Source: https://www.justice.gov/osg/brief/ayes-v-department-veterans-affairs-opposition
Timestamp: 2019-04-24 02:37:48+00:00

Document:
Whether 11 U.S.C. 525(a), which prohibits the gov ernment from denying an individual a "license, permit, charter, franchise, or other similar grant" solely because the individual has filed for or received a discharge in bankruptcy, covers the denial of a veteran home loan guaranty.
The opinion of the court of appeals (Pet. App. 1-16) is reported at 473 F.3d 104. The opinion of the district court (Pet. Supp. App. 1-18) is unreported.
The judgment of the court of appeals was entered on December 27, 2006. A petition for rehearing was denied on February 23, 2007 (Pet. App. 17-18). The petition for a writ of certiorari was filed on May 24, 2007. The juris diction of this Court is invoked under 28 U.S.C. 1254(1).
1. a. Under the Servicemen's Readjustment Act of 1944 (Act), as now codified at 38 U.S.C. 3701 et seq., the United States Department of Veterans Affairs (VA) guarantees loans made by private lenders to qualifying veterans for buying or building homes. 38 U.S.C. 3710(a). If a veteran defaults on a guaranteed loan, the VA pays the private lender the guaranteed amount. 38 U.S.C. 3732(a)(1). With regard to the guaranteed loans at issue in this case, if the VA has made a payment on a defaulted loan, the veteran becomes indebted to the United States in the amount paid by the VA. See ibid.; 38 C.F.R. 36.4323.
The Act places no limit on the number of times that a veteran may receive a loan guaranty but grants each veteran only a finite loan guaranty entitlement. The amount of the guaranty available to each veteran is therefore generally reduced by the amount of any loss that the VA suffered on a previous guaranty on behalf of the veteran, until that loss is repaid. Pet. App. 4-5. A veteran generally must repay the loss in order to receive his full guaranty entitlement. 38 U.S.C. 3702(b)(1)(A) and (B); 38 C.F.R. 36.4302(i).
b. Under Section 525(a) of the Bankruptcy Code, "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, * * * solely because such bankrupt or debtor * * * has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act." 11 U.S.C. 525(a).
2. Petitioners are six veterans who received loan guaranties from the VA and defaulted on their loans, leaving the VA to make the associated guaranty claim payments. Petitioners later received discharges in bankruptcy under either Chapter 7 or Chapter 11 of the Bankruptcy Code with respect to their obligations to repay the VA for its losses on the loan guaranties. After petitioners received discharges in bankruptcy, they ap plied for additional loan guaranties from the VA. The VA denied petitioners the maximum loan guaranties because they had not repaid the losses that the VA had suffered as a result of their previous defaults. Subse quently, private lending institutions denied petitioners' loan applications. Pet. App. 6.
3. Petitioners sued the VA in the United States Dis trict Court for the Eastern District of North Carolina, alleging violations of their rights under 11 U.S.C. 525(a) and 38 U.S.C. 3701 et seq. Pet. Supp. App. 1. Petition ers claimed that the VA's refusal to provide full guaran ties of their loans after the discharge of their debts in bankruptcy violated 11 U.S.C. 525(a). Pet. Supp. App. 3. The district court granted the VA's motion to dismiss petitioners' complaint. Id. at 1-18. The court concluded that the VA had not violated Section 525(a) because a VA home loan guaranty is not "a license, permit, char ter, franchise, or other similar grant." Id. at 4; see id. at 4-18.
4. The court of appeals affirmed. Pet. App. 1-16. In the court of appeals, petitioners conceded that a home loan guaranty is not a license, permit, charter, or fran chise, but they argued that it is nonetheless covered by Section 525(a) because it is a "similar grant." Id. at 8. The court of appeals rejected that argument because a home loan guaranty bears no resemblance to the other items listed in Section 525(a). Ibid. The court explained that, unlike licenses, permits, charters, and franchises, a home loan guaranty is not a governmental authoriza tion, solely under government control, that grants per mission for an individual to pursue an endeavor aimed at his economic improvement. Id. at 9. The court noted that the items expressly covered by Section 525(a) all implicate the "government's role as a gatekeeper in de termining who may pursue" certain economic activities. Id. at 10 (quoting Toth v. Michigan State Hous. Dev. Auth., 136 F.3d 477, 480 (6th Cir.), cert. denied, 524 U.S. 954 (1998)). "A home loan guaranty," in contrast, "does not implicate the government's gate-keeping role" be cause "a person can obtain a home loan or guaranty from the private sector." Ibid.
The court of appeals rejected petitioners' reliance on In re Stoltz, 315 F.3d 80 (2d Cir. 2002), which held that a public housing lease is a "similar grant" under Section 525(a). Pet. App. 11 n.4. The court explained that its holding that a VA home loan guaranty is not a "similar grant" is fully consistent with Stoltz, which concluded that Section 525(a) covers "property interests [that] are unobtainable from the private sector and essential to a debtor's fresh start" after bankruptcy. Ibid. (quoting Stoltz, 315 F.3d at 90). The court noted that, unlike a public housing lease, a home loan guaranty may be ob tained from sources other than the government. And, although a public housing lease may be essential to "economic survival" because loss of the lease could lead to homelessness, a home loan guaranty is not similarly essential. Ibid. (quoting Stoltz, 315 F.3d at 90). A vet eran who is unable to obtain a VA loan guaranty may obtain a home loan on less favorable terms or may choose an alternative housing arrangement that does not involve ownership. Moreover, VA home loan guaranties are not limited to the economically disadvantaged but are available regardless of need. Ibid.
The court of appeals concluded that In re Goldrich, 771 F.2d 28 (2d Cir. 1985), is the closest analogue to this case. Pet. App. 11. The court explained that Goldrich held that Section 525(a) was inapplicable to New York's student loan guaranty program because a loan guaranty is not a "similar grant." Id. at 12. The court acknowl edged that Congress abrogated the specific holding in Goldrich by enacting 11 U.S.C. 525(c), which extends the anti-discrimination protections of 11 U.S.C. 525 to stu dent loans and guaranties. Pet. App. 13. But the court noted that Congress had carefully limited the scope of Section 525(c) to student loans and had not revised Sec tion 525(a). Ibid. The court therefore concluded that Section 525(c) supported rather than undermined Goldrich's conclusion that Section 525(a) does not cover credit guarantees. Id. at 13-14 (noting that the "time honored maxim expressio unius est exclusio alterius * * * applies with great force here").
The court of appeals also observed that other circuits had reached similar conclusions about the meaning of the phrase "other similar grant." Pet. App. 14-15 (cit ing, e.g., Toth, 136 F.3d at 479-480 (holding that a gov ernment home improvement loan is not an "other similar grant"), and Watts v. Pennsylvania Hous. Fin. Co., 876 F.2d 1090, 1093-1094 (3d Cir. 1989) (holding that a state emergency mortgage assistance loan is not an "other similar grant")). The court therefore "refuse[d] to ven ture beyond the confines of the statutory language," id. at 14, noting that, "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," id. at 16.
The decision of the court of appeals is correct, and it does not conflict with any decision of this Court or an other court of appeals. This Court's review is therefore not warranted.
1. The court of appeals correctly concluded that Sec tion 525(a) does not extend to VA home loan guaranties. Section 525(a) covers only the denial of "a license, per mit, charter, franchise, or other similar grant." 11 U.S.C. 525(a). As the court of appeals explained, al though a home loan guaranty may be a "grant," the stat ute covers only those grants "bearing a family resem blance to licenses, permits, charters, and franchises." Pet. App. 9. That limitation flows from the statute's express terms, which restrict covered grants to those "similar" to the listed items. 11 U.S.C. 525(a). And that limitation accords with ordinary principles of statutory construction. Under the principle of ejusdem generis, when "general words follow specific words in a statutory enumeration, * * * the general words" are construed "to embrace only objects similar in nature to those ob jects enumerated by the preceding specific words." Pet. App. 9 n.3 (quoting Washington Dep't of Soc. & Health Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371, 384 (2003)).
As the court of appeals correctly observed (Pet. App. 9-11), a home loan guaranty does not resemble the items specifically enumerated in Section 525(a). Li censes, permits, charters, and franchises all implicate the "government's role as a gatekeeper" in granting or denying "permission to pursue certain occupations or endeavors." Toth v. Michigan State Hous. Dev. Auth., 136 F.3d 477, 480 (6th Cir.), cert. denied, 524 U.S. 954 (1998); see Watts v. Pennsylvania Hous. Fin. Co., 876 F.2d 1090, 1093 (3d Cir. 1989). "A home loan guaranty, on the other hand, does not implicate the government's gate-keeping role." Pet. App. 10. A loan guaranty does not authorize an individual to engage in an activity; rather, it is an economic subsidy. In addition, loan guar anties are available from a variety of sources other than the government. Ibid. A person can obtain a loan guar anty from family, friends, or private financial institu tions. Thus, "[a] credit guarantee is not" a "similar grant" covered by Section 525(a). In re Goldrich, 771 F.2d 28, 30 (2d Cir. 1985); accord Toth, 136 F.3d at 480 ("The items enumerated in the statute * * * are bene fits conferred by the government that are unrelated to the extension of credit.").
Every court of appeals that has addressed the issue has concluded, like the court of appeals here, that Sec tion 525(a) does not cover loans or loan guaranties. For example, in Watts, the Third Circuit concluded that a loan under a state program designed to forestall mort gage foreclosure was not a "similar grant" within Sec tion 525(a) because it was not "authority from a govern mental unit to the authorized person to pursue some endeavor." 876 F.2d at 1093. For similar reasons, the Sixth Circuit held in Toth that a low-income home im provement loan was not a "similar grant." See 136 F.3d at 478-479, 480. And the Fourth Circuit, in a previous unpublished opinion, concluded that a rural housing loan from the Farmers Home Administration was not cov ered by Section 525(a) because "the determination of whether to extend credit is not an application for a 'license, permit, charter, franchise, or other similar grant.'" Bryant v. United States, No. 96-1161, 1997 WL 633256, at *1 (Oct. 14, 1997) (125 F.3d 847 (Table)); ac cord Goldrich, 771 F.2d at 30.
2. Petitioners incorrectly contend (Pet. 7, 8-11) that the decision of the court of appeals conflicts with FCC v. NextWave Personal Communications, Inc., 537 U.S. 293 (2003), which they assert requires "a broad interpreta tion of Section 525(a) in order to protect the fresh start" principle. Pet. 11.
The decision below does not conflict with NextWave. In NextWave, this Court held that Section 525(a) prohib its the Federal Communications Commission from re voking communications licenses held by a debtor in bankruptcy upon the debtor's failure to make timely payments owed to the Commission with respect to the licenses. 537 U.S. at 295, 301. No one disputed that the communications licenses at issue in NextWave were "li censes" within the meaning of Section 525(a). Id. at 301. Accordingly, this Court had no occasion to interpret the phrase "other similar grant," much less to decide whether loans or loan guaranties are encompassed by that phrase.
Contrary to petitioners' assertions (Pet. 7, 11), more over, the Court in NextWave did not endorse a "broad interpretation" of Section 525(a) in order to advance the principle that debtors who receive a discharge in bank ruptcy are entitled to a fresh start unburdened by their prior debts. Instead, the Court focused on the statutory language. The Court refused to read into that language an exemption for license denials based on a valid regula tory purpose because, when Congress intended exemp tions to the statute's coverage, it provided them ex pressly. See 537 U.S. at 301. The Court criticized the dissent for invoking the purposes of the statute in disre gard of the text. See id. at 304-305. And the Court re jected the dissent's reliance on the fresh start policy in particular. See id. at 305 n.4. The Court explained that reliance on the fresh start policy is "circular" because the "whole issue" of interpreting Section 525(a) "can be described as asking what the Bankruptcy Code's prom ise of 'fresh start' consists of." Ibid. Thus, to the extent NextWave is relevant at all, it supports rather than un dermines the court of appeals' reliance on the plain lan guage of Section 525(a) to conclude that the statute does not cover home loan guaranties.
3.	Petitioners also err in contending (Pet. 11-17) that the decision of the court of appeals conflicts with In re Stoltz, 315 F.3d 80 (2d Cir. 2002). The question in Stoltz was whether a public housing lease is a "similar grant," not whether a loan guaranty meets that descrip tion. Moreover, contrary to petitioners' contentions (Pet. 12), the reasoning in Stoltz is fully consistent with the conclusion of the court below that a VA home loan guaranty is not a "similar grant." In Stoltz, the Second Circuit reasoned that Section 525(a) covers "property interests [that are] unobtainable from the private sector and essential to a debtor's fresh start." 315 F.3d at 90. As the court below noted in distinguishing Stoltz, a home loan guaranty, unlike a public housing lease, meets nei ther of those criteria. See Pet. App. 11 n.4. Loan guar anties are available from a variety of sources other than the government-family, friends, and private financial institutions. See ibid. Nor are loan guaranties essential to a fresh start. The court in Stoltz concluded that a public housing lease may be essential to "economic sur vival" because loss of the lease could lead to homeless ness. 315 F.3d at 90. But, as the court below explained, a home loan guaranty is not similarly essential: a vet eran who is unable to obtain a loan guaranty may obtain a home loan on less favorable terms or may choose an alternative housing arrangement that does not involve ownership. Pet. App. 11 n.4.
Petitioners argue (Pet. 12-13) that loan guaranties from the VA are available only from the government, just as public housing leases are. Pet. 12. The relevant comparison, however, is not to guaranties offered exclu sively by the VA, but to loan guaranties generally. Peti tioners also point out (Pet. 14-15) that the purpose of the VA loan guaranty program is to promote the economic betterment of veterans. That may be true, but it does not mean that VA loan guaranties are "essential to a debtor's fresh start." Stoltz, 315 F.3d at 90. A loan guaranty likely improves a veteran's economic lot, but it is not essential for a fresh start, because an individual denied a loan guaranty still has a diverse array of hous ing options, including buying a home with less desirable loan arrangements or renting.
Petitioners also incorrectly argue (Pet. 16-17) that the decision below conflicts with Stoltz because the court below relied on the Second Circuit's earlier decision in Goldrich, and statements in Stoltz cast doubt on the con tinued validity of that decision. This Court, however, "reviews judgments not statements in opinions." Black v. Cutter Labs., 351 U.S. 292, 297 (1956). In any event, contrary to petitioner's argument, Stoltz did not disavow the reasoning in Goldrich. Stoltz merely noted that Congress, by enacting Section 525(c), had abrogated Goldrich's holding that Section 525 does not cover stu dent loans. See Stoltz, 315 F.3d at 86 n.2. The court of appeals here acknowledged that Section 525(c) abro gated the specific holding of Goldrich, but the court pointed out that nothing in Section 525(c) calls into ques tion Goldrich's more general conclusion that Section 525(a) does not cover credit guarantees. Pet. App. 13. Indeed, as the court of appeals noted, in responding to Goldrich, Congress did not revise Section 525(a) but instead added Section 525(c), which covers only student loans and guaranties. That course of action reinforces, rather than undermines, the conclusion that Section 525(a) does not cover loans and guaranties. See ibid.
4. Finally, petitioners mistakenly contend (Pet. 17- 18) that this Court's review is warranted because the court of appeals' interpretation of Section 525(a) is harmful to veterans. Contrary to petitioners' argument, concern for veterans' financial welfare may counsel against expanding Section 525(a) to cover veteran home loan guaranties. As the court of appeals observed, re quiring the VA to grant the maximum possible guaranty to a veteran regardless of whether the VA has suffered a loss because of that veteran's prior default could jeop ardize the financial health of the loan guaranty program and threaten its long-term viability. Pet. App. 16. In any event, the decision whether to amend Section 525(a) to protect veterans who defaulted on their loans and sought bankruptcy protection is Congress's to make. As the court of appeals noted, Congress could make that change "with a few strokes of the pen." Ibid. There is no reason or authority for this Court to take on that leg islative function.

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