2006 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-10-2006

In Re: Nathan Udell

Precedential or Non-Precedential: Precedential

Docket No. 05-2950

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 05-2950

 

IN RE: NATHAN JAMES UDELL,

 Debtor

NATHAN JAMES UDELL,

 Appellant

 v.

UNITED STATES OF AMERICA

FREDERIC J. BAKER, ESQUIRE,

 Trustee

GLORIA M. SATRIALE, ESQUIRE,

 Trustee

 
*

The Honorable Alan D. Lourie, United States Circuit

Judge for the Federal Circuit, sitting by designation.

2

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 05-cv-00356)

District Judge: Honorable Harvey Bartle, III

 

Argued June 13, 2006

Before: FISHER, ALDISERT and LOURIE,*

 Circuit Judges.

(Filed July 10, 2006)

Megan M. McDonald (Argued)

656 Main Street

Hellertown, PA 18055

Attorney for Appellant

Virginia R. Powel

Office of the United States Attorney

615 Chestnut Street, Suite 1250

Philadelphia, PA 19106

Tara Leigh Grove (Argued)

United States Department of Justice

Civil Division

950 Pennsylvania Avenue, N.W., Room 7230

Washington, DC 20530

Attorneys for Appellee
3

 

OPINION OF THE COURT

 

LOURIE, Circuit Judge.

Nathan James Udell appeals from the decision of the

United States District Court for the Eastern District of

Pennsylvania, reversing the order of the United States

Bankruptcy Court, Eastern District of Pennsylvania, and holding

that Udell’s educational debt was not dischargeable. Udell v.

United States, 325 B.R. 147 (E.D. Pa. 2005). Because the

District Court correctly determined that the Bankruptcy Code,

viz., 11 U.S.C. § 523(a)(8), applies to Udell’s debt and prohibits

the discharge of his debt, we will affirm.

I. BACKGROUND

The underlying facts are not in dispute. Udell entered the

United States Air Force Academy as a cadet by Congressional

appointment on July 1, 1993. He completed three academic

years at the Air Force Academy from July 1, 1993, to August 2,

1996. Upon enrollment at the Air Force Academy, Udell signed

a “Record of Acceptance, Obligation, Reimbursement, and Oath

of Allegiance,” agreeing to complete the educational

requirements and to serve on active duty for a period of eight

years. He further agreed that if he failed to complete the

educational requirements or to serve on active duty for the

requisite period of time, he would be required to reimburse the

government for the cost of his education.
4

While enrolled at the Air Force Academy, Udell

possessed an official government issued credit card. When

questioned by investigators about a delinquent balance on that

card, Udell initially claimed that the card was stolen, but later

admitted that he had not been truthful about the card being

stolen. He also admitted that he had given the card to his

girlfriend to “use for whatever she needed,” and that she had

made various purchases with that card. On April 24, 1996, the

Military Review Committee convened and recommended Udell

for disenrollment due to his misconduct. Udell was permitted to

submit a letter of resignation in lieu of disenrollment. On July

31, 1996, Udell’s letter of resignation was accepted and Udell

was also discharged (under honorable conditions) from the Air

Force.

As a result of his early discharge from the Air Force,

Udell was required to reimburse the government for the cost of

his education in the amount of $88,936. Including interest and

administrative charges, the amount has increased to a total of

$123,692. Udell does not dispute that he owes this amount. In

June 2002, Udell filed a voluntary petition for bankruptcy

protection under Chapter 7 of the U.S. Bankruptcy Code, stating

that he owed $123,692 to the United States Department of

Defense. In October 2002, Udell instituted an adversary

proceeding in the Bankruptcy Court, seeking a determination

that the debt for his Air Force Academy education was

dischargeable.

The Bankruptcy Court determined that Udell’s debt was

dischargeable. In re Udell, 318 B.R. 293 (Bankr. E.D. Pa.

2004). The court recognized that both the Armed Forces Code,
5

viz., 10 U.S.C. § 2005(d), and the Bankruptcy Code, viz., 11

U.S.C. § 523(a)(8), “deal with the dischargeability of

educational obligations or loans.” Id. at 296. The court,

however, determined that 10 U.S.C. § 2005(d) is a more specific

statute “targeted only to educational obligations arising in

connection with service in the armed forces” and that, as a

specific statute, § 2005(d) controls whether Udell’s debt to the

government is dischargeable. Id. The court found legal support

for its conclusion in case law holding that a more specific statute

governs the dischargeability of specific types of educational

loans, in those cases Health Education Assistance Loans

(“HEAL”). Id. The court also found factual support for its

decision in the “Record of Acceptance, Obligation,

Reimbursement, and Oath of Allegiance,” which specifically

references and summarizes § 2005(d). Id. Without expressly

considering the language of § 2005(d), the court concluded that

Udell’s obligation to the government was dischargeable under

§ 2005(d). Id. at 297.

The District Court reversed the decision of the

Bankruptcy Court, concluding that Udell’s debt was not

dischargeable. Udell, 325 B.R. at 151. The court noted that

Udell’s type of debt was encompassed within both the Armed

Forces Code, § 2005(d), and the Bankruptcy Code, § 523(a)(8).

Upon considering the plain language of § 2005(d) and

§ 523(a)(8), the court determined that § 2005(d) prohibits the

discharge of a debt within a period of five years after a debtor

has ended service in the armed forces, but “is silent with respect

to what happens thereafter.” The court concluded that

§ 523(a)(8), in contrast, prohibits the discharge of a debt at all

times absent a showing of undue hardship. Id. at 150.
6

According to the court, “[t]he two statutes can easily be

reconciled so as to give effect to both” because “§ 2005(d)

absolutely prohibits the discharge of the debt in question during

the first five years, and § 523(a)(8) prohibits a discharge

thereafter unless an undue hardship exists.” Id. Because five

years had passed since Udell had been discharged and Udell had

not argued undue hardship, the court determined that his debt

was not dischargeable. Id. The court noted that its

interpretation of the statutes was “neither an unfair nor

unreasonable harmonization of the two statutes,” and that it was

not Congress’s intent to treat the debt of one who leaves the

military more leniently than the debt of others. Id.

Udell timely appealed from the District Court’s decision,

and we have jurisdiction to hear this appeal under 28 U.S.C.

§ 158(d) and 28 U.S.C. § 1291.

II. DISCUSSION

We review a district court’s bankruptcy decision using

the same standard as that exercised by the district court. In re

Woskob, 305 F.3d 177, 181 (3d Cir. 2002). Accordingly, we

review factual findings for clear error, and we exercise plenary

review over legal determinations. Id.

On appeal, we are asked to decide whether the Armed

Forced Code authorizes the discharge of an educational

obligation arising in connection with service in the armed

forces, after five years have elapsed since a debtor’s active

service in the armed forces has ended, without a showing of

undue hardship as required under the Bankruptcy Code. After
7

careful review of the submitted briefs and the oral argument, we

hold that the Armed Forces Code does not authorize a discharge

absent a showing of undue hardship. The two statutes at issue

are 10 U.S.C. § 2005(d) and 11 U.S.C. § 523(a)(8). The Armed

Forces Code, viz., 10 U.S.C. §§ 2005 (a) and (d), provide, in

relevant part, that:

(a) The Secretary concerned may require, as a

condition to the Secretary providing advanced

education assistance to any person, that such

person enter into a written agreement with the

Secretary concerned under the terms of which

such person shall agree–

(1) to complete the educational

requirements specified in the

agreement and to serve on active

duty for a period specified in the

agreement;

(2) that if such person fails to

complete the education

requirements specified in the

agreement, such person will serve

on active duty for a period

specified in the agreement;

(3) that if such person, voluntarily

or because of misconduct, fails to

complete the period of active duty

specified in the agreement, or fails
8

to fulfill any term or condition

prescribed pursuant to clause (4),

such person will reimburse the

United States in an amount that

bears the same ratio to the total cost

of advanced education provided

such person as the unserved portion

of active duty bears to the total

period of active duty such person

agreed to serve;

(4) to such other terms and

conditions as the Secretary

concerned may prescribe to protect

the interest of the United States.

. . . 

(d) a discharge in bankruptcy under title 11 shall

not release a person from an obligation to

reimburse the United States required under the

terms of an agreement described in subsection (a)

if the final decree of the discharge in bankruptcy

was issued within a period of five years after the

last day of a period which such person had agreed

to serve on active duty. . . .

(Emphases added). The Bankruptcy Code, viz., 11 U.S.C.

§ 523(a)(8), provides, in relevant part, that:
9

(a) A discharge under section 727, 1141, 1228(a),

1228(b), or 1328(b) of this title does not discharge

an individual debtor from any debt–

. . . 

(8) for an educational benefit

overpayment or loan made, insured

or guaranteed by a government

unit, or made under any program

funded in whole or in part by a

governmental unit or nonprofit

institution, or for an obligation to

repay funds received as an

educational benefit, scholarship or

stipend, unless excepting such debt

from discharge under this

paragraph will impose an undue

hardship on the debtor and the

debtor’s dependents;

On appeal, Udell argues that his debt is dischargeable

under § 2005(d). To support his argument, Udell points to the

“Record of Acceptance, Obligation, Reimbursement, and Oath

of Allegiance,” which he alleges references § 2005(d) when

setting forth the conditions and obligations of Udell’s

enrollment in the Air Force. In addition, Udell argues that the

plain language of § 2005(d) authorizes the discharge of his debt.

According to Udell, § 2005(d) prohibits him from discharging

his debt for the first five years after he has ended his service on

active duty, but thereafter releases him from his obligation to
10

reimburse the United States. Udell further asserts that § 2005(d)

is a specific provision relating to the discharge of an educational

obligation arising from assistance by the armed forces, which

controls over § 523(a)(8), a provision relating to government

student loans in general. Udell contends that such cases as In re

Borrero, 208 B.R. 792 (Bankr. D. Conn. 1997), United States v.

Wood, 925 F.2d 1580 (7th Cir. 1991), and United States v.

Rushing, 287 B.R. 343 (D.N.J. 2002), are analogous,

purportedly holding that a specific statute governing the

discharge of a Health Education Assistance Loan (“HEAL”)

controls over § 523(a)(8). Finally, Udell asserts that the

legislative history of § 523(a)(8) clearly establishes that when

Congress amended § 523(a)(8), it intended that that section not

affect debts from other programs under more specific statutes.

The government responds that the District Court correctly

determined that § 2005(d) and § 523(a)(8) can be harmonized

and that they are applicable to somewhat different situations.

According to the government, because Udell did not assert that

repaying his debt would constitute an undue hardship, his debt

cannot be discharged. The government notes that the statutory

provisions are not in conflict and work in conjunction with each

other to ensure that individuals receiving financial assistance

from the government repay their debts to the government. In

addition, the government asserts that the cases that Udell relies

upon for support that a specific statutory provision controls over

a general provision are distinguishable from this case because

they involve a different statutory provision.

We agree with the government that the District Court

correctly determined that Udell’s debt was not dischargeable
11

absent a showing of undue hardship. It is a well established

canon of statutory construction that “provisions in different

statutes should, if possible, be interpreted so as to effectuate

both provisions.” Cutaiar v. Marshall, 590 F.2d 523, 530 (3d

Cir. 1979); see also United States v. Bruno, 897 F.2d 691, 695

(3d Cir. 1990) (“it is our duty to construe the statutes in such a

way as to give effect to both, if possible”); Tineo v. Ashcroft,

350 F.3d 382, 391 (3d Cir. 2003) (“Whenever possible, the two

statutes should be read in order to give effect to both.”); United

States v. Borden Co., 308 U.S. 188 (1939) (“When there are two

acts upon the same subject, the rule is to give effect to both if

possible.”); Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1018

(1984). With that principle in mind, we begin by considering

the plain language of both § 2005(d) and § 523(a)(8) to

determine if these provisions can be harmonized and to

determine whether Udell’s debt can be discharged. Our inquiry

here begins and ends with the plain language of § 2005(d) and

§ 523(a)(8) because the statutes are not in conflict and can be

readily reconciled such that we can give effect to each provision.

With regard to § 2005(d), the relevant phrase is “a

discharge in bankruptcy under Title 11 shall not release a person

from an obligation to reimburse the United States . . . if the final

decree of the discharge in bankruptcy was issued within a period

of five years after the last day of a period which such person had

agreed to serve on active duty.” 10 U.S.C. § 2005(d) (emphasis

added). It is undisputed that Udell’s debt resulting from his

education at the Air Force falls within the type of debt

encompassed within § 2005(d). It is also undisputed that it has

been more than five years since Udell’s last day in which he

served on active duty. The dispute concerns whether the
12

language in § 2005(d) authorizes the discharge of the debt at

issue after that five year period had elapsed. The language in

§ 2005(d) clearly prohibits an individual with an educational

debt from discharging his debt under any circumstance during

the first five years after he ends his service on active duty in the

armed forces, but does not, however, address what happens

thereafter. Udell argues that the plain language of § 2005(d)

authorizes the discharge of a debt after the five year period has

elapsed. Essentially, Udell is contending that the term “shall not

release” means that, other than during that five year period, the

statute “shall” provide for the release of the debt.

We do not agree. We see no language in § 2005(d) that

suggests or authorizes what happens after that five year period.

The statutory language “shall not” does not mean that the debt

“shall be released unless.” The statute only speaks in the

negative, prohibiting, not permitting, the discharge of a debt

during a five year period. That cannot be interpreted to mean

that the statute implicitly speaks in the positive after that five

year period and permits the discharge of the debt. Accordingly,

§ 2005(d), by its plain language, does not authorize the

discharge of Udell’s debt. Moreover, while the “Record of

Acceptance, Obligation, Reimbursement, and Oath of

Allegiance” references § 2005, it does not provide or even

suggest that Udell’s debt is dischargeable under that provision.

In contrast, the plain language of § 523(a)(8) does not

place any time restrictions on when a debt cannot be discharged.

Rather, that provision prohibits the discharge of an educational

debt at any time unless the debtor can demonstrate undue

hardship. Moreover, the plain language of § 523(a)(8) clearly
13

encompasses Udell’s type of debt. That provision applies to

debts for “an educational benefit . . . made under any program

funded in whole or in part by a governmental unit . . . or . . . an

obligation to repay funds received as an educational benefit,

scholarship, or stipend, unless excepting such debt from

discharge under this paragraph will impose an undue hardship

on the debtor . . . .” 11 U.S.C. § 523(a)(8). Because Udell’s

debt is plainly an educational benefit made under a program

funded by the government and Udell has an obligation to repay

funds received as an educational benefit, his debt falls within

§ 523(a)(8). Udell’s debt is also not dischargeable under the

plain language of § 523(a)(8), which provides that such a debt

cannot be discharged “unless excepting such debt from

discharge under this paragraph will impose an undue hardship

on the debtor.” Because Udell has not alleged undue hardship,

he cannot discharge his debt under § 523(a)(8) on that ground.

Thus, § 523(a)(8) and § 2005(d) can be readily harmonized such

that we can give effect to both provisions. While § 2005(d)

prohibits a cadet from discharging his debt for any reason for the

first five years after he leaves the military, § 523(a)(8) applies

thereafter, prohibiting the discharge of a debt unless undue

hardship can be demonstrated.

Udell argues that the two statutes are in conflict, and that

§ 2005(d), a more specific statute, controls the more general

statute, § 523(a)(8). We find Udell’s argument unpersuasive.

While it is true that a more specific provision governs over a

more general statute when there is a conflict between the two

statutes, here there is no conflict. See Nat’l Cable &

Telecomms. Ass’n, Inc. v. Gulf Power Co., 534 U.S. 327, 336

(2002). As stated in Nat’l Cable, the specific statutory language
14

controls “but only within its self-described scope.” Id.

Although the scope of § 2005(d) and § 523(a)(8) may overlap

during the first five years after a cadet leaves the military, there

is no overlap thereafter. Thus, the principle of statutory

construction that Udell urges this Court to adopt is not

applicable to this case. As this is not a situation in which one

statutory provision conflicts with another, we have therefore

considered how each provision may apply to Udell’s debt.

Because it has been more than five years since Udell has served

on active duty, § 2005(d) does not pertain to Udell’s debt, and

§ 523(a)(8) applies, prohibiting the discharge of his debt.

Udell further attempts to rely on cases such as Borrero,

Wood, and Rushing, for support of his argument that a statute

addressing the dischargeability of a specific type of debt

controls over the more general statute. Those cases are not

analogous to this case because they involve a different statutory

provision with language significantly different from the

language in § 2005(d). For example, Borrero involves the

dischargeability of debt arising under HEAL, a loan program

governed by the Public Health Service Act, 42 U.S.C. § 292f(g).

208 B.R. at 797. Section 292f(g) absolutely prohibits the

discharge of debt for seven years, and thereafter permits

discharge only if it would be “unconscionable” to require

repayment. See id. at 795 n.4; 42 U.S.C. § 292f(g). As the

court noted in Borrero, a showing of “unconscionability” is a

more burdensome standard than the “undue hardship” standard

in § 523(a)(8). 208 B.R. at 798. In such a case when there are

different standards required in the statutory provisions, it may be

appropriate to apply the canon of statutory interpretation that a

more specific provision controls. However, in this case, there
15

is no conflict between § 2005(d) and § 523(a)(8), because there

are not two different standards. Thus, the analogy of the HEAL

program involving a specific type of debt governed by a specific

statute is inapplicable to this case involving the Armed Forces

Code.

Udell also asserts that the legislative history demonstrates

that when Congress amended § 523(a)(8), it clearly intended

that § 523(a)(8) not affect debts from other programs under

more specific statutes. However, the plain language of a statute

is normally regarded as conclusive unless there is a “clearly

expressed legislative intention to the contrary.” Consumer Prod.

Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 107

(1980); see also United States v. Ron Pair Enters., Inc., 489 U.S.

235, 240-41 (1989) (“as long as the statutory scheme is coherent

and consistent, there is generally no need for a court to inquire

beyond the plain language of the statute”). Thus, the legislative

history would be pertinent only to the extent that Congress

clearly expressed an intent to interpret § 2005(d) or § 523(a)(8)

contrary to the plain language of the statutes. We do not find

that Congress expressed such an intent. In fact, the legislative

history reveals that Congress, in enacting § 2005, sought to

enable the Department of Defense to “deal more effectively with

the problem of receiving a fair return on the cost of education

received by the person who fails to complete his course of

education or his active duty obligation.” S.REP. NO. 96-850, at

9 (1980), as reprinted in 1980 U.S.C.C.A.N. 2833, 2841.

Congress therefore did not intend that § 2005(d) serve as a

means by which a cadet could avoid paying his debt. Rather,

Congress intended that under § 2005(d), the government would

be ensured of being repaid a debt owed by a cadet. Id. Thus,
16

the interpretation that Udell urges this Court to adopt is

unsupported by the legislative history as well as the statutory

language.

Udell finally points to a part of the legislative history of

§ 523, stating that § 523(a)(8) should not govern those debts

administered under more “program-specific dischargeability

provisions” in which case the specific provisions apply, and lists

the Public Health Service Act, § 292f(g), as an example of such

a case. 136 CONG. REC. H13289 (Oct. 27, 1990). Because

§ 292f(g) involves different language from § 2005(d), the

example that Congress provided to indicate when a specific

provision may control over § 523(a)(8) does not mean that

§ 2005(d) is an example of a program-specific provision. Thus,

the legislative history of § 523(a)(8) does not clearly indicate

that § 2005(d) authorizes the discharge of an educational debt

from the Armed Forces, irrespective of § 523(a)(8).

III. CONCLUSION

For the foregoing reasons, we will affirm the decision of

the District Court.