FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FRANCISCO J. ESPINOSA, 

No. 06-16421 Plaintiff-Appellant,

D.C. No.

v.  CV-04-00447-RCC

UNITED STUDENT AID FUNDS, INC.,

OPINION Defendant-Appellee. 

Appeal from the United States District Court

for the District of Arizona

Raner C. Collins, District Judge, Presiding

Argued and Submitted

April 16, 2008—San Francisco, California

Filed June 24, 2008

Before: Alex Kozinski, Chief Judge, A. Wallace Tashima

and N. Randy Smith, Circuit Judges.

Per Curiam Opinion

7293
COUNSEL

Michael J. Meehan, Munger Chadwick, Tucson, Arizona;

James L. Robinson, Jr., Robinson & Rylander, P.C., Tucson,

Arizona, for the plaintiff-appellant. 

7294 ESPINOSA v. UNITED STUDENT AID FUNDS
Madeleine C. Wanslee, Gust Rosenfeld P.L.C., Phoenix, Arizona, for the defendant-appellee.

OPINION

PER CURIAM: 

Espinosa obtained $13,250.00 in student loans from United

Student Aid Funds, Inc. (Funds). He later filed a Chapter 13

bankruptcy petition and plan. The plan provided that he repay

the $13,250.00 principal, and that accrued capitalized interest,

penalties, and fees be discharged. The clerk of the bankruptcy

court mailed a notice of commencement and a copy of the

proposed plan to Funds, which gave Funds the usual notice of

the date and time of the plan confirmation hearing and the

deadline for filing objections to the plan. Funds then filed a

proof of claim for $17,832.15, which presumably included

unpaid accrued capitalized interest, penalties, and fees. But

Funds filed no objections to the plan, and as there were no

other creditors, the bankruptcy court confirmed the plan as

proposed. Espinosa subsequently paid Funds $13,250.00 over

the course of four years, at which point the plan was completed and the bankruptcy court issued a discharge order, filed

May 30, 1997. Curiously, the discharge order provided that

Espinosa was “discharged from all debts provided for by the

plan . . . except any debt . . . for a student loan,” which contradicted the terms of the plan and pretty much rendered the

whole exercise pointless from Espinosa’s point of view. Curiouser still, Espinosa did not seek reconsideration of the discharge order, nor did he appeal. 

Three years after the discharge order was filed, Funds

began “offsetting” or “intercept[ing]” Espinosa’s income tax

refunds to satisfy the unpaid portion of the student loan. (The

parties don’t explain what they mean by “offsetting” and “intercept[ing],” but we assume they mean that Funds somehow

ESPINOSA v. UNITED STUDENT AID FUNDS 7295
got ahold of Espinosa’s income tax refund check, and kept the

money for itself.) Espinosa petitioned the bankruptcy court

for an order holding Funds in contempt for violating the discharge injunction. See 11 U.S.C. § 524(a)(2). Funds crossmoved for relief from the bankruptcy court’s order confirming

the plan, on the ground that the order had been entered in violation of Funds’s rights under the Bankruptcy Code and

Rules, and the Due Process Clause. 

This is the nub of Funds’s argument: To satisfy its obligations under the Bankruptcy Code, a Chapter 13 debtor usually

only has to notify creditors by mail of the deadline for filing

objections and when the confirmation hearing will occur, Fed.

R. Bankr. P. 2002(b), as Espinosa did here. However, student

loans may be discharged under Chapter 13, 11 U.S.C.

§ 1328(a)(2), only if the debtor can show “undue hardship,”

id. § 523(a)(8), and such a showing can only be made in an

adversary proceeding, Fed. R. Bankr. P. 7001(6). To initiate

an adversary proceeding, a debtor must file a complaint, id.

7003, which must be served on the creditor along with a summons, id. 7004. Espinosa didn’t commence an adversary proceeding and therefore did not obtain a judicial declaration of

“undue hardship.” Absent such a declaration, Funds argues,

the bankruptcy court lacked authority to discharge the student

loan debt by means of the Chapter 13 plan. Funds’s motion

for relief from the discharge order was based on the fact that

Espinosa obtained his discharge without following the

statutorily-prescribed procedures for discharging student loan

debt. 

The bankruptcy court held that Funds violated the discharge injunction and ordered Funds to cease all collection

activities against Espinosa. The court also denied Funds’s

motion for relief from the confirmed plan, holding that the

plan became final when it was confirmed and that Funds

should have objected to any procedural defect before confirmation. Funds appealed to the district court, which reversed.

According to the district court, the order confirming the plan

7296 ESPINOSA v. UNITED STUDENT AID FUNDS
is void because Funds received insufficient notice and was

thus denied due process. Espinosa appeals. 

Funds argues that the confirmed bankruptcy plan is void,

because Funds didn’t receive service of a complaint and summons and there was no adversary proceeding to establish

“undue hardship,” which the Bankruptcy Code and Rules

require as a condition for discharging a student loan debt. We

rejected this argument in Pardee v. Great Lakes Higher Education Corp. (In re Pardee), 193 F.3d 1083, 1086 (9th Cir.

1999). Like Funds, the creditor in Pardee received notice of

the debtor’s proposed Chapter 13 plan, which provided for

discharge of the student loan debt without the benefit of an

adversary proceeding or an undue hardship finding. Id. at

1084. The creditor did not object, the bankruptcy court confirmed the Chapter 13 plan and the student loan debt was

eventually discharged. Id. Years later, the creditor argued that

the confirmed plan wasn’t final under 11 U.S.C. § 1327(a),

because the debtor had failed to follow the proper procedures

for obtaining a student loan discharge. Pardee, 193 F.3d at

1086. We pointed out in Pardee that the creditor there, like

Funds here, had timely notice of the Chapter 13 plan and

failed to object. We held that the creditor “should have raised

this argument [about the absence of an adversary proceeding

and a finding of undue hardship] in the bankruptcy court by

objecting to the plan prior to its confirmation, or by appealing

the bankruptcy court’s confirmation of the plan. It failed to do

either.” Id.

Relying on the Tenth Circuit’s opinion in Andersen v.

UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253, 1258

(10th Cir. 1999), overruled by Educ. Credit Mgmt. Corp. v.

Mersmann (In re Mersmann), 505 F.3d 1033, 1046-47 (10th

Cir. 2007) (en banc), we held that “[i]f a creditor fails to protect its interests by timely objecting to a plan or appealing the

confirmation order, ‘it cannot later complain about a certain

provision contained in a confirmed plan, even if such a provision is inconsistent with the Code.’ ” Pardee, 193 F.3d at

ESPINOSA v. UNITED STUDENT AID FUNDS 7297
1086. In reaching this conclusion, Pardee also relied on a

long line of cases, from our circuit and elsewhere, that “recognized the finality of confirmation orders even if the confirmed

bankruptcy plan contains illegal provisions.” Id.; see, e.g.,

Andersen, 179 F.3d at 1258; In re Szostek, 886 F.2d 1405,

1409-10 (3d Cir. 1989); Republic Supply Co. v. Shoaf, 815

F.2d 1046, 1049-50 (5th Cir. 1987); Lawrence Tractor Co. v.

Gregory (In re Gregory), 705 F.2d 1118, 1121 (9th Cir.

1983); Ground Sys., Inc. v. Albert (In re Ground Sys., Inc.),

213 B.R. 1016, 1020 (B.A.P. 9th Cir. 1997); In re Walker,

128 B.R. 465, 468 (Bankr. D. Idaho 1991). 

Since Pardee, there have been significant developments in

this area of the law: Two other circuits have rejected Pardee’s

reasoning—significantly including the Tenth Circuit, which

overruled its own Andersen opinion, on which Pardee principally relied. Mersmann, 505 F.3d at 1046-47; Whelton v.

Educ. Credit Mgmt. Corp., 432 F.3d 150, 154 (2d Cir. 2005).

Our own Bankruptcy Appellate Panel has questioned the reasoning of Pardee, albeit by a divided vote. Educ. Credit

Mgmt. Corp. v. Repp (In re Repp), 307 B.R. 144, 148 n.3

(B.A.P. 9th Cir. 2004). And three circuits, as well as our

Bankruptcy Appellate Panel, have held that the procedures

employed here violate the creditor’s due process rights.

Ruehle v. Educ. Credit Mgmt. Corp. (In re Ruehle), 412 F.3d

679, 684 (6th Cir. 2005); In re Hanson, 397 F.3d 482, 486

(7th Cir. 2005); Banks v. Sallie Mae Servicing Corp. (In re

Banks), 299 F.3d 296, 302 (4th Cir. 2002); Repp, 307 B.R. at

154. 

It is thus fair to say that our position in Pardee is in the

minority; indeed, among the circuits we now stand alone.

Thus, while we (as a three-judge panel) are bound to follow

Pardee as controlling circuit law, we must not blind ourselves

to developments elsewhere. If we were persuaded that our

position is erroneous, we would have the right, and perhaps

even the duty, to bring the matter to the attention of our col7298 ESPINOSA v. UNITED STUDENT AID FUNDS
leagues and suggest that an en banc court be convened to

reconsider the matter afresh. 

[1] We have therefore taken a look at the cases from the

other circuits and do not immediately find them persuasive;

the rationale of Pardee and Andersen, relying as it does on

straightforward notions of notice and waiver, seem far more

consistent with accepted principles concerning the finality of

judgments that transcend this particular corner of the law. But

we have no occasion to resolve this matter because, as previously noted, the discharge order in this case simply did not

discharge Espinosa’s student loan debt. Indeed, it specifically

excluded the student loan debt from the discharge. See p.7295

supra. This order was, to be sure, inconsistent with Espinosa’s

Chapter 13 plan’s terms; in effect, the bankruptcy court did

not make good on its promise to the debtor that, if he satisfied

the terms of the plan, it would discharge all of his listed debts.

Whether the bankruptcy court could have been held to that

promise, and compelled to issue an order discharging the student debt, is an open question. Espinosa could have tested that

proposition by asking the bankruptcy court to modify its order

to discharge the student loan debt and, failing that, taken an

appeal. But he did not. Rather, he allowed the bankruptcy

court’s discharge order to become final, and the time to

appeal lapsed long ago. Nor did Espinosa seek to reopen the

judgment by way of Federal Rule of Civil Procedure 60. See

Fed. R. Bankr. P. 9024. Instead, Espinosa sought to enforce

the discharge injunction against Funds. The obvious problem,

of course, is that the discharge injunction simply does not run

against Funds because the bankruptcy court’s discharge order

did not cover its debt. Funds was thus free to collect its debt,

and the bankruptcy court seems to have misread its own order

when it held otherwise. 

[2] Much the same seems to have happened in Mersmann,

505 F.3d at 1039-40 & n.5, where the court found that “the

clerk of the bankruptcy court automatically generates the disESPINOSA v. UNITED STUDENT AID FUNDS 7299
charge orders and simply failed to tailor it [sic] to the facts of

Mersmann’s case.” In Mersmann, the bankruptcy court corrected the discharge orders pursuant to Federal Rule of Civil

Procedure 60(a). 505 F.3d at 1040. Here, Espinosa did not

seek a correction of the order, and the bankruptcy court did

not correct the order sua sponte, as it is permitted to do by

Rule 60(a). It is possible that the bankruptcy court was

unaware of the precise language of its discharge order, and

was under the mis-impression that the order did cover the student loan debt; that seems to be the most plausible inference

from its order enforcing the discharge injunction against

Funds. And it is possible that neither party brought the precise

language of the discharge order to the bankruptcy court’s

attention, as the parties said barely anything about it in their

briefs before us. 

[3] We therefore remand the case to the district court, with

instructions for it to remand to the bankruptcy court. On

remand, the bankruptcy court has our express leave to consider whether its discharge order in this case was entered as

a result of a clerical error and, if so, whether to correct it so

as to conform to Espinosa’s Chapter 13 plan. See Travelers

Cas. and Surety Co. v. Pac. Gas and Elec. Co., No. 04-15605,

2008 WL 1970961, at *1 (9th Cir. May 8, 2008). The remand

shall be for this limited purpose and no other, and shall last

the earlier of 60 days or until such time as the bankruptcy

court enters an order addressing this issue. 

The parties shall notify us within 5 days of the entry of the

bankruptcy court’s order, and we shall determine at that time

whether the case requires further briefing or can be resubmitted on the existing briefs and arguments. 

SUBMISSION VACATED; REMANDED FOR A LIMITED PURPOSE.

7300 ESPINOSA v. UNITED STUDENT AID FUNDS