                                                          FILED
                                                           JUL 09 2013
 1                                                     SUSAN M SPRAUL, CLERK
                                                         U.S. BKCY. APP. PANEL
                                                         OF THE NINTH CIRCUIT
 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No.   AZ-12-1305-JuTaAh
                                   )
 6   ERIC D. NICHOLS and           )        Bk. No.   11-12027
     BONITA M. NICHOLS,            )
 7                                 )        Adv. No. 11-00784
                    Debtors.       )
 8   ______________________________)
     ERIC D. NICHOLS;              )
 9   BONITA M. NICHOLS,            )
                                   )
10                  Appellants,    )
                                   )
11   v.                            )        M E M O R A N D U M*
                                   )
12   ALIGN WESTERN STATES LEARNING )
     CORPORATION,                  )
13                                 )
                    Appellee.      )
14   ______________________________)
15                   Argued and Submitted on June 21, 2013
                              at Phoenix, Arizona
16
                              Filed - July 9, 2013
17
              Appeal from the United States Bankruptcy Court
18                      for the District of Arizona
19      Honorable Sarah Sharer Curley, Bankruptcy Judge, Presiding
                         _________________________
20
     Appearances:     Appellant Eric D. Nichols argued pro se; Steven
21                    M. Cox of Waterfall, Economidis, Caldwell,
                      Hanshaw & Villamana, P.C. argued for Appellee
22                    Align Western States Learning Corporation.
                           _________________________
23
24
25
26        *
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.

                                      -1-
 1   Before:    JURY, TAYLOR, and AHART** Bankruptcy Judges.
 2
 3        Debtors Eric Nichols (“Mr. Nichols”) and Bonita Nichols
 4   (“Ms. Nichols”)(collectively, “the Nichols”) appeal from a
 5   judgment denying the discharge of student loan debt.      The
 6   Nichols contend they were not accorded adequate due process and
 7   that the court misapplied the factors set forth in Brunner v.
 8   N.Y. State Higher Educ. Servs. (In re Brunner), 46 B.R. 752
 9   (Bankr. S.D.N.Y. 1985) aff’d, 831 F.2d 395 (2d Cir. 1987).         We
10   AFFIRM.
11                                  I. FACTS
12        On April 27, 2011, the Nichols filed an adversary complaint
13   seeking to discharge Mr. Nichols’s student loans under
14   § 523(a)(8).    The defendant creditor, Align, did not respond to
15   the complaint and the clerk entered a default against Align on
16   June 2, 2011.    On June 13, 2011, Align moved to set aside the
17   default.    On July 26, 2011, the bankruptcy court heard the
18   motion to set aside the default but neither granted nor denied
19   the motion, deciding instead to conduct a prove-up hearing to
20   determine if debtors could establish a prima facie case for
21   undue hardship as necessary for nondischargeability.      As for
22   Align, the court suggested debtors provide it with medical proof
23   of the conditions which prevented repayment of the student loans
24   to see if it would voluntarily abate the debt.
25            Before the next hearing, scheduled for September 27, 2011,
26
27
         **
            The Honorable Alan M. Ahart, Bankruptcy Judge, Central
28   District of California, sitting by designation.

                                      -2-
 1   the Nichols refused to provide Align’s counsel with the medical
 2   records which might establish hardship.    The Nichols expressed
 3   concern that the documents would be accessed by individuals that
 4   had no connection to the case.    At that hearing, the court asked
 5   the Nichols to cooperate with Align’s counsel in a limited
 6   fashion.    However, by the next hearing on October 20, 2011,
 7   Align dropped its request to see the medical records before the
 8   prove-up hearing and agreed that the hearing proposed by the
 9   court would determine the issue of dischargeability; i.e. if the
10   court found the Nichols had proved a prima facie case for undue
11   hardship, Align would not defend further and the debt would be
12   discharged.    An evidentiary hearing would occur, and Align’s
13   attorney would be allowed to attend and cross-examine witnesses
14   at the hearing.    This hearing began on November, 30 2011.    After
15   an hour of testimony, the hearing was continued to February 16,
16   2012.    The February hearing was subsequently continued to
17   April 17, 2012, at the request of the Nichols.
18           At the prove-up hearing, Mr. Nichols testified that he was
19   unemployed.    He had been receiving $856 per month in
20   unemployment benefits, but those expired.    Mr. Nichols has
21   softening and degeneration of the cartilage in his knee, causing
22   pain and mobility issues.    He is unable to have surgery to
23   repair his knee due to a heart murmur.    The records introduced
24   confirmed Mr. Nichols was not certified as being disabled by a
25   doctor.
26           Ms. Nichols testified that she worked full-time as a flight
27   attendant.    Since 2008, Ms. Nichols encountered a variety of
28   medical problems, including: a colon resection, an appendectomy,

                                      -3-
 1   a hernia, a hysterectomy, a fractured foot, gallbladder issues,
 2   abnormalities in her breasts, hip and disc issues, osteoporosis,
 3   bronchitis, carpal tunnel, and an ulcer.   At the hearing,
 4   Ms. Nichols testified that her hernia required further repair.
 5   Despite her many ailments, Ms. Nichols was also not certified as
 6   being disabled by a doctor.    At the conclusion of the second day
 7   of testimony, the court heard argument from Mr. Nichols and took
 8   the matter under advisement.
 9        On April 19, 2012, the bankruptcy court made oral findings
10   of fact and conclusions of law on the record in an empty
11   courtroom.   After making the oral record, the court entered a
12   minute order denying the discharge of the student loan debt and
13   dismissing the adversary proceeding because the Nichols failed
14   to make a prima facie case.    The minute order referred the
15   reader to a compact disc for further details.   On April, 27
16   2012, the Nichols filed a motion to reconsider.   On June 4,
17   2012, the Nichols’ motion to reconsider was denied by entry of a
18   lengthy order.   The Nichols did not appeal the denial of
19   reconsideration and that ruling is not before the Panel.
20        In its oral findings, the bankruptcy court determined
21   Mr. Nichols’s student loans did not impose an undue hardship
22   under § 523(a)(8).   The bankruptcy court applied the
23   three-pronged test established in Brunner, which was adopted by
24   the Ninth Circuit in United Student Aid Funds, Inc. v. Pena
25   (In re Pena), 155 F.3d 1108, 1112 (9th Cir. 1998).
26        The bankruptcy court held that the Nichols did not satisfy
27   the second and third elements of the Brunner test.      Analyzing
28   the second prong, the court found that Mr. Nichols had not

                                     -4-
 1   proven his unemployment would continue.        The court stated

 2   Mr. Nichols was pleasant, articulate, and while he was unable to

 3   do physical labor, he could still work a desk job.       The court

 4   placed significant weight on the fact that neither of the

 5   Nichols were certified as physically or mentally disabled.         In

 6   fact, Ms. Nichols continued to work.        The court also noted that

 7   in 2008 the Nichols’ combined income was $72,424 and there was

 8   nothing in the record suggesting the Nichols could not return to

 9   the same level of financial stability.

10            Analyzing the third prong, the bankruptcy court found there

11   was no evidence in the record to show that the Nichols made a

12   good faith effort to repay the loans.       The Nichols provided no

13   evidence to show a repayment effort, nor did they address that

14   prong in argument.

15            Because the Nichols failed to satisfy the second and third

16   prongs of the Brunner test, the court entered the order

17   dismissing the adversary proceeding.        On June 8, 2012, the

18   Nichols filed a timely appeal.1

19                               II. JURISDICTION

20            The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

21   §§ 1334 and 157(b)(1).     This Panel has jurisdiction under

22   28 U.S.C. § 158.

23                                 III. ISSUES

24   A.       Whether the bankruptcy court’s prove-up procedure and

25            subsequent oral ruling violated the Nichols’ due process

26            rights.

27
          1
            The time to appeal had been extended by the timely
28   reconsideration motion.

                                       -5-
 1   B.   Whether the bankruptcy court erred in refusing to discharge
 2        Mr. Nichols’s student loan debt.
 3                          IV. STANDARD OF REVIEW
 4        We review de novo the bankruptcy court’s application of the
 5   legal standard in determining whether a student loan debt is
 6   dischargeable and whether the Nichols’ due process rights were
 7   violated.    Rifino v. United States (In re Rifino), 245 F.3d
 8   1083, 1086-87 (9th Cir. 2001).
 9        We review the bankruptcy court’s factual findings for clear
10   error.   Educ. Credit Mgmt. Corp. v. Mason (In re Mason),
11   464 F.3d 878, 881 (9th Cir. 2006) (quoting Miller v. Cardinale
12   (In re DeVille), 361 F.3d 539, 547 (9th Cir 2004)).    We affirm
13   the bankruptcy court’s factual findings if its interpretation of
14   the facts was not illogical, implausible, or without support in
15   the record.   United States v. Hinkson, 585 F.3d 1247, 1261-62
16   (9th Cir. 2009).
17                              V. DISCUSSION
18   A.   The Bankruptcy Court’s Prove-Up Procedure and Oral Ruling
          did not Violate the Nichols’ Due Process Rights.
19
20        The Nichols assert a two-pronged argument that the
21   decisional process of the bankruptcy court was unfair, depriving
22   them of due process.   First, they submit they were not accorded
23   a trial on the merits before the adversary proceeding was
24   dismissed.    Second, they accuse the bankruptcy judge of first
25   ordering dismissal, then later - after the reconsideration
26   motion and appeal - making findings to support the ruling.
27   Neither argument has merits on this record.
28        Instead of ruling on Align’s motion to set aside default,

                                      -6-
 1   the court set an evidentiary prove-up hearing for the debtors,
 2   which Align subsequently agreed would be the basis for the
 3   court’s dispositive ruling on dischargeability.    The Nichols had
 4   two days in court to present their oral testimony and
 5   documentary evidence to establish undue hardship, subject only
 6   to cross-examination by Align and questions from the court.    At
 7   the close of the evidentiary presentation, the court allowed
 8   Mr. Nichols to argue his case, then took the matter under
 9   advisement.
10        Although not labeled a “trial,” this procedure accorded the
11   Nichols full opportunity to present an evidentiary showing to
12   prove their claims and was more favorable to them than a full
13   trial because Align was not allowed to present a defense, such
14   as testimony from expert witnesses.   The Nichols’ complaint of
15   not having a trial rings hollow.
16        The Nichols’ assertion that the court did not support the
17   minute order with factual findings and their confusion about the
18   transcript of the April 19 ruling is understandable.    The
19   procedure used by the bankruptcy judge - recording an oral
20   ruling in an empty courtroom and referencing that record in a
21   minute entry by stating “order the compact disc” - is
22   nonstandard and likely to lead to an assertion on appeal that
23   the court supported its decision after the fact.   As the Nichols
24   noted at oral argument, they did not initially understand the
25   compact disc contained the oral ruling nor could they have
26   afforded to pay for it at the time.   Although we rule the
27   Nichols received proper due process here and the record contains
28   necessary findings, the far preferable method is for the court

                                   -7-
 1   to announce its ruling in open court with the parties present to
 2   avoid the obvious confusion this judge’s procedure created.
 3        The transcript of the court’s oral ruling, referenced in
 4   the April 19 minute order by noting the compact disc, did not
 5   appear on the court’s docket until June 5, 2012, after the
 6   appellee ordered it.   However, the cover page of the transcript
 7   irrefutably shows the transcribed ruling was placed on the
 8   court’s digital recording system by the judge on April 19, 2012,
 9   two days after the matter was taken under advisement.
10   Therefore, the foundation for the court’s merits ruling was
11   established prior to the dispositive order.     This foundation was
12   legally sufficient under the rules.
13        The Federal Rules of Civil Procedure provide that in an
14   action tried on the facts without a jury or with an advisory
15   jury, the court must find the facts specifically and state its
16   conclusions of law separately.    Civil Rule 52(a).   The findings
17   and conclusions may be stated on the record after the close of
18   the evidence or may appear in an opinion or a memorandum of
19   decision filed by the court.   Id.     This rule is incorporated
20   into bankruptcy proceedings by Federal Rule of Bankruptcy
21   Procedure 7052.   The rationale for imposing the “written
22   statement” requirement is to ensure accurate fact-finding and to
23   assist in judicial review of the decision.     See United States v.
24   Daniel, 209 F.3d 1091, 1093 amended, 216 F.3d 1201 (9th Cir.
25   2000).   These purposes are met when a court states the reasons
26   for its decision on the record.    Id.
27
28

                                      -8-
 1          In American Mfrs. Mut. Ins. Co. v. Sullivan, the Supreme
 2   Court created a two-step analysis to determine if there has been
 3   a due process violation:
 4          The first inquiry in every due process challenge is
            whether the plaintiff has been deprived of a protected
 5          interest in ‘property’ or ‘liberty’. Only after
            finding the deprivation of a protected interest do we
 6          look to see if the State’s procedures comport with due
            process.
 7
 8   526 U.S. 40, 59 (1999).
 9          In this case there was no deprivation of a protected
10   interest and, therefore, there was no due process violation.
11   The Nichols contend the bankruptcy court violated their due
12   process rights by not providing written findings of fact and
13   law.    However, the bankruptcy court provided a record of its
14   factual findings and legal conclusions.    The transcript of the
15   oral ruling of the bankruptcy court functions as a written
16   record because it allows for accurate judicial review of the
17   court’s factual findings and legal conclusions.    The oral
18   findings of the bankruptcy court help to ensure accurate
19   fact-finding and provide a basis for judicial review, fulfilling
20   the purposes of a written record.
21   B.     The Bankruptcy Court Properly Applied the Brunner Factors
            and its Findings of Fact were not Clearly Erroneous.
22
23          Under § 523(a)(8), student loan debt is to be presumed
24   nondischargeable unless the debtor establishes that repayment
25   would impose an undue hardship.    The Bankruptcy Code does not
26   define undue hardship.    Educ. Credit Mgmt. Corp. v. Nys
27   (In re Nys), 446 F.3d 938, 944 (9th Cir. 2006).    We apply the
28   three-part test established in Brunner to determine if repayment

                                      -9-
 1   would impose an undue hardship.   See Pena, 155 F.3d at 1112

 2   (adopting the “Brunner test” from Brunner, 46 B.R. at 753).

 3   Under the Brunner test, the debtor must prove: (1) he cannot

 4   maintain, based on current income and expenses, a minimal

 5   standard of living for himself and his dependents if required to

 6   repay the loans; (2) additional circumstances exist indicating

 7   that this state of affairs is likely to persist for a

 8   significant portion of the repayment period; and (3) the debtor

 9   has made good faith efforts to repay the loans.   Id. at 1111.

10   The debtor bears the burden of proof on all three elements.

11   Rifino, 245 F.3d at 1078-88.

12   1.   Minimal Standard of Living

13        Under the first prong of the Brunner test, the Nichols must

14   prove that they cannot maintain a minimal standard of living if

15   they are required to repay the loans.   United Student Aid Funds

16   v. Nascimento (In re Nascimento), 241 B.R. 440, 445 (9th Cir.

17   BAP 1999).   The bankruptcy court found that the Nichols’ net

18   income was approximately $2,000 per month, with expenses over

19   $3,600 per month.   The court held the Nichols’ current financial

20   situation was sufficient to satisfy the first prong of the

21   Brunner test.   Neither party challenged that ruling on appeal.

22   2.   Additional Circumstances

23        Under the second prong of the Brunner test, the Nichols’

24   must provide additional circumstances that indicate their

25   inability to repay the debt is likely to persist for a

26   significant portion of the loan repayment period.   See Brunner,

27   831 F.3d at 396.    Additional circumstances are not defined

28   solely by their nature or by a convenient label, but by their

                                     -10-
 1   effect on the debtor’s continuing inability to repay over an

 2   extended period of years.   In re Nys, 308 B.R. 436, 443 (9th

 3   Cir. BAP 2004), aff’d, 446 F.3d 938 (9th Cir. 2006).     A court

 4   may consider a number of factors not limited to the following:

 5   the debtor’s age, training, physical and mental health,

 6   education, assets, and ability to obtain a higher paying job or

 7   reduce expenses.   Id. at 446-47.

 8        The “additional circumstances” prong of the Brunner test is

 9   intended to effect the clear congressional intent, exhibited in

10   11 U.S.C. § 523(a)(8), to make the discharge of student loans

11   more difficult than other nonexcepted debt.   Rifino, 245 F.3d at

12   1088-89.   Merely having physical or mental health problems does

13   not automatically satisfy the additional circumstances prong.

14   See Brightful v. Pa. Higher Educ. Assistance Agency

15   (In re Brightful), 267 F.3d 324, 330-31 (3d Cir. 2001).     The

16   debtors must show how these physical or mental conditions

17   prevent them from obtaining future employment.    Id.

18        The Nichols contend that their health issues are additional

19   circumstances that will prevent them from repaying the loans.

20   The Nichols argue that their financial situation will only get

21   worse due to their health problems.   The Nichols’ argument is

22   not persuasive because they have not shown how their health

23   problems will prevent them from working in the future.

24        In Brightful, the debtor lacked a college degree and had

25   severe emotional and psychiatric problems. 267 F.3d at 330.       The

26   court refused to discharge the debtor’s student loan debt

27   because she failed to introduce evidence showing how her mental

28   health problems would prevent her from working.   Id. at 331.

                                    -11-
 1        Similarly, in this case, Mr. Nichols did not demonstrate

 2   how his health problems will prevent him from obtaining

 3   employment at a job that does not require physical labor.

 4   Indeed, Mr. Nichols applied for jobs as an office manager,

 5   administrative assistant, and purchasing supervisor.

 6   Ms. Nichols recently returned to work full-time and did not show

 7   how her health issues prevented her from working, aside from

 8   temporary absences for surgery.   Neither Mr. Nichols nor

 9   Ms. Nichols has been certified as being physically or mentally

10   disabled from working.   In 2008, the Nichols made over $72,000

11   combined and there is nothing in the record to show they cannot

12   return to that income level.   As in Brightful, the Nichols have

13   health issues that might make work more difficult, but not

14   issues that prevent them from obtaining or keeping employment.

15        The bankruptcy court considered these physical conditions

16   in determining that the Nichols did not meet the second prong.

17   Thus, the court’s findings are not clearly erroneous.

18   3.   Good Faith

19        The third and final prong of the Brunner test requires that

20   the debtor prove that he made good faith efforts to repay the

21   loans or show that the forces preventing repayment are truly

22   beyond his control.   Brunner, 46 B.R. at 755.   To determine good

23   faith, the court measures the debtor’s efforts to obtain

24   employment, maximize income, minimize expenses, and negotiate a

25   repayment plan.   Mason, 464 F.3d at 884.   A history of making or

26   not making payments is, by itself, not dispositive of good

27   faith.   Id.

28

                                    -12-
 1        Here, the bankruptcy court found that the Nichols presented

 2   insufficient evidence to prove they made good faith efforts to

 3   repay the loan.    The Nichols did not provide any evidence of

 4   payments, deferrals, or attempts to consolidate.   The bankruptcy

 5   court stated there was no evidence on those issues, and the

 6   record confirmed there was none.   On appeal, the Nichols contend

 7   that they made and deferred payments when necessary, but they

 8   presented no evidence to the bankruptcy court to support their

 9   position.    The bankruptcy court was unable to determine when the

10   Nichols’ payments started or stopped, nor could it determine

11   whether the Nichols had explored other repayment options.

12        The bankruptcy court properly concluded the Nichols did not

13   provide sufficient evidence to satisfy their burden of proof on

14   the third prong.

15                              VI. CONCLUSION

16        Having determined the bankruptcy court’s factual findings

17   were not clearly erroneous, the Brunner test was correctly

18   applied, and the Nichols’ due process rights were not violated,

19   we AFFIRM.

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