

jointly. Id. at 487. The bankruptcy court, however, separately considered whether the 

debtor had shown an undue hardship with respect to each obligation. See id. at 493-95. 

The bankruptcy court concluded that the debtor had not “met his burden of proof that it 

would be [an] undue hardship to repay the ECMC obligation.” Id. at 493. However, the 

court found that “the undue hardship inquiry is more complex with respect to the 

Department of Education because the loan amount is far greater.” Id. at 494. The court 

ultimately concluded that it would be an undue hardship for the debtor to repay his law 

school loans in full, and granted a partial discharge of the obligation. See id. at 496. The 

court further noted that it would “issue separate judgments with respect to each adversary 

proceeding.” Id. Thus, a finding of undue hardship with respect to one educational 

obligation does not automatically discharge all other educational debts. Rather, courts 

must evaluate the dischargeability of each debt separately. See id.

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 As such, the Court finds that the Bankruptcy Court did not abuse its discretion in 

concluding that because the Judgment’s “language was limited to the education loan debt 

[Appellant] owed to the Department of Education,” and was silent as to the VA, 

Appellant did not met his burden of showing the VA violated the Judgment. Doc. 17-4 at 

97. 

3. Summary 

 In sum, the Court finds that the Bankruptcy Court did not abuse its discretion in 

finding that Appellant had not met his burden of establishing by clear and convincing 

evidence that the VA violated a specific and definite order of the court. Accordingly, the 

Bankruptcy Court properly determined that it “cannot hold the VA in contempt or 

sanction it for violating an injunction that does not apply to it.” Doc. No. 17-4 at 97; see 

also In re Moon, 2010 WL 3186711, at *1 (denying debtor’s motion to hold creditor in 

contempt for violating the discharge order because the discharge order indicates that the 

student loan debt is not discharged; thus, when there is no discharge of the debt owed, 

there can be “no violation of § 524.”). 

CONCLUSION

 Based on the foregoing, the Court AFFIRMS the Bankruptcy Court’s February 16, 

2018 order denying Appellant’s motion for contempt and sanctions. 

IT IS SO ORDERED. 

Dated: July 23, 2018

 _____________________________ 

 HON. MICHAEL M. ANELLO 

United States District Judge 

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