PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

TAYLOR AYES; WILLIAM P. 

CUTSHALL; FRANK A. RIBAR; EDWARD

C. SMITH; JAMES F. MARTIN;

WILLIAM C. TERRIO,

Plaintiffs-Appellants,  No. 05-2263

v.

U. S. DEPARTMENT OF VETERANS

AFFAIRS,

Defendant-Appellee. 

Appeal from the United States District Court

for the Eastern District of North Carolina, at Raleigh.

W. Earl Britt, Senior District Judge.

(CA-04-904-5)

Argued: October 26, 2006

Decided: December 27, 2006

Before WILKINSON, NIEMEYER, and WILLIAMS,

Circuit Judges.

Affirmed by published opinion. Judge Williams wrote the opinion, in

which Judge Wilkinson and Judge Niemeyer joined. 

COUNSEL

ARGUED: Trawick Hamilton Stubbs, Jr., STUBBS & PERDUE,

P.A., Raleigh, North Carolina, for Appellants. Neal Irving Fowler,
OFFICE OF THE UNITED STATES ATTORNEY, Raleigh, North

Carolina, for Appellee. ON BRIEF: Laurie B. Biggs, STUBBS &

PERDUE, P.A., Raleigh, North Carolina, for Appellants. Frank D.

Whitney, United States Attorney, Anne M. Hayes, Assistant United

States Attorney, OFFICE OF THE UNITED STATES ATTORNEY,

Raleigh, North Carolina, for Appellee. 

OPINION

WILLIAMS, Circuit Judge: 

Taylor Ayes, William P. Cutshall, Frank A. Ribar, Edward C.

Smith, James F. Martin, and William C. Terrio (collectively "Appellants") filed a class action complaint against the U.S. Department of

Veterans Affairs (VA) on behalf of themselves and a putative class

of veterans. The complaint alleged that the VA violated 11 U.S.C.A.

§ 525 (West 2004 & Supp. 2006), the anti-discrimination provision of

the Bankruptcy Code, by refusing to fully restore veteran home-loan

guaranty entitlements to Appellants solely because of their previous

discharges in bankruptcy. The district court granted the VA’s motion

to dismiss, made pursuant to Federal Rule of Civil Procedure

12(b)(6), because it concluded that § 525(a) does not apply to the veteran guaranty entitlement, which is set out at 38 U.S.C.A. § 3701 et.

seq. (West 2002 & Supp. 2006). 

We affirm. Section 525(a) prohibits a governmental unit from

denying a "license, permit, charter, franchise, or other similar grant"

solely because an individual has filed for or received a discharge in

bankruptcy. 11 U.S.C.A. § 525(a). Because Appellants concede that

the veteran guaranty entitlement is not a "license," "permit," "charter,"

or "franchise" and we hold that it is not an "other similar grant," we

conclude that § 525(a) does not apply to the veteran guaranty entitlement. 

I.

Because the facts of this appeal are undisputed, we are left only to

decide the legal question of § 525(a)’s applicability to the veteran

2 AYES v. U. S. DEP’T OF VETERANS AFFAIRS
guaranty entitlement. Pursuant to the Servicemen’s Readjustment Act

of 1944, codified at 38 U.S.C.A. § 3701 et seq., the VA provides

housing assistance to certain veterans meeting length-of-service

requirements by guarantying home loans made to them by private

lenders. The VA "automatically guarantee[s]" loans for certain veterans when the loans will be used for, among other things, the purchase

or construction of a home. 38 U.S.C.A. § 3710(a). Pursuant to 38

U.S.C.A. § 3703, the VA computes the guaranty amount as a percentage of the unpaid loan balance, with the percentage varying depending on the size of the original loan.1

 38 U.S.C.A. § 3703(a)(1)(A). If

the veteran later defaults on the loan, the VA pays the private lender

the amount it guaranteed on behalf of the veteran. 38 U.S.C.A.

§ 3732(a)(1). In such cases, the VA becomes subrogated to the rights

of the private lender for the amount paid by the VA on the guaranty.

Id. While the regulations relating to the veteran guaranty program

state that any amount paid by the VA in satisfaction of a guaranty

made on behalf of a veteran "shall constitute a debt owing to the

United States by such veteran," 38 C.F.R. § 36.4323(e) (2006), the

VA acknowledges that it does not take any action to collect this debt.

There is no limit to the number of times a veteran may receive the

guaranty entitlement, but the amount of guaranty available to the veteran is always limited by any previously used guaranty amount that

has not been restored to the VA or does not otherwise qualify for

exclusion. 38 U.S.C.A. § 3702(b). Specifically, § 3702(b) provides

the following:

In computing the aggregate amount of guaranty or insurance

housing loan entitlement available to a veteran under this

chapter, the Secretary may exclude the amount of guaranty

or insurance housing loan entitlement used for any guaranteed, insured, or direct loan under the following circumstances:

(1) (A) The property which secured the loan

has been disposed of by the veteran or has

1For example, the basic entitlement for any loan of more than $56,520

is the lesser of $36,000 or forty percent of the loan. 38 U.S.C.A.

§ 3703(a)(1)(A)(i)(III)(West 2002 & Supp. 2006). 

AYES v. U. S. DEP’T OF VETERANS AFFAIRS 3
been destroyed by fire or other natural hazard; and

(B) the loan has been repaid in full, or the

Secretary has been released from liability as

to the loan, or if the Secretary has suffered a

loss on such loan, the loss has been paid in

full. 

38 U.S.C.A. § 3702(b)(1)(A)-(B). 

In other words, the amount of guaranty available to a veteran upon

a successive application for the benefit is reduced by the amount of

loss that the VA suffered on any previous guaranty made on behalf

of the veteran until that loss is repaid.2 Absent an exercise of the VA’s

discretion to waive the repayment requirements, if a veteran wishes

to receive the "full" guaranty amount after the VA previously suffered

a loss on a guaranty made on his or her behalf, the veteran has no

choice but to repay the loss in full. 

Appellants are six veterans who allege that they sought home loans

from various private lenders after having received discharges in bankruptcy under either Chapter 7 or Chapter 11 of the Bankruptcy Code

and were denied these loans because the VA refused to extend "full"

guaranties on their behalf. The VA refused to extend full guaranty

amounts to Appellants because it had suffered losses on previous loan

guaranties made on their behalf that had not been repaid. Appellants

contend that as a result of the VA’s decision not to fully reinstate loan

guaranties to them following their discharges in bankruptcy, they

2The VA does retain some discretion in computing the aggregate

amount of guaranty available to a veteran who has previously used the

guaranty entitlement. Section 3702(b) states that the VA Secretary "may

exclude" previously used amounts of guaranty when the requirements in

either § 3702(b)(1)(A) or (b)(1)(B) are met. 38 U.S.C.A. § 3702(b). The

regulations implementing the statute provide that the VA Secretary, "in

any case involving circumstances deemed appropriate, may waive" the

requirements in § 3702(b)(1)(A) or (b)(1)(B). 38 C.F.R. § 36.4302

(2006). Obviously, the VA chose not to exercise its discretion to waive

these requirements in Appellants’ cases. 

4 AYES v. U. S. DEP’T OF VETERANS AFFAIRS
were severely limited in their ability to obtain private home loans. We

have jurisdiction over this appeal pursuant to 28 U.S.C.A. § 1291

(West 2006). 

II.

We review de novo the district court’s grant of the VA’s motion

to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6).

Bominflot, Inc. v. The M/V Henrich S, 465 F.3d 144, 145 (4th Cir.

2006). "[A] Rule 12(b)(6) motion should only be granted if, after

accepting all well-pleaded allegations in the plaintiff’s complaint as

true and drawing all reasonable factual inferences from those facts in

the plaintiff’s favor, it appears certain that the plaintiff cannot prove

any set of facts in support of his claim entitling him to relief."

Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). 

Section 525(a) of the Bankruptcy Code provides in pertinent part

that "a governmental unit may not deny, revoke, suspend, or refuse

to renew a license, permit, charter, franchise, or other similar grant to

. . . [or] discriminate with respect to such a grant against . . . a person

that is or has been a debtor under this title or a bankrupt or debtor

under the Bankruptcy Act . . . ." 11 U.S.C.A. § 525(a). The statute

codified the result of Perez v. Campbell, 402 U.S. 637 (1971), in

which the Supreme Court applied the Supremacy Clause to strike

down an Arizona financial responsibility law that conditioned reinstatement of a debtor’s driver’s license on repayment of an accidentrelated judgment that had been discharged in bankruptcy. Id. at 656.

The Court held that the Arizona law violated the policy underlying

the Bankruptcy Code, sometimes called the "fresh start" policy, that

debtors be given a "new opportunity in life . . . unhampered by the

pressure and discouragement of pre-existing debt" because it gave

creditors a "powerful weapon with which to force bankrupts to pay

their debts despite their discharge." Id. at 648, 654 (internal quotation

marks omitted). 

To establish a violation of § 525(a), Appellants must show that (1)

the VA is a governmental unit, (2) the veteran guaranty entitlement

is an item covered by the statute, and (3) the VA discriminated

against Appellants solely because of their discharges in bankruptcy.

11 U.S.C.A. § 525(a). The VA concedes that it is a "governmental

AYES v. U. S. DEP’T OF VETERANS AFFAIRS 5
unit" under the statute, but argues that Appellants cannot show that

the veteran guaranty entitlement is an item covered by § 525(a) or that

the VA discriminated against Appellants solely because of their prior

discharges in bankruptcy. 

Conceding that the veteran guaranty entitlement is not a "license,"

"permit," "charter," or "franchise," Appellants argue that the veteran

guaranty entitlement comes within § 525’s protections because it is an

"other similar grant." The veteran guaranty entitlement is undoubtedly

a "grant" as that term is used in the statute: a veteran satisfying the

length-of-service requirements is entitled to the loan guaranty benefit.

See Black’s Law Dictionary 719 (8th ed. 2004) (defining grant as "an

agreement that creates a right of any description other than the one

held by the grantor"). The question is whether it is a "similar" grant

to those specific items listed in § 525(a). 

In interpreting a statute, "a court should always turn first to one,

cardinal canon [of construction] before all others": the plain meaning

rule. Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253 (1992). We

must presume that "Congress says in a statute what it means and

means in a statute what it says. . . ." Hartford Underwriters Ins. Co.

v. Union Planters Blank, N.A., 530 U.S. 1, 6 (2000)(internal quotation

marks omitted). When the words of a statute are unambiguous, then,

"this first canon is also the last: ‘judicial inquiry is complete.’" Conn.

Nat’l Bank, 503 U.S. at 254 (quoting Rubin v. United States, 449 U.S.

424, 430 (1981)). Of course, in looking to the plain meaning, we must

consider the context in which the statutory words are used because

"[w]e do not . . . construe statutory phrases in isolation; we read statutes as a whole." United States v. Morton, 467 U.S. 822, 828 (1984).

Section 525(a)’s meaning is plain. The statute clearly specifies that

its protections extend to "licenses, permits, charters, [and] franchises,"

and to grants "similar" to those items.3 11 U.S.C.A. § 525(a).

3We note that our mode of analysis would not change even if the word

"similar" were omitted from the statute. When "general words follow

specific words in a statutory enumeration," we apply the interpretive

principle of ejusdem generis ("of the same kind") and construe "the general words . . . to embrace only objects similar in nature to those objects

6 AYES v. U. S. DEP’T OF VETERANS AFFAIRS
Although the term "grant" is not defined in the statute, the use of the

word "similar" limits the universe of "grants" to which § 525(a)

applies, ensuring that only grants bearing a family resemblance to

licenses, permits, charters, and franchises enjoy the antidiscrimination protections of the Bankruptcy Code. Unfortunately for

Appellants, the veteran guaranty entitlement bears no such resemblance to the items listed in § 525(a). Licenses, permits, charters, and

franchises are all governmental authorizations that typically permit an

individual to pursue some occupation or endeavor aimed at economic

betterment. See Watts v. Pa. Hous. Fin. Co., 876 F.2d 1090, 1093 (3d

Cir. 1989)("[T]he items enumerated [in § 525(a)] are in the nature of

indicia of authority from a governmental unit to the authorized person

to pursue some endeavor."). For example, governmental entities issue

real-estate, driver’s, and medical licenses; building and business permits; corporate charters; and utility franchises. All of these implicate

"government’s role as a gatekeeper in determining who may pursue

certain livelihoods," Toth v. Mich. State Hous. Dev. Auth., 136 F.3d

477, 480 (6th Cir. 1998), and show that Congress intended § 525(a)’s

protections to be "limited to situations sufficiently similar to Perez,"

In re Goldrich, 771 F.2d 28, 30 (2d Cir. 1985). This interpretation of

"other similar grant" is supported by the remainder of § 525(a), which

forbids governmental discrimination in employment decisions based

on an individual’s discharge in bankruptcy. See 11 U.S.C.A. § 525(a).

A home loan guaranty, on the other hand, does not implicate the

government’s gate-keeping role in determining who may pursue certain livelihoods because, unlike the enumerated items in § 525(a), a

person can obtain a home loan or guaranty from the private sector. A

governmental entity’s refusal to issue, for example, a commercial real

estate license to a bankrupt individual completely forecloses that indienumerated by the preceding specific words." Wash. State Dep’t of Soc.

and Health Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371, 384

(2003)(emphasis added)(internal quotation marks omitted). Omitting the

word "similar," Section 525(a) would present a "textbook ejusdem

generis scenario." Andrews v. United States, 441 F.3d 220, 224 (4th Cir.

2006). It would contain a general phrase — "other grant" — that followed a list of specific items — "license, permit, charter, franchise." 11

U.S.C.A. § 525(a). 

AYES v. U. S. DEP’T OF VETERANS AFFAIRS 7
vidual from legally pursuing a career as a commercial realtor. If a

governmental entity refuses to guarantee a home loan for a bankrupt

individual, however, that individual is not doomed to homelessness;

he may seek a guaranty from family or friends, may seek another private loan, perhaps on less favorable terms, or he may rent.4

 Indeed,

Appellants concede that they "might be able to obtain a home loan

from another lender on less favorable terms." (Appellant’s Br. at 18.)

That governmental units do not exercise exclusive or even pervasive

control over the "world" of home loans dooms Appellants’ argument.

The Second Circuit’s decision in Goldrich, which has served as the

lodestar in the § 525(a) context, is the closest analogue to the instant

case. Goldrich held that § 525(a) was inapplicable to New York’s student loan guaranty program because a student loan guaranty was not

a "similar grant" to the items listed in the statute. Goldrich, 771 F.2d

at 30-31. The Goldrich court reasoned that a "credit guarantee is not

4Appellants rely on the Second Circuit’s decision in In re Stoltz, 315

F.3d 80 (2d Cir. 2002), in support of their contention that the veteran

guaranty entitlement is similar to the enumerated items in § 525(a). In

Stoltz, the Second Circuit held that a public housing lease is an "other

similar grant" under § 525(a). Id. at 90-91. Reasoning that the enumerated items in § 525(a) are "property interests [that] are unobtainable from

the private sector and essential to a debtor’s fresh start," the Stoltz court

noted that a public housing lease is "by definition . . . obtainable only

from governmental entities" and that "[i]n light of the notoriously

lengthy waiting lists that may exist for public housing, . . . an evicted

debtor-tenant . . . would quite possibly become homeless - a status not

conducive to economic survival." Id. at 90. Even if we agreed with

Stoltz, the public housing lease at issue in that case is manifestly different

than the home loan guaranty here. First, unlike a public housing lease,

home loans and loan guaranties are not "by definition" only obtainable

from governmental entities. Second, as we have noted, failure to obtain

a home loan guaranty is not a step toward homelessness for the veterandebtor; the veteran may obtain a home loan on less favorable terms or

may choose alternative housing arrangements that do not involve ownership. Third, unlike the public housing benefit in Stoltz, the veteran guaranty entitlement is not available only to those who, through bankruptcy

or other financial hardship, cannot obtain a home loan. If Oliver Stone,

the presumably wealthy Oscar-winning film director and veteran of the

Vietnam War, applied for the guaranty benefit, he would be entitled to

receive it just like the recently-bankrupted veteran would. 

8 AYES v. U. S. DEP’T OF VETERANS AFFAIRS
a license, permit, charter, or franchise[,] nor is it in any way similar

to those grants," and stated that "[a]lthough the exact scope of the

items enumerated [in § 525(a)] may be undefined, the fact that the list

is composed solely of benefits conferred by the state that are unrelated to credit5

 is unambiguous." Id. at 30 (footnote added).

"[R]eluctant to probe beyond the plain language of [§ 525(a)]," the

court concluded that the student loan guaranty at issue was of a "distinctly different character" than the items listed in the statute. Id.

Appellants acknowledge that Goldrich’s rationale is plainly at odds

with their position on appeal, but they argue that Congress’s enactment in 1994 of 11 U.S.C.A. § 525(c) rendered Goldrich a dead letter

and clearly evinced Congress’s intent to have § 525(a) apply to all

government loan guaranties. To be sure, § 525(c) clearly abrogated

Goldrich’s specific holding and extended the anti-discrimination protections of § 525(c) to student loan guaranties. See 11 U.S.C.A.

§ 525(c)("A governmental unit that operates a student grant or loan

program . . . may not deny a grant, loan, loan guarantee, or loan

insurance to a person that is or has been a debtor under this title or

. . . under the Bankruptcy Act. . . ." (emphasis added)). There is, however, no indication in the language of § 525(c) that Congress also

intended the section to apply to other kinds of loan guaranties besides

those of the student loan variety. Congress’s tightly-worded abrogation of Goldrich’s specific holding "justif[ies] the inference that items

5While we emphasize that the central question under § 525(a) is

whether the home loan guaranty is an "other similar grant" to the items

listed in the statute and not whether the guaranty is more like an extension of credit, we agree with the district court that "the extension of a

home loan guaranty has financial consequences for the guarantor that are

not dissimilar to consequences often faced by those who extend credit."

(J.A. at 132.) Moreover, and contrary to Appellants’ contention, a veteran’s creditworthiness is relevant, at least minimally, to the overall decision to extend the guaranty benefit; a veteran is only automatically

eligible for a guaranty when a private lender concludes that the veteran

meets the standards of creditworthiness — including debt-to-income

ratio, income-stability, and monthly-income requirements — established

by the VA. See 38 U.S.C.A. §§ 3701(g)(2), (3) (West 2002). These facts

reveal the similarities between the veteran guaranty entitlement and traditional extensions of credit and clearly show the dissimilarities between

the guaranty entitlement and the items listed in § 525(a). 

AYES v. U. S. DEP’T OF VETERANS AFFAIRS 9
not mentioned" — in this case, other kinds of loan guaranties —

"were excluded by deliberate choice, not inadvertence." Barnhart v.

Peabody Coal Co., 537 U.S. 149, 168 (2003). Had Congress intended

to extend § 525’s protections to other government loan guaranties

besides student loans, it easily could have revised § 525(a) to prevent

a governmental unity from denying a "license, permit, franchise, charter, loan guaranty, or other similar grant" on the basis of a previous

discharge in bankruptcy or, alternatively, it could have included some

term in § 525(c) that would have supported extension of § 525(a)’s

protections to all government loan guaranties, not just those of the

student loan variety. That Congress chose instead to narrowly amend

§ 525 to abrogate the specific holding of Goldrich is strong evidence

that its failure to mention other kinds of loan guaranties in § 525(c)

was intentional.6 The time-honored maxim expressio unius est exclusio alterius ("the expression of one thing implies the exclusion of

another") applies with great force here. 

In reaching this conclusion, we, like our sister circuits, refuse to

venture beyond the confines of the statutory language to broadly construe § 525(a)’s specific "other similar grant" language in reliance on

the general "fresh start" policy underlying the Bankruptcy Code. See,

e.g., Watts, 876 F.2d at 1093-94 (holding that an emergency

mortgage-assistance loan is not an "other similar grant" and stating

that "[w]hen an unambiguous statute is interpreted to mean what it

says, the interpretation is not narrow"); Toth, 136 F.3d at 479-80

(holding that a government home improvement loan is not an "other

6Appellants argue that exclusion of the veteran loan guaranty program

from the protections of § 525(a) makes little sense in light of Congress’s

extension of § 525(a)’s coverage to student loan guaranties, but Congress

could easily have concluded that the differences between student and

home loan guaranties require such a distinction. Because education is

often crucial to securing employment, § 525(c)’s prohibition against discrimination in the granting of student loan guaranties to bankrupts is consistent with § 525’s goal of allowing former debtors in bankruptcy to

earn a living. See 11 U.S.C.A. § 525(c). Moreover, Congress has taken

other steps to ensure the continuing wide availability of student loans,

highlighting their uniqueness under the Bankruptcy Code. See, e.g., 11

U.S.C.A. 523(a)(8) (West 2004 & Supp. 2006)(making student loans

nondischargeable under the Bankruptcy Code except in cases of "undue

hardship"). 

10 AYES v. U. S. DEP’T OF VETERANS AFFAIRS
similar grant" under § 525(a)); Goldrich, 771 F.2d at 30 (concluding

that Congress intended § 525(a)’s reach to be "limited to situations

sufficiently similar to Perez".). Assuming, as we must, that "Congress

says in a statute what it means and means in a statute what it says

there," Hartford Underwriters, 530 U.S. at 6 (internal quotation

marks omitted), we conclude that Congress’s limitation of § 525(a)’s

protections to licenses, permits, charters, franchises, and grants similar to those items indicates, at best, the full extent to which Congress

intended § 525(a) to effectuate the "fresh start" policy underlying the

Bankruptcy Code.7 As Watts noted, because § 525(a) is unambiguous,

our interpretation is not "narrow," but instead succinctly correct.

Watts, 876 F.2d at 1093-94. 

III.

In sum, because we conclude that the veteran guaranty entitlement

is not an "other similar grant" within the meaning of § 525(a), we

hold that the anti-discrimination protections of § 525 do not apply to

the veteran home loan guaranty program. While we have sympathy

for Appellants, if their arguments carried the day and the VA was

always required to issue a "full" guaranty irrespective of whether it

has suffered a loss on a veteran’s behalf, the VA’s financial exposure

under the program would increase dramatically, potentially threatening the program’s long-term viability. This is no mere pipedream, as

7

Indeed, on its face, § 525(a) applies to items — such as the recreational hunting and fishing licenses noted above — that can in no way

be described as "essential" to a debtor’s fresh start, which counsels

against courts extending § 525(a) beyond its plain language to effectuate

the overarching policy of the Bankruptcy Code. See Stoltz, 315 F.3d at

95 (Walker, C.J., dissenting)("Although some interests such as a vendor

license, may be essential to a bankrupt’s fresh start, others, such as a recreational fishing license, are not."). On the other hand, the inclusion of

these items within the definitions of the enumerated items in § 525(a)

also does not force a reading of the statute that brings other items unrelated to the goals of § 525(a) within the statute’s protections. That the

plain language of § 525(a) extends § 525(a)’s protections to items unrelated to § 525(a)’s policies is not an invitation to courts to extend

§ 525(a)’s protections to items not covered by the plain language. In any

event, even recreational hunting and fishing licenses are only available

from governmental entities. 

AYES v. U. S. DEP’T OF VETERANS AFFAIRS 11
the incentive for veterans to repay home loans guaranteed by the VA

would disappear if veterans could demand full guaranties even after

the VA had suffered an unrecouped loss on a guaranty made on their

behalf. Requests for full guaranties would likely multiply like party

guests, with the VA ultimately "flipping the bill" on defaulted loans

at a greater clip. Appellants assume that the VA has deep pockets; we

assume that those pockets only function well when they do not have

holes in them. Jettisoning the plain language of § 525(a) to extend its

coverage over the VA’s guaranty program would create such holes.

Nevertheless, if Congress wishes to extend § 525’s protections to

other kinds of loan guaranties besides student loan guaranties, it can

easily do so with a few strokes of the pen. 

AFFIRMED

12 AYES v. U. S. DEP’T OF VETERANS AFFAIRS