Court Opinion

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Opinions of the United
2006 Decisions                                                                                                             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Precedential or Non-Precedential: Precedential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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Recommended Citation
"In Re: Nathan Udell " (2006). 2006 Decisions. Paper 666.
http://digitalcommons.law.villanova.edu/thirdcircuit_2006/666

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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
      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

      *
       The Honorable Alan D. Lourie, United States Circuit
Judge for the Federal Circuit, sitting by designation.

                              2
                 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.

                                3
        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,

                               4
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.

                                5
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

                               6
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

                               7
            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:

                              8
       (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

                                9
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

                                10
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

                                11
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

                                12
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

                                13
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

                                14
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,

                                15
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.

                                16