Court Opinion

ID: 4570996
Source: CourtListenerOpinion
Date Created: 2020-09-29 23:00:43.474365+00
Date Added: 2024-06-11T08:47:02.526876
License: Public Domain

FILED
                                                                          SEP 29 2020
                           NOT FOR PUBLICATION
                                                                      SUSAN M. SPRAUL, CLERK
                                                                        U.S. BKCY. APP. PANEL
                                                                        OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

In re:                                               BAP No. WW-20-1069-LSF
JOHN D. HORTON,
                Debtor.                              Bk. No. 3:95-bk-35026-PHB
JOHN D. HORTON,
                Appellant,                           Adv. No. 3:96-ap-33816-BDL
v.
UNITED STATES OF AMERICA,                            MEMORANDUM*
Department of Education,
                Appellee.

             Appeal from the United States Bankruptcy Court
                  for the Western District of Washington
           Honorable Brian D. Lynch, Bankruptcy Judge, Presiding

Before: LAFFERTY, SPRAKER, and FARIS, Bankruptcy Judges.

                                 INTRODUCTION

      Former chapter 71 debtor John Horton appeals the bankruptcy court’s

      *
        This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
      1
      Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, “Rule” references are to the Federal Rules of
Bankruptcy Procedure, and “Civil Rule” references are to the Federal Rules of Civil
Procedure.
order denying his motion to reopen his 1996 adversary proceeding and to

impose sanctions on appellee United States Department of Education

(“DOE”) for an alleged violation of the discharge injunction. The

bankruptcy court denied the motion because Mr. Horton failed to establish

that DOE had engaged in any collection activity related to the student loan

debt that was the subject of the 1996 adversary proceeding.

      We AFFIRM.

                          FACTUAL BACKGROUND2

      Mr. Horton filed a chapter 7 bankruptcy in 1995. He was granted a

discharge, and the case was closed in early 1996. He thereafter filed an

adversary proceeding against DOE to determine the dischargeability of his

student loan debt. The matter was terminated with a stipulated judgment,

and the proceeding was closed in January 1997. Because of the age of the

case, only the docket is accessible, but not the documents; accordingly, the

stipulated judgment was not available for the bankruptcy court to review,

nor is it in the record before us.3

      2
        The parties did not provide excerpts of record. We have therefore exercised our
discretion to examine the bankruptcy court’s docket and available imaged papers in the
relevant bankruptcy case and adversary proceeding. See Woods & Erickson, LLP v.
Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).
      3
       According to the bankruptcy court’s order, documents for closed adversary
proceedings that were opened before 1999 were transferred to the National Archives
and Records Administration, where they were retained for fifteen years and then
destroyed.

                                           2
     In February 2020, Debtor filed a motion to reopen the adversary

proceeding and to impose sanctions on DOE for allegedly attempting to

collect on the student loan debt that he contended had been discharged in

his chapter 7 case. He attached to his motion copies of several documents

regarding a wage withholding.

     According to those documents, a Notice of Wage Withholding dated

January 8, 2020 was sent from ADP, LLC , to Mr. Horton. The notice stated

that ADP processes wage garnishment orders on behalf of Mr. Horton’s

employer, Walmart Stores, Inc., and its purpose was to notify him that a

wage garnishment order for a student loan debt had been received

requiring Walmart to deduct wages from his pay. The notice stated that the

creditor name was “not applicable,” but it listed a court case ID and a

judgment amount of $539.73. The “issuing agency” was listed as Coast

Professional, Inc. The notice instructed that if Mr. Horton had questions

about the order or disagreed with the deductions, he should contact the

issuing agency.

     Attached to the notice was a Letter to Employer and a Wage

Garnishment Order issued by the U.S. Department of Treasury, Bureau of

Fiscal Services. The letter states that one of Walmart’s employees has been

identified as owing a “delinquent nontax debt” to the United States. It

further states “[t]he Debt Collection Improvement Act of 1996 (DCIA)

permits federal agencies to garnish the pay of individuals who owe such

                                      3
debt without first obtaining a court order.” The Wage Garnishment Order

lists the creditor agency as the U.S. Department of Treasury, acting on

behalf of the Department of Defense, Defense Finance and Accounting

Service.

      DOE filed a response and declaration stating that it was not the

federal agency garnishing Mr. Horton’s wages and confirming that,

according to its records, the student loan debt at issue had been discharged

in his chapter 7 case. The declarant, Kristen Vogel, an attorney with the

United States Attorney’s office, stated that she had called the number on

the wage garnishment order but had been unable to obtain any information

due to privacy reasons. She also stated that she had emailed Mr. Horton to

encourage him to call the number himself, and she attached copies of the

relevant emails.4

      Mr. Horton filed a reply, asserting that DOE had admitted “that the

US Department of Defense is attempting to use collection procedures that

are only authorized by Congress to be used in the collection of student loan

debts” and “that it has colluded with the US Department of Defense in

allowing student loan debt collection procedures to be used in the

collection of other purported federal debts.”

      The bankruptcy court held a hearing on March 11, 2020. Counsel for

DOE appeared telephonically, but Mr. Horton did not appear, having

      4
          There is no evidence in the record that he ever did so.

                                               4
requested the court to waive an in-person appearance because he was

living in Oklahoma, and it would be too expensive to travel to Washington

state. He also declined to appear by telephone due to a hearing

impairment. The next day, the bankruptcy court entered its order denying

Mr. Horton’s motion. The court found that Mr. Horton had not established

cause to reopen the adversary proceeding because: (1) he had failed to

provide any evidence regarding the bankruptcy discharge and the

judgment and stipulation entered in December 1996; and (2) he had failed

to provide any evidence demonstrating that the debt that was the subject of

the garnishment was owed to DOE. Because of this, the court found that it

could not determine that DOE was in violation of the discharge order and

thus reopening would be meaningless. The court also noted that the

evidence showed that the garnishing party was the Department of Defense,

and that DOE had presented evidence that the student loans had been

discharged. Finally, it noted that Mr. Horton could contact the issuing

agency pursuant to the instructions on the notice of wage garnishment.

     Mr. Horton timely appealed.

                             JURISDICTION

     The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                   ISSUE

     Whether the bankruptcy court abused its discretion in denying

                                      5
Debtor’s motion to reopen and impose sanctions on DOE.

                             STANDARD OF REVIEW

       The denial of a motion to reopen an adversary proceeding is

reviewed for abuse of discretion. See Staffer v. Predovich (In re Staffer), 306
F.3d 967, 971 (9th Cir. 2002) (motion to reopen bankruptcy case). We also

review for abuse of discretion an award or denial of sanctions for violation

of the discharge injunction. See Nash v. Clark Cty. Dist. Attorney’s Office (In

re Nash), 464 B.R. 874, 878 (9th Cir. BAP 2012). A bankruptcy court abuses

its discretion if it applies an incorrect legal standard or misapplies the

correct legal standard, or if its factual findings are illogical, implausible or

not supported by evidence in the record. TrafficSchool.com, Inc. v. Edriver

Inc., 653 F.3d 820, 832 (9th Cir. 2011).

                                    DISCUSSION

       Mr. Horton sought to reopen the adversary proceeding to obtain

contempt sanctions against DOE for violating the discharge injunction.5 To

       5
        Mr. Horton should have filed his motion in the main bankruptcy case, as the
relief he sought pertained to the violation of the discharge order. Indeed, the
bankruptcy court applied the standard for reopening the main bankruptcy case, i.e., “to
administer assets, to accord relief to the debtor, or for other cause.” § 350(b). The court
also ruled that Mr. Horton’s motion did not comply with W.D. Wash. Local Bankruptcy
Rule 5010-1, which requires the movant seeking the reopening of a bankruptcy case to
“state the purpose for reopening the case, whether assets were administered in the case,
whether a deadline was established for filing proofs of claim, and whether a trustee
needs to be appointed.” But these procedural irregularities do not affect the ultimate
disposition of this appeal.

                                             6
obtain such sanctions, he had to prove by clear and convincing evidence

that DOE knew the discharge injunction was applicable and intended the

actions which violated the injunction. Zilog, Inc. v. Corning (In re Zilog, Inc.),

450 F.3d 996, 1007 (9th Cir. 2006). Mr. Horton’s evidence fell far short of

this standard. He failed to show that DOE had taken any action in violation

of the discharge injunction. Because the bankruptcy court could not grant

the relief Mr. Horton requested, reopening the adversary proceeding

would have been pointless. Under these circumstances, the bankruptcy

court did not err in denying Mr. Horton’s motion.

      Mr. Horton argues on appeal that the bankruptcy court erred in

denying his motion because: (1) DOE admitted that the garnishment action

was taken by its collection agents; (2) the “collection agencies” (ADP, LLC;

U.S. Department of Treasury Bureau of Fiscal Services; Coast Professional,

Inc.; and Department of Defense Finance and Accounting Service) did not

file an opposition to the motion or appear at the hearing and thus should

have been defaulted; and (3) the bankruptcy court should have ordered

DOE and the “collection agencies” to cease and desist further collection

actions and to return all improperly garnished funds on grounds that the

statute of limitations had expired.6 Mr. Horton also erroneously interprets

the bankruptcy court’s order as positing that the destruction of the paper

discharge order negated or reversed it, but the bankruptcy court did not so

      6
          This argument was not made to the bankruptcy court.

                                            7
find.

        Mr. Horton’s first argument seems to be based on the premise that

the reference to a “student loan debt” in ADP’s notice of wage withholding

established that DOE was the creditor, and that the Department of Defense

was acting as a collection agent for DOE. This premise is mistaken. The

purported “admission” was made in ADP’s notice, and there was no

evidence that ADP was DOE’s agent. Further, the reference to student loan

debt did not include any specifics, and nothing in the documents presented

to the court with Mr. Horton’s motion established that DOE was the

creditor. To the contrary, DOE’s evidence established that it did not initiate

the garnishment.

        The second and third arguments (that the bankruptcy court should

have entered default against non-appearing parties and enjoined them

from further collection activities) are also based on the erroneous

presumption that the “collection agencies” were acting on behalf of DOE to

collect on a discharged student loan debt. Moreover, the court was not

required to enter default or otherwise grant relief to Mr. Horton solely

because the “collection agencies” failed to appear. See Civil Rule 55(b)(2)

(applicable via Rule 7055) (before entering a default judgment, the court

may conduct hearings when it needs to establish the truth of any allegation

by evidence). Further, to the extent Mr. Horton sought a judgment or order

against an agency of the United States, the bankruptcy court could not have

                                      8
entered a default judgment unless Mr. Horton established a “claim or right

to relief by evidence that satisfie[d] the court.” Civil Rule 55(d). He did not

do so.

                                  CONCLUSION

      Although we are sympathetic to Mr. Horton’s plight, he did not

provide any evidence to the bankruptcy court establishing that DOE had

violated the discharge injunction.7 Accordingly, we AFFIRM.

      7
       It is not clear whether Mr. Horton ever attempted to resolve the issue informally
by contacting any of the entities listed on the wage garnishment notice, but he would be
well advised to do so.

                                           9