Grabis v. Navient Solutions, LLC et al

NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: 	: 	Chapter 7
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Michael Grabis 	: 	Case No. 13-10669-JLG
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Debtor. 	:
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Michael Grabis, 	:
: 	Adv. Pro. No. 15-01420-JLG
Plaintiff, 	:
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v. 	:
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Navient Solutions, LLC, et al., 	:
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Defendants. 	:
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MEMORANDUM DECISION AND ORDER DENYING PLAINTIFF-DEBTOR’S
REQUEST TO VACATE ORDER DISMISSING THE DEPARTMENT OF EDUCATION
APPEARANCES:
MICHAEL GRABIS
1 Hays Drive
Morristown, NJ 07960
Plaintiff-Debtor, pro se
GEOFFREY S. BERMAN
United States Attorney for the Southern District of New York
86 Chambers Street, 3rd Floor
New York, New York 10007
By: 	Dominika Tarczynska, Esq., Assistant United States Attorney
Attorneys for Defendant-U.S. Department of Education
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JAMES L. GARRITY, JR.
UNITED STATES BANKRUPTCY JUDGE:
Michael Grabis, the pro se debtor herein (the “Debtor”), commenced this adversary
proceeding seeking a determination that his student loan indebtedness is not excepted from
discharge under section 523(a)(8) of the Bankruptcy Code, 11 U.S.C. § 523(a)(8). With leave of
the Court, the Debtor has amended his complaint several times. The operative complaint is the
Debtor’s Third Adversary Complaint for Discharge of Student Loans. See AP ECF No. 84 (the
“Third Complaint”).1 In that complaint, the Debtor added the Department of Education (the
“DOE”) as a defendant. The DOE moved to dismiss all claims asserted against it in the
complaint, and the Court granted that motion. See Order Dismissing Department of Education
[AP ECF No. 140] (the “Dismissal Order”); see also Memorandum Decision Granting
Department of Education’s Motion to Dismiss [AP ECF No. 133] (the “Dismissal Decision”).
The matter before the Court is the Debtor’s motion to vacate the Dismissal Order. See AP ECF
No. 167 (the “Motion”).2 The DOE opposes the Motion. See AP ECF No. 175. For the reasons
stated herein, the Motion is DENIED.
Jurisdiction
This Court has jurisdiction over the Motion pursuant to 28 U.S.C. §§ 1334(a) and 157(a)
and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States
1 	All citations to “AP ECF No. ___” refer to documents filed on the Court’s electronic docket in this adversary
proceeding.
2 	Initially, the Debtor sought to appeal the Dismissal Decision. See Notice of Appeal and Objection of Decision
to Dismiss the Department of Education [AP ECF No. 149]. Thereafter, he withdrew the appeal and simultaneously
requested this Court to vacate the Dismissal Order. See AP ECF No. 167; see also AP ECF No. 188 (copy of order
of District Court (Gardephe, J.) dismissing appeal without prejudice).
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District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska,
C.J.). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
Facts
The background of this litigation is set forth in the Dismissal Decision. The Court
assumes familiarity with that decision and limits the discussion to the facts relevant to the
disposition of the Motion. The Debtor commenced this adversary proceeding for a determination
that his student loan indebtedness is not excepted from discharge under section 523(a)(8) of the
Bankruptcy Code. The loans at issue include two consolidation loans (the “Consolidation
Loans”) issued under the Federal Family Education Loan Program (the “FFELP”). The
Educational Credit Management Corporation (“ECMC”), as a guarantor in the FFELP program,
holds all rights, title and interest in those loans. ECMC was not named as a defendant in the first
complaint filed by the Debtor. Over the Debtor’s objection, the Court granted ECMC’s motion
to intervene as a defendant therein. As relevant to the Motion, in his Third Complaint, the
Debtor seeks (i) a determination binding on the DOE that the Consolidation Loans are not
excepted from discharge under section 523(a)(8) of the Bankruptcy Code, and (ii) to recover
damages from the DOE on account of the DOE’s alleged fraud in connection with the funding
and administration of his student loans.
The DOE moved to dismiss all the claims asserted against it in the Third Complaint. See
Motion to Dismiss Adversary Proceeding [AP ECF No. 102] (the “Motion to Dismiss”). As
support, it contended first, that pursuant to Fed. R. Civ. P. 21, it should be dismissed as a party to
the Debtor’s claim for relief under section 523(a)(8) because it does not own any of the loans at
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issue in the complaint. See Motion to Dismiss at 8-9. 3 Second, it argued that insofar as the
Debtor asserted a fraud claim against it, the claim should be dismissed pursuant to Fed. R. Civ.
P. 12(b)(1) for lack of subject matter jurisdiction. See id. at 10.4 It also argued that, in any
event, the Debtor is barred from asserting any claim for fraud against it because the DOE did not
waive its sovereign immunity from suit. See id. at 10-12. The Debtor opposed the motion. See
Debtor’s Response to the DOE’s Motion to Dismiss [AP ECF No. 105] (the “Debtor’s
Opposition”).
The Court granted the motion, and dismissed all claims asserted against the DOE in the
adversary proceeding. See Dismissal Order.5 In doing so, the Court found that DOE was
entitled to relief under Rule 21 because it does not own any of the student loans at issue in this
adversary proceeding and, as such, is not a proper party to the Debtor’s claim for relief under
section 523(a)(8) of the Bankruptcy Code. See Dismissal Decision at 12 (“DOE is not a creditor
of the Debtor and does not own any of the student loans at issue in this adversary proceeding. It
has no connection to the relief the Debtor is seeking under section 523(a)(8), and as such, is not a
proper party to that claim for relief.”). The Court dismissed the fraud claim for lack of subject
3 	Fed. R. Civ. P. 21 states, in relevant part, that “[o]n motion or on its own, the court may at any time, on just
terms, add or drop a party. The court may also sever any claim against a party.” Rule 21 is made applicable herein
by Fed. R. Bankr. P. 7021.
4 	Fed. R. Civ. P. 12(b)(1) is made applicable to this adversary proceeding by Fed. R. Bankr. P. 7012.
5 	The Dismissal Order states, in relevant part:
1. For the reasons set forth in the Court’s March 26, 2018 Memorandum Decision Granting
Department of Education’s Motion to Dismiss, ECF No. 132, the Motion is GRANTED in
its entirety;
2. Pursuant to Federal Rule of Civil Procedure 21, DOE is dismissed as a party to Plaintiff-
Debtor’s claim for relief under section 523(a)(8) of the Bankruptcy Code;
3. To the extent that the Plaintiff-Debtor is pursuing a fraud claim against DOE, the Court
dismisses it and related claims pursuant to Federal Rule of Civil Procedure 12(b)(1), for
lack of subject matter jurisdiction.
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matter jurisdiction because that claim was neither a “core” claim arising under or arising in the
Bankruptcy Code, nor a claim within the Court’s “related-to” jurisdiction because the resolution
of such claim would have no impact on the Debtor’s chapter 7 bankruptcy estate. Id. at 15-17.
The Court further found that the Debtor was barred from asserting fraud and other claims against
the DOE because it has not waived its sovereign immunity. See id. at 17-19.
The Debtor contends that the Court erred in issuing the Dismissal Order. He argues that
he is entitled to relief from that order because (i) the DOE owns the Consolidation Loans and, as
such, is a proper party to the Debtor’s claim for relief under § 523(a)(8); and (ii) the Court has
subject matter jurisdiction over federal student loans. See Motion at 1-2.
Discussion
The Debtor did not specify the predicate for the relief he is seeking in this Motion.
Although the Debtor has styled the Motion as one to “vacate the Dismissal Order,” the Court
understands the Debtor to be seeking relief under Rules 59(e) or 60(b) of the Federal Rules of
Civil Procedure. See Fed. R. Civ. P. 59(e).6 Under that rule, a court may amend or alter a
judgment where: (1) there is an intervening change of controlling law; (2) new evidence becomes
available; or (3) there is a need to correct a clear error or prevent manifest injustice. See Virgin
Atl. Airways, Ltd. v. Nat’l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992) (citing 18 C.
Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 4478 at 790). Rule 60(b) of the
Federal Rules of Civil Procedure allows a court to relieve a party “from a final judgment, order
or proceeding[.]” Fed. R. Civ. P. 60(b).7 “There is a considerable overlap between Rule 59(e)
and Rule 60.” 11 C. Wright, A. Miller & M. Kane, Federal Practice & Procedure § 2817 (2d
6 	Rule 59 is made applicable herein by Fed. R. Bankr. P. 9023.
7 	Rule 60 is made applicable herein by Fed. R. Bankr. P. 9024.
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ed. 1995). Under Rule 60(b), the reasons a court may grant a party relief include: “(1) mistake,
inadvertence, surprise, or excusable neglect;” “(2) newly discovered evidence that, with
reasonable diligence, could not have been discovered in time to move for a new trial under Rule
59(b);” or “(6) any other reason that justifies relief.” See Fed. R. Civ. P. 60(b).8 In that way,
“application of either Rule 59 or 60 is a search for errors in the underlying decision[.]” Chavez
v. Buhler, S.Ct. Civ. No. 2007-060, 2009 WL 1810914, at *6 (V.I. June 25, 2009).
However, the relief available under those provisions is limited. “A motion for relief from
judgment [under Rule 60(b)] is generally not favored and is properly granted only upon a
showing of exceptional circumstances.” In re AMR Corp., No. 11-15463 (SHL), 2016 WL
675543 at *2 (Bankr. S.D.N.Y. Feb. 18, 2016) (quoting United States v. Int’l Bhd. Of Teamsters,
247 F.3d 370, 391 (2d Cir. 2001)). “The burden of proof is on the party seeking relief from
judgment.” Id. A Rule 59(e) motion is not an opportunity for parties to reargue issues that have
already been decided (see WTC Captive Ins. Co. v. Liberty Mut. Fire Ins. Co., 537 F. Supp. 2d
619, 624 (S.D.N.Y. 2008) (citation omitted)) or raise new issues that were not previously
presented to the court (see In re Duffy, 452 B.R. 13, 19 (Bankr. N.D.N.Y. 2011) (citations
omitted)) and should be “granted sparingly and in limited circumstances.” Ackerman v. Alesius
(In re Alesius), No. 06-71218-478, 2011 WL 1791558, at *2 (Bankr. E.D.N.Y. May 10, 2011).
See also Perez v. Terrestar Corp. (In re Terrestar Corp.), No. 11-10612 (SHL), 2016 WL
197621, at *3 (Bankr. S.D.N.Y. Jan. 15, 2016) (“The standard for granting a motion to alter or
amend a judgment under Federal Rule 59(e) is ‘strict, and reconsideration will generally be
8 	The other grounds for relief under Rule 60(b) are: “(3) fraud (whether previously called intrinsic or extrinsic),
misrepresentation or misconduct by an opposing party; (4) the judgment is void; [and] (5) the judgment has been
satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it
prospectively is no longer equitable[.]” See Fed. R. Civ. P. 60(b). None are relevant to the Motion.
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denied unless the moving party can point to controlling decisions or data that the court
overlooked.’”) (citations omitted). “The burden is on the movant to demonstrate that the Court
overlooked controlling decisions that were before it on the original motion, and that might
‘materially have influenced its earlier decision.’” Cornelia Fifth Ave., LLC v. Canizales, No.
1:12-CV-07660, 2017 WL 1034644, at *2 (S.D.N.Y. Mar. 16, 2017) (citation omitted). Thus,
neither Rule 60(b) nor Rule 59(e) provides grounds for a party to reargue legal or factual issues
already considered by the court.
However, that is what the Debtor is asking the Court to do in the Motion. The Debtor
challenges the Court’s finding in the Dismissal Decision that the DOE does not own the student
loans at issue herein. He argues that “the Department of Education is trying to pass off having
ECMC maintain service related matters for a fee and custodial servicing for a fee … as ECMC
‘owning’ the loans.” Motion at 1. However, the Debtor made the same argument in opposing
the Motion to Dismiss. See Debtor’s Opposition at 3. In rejecting it, the Court explained that
“[t]he regulations implementing FFELP are clear that FFELP loans are neither issued nor held by
DOE[,]” and that the undisputed testimony in the Declaration of Lola Hom, filed by the DOE in
support of the Motion to Dismiss was that ECMC, not DOE, holds the Consolidation Loans. See
Dismissal Decision at 10-11. The Court also addressed and rejected the Debtor’s assertion that
ECMC is merely a debt collector or servicer of the Consolidation Loans. The Court found that
ECMC is the “federal student loan guaranty agency that holds title to the Consolidation Loans,”
and that “applicable regulations mandate that ECMC, as the guarantor, defend against the
[Debtor’s adversary proceeding seeking the discharge of a FFELP loan].” Id. at 12-13.
Next, the Debtor asserts that “[t]he Department of Education has admitted it does have
interest in the loans[,]” and that “the DOE does in fact own the loans in question.” Motion at 1.
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However, the record contains no evidence to support those contentions. Indeed, the declaration
of Lola Hom is to the contrary. As noted, she says that ECMC, not DOE, owns the loans.
Moreover, the Debtor made the same argument in objecting to the Motion to Dismiss. In
rejecting it, the Court explained:
That DOE may be indirectly benefitted if the Debtor begins making payments on
account of the loan simply does not vest DOE with an interest in the loan that it
does not have. Moreover, DOE’s reimbursement obligations are not triggered, if
at all, until after the completion of this adversary proceeding. 	Further, those
reimbursement obligations are between ECMC and DOE, not DOE and the Debtor.
Dismissal Decision at 13.
The Debtor also argues that the “Department of Education admitted to being involved in
a similar federal bankruptcy court case in [Murphy v. Education Credit Management Corp.,]”
(Motion at 1), thereby implying that by doing so, the DOE has waived its sovereign immunity in
this action. The Debtor made the same argument in objecting to the DOE’s Motion to Dismiss.
See, e.g., Debtor’s Opposition at 2 (“Considering that Mr. Murphy was exactly the same kind of
student loan borrower I was and his case met the conditions for waiver of sovereign immunity
means that I meet the conditions as well.”). As explained in the Dismissal Decision, in filing an
amicus curiae brief in Murphy, the DOE did not waive its sovereign immunity in that case or in
this action because the filing of an amicus brief in an action does not constitute a waiver of
sovereign immunity. See Dismissal Decision at 19.
Finally, the Debtor contends that “the federal bankruptcy court of the Southern District of
New York has already stated in this case and for all other bankruptcy student loan cases that it
does have jurisdiction over these matters.” Motion at 1-2. He further maintains that “Judge
Garrity also previously ruled in this case that all matters of dischargeability of this debt are
‘intact’ and part of his jurisdiction.” Id. However, the Court did not hold that it lacked subject
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matter jurisdiction over “bankruptcy student loan cases.” To the contrary, the Court specifically
found that “[t]here is no question that the resolution of the Debtor’s claim that his student loan
indebtedness is dischargeable under section 523(a)(8) is within the ‘core’ jurisdiction of this
Court.” Dismissal Decision at 10. Rather, the Court concluded that it lacked subject matter
jurisdiction over the Debtor’s fraud tort claim, to the extent the Debtor has asserted such a
claim.9 As discussed in the Dismissal Decision, any such claim for tort fraud is not within the
“core” matters as arising under or arising in the Bankruptcy Code, and does fall within the
Court’s “related-to” jurisdiction because the damages sought “for personal costs” have no effect
on the Debtor’s bankruptcy estate. See Dismissal Decision at 16-17. This conclusion is entirely
consistent with the Court’s previous rulings and lends no support to the Debtor’s argument for
vacating the Dismissal Decision. See, e.g., Order Granting Navient Solutions, Inc.’s Motion to
Dismiss “Sallie Mae, Inc.” as a Defendant in this Adversary Proceeding pursuant to Fed. R. Civ.
P. 21 and Fed. R. Bankr. 7021 and to Dismiss All Claims for Relief in Plaintiff’s Third Amended
Complaint Not Based on 11 U.S.C. § 523(a)(8) Pursuant to Fed. R. Civ. P. 12(b)(1) & (6) and
Fed. R. Bankr. P. 7012(b) [AP ECF No. 45] (dismissing common law claims against Sallie Mae
for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1)); Hr’g Tr. 8/25/16 at 19:8-
19:10 (“the Court is satisfied that it lacks the constitutional authority to decide the plaintiff’s
common law claims”) [AP ECF No. 66].
In sum, the Debtor’s arguments in support of the Motion are essentially a re-hash of
issues that the Court considered in dismissing all claims asserted against the DOE by the Debtor
9 	In the Dismissal Decision, the Court noted that the Debtor’s statements in his Opposition appeared to contradict
his claims for fraud, breach of contract and unjust enrichment. See Dismissal Decision at 14 (“Thus, the Court
understands that the Debtor is not seeking damages against DOE in the Third Complaint.”).
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in the Third Complaint. The Debtor has not met the strict standards for granting relief under
either Rule 59(e) or Rule 60(b).
Conclusion
Based on the foregoing, the Motion is DENIED.
IT IS SO ORDERED.
Dated: New York, New York
November 20, 2018 	/s/ James L. Garrity, Jr.
United States Bankruptcy Judge
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