Court Opinion

ID: 3026810
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:36:44.460887+00
Date Added: 2024-06-11T09:52:14.111646
License: Public Domain

United States Bankruptcy Appellate Panel
                                  FOR THE EIGHTH CIRCUIT

                                         No. 00-6113 MN

In re:                                             *
                                                   *
Martin J. McAlpin                                  *
                                                   *
         Debtor.                                   *
                                                   *
Educational Credit Management                      *          Appeal from the United States
Corporation.                                       *          Bankruptcy Court for the
                                                   *          District of Minnesota
         Appellant,                                *
                v.                                 *
                                                   *
Martin J. McAlpin,                                 *
                                                   *
         Appellee.                                 *

                                      Submitted: May 2, 2001
                                         Filed: June 21, 2001

Before WILLIAM A. HILL, SCHERMER and FEDERMAN,1 Bankruptcy Judges

SCHERMER, Bankruptcy Judge

         1
         Arthur Federman, United States Bankruptcy Judge for the Western District of Missouri, sitting
by designation.
         Educational Credit Management Corporation (“ECMC”) appeals the bankruptcy court’s order
enjoining ECMC from receiving collection costs from the debtor, Martin J. McAlpin, (“Mr. McAlpin”) that
were disallowed in an earlier claim objection proceeding. We have jurisdiction over this appeal from the
final orders of the bankruptcy court. See 28 U.S.C. § 158 (b). For the reasons set forth below, we
reverse.

                                                  ISSUE

        The issue on appeal is whether the bankruptcy court’s entry of an order enjoining ECMC from
collecting collection costs from Mr. McAlpin that were disallowed in an earlier bankruptcy court
proceeding was legally correct. We conclude that the bankruptcy court should not have entered the
injunction because its order was premised on an earlier bankruptcy court order and the earlier order could
not conceivably have affected the bankruptcy estate.

                                            BACKGROUND

        Mr. McAlpin filed his Chapter 13 Petition on November 17, 1993. At that time, he owed student
loans which were eventually transferred to ECMC. ECMC filed its proof of claim after the claims bar date
in the amount of $19,977.43 which included principal of $13,340.65, interest of $1,612.80 and collection
cost of $5,023.98. Mr. McAlpin did not object to ECMC’s late-filed proof of claim. Likewise, Mr.
McAlpin’s plan did not provide for payment of ECMC’s claim. Mr. McAlpin completed his five year
Chapter 13 plan payments and was granted a discharge by the Bankruptcy Court on January 27, 1999.

         Shortly after Mr. McAlpin’s discharge was entered he filed an objection to ECMC’s proof of claim
alleging that the collection costs were not “the actual costs incurred by claimant to secure payment or
information from Debtor, prior to his Chapter 13 filing, nor the average costs incurred for similar attempts
to secure payments or information from other borrowers” (the “Objection to Claim Proceeding”). The
Objection to Claim Proceeding was limited to only the collection cost component and did not dispute the
principal and interest due. ECMC premised its collection cost entitlement on 34 C.F.R. § 674.45 (e) which
permits collection costs on student loans provided they are reasonable and either the actual cost incurred
or the average cost incurred for similar actions taken to collect loans in similar stages of delinquency. On
March 2, 1999, the Bankruptcy Court held a hearing on Mr. McAlpin’s objection to ECMC’s claim.
ECMC, although provided notice of the hearing, did not attend the hearing. Mr. McAlpin argued to the

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Court that his objection should be sustained because ECMC “failed to provide any documentation for its
alleged collection costs.” ECMC chose not to attend the hearing because: 1) Mr. McAlpin had fully
performed his obligations under the Chapter 13 plan; 2) the plan did not provide for treatment of the
ECMC claim; and 3) a discharge Order had been entered. On March 4, 1999, the Bankruptcy Court
issued its Order allowing ECMC’s claim for principal and pre-petition interest in the amount of $14,953.45
($13,340.65 principal and $1,612.80 interest).

         The bankruptcy case was closed on July 21, 1999. Thereafter, the parties corresponded with
respect to repayment of Mr. McAlpin’s student loan, which resulted in ECMC taking the position that
disallowing the collection cost component of its claim did not result in a discharge of such costs. On
November 24, 1999, Mr. McAlpin reopened his bankruptcy case and filed an adversary proceeding
seeking injunctive relief barring ECMC from collecting the disallowed collection costs (the “Adversary
Proceeding”). The Bankruptcy Court conducted a trial on August 7, 2000, and thereafter issued its Order
holding that Mr. McAlpin’s complaint was a core proceeding which authorized the court to enter a final
Order and that its Order of March 4, 1999, “conclusively determined the amount of the student loan
obligation.” Accordingly, the Court issued its Order enjoining ECMC from taking any action to collect the
$5,023.98 portion of ECMC’s claim. ECMC appeals this Order.

                                      STANDARD OF REVIEW

        This Court reviews de novo the bankruptcy court’s legal conclusions, and reviews for clear error
its findings of fact. Fed. R. Bankr. P. 8013. Schroeder v. Rouse (In re Redding), 247 B.R. 474, 477
(B.A.P. 8th Cir. 2000); Martin v. Cox (In re Martin), 140 F.3d 806, 807 (8th Cir. 1998); Gourley v.
Usery (In re Usery), 123 F.3d 1089, 1093 (8th Cir. 1997). Before determining the merits of an appeal,
an appellate court must first determine whether the bankruptcy court had subject matter jurisdiction. See
Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 773 (5th Cir. 1995). A determination of whether
the bankruptcy court had jurisdiction to hear a case is a legal question to be reviewed de novo.

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                                               DISCUSSION

Celotex Standard

        The United States Supreme Court held in CelotexCorp. V. Edwards, 514 U.S. 300, 115 S. Ct.
1493 (1995), that it is for the court of first instance to determine the validity of the law. The court’s orders
should be respected until its decisions are reversed. Id. at 313. The parties should challenge the
bankruptcy court’s conclusions in that court if they are dissatisfied with the conclusions. Id. If the parties
are still not content with the ultimate conclusion of the court of first instance, they can appeal to a higher
court. Id. By collaterally attacking the final determination of a court, a party seriously undermines the
“orderly process of the law.” Id.

        We do not address whether the bankruptcy court ruled properly on the merits in the Objection to
Claim Proceeding. See Celotex, 514 U.S. 300 at 313. It is appropriate only for this Court to determine
whether the bankruptcy court had jurisdiction to enter the order in the Objection to Claim Proceeding.

Jurisdiction of the March 4, 1999, Order

        The order in the Objection to Claim Proceeding served as the underpinning for the court’s holding
in the Adversary Proceeding. If the bankruptcy court did not have jurisdiction for its entry of the order in
the Objection to Claim Proceeding, then there was no basis upon which the bankruptcy court could enjoin
ECMC from procuring the collection costs in the Adversary Proceeding.

         Although district courts have both original and exclusive jurisdiction over all Bankruptcy Code
cases, they have original, but not exclusive jurisdiction over civil proceedings “arising under title 11 or
arising in or related to cases under title 11.” 11 U.S.C. § 1334; 1 Collier on Bankruptcy ¶ 3.01[1][c],
n.23a (15th ed.). District courts may cause all cases and proceedings to be referred to the bankruptcy
judges for their respective districts. 28 U.S.C. § 157(a).

        For a bankruptcy court to have federal subject matter jurisdiction, a proceeding must meet the
minimum requirement of “relating to” a case under 28 U.S.C. § 1334. A bankruptcy court’s related to
jurisdiction is extremely broad. See In re NWFX, Inc., 881 F.2d 530, 533 (8th Cir. 1989). The court
in Pacor Inc. v. Higgins, 743 F.2d 984 (3rd Cir. 1984), devised a test for determining “related to”

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jurisdiction. The court stated that for a bankruptcy court to assert “related to” jurisdiction in a proceeding,
the outcome of the proceeding must be able to alter the debtor’s rights liabilities, options, or freedom of
action and conceivably have an effect on the handling of the estate being administered in bankruptcy. Id.
at 994. The bankruptcy court’s “related to” jurisdiction is not without limits. Id. The United States
Supreme Court and the United States Court of Appeals for the Eighth Circuit cited the court’s analysis in
Pacor with approval. See Celotex, 514 U.S. at 308 and n. 6; Dogpatch Properties, Inc. v. Dogpatch
U.S.A., Inc. (In re Dogpatch U.S.A., Inc.), 810 F.2d 782, 786 (8th Cir. 1987).

        The McAlpin bankruptcy court did not have jurisdiction pursuant to 28 U.S.C. § 1334 to enter the
order determining the amount of the allowed claim. As noted, the case was filed on November 17, 1993.
Absent a contrary order, the first payment came due on or before December 17, 1993. 11 U.S.C. §
1326(a)(1). The plan could not provide for payments over a period longer than five years and could not
be modified to extend that period. 11 U.S.C. §§ 1322(d) and 1329(c). The objection to claim was filed
after the five-year period had elapsed, and after completion of a plan paying nothing to ECMC. Therefore,
although the outcome of the Objection to Claim Proceeding may have affected Mr. McAlpin’s liabilities
regarding the collection costs, it did not impact upon the handling or administration of his bankruptcy case.
Mr. McAlpin had already been granted a discharge. His bankruptcy estate no longer existed. 11 U.S.C.
§§ 1327 (e) and 1328 (a)(2); see also Specialty Mills, 51 F.3d at 774 (recognizing that some convergence
between a third-party dispute and the debtor’s affairs was not sufficient to prove that the court should
exercise “related to” jurisdiction when the third-party dispute affected neither the distribution of estate
assets nor the bankruptcy estate in general); In re Fietz, 852 F.2d 455 (9th Cir. 1988) (adopting the Pacor
test and finding that even though the debtor’s former wife’s cross-claim may have involved community
property, the court could not exercise “related” jurisdiction because the chapter 13 plan had been
confirmed and the cross-claim would not necessarily affect the bankruptcy case); Compare Dogpatch, 810
F.2d at 786 (8th Cir. 1987) (finding that a counterclaim and a third-party complaint filed by a mortgagee
against the purchaser of a debtor’s mortgaged property were “related to” the bankruptcy case because the
outcome of a proceeding to foreclose would have an effect on the estate. If the purchaser should become
unable to pay the mortgagees, the debtor’s estate would be responsible for payment).

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                                           CONCLUSION

        Since the March 4, 1999, order could not conceivably have affected the estate, or met the Pacor
test, this Court believes that the underpinnings of the order for injunctive relief cannot stand. For the
foregoing reasons, the judgment of the bankruptcy court is reversed.

        A true copy.

                Attest:

                          CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
                          EIGHTH CIRCUIT

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