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In re Mart I . L . V . E . S . Goldrich

August 20, 1985

IN RE MART I.L.V.E.S. GOLDRICH, DEBTOR; MART I.L.V.E.S. GOLDRICH, PLAINTIFF-APPELLEE,
v.
NEW YORK STATE HIGHER EDUCATION SERVICES CORPORATION, DEFENDANT-APPELLANT



Appeal from a judgment of the United States District Court for the Eastern District of New York, Weinstein, C.J., affirming a judgment of the United States Bankruptcy Court for the Eastern District of New York, Goetz, J., holding that section 661(6)(b) of New York's Education Law violates 11 U.S.C. § 525 and ordering defendant to process pro se plaintiff's application for a guaranteed student loan. Reversed.

Author: Meskill

Before: FEINBERG, Chief Judge, MESKILL and NEWMAN, Circuit Judges.

MESKILL, Circuit Judge:

This case concerns the scope of 11 U.S.C. § 525 (1982), amended by Pub. L. No. 98-353, § 309, 98 Stat. 333, 354 (1984) (section 525), the Bankruptcy Code provision that prohibits discrimination against discharged debtors. Defendant appeals from a judgment of the United States District Court for the Eastern District of New York, Weinstein, C.J., ruling that section 661(6)(b) of New York's Education Law, N.Y. Educ. Law § 661(6)(b) (McKinney Supp. 1984), violates section 525 and ordering defendant to process plaintiff's guaranteed student loan application. Because we believe that the bankruptcy court and the district court extended the scope of section 525 beyond the clear bounds of its language, we reverse.

BACKGROUND

The relevant facts are undisputed. Plaintiff Mart i.l.v.e.s. Goldrich obtained a student loan in 1969 from First National City Bank. The loan was guaranteed by defendant New York State Higher Education Services Corporation (NYSHESC), a corporation authorized by New York Education Law to administer state financial aid programs and guarantee loans for students who meet certain eligibility criteria. N.Y. Educ. Law § 651 et seq. (McKinney Supp. 1984). Goldrich did not repay the loan when it matured in 1971 and it was declared in default. In 1972 NYSHESC paid the amount of the default to the bank.

In 1978 NYSHESC obtained a judgment against plaintiff. Approximately two years later Goldrich filed for relief under Title 11, listing the unpaid student loan as one of his outstanding debts. On April 21, 1981 Goldrich was discharged from his dischargeable debts, including the unpaid student loan.

Both before and after his discharge, Goldrich sought additional student loan funds from various New York banks. Although his applications were accepted by the banks, NYSHESC refused to guarantee payment of any additional student loans. NYSHESC relied on N.Y. Educ. Law § 661(6)(b), which provides in pertinent part: "Any student who is in default in the repayment of any student loan, the payment of which has been guaranteed by the corporation . . . shall not be eligible for any . . . student loan so long as such default status or failure to comply continues."

Goldrich moved to reopen his bankruptcy proceeding in October 1983, seeking to institute an adversary proceeding for injunctive and monetary relief from NYSHESC's repeated denials of loan guarantees. In January 1984, the bankruptcy court reopened the proceeding. Plaintiff, appearing pro se, subsequently filed a complaint alleging that NYSHESC's actions violated section 525 and the teaching of Perez v. Campbell, 402 U.S. 637, 29 L. Ed. 2d 233, 91 S. Ct. 1704 (1971). The bankruptcy court, Goetz, J., held that it had jurisdiction over the suit, that the Eleventh Amendment barred an award of monetary damages but no injunctive relief and that section 661(6)(b) unconstitutionally discriminated against former bankrupts by conditioning the award of student loans on the payment of discharged debts. 45 Bankr. 514 (Bkrtcy. E.D.N.Y. 1984). Summarizing previous decisions interpreting section 525 and Perez, the court held that extensions of credit are included within the scope of section 525's mandate against discrimination concerning "a license, permit, charter, franchise, or other similar grant." The court also ruled that Goldrich "may probably be awarded attorney's fees and costs despite the bar of the Eleventh Amendment." 45 B.R. at 523. Chief Judge Weinstein accepted the conclusions of the bankruptcy court and ordered NYSHESC to process plaintiff's student loan application without regard to the eligibility provisions of section 661(6)(b). The court also awarded plaintiff costs and attorney's fees. This appeal followed.

At oral argument we questioned whether the State of New York had been offered the opportunity to intervene before the district court pursuant to 28 U.S.C. § 2403(b) (1982). In the absence of evidence of such an offer in the record, we advised the office of the Attorney General that the constitutionality of a state statute was in question. The Attorney General responded by letter indicating that he accepted the views expressed in NYSHESC's brief.

Discussion

NYSHESC contends that the lower courts erred in interpreting the statutory language to include extensions of credit within the scope of the statute's enumeration. Plaintiff argues that the "fresh start" policy embodied in section 525 is served by preventing creditors from considering past defaults in making decisions concerning future extensions of credit. We disagree with plaintiff and the lower courts as to the prohibition against consideration of prior bankruptcies in credit decisions because we believe that the language of section 525 may not properly be stretched so far beyond its plain terms. Therefore, we reverse the decision of the district court.

Section 525 states in pertinent part:

[A] governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against . . . a person that is or has been a debtor under this title . . . solely because such bankrupt or debtor is or has been a debtor under this title . . ., has been insolvent before the commencement of the case under this title, or during the case but before ...


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