Opinion
Case No. 02-514-8G1, Adv. No. 8:02-ap-636-PMG.
September 24, 2004
ORDER ON MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS
THIS CASE came before the Court for hearing to consider the Motion for Partial Judgment on the Pleadings filed by the Defendant, United States of America, on behalf of the United States Department of Education (USDE).
The Debtor, The Academy, Inc., filed its petition under chapter 11 of the Bankruptcy Code on January 11, 2002, and the USDE subsequently filed an Amended Proof of Claim in the chapter 11 case in the amount of $7,637,563.00. The Debtor thereafter commenced this adversary proceeding by filing an Objection to the USDE's Claim, combined with various claims for affirmative relief.
Generally, the Debtor alleges that it operated a school in Lakeland, Florida, prior to 2002, and participated in a student aid program pursuant to which students received federal grants to attend the school. The Debtor alleges, however, that the USDE wrongfully terminated its right to participate in the student loan program in late 2001, and otherwise interfered with its efforts to continue operating the school or market its assets.
The Debtor's Complaint against the USDE contains six Counts. Count I is entitled "Objection to the USDE Claim;" Count II is entitled "Equitable Subordination of the USDE Claim;" Count III is entitled "Tortious Interference with Contractual Relationships;" Count V is entitled "Tortious Interference with Prospective Business Relationships;" Count VI is entitled "Accounting;" and Count VII is entitled "Turnover of Property of the Estate."
In the Motion for Partial Judgment on the Pleadings presently under consideration, the USDE seeks the entry of a judgment in its favor with respect to Counts III, V, and VII, and also seeks a partial judgment in its favor with respect to certain claims set forth in Counts I and II of the Complaint.
Rule 12(c)
Rule 12(c) of the Federal Rules of Civil Procedure, as made applicable to this adversary proceeding by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, provides in part:
Rule 12. Defenses and Objections — When and How Presented — By Pleadings. or Motion — Motion for Judgment on Pleadings
. . .
(c) Motion for Judgment on the Pleadings. After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings.
"Judgment on the pleadings is appropriate when there are no material facts in dispute, and judgment may be rendered by considering the substance of the pleadings and any judicially noticed facts." Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367, 1370 (11th Cir. 1998). "Judgment on the pleadings is appropriate where no issue of material fact remains unresolved and the moving party is entitled to judgment as a matter of law." Mergens v. Dreyfoos, 166 F.3d 1114, 1117 (11th Cir. 1999).
In evaluating a motion for judgment on the pleadings, the court should "accept the facts in the complaint as true" and "view them in the light most favorable to the nonmoving party." Hawthorne, 140 F.3d at 1370; Mergens, 166 F.3d at 1117. Judgment should not be entered on the pleadings "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Hawthorne, 140 F.3d at 1370.
The Claim
The USDE filed its Amended Proof of Claim as an unsecured claim in the total amount of $7,637,563. The Amended Claim includes the following components:
1. The sum of $1,180,309 representing amounts paid by the USDE to holders of loans that had been made to students who were still attending the Debtor's school when it closed.
2. The sum of $223,477 representing default claims that the USDE will pay to holders of student loans that were made in excess of authorized limits between 1997 and 2000.
3. The sum of $714,580 representing student financial assistance that the Debtor received during 2001, and for which the Debtor did not provide an adequate accounting in accordance with federal regulations.
4. The sum of $5,519,197 representing the Debtor's alleged misfeasance in administering the funds received from the student loan program between 1997 and December 2001.
The Complaint
In its Complaint, the Debtor alleges that it previously owned and operated a pilot training school, an aircraft maintenance school, and a culinary arts school in Lakeland, Florida. (Complaint, ¶ 9). The Debtor further alleges that its assets were valued at approximately $10,000,000 as a going concern, but that such "going concern" value was diminished when the Debtor discontinued its operations in late 2001. (¶ 10).
The heart of the Debtor's contention appears in paragraphs 11 and 13 of the Complaint. Those paragraphs state:
11. The Debtor historically relied upon a pipeline of student loan funds through USDE for its continued operation; however, from early September 2001, USDE wrongfully withheld such funding and refused without explanation to participate with the Debtor in efforts to keep its doors open to students. Although the Debtor had over $1,000,000 in cash reserves at this time, and very little trade or institutional debt, the Debtor's obligation to maintain heavy payroll for educators and maintenance personnel, monthly rent and utility obligations, legal and auditing fees associated with responding to the USDE's capricious conduct, and other ongoing expenses had nearly consumed these reserves by the conclusion of the Winter 2001 educational season.
. . .
13. Even more than the termination of the Debtor's participation in federally insured student loan programs without reasonable justification, and even more than the halting of the Debtor's pipeline of accounts receivable for educational services already provided to qualified students, the USDE interfered with the Debtor's efforts to market itself. . . .
The Debtor further alleges that it sold its assets during the chapter 11 case for the sum of $1,025,000, and that it was therefore damaged in the amount of $8,775,000 (the difference between the school's "going concern" value and the actual sale proceeds) as a result of the USDE's "negligent, reckless, or intentional misconduct." (¶ 14).
The Debtor concludes that "the USDE not only wrongfully ceased funding for the Debtor's participation in various student loan programs, but also went further in discouraging potential purchasers for the Debtor's going concern in a manner that ultimately prevented students from attending the Winter 2002 term of the Debtor's educational offerings." (¶ 15).
Discussion
A. Counts III and V
As set forth above, Count III is an action for damages for "tortious interference with contractual relationships," and Count V is an action for damages for damages for "tortious interference with prospective business relationships." The causes of action are based on the Debtor's assertion that the USDE interfered with the Debtor's relationships with its students, suppliers and creditors, and key employees by leaking false allegations to the media, by advising its students that the school would close, by making false statements to the Debtor's creditors, and by pressuring the Debtor's competitors not to offer to purchase the Debtor's assets. (Complaint, ¶¶ 36-38).
In the Motion under consideration, the USDE contends that it is entitled to a judgment on the pleadings as to Count III and Count V of the Complaint, because tortious interference claims against the United States are barred by sovereign immunity pursuant to § 2680(h) of the Federal Tort Claims Act.
An analysis of the USDE's contention begins with the general proposition that "[s]overeign immunity generally provides that the United States may not be sued without its consent." In re Integrated Health Services, Inc., 303 B.R. 577, 581 (Bankr. D.Del. 2003) (citing United States v. Mitchell, 463 U.S. 206, 212 (1983)). See also Block v. North Dakota, 461 U.S. 273, 280 (1983) (Federal sovereign immunity bars all entities from suing the United States in the absence of an express waiver of this immunity by Congress).
The Federal Tort Claims Act (FTCA), however, "waives the government's sovereign immunity with respect to tort claims against the United States for money damages." Zayler v. United States, 279 F.Supp.2d 805, 814 (E.D. Texas 2003). Specifically, the FTCA gives the district courts jurisdiction over "civil actions on claims against the United States, for money damages . . . for injury or loss of property . . . caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment." 28 U.S.C. § 1346(b). The purpose of the FTCA "is to remove sovereign immunity as a bar to compensating people hurt by federal employees' garden-variety common-law torts." Franklin Savings Corporation v. United States, 180 F.3d 1124, 1139 (10th Cir. 1999). "The FTCA permits tort suits against the United States `to mitigate unjust consequences of sovereign immunity from suit.'" In re Integrated Health Services, 303 B.R. at 583(quoting Feres v. United States, 340 U.S. 135, 139 (1950)).
The waiver of sovereign immunity embodied in the FTCA, however, is subject to certain exceptions. For this motion, the USDE relies solely on the exception contained in § 2680(h) of the FTCA to support its contention that the Debtor's tortious interference claims are barred by the statute. (Motion for Partial Judgment on the Pleadings, p. 5 n. 1) Section 2680(h) provides:
Chapter 171 — Tort Claims Procedure
§ 2680. Exceptions
The provisions of this chapter and section 1346(b) of this title shall not apply to —
. . .
(h) Any claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.
28 U.S.C. § 2680(h) (Emphasis supplied). "Section 2680(h) expressly states that sovereign immunity is not waived with regard to `claims arising out of . . . interference with contract rights.'" In re Integrated Health Services, 303 B.R. at 583. "While section 2680 of the FTCA provides exclusions to its general waiver of sovereign immunity, courts are bound to apply such exclusions strictly in the government's favor." Id. (citingTruman v. United States, 26 F.3d 592, 594 (5th Cir. 1994)).
In Zayler, for example, the plaintiff asserted a claim for tortious interference with existing contracts, and a separate claim for tortious interference with prospective business relations, and the Court found that both claims fell "within the plain meaning of the statutory exception and are barred by § 2680(h)." Zayler, 279 F.Supp.2d at 819-20. Similarly, inIntegrated Health Services, the plaintiff asserted that a federal agency induced a breach of the debtors' fiduciary duties under a contract, and also asserted that the agency intentionally interfered with the parties' contractual relations, and the Court concluded:
Counts VII and VIII are both claims alleging that HHS interfered with FSQ's contractual rights. Section 2680 of the FTCA provides that sovereign immunity is not waived with respect to such suits. Accordingly, this Court lacks subject matter jurisdiction over Counts VII and VII [sic].
In re Integrated Health Services, 303 B.R. at 583. The agency's motion to dismiss the complaint was granted. Id. at 585.
In this case, Count III of the Debtor's Complaint is a claim for damages for "tortious interference with contractual relationships," and Count V is a claim for damages for "tortious interference with prospective business relationships." The Debtor alleges that the USDE interfered with both its existing and prospective contractual relationships with the Debtor's students, suppliers, creditors, and key employees. (Complaint, ¶¶ 36-38). Consequently, it appears that the claims against the USDE, like the claims in Zayler and Integrated Health Services, fall squarely within the exception to the waiver of sovereign immunity set forth in § 2680(h) of the Federal Tort Claims Act.
Despite the apparent applicability of § 2680(h), the Debtor contends that it is nevertheless entitled to assert the tort claims against the USDE "pursuant to Section 106(b) and (c) as compulsory counterclaims or rights of set off arising from the same transaction or occurrence out of which the claim of the Defendant arose and which is property of the estate." (Debtor's Response to Motion for Partial Judgment on the Pleadings, pp. 6-7). Section 106 of the Bankruptcy Code provides in part:
II USC § 106. Waiver of sovereign immunity
. . .
(b) A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose.
(c) Notwithstanding any assertion of sovereign immunity by a governmental unit, there shall be offset against a claim or interest of a governmental unit any claim against such governmental unit that is property of the estate.
11 U.S.C. § 106(b), (c). "Section 106(b) grants a limited waiver of sovereign immunity. It is based on equity, in essence, it would be unfair for a governmental unit to participate in the distributions of a bankruptcy case while at the same time shielding itself from liability." Zayler, 279 F.Supp.2d at 811.
However, if a plaintiff's claim is a tort claim, it is "subject to the substantive requirements of the FTCA which provide the exclusive remedy for tort actions against the United States."Zayler, 279 F.Supp.2d at 814. Although § 106 may dispense with certain procedural limitations on suits against the government, the section does not eliminate or supercede the substantive limitations on federal liability contained in the FTCA. In re Franklin Savings Corporation, 296 B.R. 521, 529-30 (Bankr. D. Kan. 2002). "Nothing in this section shall create any substantive claim for relief or cause of action not otherwise existing under this title, the Federal Rules of Bankruptcy Procedure, or nonbankruptcy law." 11 U.S.C. § 106(a)(5).
This conclusion is consistent with the legislative history underlying § 106 of the Bankruptcy Code:
Section 106 provides for a limited waiver of sovereign immunity in bankruptcy cases. Though Congress has the power to waive sovereign immunity for the Federal government completely in bankruptcy cases, the policy followed here is designed to achieve approximately the same result that would prevail outside of bankruptcy.
Sen. Rep. 95-989, 95th Cong., 2d Sess. reprinted in 1978 U.S. Code Cong. and Adm. News 5787, 5815(quoted in In re Franklin Savings, 296 B.R. at 529) (Emphasis supplied). The policy expressed in the 1978 legislative history was not changed by the 1994 amendments to § 106: "It is the Committee's intent to make section 106 conform to the Congressional intent of the Bankruptcy Reform Act of 1978 waiving the sovereign immunity of the States and the Federal Government in this regard." (HR Rep 103-834, 103rd Cong., 2nd Sess. 13-15 (Oct. 4, 1994); 140 Cong. Rec. H10766 (Oct. 4, 1004). "Therefore, even though § 106(b) and (c) waive sovereign immunity for counterclaims against the United States, any substantive rights asserted must have an independent legal basis." Zayler, 279 F.Supp.2d at 814. The "substantive limitations on the United States' liability outside of bankruptcy would still apply to counterclaims under § 106." In re Franklin Savings, 296 B.R. at 529.
The substantive provisions of the FTCA, including the exception relating to tortious interference claims, apply to claims that would otherwise rely on the waiver of sovereign immunity permitted under § 106(b). Zayler, 279 F.Supp.2d at 815(citingIn re TPI Int'l Airways, Inc., 141 B.R. 512 (Bankr. S.D. Ga. 1992)). Accordingly, any tort claim asserted against the government as a counterclaim under § 106(b) of the Bankruptcy Code is governed by the substantive requirements of the FTCA, so that "any waiver of sovereign immunity under §§ 106(b) and (c) does not displace the FTCA." Zayler, 279 F.Supp.2d at 815. The FTCA applies to all tort claims against the government, and "any waiver of sovereign immunity under § 106(b) does not supercede the FTCA." In re Franklin Savings, 296 B.R. at 530.
In this case, the Debtor's tortious interference claims against the USDE fall squarely within the exception to the waiver of sovereign immunity set forth in § 2680(h) of the FTCA. Consequently, the claims set forth in Counts III and V of the Complaint may not be brought against the United States, regardless of whether or not they were asserted as a counterclaim or offset to the USDE's proof of claim in the bankruptcy case.
B. Count VII
In Count VII of the Complaint, the "Debtor alleges that the USDE improperly withheld monies due the Debtor for student loans for eligible students attending Debtor's schools from September 1, 2001 through December 14, 2001, this being the Earned Pipeline." (Complaint, ¶ 50).
With respect to this claim, the Debtor also alleges that the "USDE has failed to account to the Debtor for the outstanding pipeline of funds due for student loan program funds properly payable to the Debtor for educational services already rendered to the Debtor's students (the `Earned Pipeline'). Upon information and belief, the Earned Pipeline approximates $1,000,000 in value." (Complaint, ¶ 18).
Consequently, in Count VII, the Debtor seeks the entry of an order requiring the USDE to turn over the funds constituting the "Earned Pipeline" pursuant to § 542 of the Bankruptcy Code.
In the Motion for Partial Judgment on the Pleadings, the USDE contends that the Debtor's "claim fails as a matter of law because FFELP loan proceeds are not property of Debtor and therefore cannot be subject to turnover under 11 U.S.C. § 542." (Motion, p. 8). Specifically, the USDE asserts that the regulations governing federal student loans establish that participating schools such as the Debtor serve only as fiduciaries with respect to the loan proceeds. According to the USDE, such schools hold the proceeds, after disbursement, only for the benefit of the student borrower, the lender, the guarantor, and the government. The USDE concludes that it is entitled to a judgment in its favor as to Count VII, therefore, since only property of the debtor is subject to turnover under § 542, and property held by the debtor in trust for other entities is not property of the debtor. (Motion, pp. 9-10).
In response, the Debtor claims that the amount claimed represents the reimbursement of funds that it has already spent to provide its services, and that the funds were earned once the student completed the school term for which the loan was obtained. Accordingly, the Debtor claims that the funds are in the nature of an account receivable, and that it has both a legal and an equitable interest in the loan proceeds that is sufficient to support a turnover action under § 542 of the Bankruptcy Code. (Response, p. 10).
The USDE's Motion for Partial Judgment on the Pleadings should be denied as to Count VII of the Complaint.
As set forth above, the entry of a judgment under Rule 12(c) of the Federal Rules of Civil Procedure is only appropriate when there are no material facts in dispute, and the propriety of the judgment is established by the substance of the pleadings and any judicially noticed facts. Hawthorne, 140 F.3d at 1370.
In this case, the primary issue raised by the Motion for Partial Judgment on the Pleadings is whether the proceeds of the student loans constitute property of the Debtor's estate that is subject to turnover under § 542. The pleadings and judicially noticed facts, however, do not conclusively establish that the funds are not property of the estate.
According to the USDE, the student loans in question consist of loans made under the Federal Family Education Loan Program (FFEL). (Transcript, p. 6). Under this program, "lenders use their own funds to make loans to enable a student or his or her parents to pay the costs of the student's attendance at postsecondary schools," and "a guaranty agency guarantees a lender against losses due to default by the borrower on a FFEL loan." 34 CFR § 682.100(a), (b)(1). To obtain such assistance, "a student requests a loan by completing the Free Application for Federal Student Aid (FAFSA), or contacting the school, lender or guarantor. The school determines and certifies the student's eligibility for the loan. Prior to loan disbursement, the lender obtains a loan guarantee from a guaranty agency or the Secretary and the student completes a promissory note." 34 CFR § 682.102(a). Finally, a "school that has a program participation agreement in effect with the Secretary under § 668.14(a) is eligible to participate in the program of the agency under reasonable criteria established by the guaranty agency." 34 CFR § 682.401(b)(6).
Based upon these provisions, it appears that the rights and obligations of the participants in the FFEL program are governed by a complex series of interrelated documents and contracts. The contracts include, for example, the guarantee agreement between the lender and the guaranty agency, the promissory note signed by the student and made payable to the lender, and the program participation agreement between the school and the Secretary.
In this case, therefore, the Debtor's interest in and entitlement to the "Earned Pipeline" funds is controlled by the specific contracts and agreements entered into by the program participants. The loan documents and program participation agreements relating to the "Earned Pipeline" funds, however, are not in the record before the Court, either by virtue of the pleadings and attachments filed by the parties, or by virtue of other matters that can be judicially noticed. Absent the controlling documents, the Court cannot determine the parties' relative rights to the student loan proceeds from the record, and cannot determine whether the "Earned Pipeline" funds are property of the estate that is subject to the turnover provisions of § 542.
The USDE's Motion for Partial Judgment on the Pleadings should be denied as to Count VII of the Complaint.
C. Count II
In Count II of the Complaint, the Debtor alleges that the USDE engaged in certain "arbitrary, capricious, and unreasonable conduct" that resulted in harm to the Debtor. Consequently, the Debtor asserts that "any allowed claim of the USDE must be subordinated not only to the claims of all other creditors, but to the interests of equity interest holders in the Debtor." (Complaint, ¶¶ 31, 33). The Debtor's cause of action in Count II is based on § 510(c) of the Bankruptcy Code.
In the Motion for Partial Judgment on the Pleadings, the USDE contends that its claim "cannot, as a matter of law, be subordinated to the interest of any shareholder," and therefore requests that the Court enter a judgment in its favor "insofar as Count II seeks to subordinate the United States' claim to the shareholders' interests." (Motion, p. 11).
The Debtor's Response to the USDE's Motion does not address the USDE's request as to Count II of its Complaint. The Debtor acknowledges that "under a plain reading of Bankruptcy Code Section 510(c), we cannot subordinate a claim to an interest." (Transcript, p. 42).
Accordingly, the USDE's Motion should be granted to the extent that it requests a partial judgment on Count II of the Complaint, and a judgment should be entered determining that any allowed claim of the USDE shall not be subordinated to any interests asserted by the Debtor's shareholders. D. Count I
In Count I, the Debtor objects to the USDE's Proof of Claim, and requests a determination that the USDE has no meritorious claim against the Debtor.
As set forth above, the USDE's Proof of Claim includes four separate components totaling the sum of $7,637,563. The Debtor objects to the claim in its entirety.
The USDE's Motion for Partial Judgment on the Pleadings, however, relates only to the first component of the Claim. This first component is for the amount of $1,180,309, representing amounts paid by the USDE to holders of loans made to students attending the Debtor's school when it closed ("closed school loan discharges").
In its Complaint, the Debtor asserts that no amounts are owed as "closed school loan discharges" because the USDE "acted deliberately in a manner calculated to cause the Debtor to cease teaching operations, and cannot now be heard to claim what are in effect subrogation rights against the Debtor." (Complaint, ¶ 20).
In response, the USDE contends that it is entitled to a judgment on the pleadings with respect to the Debtor's objection, because § 437(c) of the Higher Education Act of 1965 "bars the owners of a closed school from asserting grievances against the government as defenses to a claim by the government for the amounts discharged on FFELP loans of students whose training was curtailed because the school closed." (Motion, p. 12). In other words, according to the USDE, the Debtor is "barred as matter of law from asserting any defense beyond the merits of the individual student's claim and the amount the government incurred in discharging the individual's loan." (Motion, p. 14).
The USDE relies on 20 U.S.C. § 1087(c) to support its contention that the Debtor's objection is statutorily barred. That section provides: PART B — FEDERAL FAMILY EDUCATION LOAN PROGRAM
§ 1087. Repayment by Secretary of loans of bankruptcy, deceased, or disabled borrowers; treatment of borrowers attending closed schools or falsely certified as eligible to borrow
. . .
(c) Discharge
(1) In general
If a borrower who received, on or after January 1, 1986, a loan made, insured, or guaranteed under this part and the student borrower, or the student on whose behalf a parent borrowed, is unable to complete the program in which such student enrolled due to the closure of the institution or if such student's eligibility to borrow under this part was falsely certified by the eligible institution, or if the institution failed to make a refund of loan proceeds which the institution owed to such student's lender, then the Secretary shall discharge the borrower's liability on the loan (including interest and collection fees) by repaying the amount owed on the loan and shall subsequently pursue any claim available to such borrower against the institution and its affiliates and principals or settle the loan obligation pursuant to the financial responsibility authority under subpart 3 of part G. In the case of a discharge based upon a failure to refund, the amount of the discharge shall not exceed that portion of the loan which should have been refunded. . . .(2) Assignment
A borrower whose loan has been discharged pursuant to this subsection shall be deemed to have assigned to the United States the right to a loan refund up to the amount discharged against the institution and its affiliates and principals.
20 U.S.C. § 1087(c) (Emphasis supplied). The purpose of § 1087(c)(1) "was to help students who, at the time they signed their loans, had received misinformation about their expectations of improving their employment prospects." Jordan v. Riley, 26 F.Supp.2d 173, 178 (D.C. 1998).
The statute does not appear to directly preclude a school's objection to a "closed school loan discharge" claim, where the school's objection is based on governmental misconduct. Further, the USDE has not provided any other direct authority for their contention that the statute bars the objection. (See Motion for Partial Judgment on the Pleadings, pp. 12-14; Transcript, pp. 32-38). Finally, the Debtor made the general allegation in the Complaint that "no sums are owed" to the USDE for this component of the claim, and it therefore appears that the Debtor may have additional objections to the amount sought.
Under these circumstances, the Court finds that the USDE's Motion for Partial Judgment on the Pleadings should be denied as to Count I of the Complaint. The record does not establish that the Debtor's objection to the USDE's claim is barred as a matter of law.
Conclusion
The USDE's Motion for Partial Judgment on the Pleadings should be granted in part and denied in part as set forth in this Order.
First, the Motion should be granted as to Counts III and V of the Complaint, and a judgment should be entered in favor of the USDE with respect to those counts. The Debtor's tortious interference claims against the USDE fall within the exception to the waiver of sovereign immunity set forth in § 2680(h) of the Federal Tort Claims Act, and the claims may not be brought against the United States.
Second, the USDE's Motion should be denied as to Count VII of the Complaint. The contracts that define the relative rights of the participants in the Federal Family Education Loan Program do not appear in the record, and the Court therefore cannot determine whether the proceeds of the loans constitute property of the Debtor that is subject to turnover under § 542 of the Bankruptcy Code.
Third, the USDE's Motion should be granted as to Count II of the Complaint, and the claim of the USDE, if allowed, may not be subordinated to any interests of the Debtor's shareholders pursuant to § 510(c) of the Bankruptcy Code.
Finally, the USDE's Motion should be denied as to Count I of the Complaint, because the record does not establish that the Debtor's objection to the "closed school loan discharge" component of the USDE's claim is barred as a matter of law.
Accordingly:
IT IS ORDERED that:
1. The Motion for Partial Judgment on the Pleadings filed by the Defendant, the United States of America, on behalf of the United States Department of Education, is granted in part and denied in part as set forth in this Order.
2. The Motion is granted as to Counts III and V, and a judgment shall be entered in favor of the Defendant, the United States of America, Department of Education, and against the Debtor, The Academy, Inc., as to Count III and Count V of the Complaint.
3. The Motion is denied as to Count VII of the Complaint.
4. The Motion is granted as to Count II of the Complaint, and a Partial Judgment shall be entered in favor of the Defendant, the United States of America, Department of Education, and against the Debtor, The Academy, Inc., determining that the claim of the Department of Education, if allowed, shall not be subordinate to any interest asserted by the Debtor's shareholders.
5. The Motion is denied as to Count I of the Complaint,
6. A separate Partial Judgment shall be entered consistent with this Order.