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National Collegiate Student Loan Trust 2007-2 v. Rand

Court of Appeals of Arizona, First Division

November 29, 2016

NATIONAL COLLEGIATE STUDENT LOAN TRUST 2007-2, a Delaware Statutory Trust, Plaintiff/Appellant,
v.
DONNA RAND (aka DONNA SMOCK) and THOMAS SMOCK, a married couple, Defendants/Appellees.

         Appeal from the Superior Court in Maricopa County No. CV 2013-053254 The Honorable John R. Hannah, Jr., Judge

         REVERSED AND REMANDED

         COUNSEL

          Sessions Fishman Nathan & Israel, LLP, San Diego, CA By Damian P. Richard Counsel for Plaintiff/Appellant

          Mandel Young, PLC, Phoenix By Taylor C. Young, Erin Ford Faulhaber Counsel for Defendants/Appellees

          Judge Patricia A. Orozco delivered the opinion of the Court, in which Presiding Judge Andrew W. Gould and Judge Peter B. Swann joined.

          OPINION

          Patricia A. Orozco, Judge

         ¶1 National Collegiate Student Loan Trust (National) appeals from a judgment in favor of Donna and Thomas Smock (the Smocks). National argues the trial court erred in granting judgment in favor of the Smocks because the debt was a student loan that was not discharged in the Smocks' Chapter 7 bankruptcy. For the following reasons, we reverse and remand for proceedings consistent with this opinion.

         FACTS AND PROCEDURAL HISTORY

         ¶2 In September 2009, the Smocks sought Chapter 7 bankruptcy protection. They identified National as a creditor with an unsecured, non-priority claim. In their petition, the Smocks contended none of their debts constituted student loan obligations. They provided notice of their pending Chapter 7 bankruptcy to all creditors, including National. National did not object or otherwise respond to the Smocks' notice of pending bankruptcy. The Chapter 7 discharge, specifically provided that "[d]ebts for most student loans" were not discharged.

         ¶3 In September 2013, National filed suit against the Smocks alleging breach of contract. According to National, Donna applied for a student loan and Thomas co-signed. National disbursed $26, 000 to the Smocks, who subsequently defaulted.

         ¶4 The Smocks answered the complaint, admitted they incurred the debt, but contended it was not a "student loan" and the debt was discharged as part of their 2009 Chapter 7 bankruptcy. The case was arbitrated in June 2014 in favor of the Smocks. National appealed and requested a bench trial.

         ¶5 The trial court conducted a proceeding at the time set for trial, but did not swear in any witnesses, admit any exhibits or receive any evidence. No motions had been filed and the court held a discussion with the parties. During the discussion, National admitted the debt was listed among the debts the Smocks disclosed in their 2009 bankruptcy, but argued the debt was a non-dischargeable student loan. The Smocks did not dispute the existence of the debt, instead contending it was discharged in their bankruptcy. The Smocks admitted they did not file an adversary proceeding in the Bankruptcy Court.

         ¶6 The trial court did not consider whether the debt was a student loan, and instead determined the Bankruptcy Court order was "valid on its face, " interpreting the order as discharging the Smocks' debt to National. The trial court entered judgment in favor of the Smocks, and noted that "any relief from [the discharge] order must come from Bankruptcy Court and not this Court." National timely appealed. We have jurisdiction pursuant to Article 6, Section 9, ...


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