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In re Kashikar

United States Bankruptcy Appellate Panel of the Ninth Circuit

April 28, 2017

In re: MELISSA HODA KASHIKAR, Debtor.
v.
TURNSTILE CAPITAL MANAGEMENT, LLC, assignee from DB Structured Products, Inc., Appellee. MELISSA HODA KASHIKAR, Appellant, Bk. No. 2:14-bk-23848-ER Adv. No. 2:15-ap-01184-ER

          Submitted without oral argument on March 23, 2017

         Appeal from the United States Bankruptcy Court for the Central District of California, Honorable Ernest M. Robles, Bankruptcy Judge, Presiding

          M. Jonathan Hayes on the brief for appellant.

          Melissa Hoda Kashikar; Scott S. Weltman on the brief for appellee Turnstile Capital Management, LLC.

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

          OPINION

          FARIS, Bankruptcy Judge.

         INTRODUCTION

         Section 523(a)(8) of the Bankruptcy Code[1] provides that several categories of educational indebtedness are not dischargeable in bankruptcy unless the debtor proves that paying the debt would impose undue hardship on the debtor or her dependents. Chapter 7 debtor Melissa Hoda Kashikar argues that her educational debt owed to Appellee Turnstile Capital Management LLC ("Turnstile") is not covered by § 523(a)(8). The bankruptcy court declined to consider her argument concerning one of the categories of debt and held that her debt was included in the category of an "educational benefit" under § 523(a)(8)(A)(ii). The court erred on both counts. Accordingly, we REVERSE IN PART the court's ruling as to § 523(A)(8)(A)(ii), VACATE the court's ruling as to § 523(a)(8)(A)(i), and REMAND this case to the bankruptcy court.

         FACTUAL BACKGROUND

         Ms. Kashikar attended St. Matthew's University School of Medicine ("SMU") in Grand Cayman, Cayman Islands. In order to fund her education and pay for the costs of attending SMU, Ms. Kashikar signed an application and promissory note with StudentLoan Xpress. Turnstile's predecessor in interest[2]directly disbursed the funds to SMU.

         There is no dispute that Ms. Kashikar attended classes at SMU for the purposes of obtaining a degree and learning about medicine. However, Ms. Kashikar did not complete her education at SM U.She returned to the United States, but could not transfer any of her SMU credits.

         On July 21, 2014, Ms. Kashikar filed her chapter 7 petition. She scheduled her student loan on Schedule F in the amount of $73, 804. She received a standard discharge on or around November 10, 2014.

         On April 14, 2015, Ms. Kashikar filed an adversary complaint seeking a determination that the loan (the balance of which had grown to $74, 968.74) was discharged under § 523(a)(8). The complaint is very brief. After identifying the parties and describing the loan, it alleges that:

Since the purpose of the loan(s) in question were not for an, "eligible education institution" as defined by 26 U.S.C. 221(d)(1) and (2), the subject loan(s) are not, "qualified education loan(s)" under 11 U.S.C. 523(a)(8)(B), and therefore not subject to the student loan general exception to discharge found at 11 U.S.C. 523(a)(8). Accordingly, the loan(s) alleged in Paragraph 4 were discharged on November 12, 2014, when Plaintiff/debtor obtained her discharge in the underlying bankruptcy case.

         In response to this paragraph of the complaint, Turnstile denied that the loan was discharged.

         The parties entered into a Pretrial Stipulation for Claims for Relief ("Pretrial Stipulation"). The parties agreed that certain facts were admitted and required no proof, including:

SMU has never been, and is not now, an "eligible educational institution" as that term is defined under section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), and has never been, and is not now, eligible to participate in a program under title IV of the Higher Education Act.

         The parties further stipulated that no issues of fact remained to be litigated and that:

The following issues of law, and no others, remain to be litigated:
Whether or not Plaintiff's student loans were excepted from discharge under 11 U.S.C. § 523(a)(8)?
Defendant's Defenses:
Can Plaintiff discharge her Student Loans solely under 11 U.S.C. § 523(a)(8)(B), as plead [sic] in the complaint?

         The Pretrial Stipulation provided that "this stipulation shall supersede the pleadings and govern the course of trial in this adversary proceeding, unless modified to prevent manifest injustice."

         After reviewing the Pretrial Stipulation, the bankruptcy court determined that there were no disputed facts to be litigated and directed the parties to submit briefs explaining why each party was entitled to judgment as a matter of law. The court noted that it treated the Pretrial Stipulation as a pretrial order and said that "the Pretrial Stipulation supersedes the pleadings and governs this action."

         On July 22, 2016, Ms. Kashikar filed her motion for judgment as a matter of law ("Motion").[3] She contended that her loan did not fall within ยงยง 523(a)(8)(A)(i), (A)(ii), or (B). Regarding subsection (A)(i), she argued that SMU was not an eligible "governmental unit" as contemplated by the Bankruptcy Code. Regarding subsection (A)(ii), she said that the statute covers only "funds received" directly by the debtor. Because she did not "actually" or "directly" receive any of the loan proceeds (which were paid directly to SMU), she argued that subsection (A)(ii) was not applicable. Regarding subsection (B), she argued ...


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