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11-20513 Timmons (Doc. # 41)

In Re Timmons, 11-20513 (Bankr. D. Kan. Sep. 24, 2012) Doc. # 41

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SO ORDERED.
SIGNED this 24th day of September, 2012.

 

Opinion Designated for Electronic Use, But Not for Print Publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
JEANA L. TIMMONS, CASE NO. 11-20513-7
CHAPTER 7
DEBTOR.

OPINION GRANTING REQUEST OF SALLIE MAE, INC., TO DISMISS
THE DEBTOR’S MOTION FOR CONTEMPT, AND DENYING AS MOOT
THE DEBTOR’S MOTION FOR ENFORCEMENT OF DISCOVERY


The matters before the Court for decision arise from the Debtor’s motion asking
the Court to hold creditor Sallie Mae, Inc., in contempt for violating either the automatic
stay or the discharge injunction. The Debtor appears by counsel Neil S. Sader of the
Sader Law Firm. Sallie Mae appears by counsel Matthew F. Mulhern of Manz, Swanson
& Mulhern. The Court has reviewed the relevant materials and is now ready to rule.

When the Debtor filed her Chapter 7 bankruptcy, she owed a debt to Sallie Mae
that she concedes is a nondischargeable student loan. She claims she had always been

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current on her monthly payment obligation on the debt before she filed bankruptcy and
continued to make the payments after she filed. Nevertheless, shortly after she received a
discharge, Sallie Mae notified her that it had declared her debt to be in default and
accelerated it, making the full amount due. Sallie Mae later sent her a letter offering to
settle the debt at a discount. The Debtor soon filed a motion asking the Court to hold
Sallie Mae in contempt for accelerating the debt and pressuring her to settle the debt
immediately, contending Sallie Mae had accelerated the debt based solely on her
bankruptcy filing, and its actions violated either the automatic stay or the discharge
injunction, and also violated a Kansas consumer protection statute. As explained below,
the Court concludes (1) nothing in the Bankruptcy Code restricted Sallie Mae’s post-
discharge efforts to collect its nondischarged debt, and (2) the Court has no subject matter
jurisdiction to decide the Debtor’s claim that Sallie Mae violated Kansas law by declaring
her to be in default even though she never defaulted on her payments. These rulings
mean the Debtor is not entitled to obtain further discovery from Sallie Mae under this
Court’s authority, so her motion for enforcement of discovery and for discovery sanctions
is now moot and will be denied.

FACTS

In deciding a request to dismiss a claim under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim on which relief may be granted, the Court must

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assume the factual allegations supporting the claim are true.1 Consequently, the Court
will describe the relevant allegations here as if they were true, but is not deciding whether
they are in fact true.

When the Debtor filed her Chapter 7 petition on March 3, 2011, she owed Sallie
Mae almost $5,000 on a nondischargeable student loan promissory note. She was then
current on her monthly payment obligation on the debt, and she continued to make the
monthly payments of $50.82 called for by the note. She received a discharge on June 8,
2011, and her case was closed the same day.

A month and a half later, Sallie Mae sent the Debtor a letter dated July 20, 2011,
which notified her that her loan was in default and she should contact Sallie Mae
immediately to resolve the loan; the current balance was stated to be $4,980.27. A short
time later, Sallie Mae sent her a letter dated August 4, 2011, offering to accept $3,378.05,
70% of the then-current balance of $4,825.79, in settlement of the debt. The Debtor and
her attorney contacted Sallie Mae representatives and were told the default had been
declared and the loan accelerated because she had filed bankruptcy.

On November 1, 2011, the Debtor filed a motion to reopen her case so she could
seek relief against a creditor she believed had violated either the automatic stay or the
discharge injunction; no objections were filed and the case was reopened on November

29. On December 1, 2011, the Debtor filed her motion asking the Court to hold Sallie
1Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 555-56 (2007).
3


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Mae in contempt, claiming its act of accelerating the loan violated either the automatic
stay imposed by § 362(a) or the discharge injunction imposed by § 524(a)(2), depending
on when the acceleration was done. The Debtor also claimed the acceleration constituted
consumer abuse under K.S.A. 16a-5-109, a provision of the Kansas Uniform Consumer
Credit Code. The Debtor asked the Court to order Sallie Mae to honor the original
payment requirements of her promissory note, to pay her attorney fees, and, if the Court
should find them to be appropriate, to pay punitive damages. Sallie Mae responded on
December 20, contending (1) the Debtor had not identified any act that Sallie Mae
committed between the petition date and the discharge date that violated § 362(a), so
there was no stay violation; (2) although Sallie Mae accelerated the Debtor’s student loan
and tried to collect it after the discharge order was entered, the debt was nondischargeable
and the Bankruptcy Code provided no remedy for her allegations; (3) the Court had no
subject matter jurisdiction or constitutional authority to adjudicate the Debtor’s claim
under K.S.A. 16a-5-109; and (4) through counsel, Sallie Mae had offered to reinstate the
Debtor’s loan so she could make monthly payments with no demand for an accelerated
payoff.

On March 13, 2012, the Debtor filed a motion for enforcement of discovery,
claiming she had served requests for production of documents, but Sallie Mae had failed
to provide timely responses or to properly object to four of the nineteen requests she had
made. Sallie Mae had objected that, among other things, the information the four requests
sought was irrelevant. The Debtor asked the Court to order Sallie Mae to pay attorney

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fees she had incurred in this discovery dispute. Sallie Mae responded to the Debtor’s
motion, arguing that the Debtor had not asserted a valid claim for relief against it, and
asking the Court to determine under Federal Rule of Civil Procedure 12(b)(6) whether the
Debtor’s motion for contempt failed to state a claim on which relief could be granted.

The Debtor filed a response to Sallie Mae’s request for a ruling on the Rule
12(b)(6) question. She contended Sallie Mae’s “Notice of Default and loan acceleration
interferes with the settled bankruptcy principles of the fresh start and equity, and violates
§ 524 of the [Bankruptcy] Code and relevant case law.” She argued: (1) although her
debt to Sallie Mae is nondischargeable, the Bankruptcy Code’s fresh start principle
should nevertheless bar Sallie Mae’s post-discharge declaration of default and
acceleration of her promissory note because she has always remained current on her
monthly payment obligation; (2) in Chapter 13 cases, bankruptcy courts have held that
student loan creditors cannot accelerate their loans during a Chapter 13 plan and that
debtors should not be required to pay more on such debts than is necessary to remain
current on them, and (3) the Court’s broad equitable powers authorize it to prevent Sallie
Mae from enforcing its decision to accelerate her loan because she has always been
current on the loan, and she is a single mother raising two daughters.
DISCUSSION

1. The Court concludes it can address Sallie Mae’s request for dismissal, despite
some procedural irregularities.
This is a contested matter governed by Federal Rule of Bankruptcy Procedure
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9014. Rule 9014(c) makes various rules governing adversary proceedings apply to
contested matters but, oddly enough, does not make Rule 7012, subsection (b) of which
makes Civil Rule 12(b) apply to adversary proceedings, apply. Rule 9014(c) provides
that the Court can make other adversary rules apply to a contested matter, but is to give
the parties notice and a reasonable opportunity to comply with any order doing so.
However, in opposing Sallie Mae’s assertion that the Court should determine under Rule
12(b)(6) whether the Debtor has stated a colorable claim for relief against it, the Debtor
has not complained about any lack of notice of the application of Rule 12, arguing only
that she has stated a valid claim for relief. Furthermore, the Tenth Circuit has ruled a
court can, even without notice and an opportunity to amend when it is apparent any
amendment would be futile, dismiss a complaint sua sponte for failure to state a claim.2
Sallie Mae raised the question of the sufficiency of the Debtor’s assertion of a claim for
relief and the Debtor has addressed that question on the merits. Under these
circumstances, the Court finds it appropriate to decide the Rule 12(b)(6) question at this
time.

2. The Debtor has failed to identify anything in the Bankruptcy Code that barred
Sallie Mae’s declaration of default and acceleration of her student loan debt.
The Debtor contends that several facets of federal law under the Bankruptcy Code

2Smith v. Colorado Dept. of Corrections, 23 F.3d 339, 340 (10th Cir. 1994).
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support her claim asking the Court to find Sallie Mae in contempt.3 First, she argues
Sallie Mae violated § 524(a)(2) of the Bankruptcy Code when it declared her to be in
default and accelerated her student loan. That provision reads:

(a) A discharge in a case under this title —
. . .
(2) operates as an injunction against the commencement or
continuation of an action, the employment of process, or an act, to collect,
recover or offset any such debt as a personal liability of the debtor.
But, as the Debtor concedes, § 523(a)(8) applies to her debt to Sallie Mae. It provides:

(a) A discharge under section 727 . . . of this title does not discharge an
individual debtor from any debt —
. . .


(8) . . . for —
(A)(i) an educational . . . loan made, insured, or guaranteed by
a governmental unit, or made under any program funded in whole or
in part by a governmental unit.

While § 524(a)(2) specifies some effects of the discharge of a debt, § 523(a)(8)(A)(i) says
the Debtor’s discharge did not discharge her debt to Sallie Mae. The Debtor is asking the
Court to apply at least part of the discharge injunction imposed by § 524 to Sallie Mae
even though Sallie Mae’s claim against her was not discharged. The Court cannot accept
such a construction of these provisions. Instead, the only reasonable interpretation is that
§ 524(a) simply does not apply to any debt that falls within § 523(a)(8). Since Sallie
Mae’s loan was covered by § 523(a)(8)(A)(i), nothing Sallie Mae did with respect to that
debt could possibly have violated § 524(a)(2).

3In her response to Sallie Mae’s request for dismissal, the Debtor did not mention her earlier
assertion that Sallie Mae’s acceleration of her debt may have violated the automatic stay imposed by
§ 362(a). The Court concludes she has abandoned that assertion, and will not address it in this opinion.

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Second, the Debtor argues Sallie Mae’s declaration of default and acceleration of
her debt violated the general fresh start principle of the Bankruptcy Code. But as the
Eleventh Circuit said in a Chapter 11 case, “Nondischargeable debts are those types of
debts, such as taxes or child support payments, that Congress thought important enough
to be paid in full, even if doing so impeded the debtor’s ability to make a fresh start.”4 In
In re DePaolo,5 another Chapter 11 case involving individual debtors, the Tenth Circuit
similarly indicated that the nondischargeability of a debt overrides the debtor’s interest in
obtaining a fresh start. In DePaolo, the IRS had filed proofs of claim for certain tax years
and stipulated with the debtors to the amount they would pay on those taxes under their
Chapter 11 plan.6 The debtors’ plan was then confirmed and the confirmation order
granted the debtors a discharge.7 Later, the IRS audited the debtors’ tax return for one of
the years covered by the stipulation, and determined they owed additional taxes for that
year.8 Because § 1141(d)(2) provided that plan confirmation did not discharge individual
debtors from debts covered by § 523 and the additional taxes were covered by § 523, the
Tenth Circuit ruled the IRS was entitled to collect the additional taxes. The Circuit said,
“By expressly providing that the described taxes are not discharged . . . , Congress has

4United States v. White, 466 F.3d 1241, 1247 (11th Cir. 2006).

545 F.3d 373 (10th Cir. 1995).

6Id. at 374-75.

7Id. at 375.

8Id.

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determined that the IRS may make a claim for taxes for a particular year in a bankruptcy
proceeding, accept the judgment of the bankruptcy court, then audit and make additional
claims for that same year, even though such conduct may seem inequitable or may impair
the debtor’s fresh start.”9 Similarly, although Sallie Mae’s declaration of default and
acceleration of the Debtor’s student loan may impair her fresh start, the fact Congress
made its debt nondischargeable means that Congress has determined that Sallie Mae’s
interest in collecting the debt should override the Debtor’s interest in obtaining a fresh
start.

Third, the Debtor cites two Chapter 13 cases to support the assertion “that if the
[Bankruptcy] Code prohibits student loan acceleration during a bankruptcy, the Code
certainly prohibits this type of acceleration immediately after the Discharge Order.”10 But
the two cases the Debtor cites both say only that Chapter 13 debtors cannot propose plans
that accelerate their student loans, not that the creditors to whom such debts are owed
cannot accelerate them.11 The cases involved Chapter 13 debtors who filed plans
proposing to pay more on their unsecured but nondischargeable student loan debts than
on their other unsecured debts.12 Both courts considered whether this proposed

9Id. at 376.
10Dkt. no. 32 at 6.
11In re Kalfayan, 415 B.R. 907 (Bankr. S.D. Fla. 2009); In re Keel, 143 B.R. 915 (Bankr. D. Neb.


1992).
12See 415 B.R. at ; 143 B.R. at 916-17.
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discrimination was unfair and therefore violated § 1322(b)(1).13 It was in the course of
deciding that question that both courts said the debtors could not accelerate their student
loans.14 Clearly, neither case has anything to say about whether a creditor can accelerate
a nondischargeable student loan during a Chapter 13 case. Even more clearly, then, they
say nothing about whether such a creditor can accelerate its loan after a Chapter 7 debtor
receives a discharge and his or her case is closed.

Fourth, the Debtor argues the Court has broad equitable powers to bar Sallie Mae’s
acceleration of her debt because she is a single mother raising two daughters and is
unable to pay the accelerated balance of the debt. The only authority she cites for this
argument is In re Prime Motor Inns, Inc.15 In that case, the court decided to enjoin one or
more Chapter 11 debtors (and perhaps other defendants) from accelerating debts of over
$200,000,000 because the borrowers had not timely produced audited financial
statements, at least in part because the accounting firm that was supposed to create the
statements had filed bankruptcy and ceased operating.16 The court said it had “broad
equitable powers to prevent the drastic consequences that would result upon an
acceleration.”17 The first authority the court cited for this statement was § 105(a) of the

13415 B.R. at 909-11; 143 B.R. at 916-17.

14415 B.R. at 911; 143 B.R. at 917.

15131 B.R. 233 (Bankr. S.D, Fla. 1991).

16Id. at 235-37.

17Id. at 236.

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Bankruptcy Code. As relevant here, that provision says, “The court may issue any order,
process, or judgment that is necessary or appropriate to carry out the provisions of this
title.”18 But the injunction the court granted in that case was against the debtors in
ongoing Chapter 11 cases, parties who were undoubtedly subject to the court’s continuing
jurisdiction. Here, by contrast, the Debtor had received her discharge, her bankruptcy
case had been closed, and her nondischargeable debt to Sallie Mae was no longer
expressly subject to anything in the Bankruptcy Code.

Furthermore, the Court’s powers under § 105(a) are not broad enough to authorize
the Court to protect the Debtor from Sallie Mae’s post-discharge, post-case-closure
actions. For example, the First Circuit has declared, “[S]ection 105(a) does not provide
bankruptcy courts with a roving writ, much less a free hand. The authority bestowed
thereunder may be invoked only if, and to the extent that, the equitable remedy dispensed
by the court is necessary to preserve an identifiable right conferred elsewhere in the
Bankruptcy Code.”19 Similarly, in Scrivner, the Tenth Circuit ruled that even strong
equitable concerns do not authorize bankruptcy courts to use their § 105(a) powers to
create new remedies different from those contained in the Bankruptcy Code.20 In that
case, the bankruptcy court had ordered a surcharge against the debtors’ exempt property
because they had failed to turn over to the Chapter 7 trustee postpetition income produced

1811 U.S.C. § 105(a).

19Jamo v. Katahdin Fed. Credit Union (In re Jamo), 283 F.3d 392, 403 (1st Cir. 2002).

20535 F.3d 1258, 1263-65 (2008).

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by an estate asset that they had not claimed as exempt.21 Despite the strong equities
supporting the surcharge, the Circuit said, “[B]ecause the surcharge of exempt property is
inconsistent with the Code’s provisions governing exemptions and debtor misconduct, it
is beyond the scope of a bankruptcy court’s equitable authority under § 105(a). Section
105(a) does not empower courts to create remedies and rights in derogation of the
Bankruptcy Code and Rules.”22 The Debtor’s proposed injunction against Sallie Mae’s
acceleration of her debt would be inconsistent with § 523(a)(8)’s declaration that the debt
has not been discharged, so it cannot be authorized by § 105(a).

The Court concludes the Debtor has not identified anything in the Bankruptcy
Code that barred Sallie Mae from declaring a default because of her bankruptcy case and
accelerating the student loan debt she owes it.

3. The Court does not have subject matter jurisdiction over the Debtor’s claim that
Sallie Mae’s actions violated K.S.A. 16a-5-109.
Since the Debtor’s efforts to base her claim on the Bankruptcy Code fail, she is left
with her assertion that Sallie Mae violated K.S.A. 16a-5-109 by declaring her to be in
default and accelerating her debt despite her allegedly perfect record of timely monthly
payments. That Kansas statute provides:

An agreement of the parties to a consumer credit transaction with
respect to default on the part of the consumer is enforceable only to the
extent that

21Id. at 1261-62.

22Id. at 1265.

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(1) the consumer fails to make a payment as required
by agreement; or
(2) the prospect of payment, performance, or
realization of collateral is significantly impaired; the burden
of establishing the prospect of significant impairment is on
the creditor.
The Court agrees with the Debtor that this statute might prevent Sallie Mae from
enforcing its declaration of default against her, since she was making her required
payments and the mere fact she filed bankruptcy would not appear to significantly impair
her continued payments on the student loan. But Sallie Mae is right to dispute the Court’s
subject matter jurisdiction to decide that state-law claim. For the following reasons, the
Court concludes it does not have jurisdiction to determine the claim.

In 1984, acting under authority conferred by 28 U.S.C. § 157(a), the U.S. District
Court for the District of Kansas issued a standing order that referred to the District’s
bankruptcy judges all matters under the Bankruptcy Code and all proceedings arising
under the Code or arising in or related to a case under the Code.23 As relevant here, the
standing order concerned the District Court’s jurisdiction under 28 U.S.C. § 1334(b),
which gives it “original but not exclusive jurisdiction of all civil proceedings arising
under title 11 [the Bankruptcy Code], or arising in or related to cases under title 11.” The
question is whether the Debtor’s claim under K.S.A. 16a-5-109 falls within any of these
jurisdictional grants.

23The standing order was effective as of July 10, 1984. The order is referred to in D. Kan. Rule
83.8.5, and is quoted in the Preface to the 2012 Local Rules of the United States Bankruptcy Court for the
District of Kansas, at page v.

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A leading bankruptcy treatise suggests that when a cause of action is created by
title 11 (the Bankruptcy Code), then a civil proceeding asserting the claim is one “arising
under title 11.”24 The Debtor’s potential claim under K.S.A. 16a-5-109, a Kansas statute,
obviously does not arise under the Bankruptcy Code. The “arising in” facet of the
Court’s jurisdiction is a residual category largely made up of administrative matters that
could not have arisen had there not been a bankruptcy case.25 The administration of the
Debtor’s case was completed before Sallie Mae notified her that it had declared her to be
in default. Because the Debtor’s case was over before Sallie Mae acted, it is impossible
to see any way in which a claim based on that notification could be said to have “aris[en]
in” her case. The Court is convinced that the fact Sallie Mae may have based its
declaration solely on the Debtor’s having filed bankruptcy is not enough to make her
claim under K.S.A. 16a-5-109 one “arising in” her bankruptcy case.

This leaves only the question whether the Debtor’s claim is “related to” her
bankruptcy case. The leading statement of the extent of this jurisdictional base comes
from the Third Circuit’s decision in Pacor, Inc., v. Higgins, where the court said a civil
proceeding is “related to” a bankruptcy case when “the outcome of that proceeding could
conceivably have any effect on the estate being administered in bankruptcy.”26 The Tenth

241 Collier on Bankruptcy, ¶ 3.01[3][e][i] at 3-14 (Alan N. Resnick & Henry J. Sommer, eds.-inchief,
16th ed. 2012).
251 Collier on Bankruptcy, ¶ 3.01[3][e][iv] at 3-20 to 3-21.
26743 F.2d 984, 994 (3d Cir. 1985). See 1 Collier on Bankruptcy, ¶ 3.01[3][e][ii] (stating that
Pacor is the most frequently cited case dealing with “related to” jurisdiction).
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Circuit adopted this test in United States v. Gardner, when it said:

Related proceedings are civil proceedings that, in the absence of a
bankruptcy petition, could have been brought in a district court or state
court. [Citation omitted.] “[T]he test for determining whether a civil
proceeding is related in bankruptcy is whether the outcome of that
proceeding could conceivably have any effect on the estate being
administered in bankruptcy.” Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d
Cir.1984) (emphasis omitted). Although the proceeding need not be against
the debtor or his property, the proceeding is related to the bankruptcy if the
outcome could alter the debtor’s rights, liabilities, options, or freedom of
action in any way, thereby impacting on the handling and administration of
the bankruptcy estate. [Citations omitted.]27

The Debtor could have brought a proceeding against Sallie Mae for violating

K.S.A. 16a-5-109 in a Kansas state court, although the specific ground for Sallie Mae’s
decision to declare her to be in default would not have existed in the absence of her
bankruptcy petition. The Debtor’s claim against Sallie Mae could have no effect on her
bankruptcy case, though, because the case was over and done with before Sallie Mae
notified her that it had declared default and accelerated her note. For purposes of her
bankruptcy case, the Debtor’s rights, liabilities, options, and freedom of action had
already been finally determined. Once her case was over, her debtor-creditor relationship
to Sallie Mae was no longer affected by anything in the Bankruptcy Code, but was
governed completely by non-bankruptcy law, including the Kansas Uniform Consumer
Credit Code (assuming it applies to student loans). Because the Debtor bases her claim
on the allegation that Sallie Mae declared default solely because she filed bankruptcy, her
27913 F.2d 1515, 1518 (10th Cir. 1990).
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claim does have a relationship to her bankruptcy case, but the Court concludes the
relationship the Debtor alleges is too tenuous to bring the claim within the Court’s subject
matter jurisdiction over disputes “related to” the Debtor’s bankruptcy case.

The Court has found two Circuit court opinions addressing a bankruptcy court’s
subject matter jurisdiction over a nondischargeable student loan after a Chapter 13 debtor
received a discharge and the bankruptcy case was closed.28 These cases cement the
Court’s view that it does not have subject matter jurisdiction over the Debtor’s claim that
Sallie Mae violated K.S.A. 16a-5-109 by declaring a default based on her bankruptcy
filing.

In Kirkland, the debtor’s confirmed Chapter 13 plan called for her to pay all the
principal she owed on three nondischargeable student loans on the date she filed
bankruptcy; she made her plan payments, which should have left her owing only
postpetition interest on the three loans.29 For reasons not explained in the record,
however, the trustee had paid only two of the three loans, refunded some money to the
debtor, and reported the debtor had completed her plan; consequently, a discharge order
was entered and the case was closed.30 The creditor holding the third loan then began
trying to collect from the debtor, and the debtor eventually asked the bankruptcy court to

28ECMC v. Kirkland (In re Kirkland), 600 F.3d 310 (4th Cir. 2010) (2 to 1 decision); McAlpin v.
ECMC (In re McAlpin), 278 F.3d 866 (8th Cir. 2002).

29Id. at 312.

30Id.

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determine that she had paid the principal amount of that loan in full, leaving her owing
only any interest that had accrued postpetition.31 The court ruled the debtor still owed the
principal since it had not been paid, but allowed the creditor only a small amount of
postpetition interest based on the creditor’s failure to prove that more had accrued and
denied the creditor any postpetition collection costs.32 The district court affirmed,
rejecting the creditor’s new assertion that neither the bankruptcy court nor the district
court had subject matter jurisdiction to determine either the postpetition interest or
collection costs.33 On appeal, the Fourth Circuit reversed, ruling that the creditor’s claim
for postpetition interest and collection costs was not a matter under title 11, nor was it a
civil proceeding arising in or related to the debtor’s bankruptcy case.34

In McAlpin, the Eighth Circuit similarly ruled a bankruptcy court had no subject
matter jurisdiction to enjoin a student loan creditor from seeking to recover postpetition
collection costs from the debtor.35 The debtor had completed a Chapter 13 plan that
provided no payment on a late-filed claim for defaulted student loan debts, and had
received a discharge.36 Then he objected to the student loan creditor’s proof of claim,

31Id. at 312-13.

32Id. at 313-14.

33Id. at 314.

34Id. at 316-18.

35278 F.3d at 867-68.

36Id. at 867.

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arguing collection costs included in it were excessive.37 The creditor did not respond, and

the bankruptcy court entered an order holding the creditor could recover only the unpaid

principal and interest. The creditor did not appeal that order, but continued to try to

recover the collection costs.38 The debtor again brought the matter before the bankruptcy

court, which issued an order enjoining the creditor from trying to recover the collection

costs.39 On appeal, the Eighth Circuit Bankruptcy Appellate Panel reversed, concluding

the bankruptcy court did not have subject matter jurisdiction to issue the order limiting

the creditor’s recovery to principal and interest.40 The Eighth Circuit affirmed that ruling,

saying:

We agree that the bankruptcy court did not have jurisdiction in the
claim-objection proceeding under 28 U.S.C. §§ 157(b) or (c) (establishing
core and non-core bankruptcy court jurisdiction), because (1) [the debtor’s]
challenge to the propriety of the claimed collection costs came after his
discharge, so the claim could no longer have been against the estate, and
thus did not involve a right created by bankruptcy law or arising only in
bankruptcy, [citation omitted]; and (2) the claim-objection proceeding was
not related to the bankruptcy, because at the time [the debtor] objected to
the claim there was no longer a plan to be confirmed, or an estate, and
therefore the proceeding could not conceivably have affected his estate,
[citations omitted.]41

The Debtor’s claim that Sallie Mae violated K.S.A. 16a-5-109 is based solely on

37Id.

38Id.

39Id.

40Id. at 868.
41Id.


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Kansas state law. The allegation that Sallie Mae made its decision to declare a default
and accelerate the debt strictly because the Debtor filed a bankruptcy case does make the
claim related to the bankruptcy case, but that tangential relationship is not sufficient to
bring the claim within this Court’s jurisdiction over matters “arising under” the
Bankruptcy Code, or “arising in” or “related to” the Debtor’s bankruptcy case. The claim
simply can’t have any effect on the Debtor’s already completed bankruptcy case.

3. Because the Court does not have subject matter jurisdiction to decide the
Debtor’s only colorable claim against Sallie Mae, the Debtor’s motion for
enforcement of discovery is moot and must be denied.
In effect, by ruling on Sallie Mae’s request for dismissal of the Debtor’s claim, the
Court has stayed the Debtor’s effort to force Sallie Mae to supplement its discovery
responses. This is permissible under federal court procedures.42 Furthermore, now that
the Court has determined the Debtor has not asserted a valid claim to relief that falls
within this Court’s subject matter jurisdiction, the Debtor is no longer entitled to obtain
discovery under this Court’s authority.43 Thus, the Court’s conclusion that the Debtor has
failed to state a valid claim on which this Court could grant her relief means that she is
not entitled to obtain any discovery from Sallie Mae, and her motion to enforce discovery

42See 8 Charles Alan Wright, Arthur r. Miller, & Richard L. Marcus, Federal Prac. & Pro.: Civil,
§ 2008 at 137-39 (Thomson Reuters 2010).

43See, e.g,, American Communications Assoc., Local 10, v. Retirement Plan, 488 F.Supp. 479,
484 (S.D.N.Y. 1980) (discovery rules designed to support properly pleaded cause of action, not to
discover whether a claim exists); McLaughlin v. Copeland, 455 F.Supp. 749, 753 (D. Del. 1978) (plaintiff
not entitled to discovery to determine whether factual basis may exist for claim he has not made).

19

Case 11-20513 Doc# 41 Filed 09/24/12 Page 19 of 20


is therefore moot and must be denied.

CONCLUSION

For these reasons, the Court concludes the Debtor’s motion asking the Court to
hold Sallie Mae in contempt fails to state a claim for relief that comes within this Court’s
jurisdiction. Consequently, the motion is hereby dismissed. In addition, that ruling has
rendered moot the Debtor’s motion for enforcement of discovery, so it must be denied.

Judgment is hereby entered dismissing the Debtor’s motion to hold Sallie Mae in
contempt (Docket No. 20), and denying the Debtor’s motion for enforcement of discovery
(Docket No. 27). Pursuant to Federal Rule of Bankruptcy Procedure 9021, this judgment
will become effective when it is entered on the docket for this case under Bankruptcy
Rule 5003.

# # #

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Case 11-20513 Doc# 41 Filed 09/24/12 Page 20 of 20

 

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