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Standifer v. State (6/16/00) sp-5289
Standifer v. State (6/16/00) sp-5289
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
MARK WILLIAM STANDIFER, )
) Supreme Court No. S-8981
)
Petitioner, )
) Trial Court No.
v. ) 3AN-90-8941 CI
)
)
STATE OF ALASKA, )
) O P I N I O N
)
Respondent. ) [No. 5289 - June 16, 2000]
______________________________)
Petition for Hearing from the Superior Court
of the State of Alaska, Third Judicial District, Dan A. Hensley,
Judge, on Appeal from the District Court of the State of Alaska,
Third Judicial District, Natalie K. Finn, Judge.
Appearances: Benjamin I. Whipple, Palmer, for
Petitioner. Teresa Williams, Assistant Attorney General,
Anchorage, Bruce M. Botelho, Attorney General, Juneau, for
Respondent.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
MATTHEWS, Chief Justice.
I. INTRODUCTION
Student loans made by the state are not dischargeable in
bankruptcy except in cases of undue hardship. Mark Standifer
unsuccessfully sought to set aside a state district court judgment
for nonpayment of a student loan on the grounds that it would be
void if it were discharged and that dischargeability should be
determined by the district court. We hold that his motion was not
time barred, that the court had jurisdiction to determine
dischargeability, that his right to obtain a determination of
dischargeability was not waived, and that if the loan is determined
to be discharged, the judgment will be void.
II. FACTS AND PROCEEDINGS
A. Facts
On May 4, 1984, Mark Standifer applied for and obtained
a $6,000 student loan from the State of Alaska, Alaska Commission
on Postsecondary Education, so that he could take a flight course
at Gordon's Aviation, a flight school in Wasilla. A month before
his training was to be completed, Gordon's Aviation closed.
In April 1985 the commission wrote to the former students
of Gordon Aviation, including Standifer, advising them they were
still obliged to pay their student loans. When Standifer failed to
make any payments on the loan, the loan was referred to the law
firm of Patterson & Van Abel for collection.
Standifer, meanwhile, began to encounter financial
difficulties. He could not get enough work as an auto mechanic to
pay his bills. The bank foreclosed on his house. In the fall of
1986, he moved to Oregon to try to find work. There he found a
potential job as a truck mechanic. During Standifer's qualifying
physical examination, the doctor found a lump on his neck, which
turned out to be thyroid cancer. Standifer's wife and three
children moved to Oregon to be with him. During cancer treatment,
Standifer took a job at a car dealership, making about $650 per
month. This money, combined with his wife's babysitting income,
was not enough to pay their bills.
Standifer filed for bankruptcy. A discharge of listed
debts was granted on December 15, 1987, including the student loan.
In January of 1988 Patterson & Van Abel advised Standifer that his
student loan was not dischargeable and must be repaid. Standifer
spoke to his Oregon bankruptcy attorney, who assured him that the
student loan had been discharged. Standifer did not attempt to
repay the loan.
In October of 1990 Patterson & Van Abel sued Standifer on
behalf of the state. Standifer, living in Oregon, was not located
for personal service. After service by publication, a default
judgment was entered against him on March 11, 1993, for $7,811.27.
Standifer learned about the default judgment when it
appeared on his credit report. He contacted Patterson & Van Abel
on October 25, 1993, and made a payment arrangement. Standifer
made only five $50 payments under this arrangement, the last in
January of 1995.
B. Proceedings
In February of 1997 Standifer filed a Civil Rule 60(b)
motion in state district court to vacate the 1993 default judgment.
Standifer requested that the district court determine that the
student loan was dischargeable in bankruptcy because of "undue
hardship." [Fn. 1] The district court denied the motion without
deciding the undue hardship issue and awarded the state $250 in
attorney's fees because it found the motion to be frivolous as
clearly untimely.
Standifer appealed to the superior court, which affirmed
and awarded an additional $1,000 in fees to the state.
Standifer filed a petition for hearing with this court,
which we granted.
III. DISCUSSION
A. The District Court Had Jurisdiction to Rule on Whether
Standifer Qualified for the "Undue Hardship" Exception.
Both parties now agree that the district court had
jurisdiction to decide whether the student loan could be discharged
under the undue hardship exception. This is in contrast to the
state's position before the district court where the state argued,
"[i]f the defendant believes he is entitled to a hardship
discharge, this needs to be litigated before the bankruptcy court,
not before this Court."
The state's current concession is correct. In Jensen v.
Froissart, [Fn. 2] we held that the superior court had jurisdiction
to determine whether a bankruptcy discharge was applicable to a
particular debt that was arguably nondischargeable. We stated,
"while federal law determines whether a debt is dischargeable,
'state and federal courts have concurrent jurisdiction to decide
the issue.'" [Fn. 3]
B. Standifer's Rule 60(b) Motion Was Timely and Raised a
Question as to Voidness That Must Be Litigated.
No time limits govern motions under Rule 60(b)(4) for
relief from void judgments.
As noted by Wright & Miller, a Rule 60(b)(4)
motion "differs markedly from motions under the other clauses of
Rule 60(b). There is no question of discretion on the part of the
court when a motion is under Rule 60(b)(4). . . . [T]here is no
time limit on an attack on a judgment as void." The authors note
that even the requirement that the motion be made within a
reasonable time, "which seems literally to apply to motions under
Rule 60(b)(4), cannot be enforced with regard to this class of
motion."
Kennecorp Mortgage & Equities, Inc. v. First National Bank of
Fairbanks. [Fn. 4] Thus, Standifer's motion was not time barred.
But did the motion raise a defense that, if accepted,
would render the judgment void? The state contends that judgments
are only void where the issuing court lacks personal or subject
matter jurisdiction or where the defendant has been deprived of due
process, and that these conditions are absent here.
But whether the court would have subject matter
jurisdiction to enforce a judgment after a determination of
dischargeability is very doubtful. The bankruptcy act provides
that "[a] discharge . . . voids any judgment at any time obtained,
to the extent that such judgment is a determination of the personal
liability of the debtor with respect to any debt discharged under
section 727 . . . of this title, whether or not discharge of such
debt is waived." [Fn. 5] The Ninth Circuit Bankruptcy Appellate
Panel recently ruled in In re Pavelich that section 524(a)
expresses a rule of "subject matter jurisdiction" stripping a state
court of "jurisdiction to require a debtor to pay a discharged
debt." [Fn. 6] Given the plain language of section 524(a) and
Pavelich, we agree. Therefore, the district court will be deprived
of subject matter jurisdiction to act on the judgment if the loan
is discharged.
C. Standifer's Right to Obtain a Determination of Discharge-
ability Was Not Waived.
The state also argues that Standifer was required to
plead discharge or dischargeability as a defense to the original
action. The state's contention is, essentially, that bankruptcy
discharge or dischargeability is an affirmative defense that must
be pled, and if not, it is waived. The state cites no authority to
support this argument. We reject it for two reasons.
First, lack of subject matter jurisdiction can always be
used to attack a judgment entered by default. [Fn. 7] Here,
Congress has decided that courts cannot enter or maintain a
judgment for a debt which is discharged. For a court to fail to
honor a discharge would go beyond its jurisdiction. [Fn. 8]
Assuming that Standifer is able to succeed in showing undue
hardship, he will be entitled to a discharge. The discharge, in
turn, will deprive the district court of subject matter
jurisdiction to continue the judgment in force. [Fn. 9] There is
no tenable argument that the judgment precludes Standifer from
raising this defense, because the judgment was entered by default.
Second, the state's argument conflicts with section
524(a)(1), which provides that "[a] discharge . . . voids any
judgment at any time obtained . . . whether or not discharge . . .
is waived." [Fn. 10] We construe this to mean that bankruptcy
discharge is a defense which cannot be waived for any reason,
including a pleading failure. [Fn. 11] The Pavelich panel has
recently so held:
By federal statute, any judgment of any
court that does not honor the bankruptcy discharge is "void" to
that extent. Specifically, a bankruptcy discharge "voids any
judgment at any time obtained, to the extent that such judgment is
a determination of the personal liability of the debtor with
respect to any debt discharged under section 727, 944, 1141, 1228,
or 1328 of this title, whether or not discharge of such debt is
waived."
The discharge also operates as an
injunction against the commencement or continuation of an action to
collect a discharged debt as a personal liability of the debtor.
Section 524(a) was derived from former
Bankruptcy Act sec. 14f, which was added in 1970 to correct a
perceived abuse arising from the former status of a bankruptcy
discharge as merely creating an affirmative defense that was waived
if not affirmatively pleaded and proved in postbankruptcy
litigation. By declaring that "any judgment theretofore or there
after obtained in any other court is null and void as a
determination of the personal liability of the bankrupt" as to
discharged debts, Congress was expressly making it possible for a
discharged debtor to ignore a creditor's subsequent action in a
nonbankruptcy court.
The affirmative nature of the defense of
discharge in bankruptcy, thus, was effectively outlawed in 1970. It
became an absolute defense that relieved a discharged debtor from
the need to defend a subsequent action in state court.
Thus, all judgments purporting to
establish personal liability of a debtor on a discharged debt,
including judgments obtained after bankruptcy, are void to that
extent. They are not voidable, they are void ab initio as a matter
of federal statute.[ [Fn. 12]]
For these reasons we conclude that bankruptcy discharge
cannot be waived by a pleading failure and thus reject the state's
waiver argument.
IV. CONCLUSION
Because (1) the district court had jurisdiction to
determine whether Standifer's student loan should be discharged for
undue hardship, (2) Standifer's Rule 60(b)(4) motion was not time
barred, and (3) Standifer's right to seek this determination was
not waived, the district court should have made a determination of
dischargeability. On remand, the court should make this determina-
tion. If undue hardship is found, the debt should be discharged
and the judgment declared void. If undue hardship is not found,
the judgment may be enforced. Our decision herein necessarily
requires that the awards of attorney's fees and costs be vacated.
The judgments of the district court and superior court
are REVERSED and this case is REMANDED to the district court with
directions to determine the dischargeability of Standifer's student
loan under the undue hardship provisions of the bankruptcy act and
to conduct further proceedings consistent with this opinion.
FOOTNOTES
Footnote 1:
Standifer did not contend that the discharge granted by
the bankruptcy court applied to the student loan. His position was
that undue hardship was not addressed by the bankruptcy court, and
that a determination of undue hardship and thus dischargeability
should be made by the district court.
Footnote 2:
982 P.2d 263, 267 (Alaska 1999).
Footnote 3:
Id. (quoting In re Siragusa, 27 F.3d 406, 408 (9th Cir.
1994)). The state now contends that only the state courts can
decide dischargeability of state loans, as it is immune from
proceedings in federal court. In Seminole Tribe of Florida v.
Florida, 517 U.S. 44, 47 (1996), the Supreme Court ruled that the
Eleventh Amendment precludes Congress from subjecting a state to
suit in federal court under the authority of the Commerce Clause.
Federal bankruptcy courts, following Seminole Tribe, have held that
state agencies are immune from federal bankruptcy proceedings
involving the discharge of student loans. See In re Innes, 184
F.3d 1275, 1278 (10th Cir. 1999) (debtor's action pursuant to
sec. 523(a)(8) barred by Eleventh Amendment so long as state has
not
waived immunity); In re Mitchell, 222 B.R. 877, 882-83 (9th Cir.
B.A.P. 1998) (Eleventh Amendment renders state immune from suit in
bankruptcy court); In re Kahl, 240 B.R. 524, 535-36 (Bankr. E.D.
Pa. 1999) (same). The state relies on such recent authorities to
explain its 180 degree turn in this case.
Footnote 4:
685 P.2d 1232, 1236 (Alaska 1984) (internal citations
omitted) (alterations in original).
Footnote 5:
11 U.S.C. sec. 524(a)(1) (1999) (emphasis added).
Footnote 6:
229 B.R. 777, 782 (9th Cir. B.A.P. 1999).
Footnote 7:
See State, Child Support Enforcement Div. v. Bromley, 987 P.2d
183, 187 (Alaska 1999); Restatement (Second) of Judgments sec. 12
cmt.
f (1982). By contrast, where a judgment has been contested, lack
of subject matter jurisdiction will serve as a basis for a
collateral attack on a judgment only where certain conditions are
met. See Bromley, 987 P.2d at 187.
Footnote 8:
See Pavelich, 229 B.R. at 781-82.
Footnote 9:
See id.
Footnote 10:
11 U.S.C. sec. 524(a)(1).
Footnote 11:
The revision notes explain that the language "whether or not
discharge of such debt is waived" is "intended to prevent waiver of
discharge of a particular debt from defeating the purposes of this
section." 11 U.S.C. sec. 524(a) revision notes and legislative
reports. One treatise also notes that "asserted waivers as to
particular debts cannot be recognized if the debt is otherwise
dischargeable." 2 Daniel R. Cowans, Bankruptcy Law & Practice sec.
5.21 (7th ed. 1998).
Footnote 12:
Pavelich, 229 B.R. at 781-82 (internal citations omitted).
