Florida's Third District Court of Appeal revived litigation between a student loan trust and a borrower after ruling the absence of a claim for student loans during bankruptcy proceedings does not preclude future litigation.

The appeals court reversed and remanded a summary judgment granted to Delvis De Leon against National Collegiate Student Loan Trust 2007-3 in Miami-Dade Circuit Court.

The trust, which purchased student loans en masse and was not De Leon's original lender, pursued legal action against the borrower after he'd defaulted on the loan in April 2014. DeLeon obtained his original $25,000 loan in 2007 and filed for Chapter 7 bankruptcy protection in 2009.

As noted by the appellate court, National Collegiate was a scheduled creditor in De Leon's case, but never pursued legal action against him.

"In September 2009, the bankruptcy court granted borrower a discharge of certain of his debts, but the discharge order made clear that most student loans, are not subject to discharge," the opinion said.

Read the opinion:

De Leon's affirmative defenses against National Collegiate cited the trust's lack of standing, expiration of the statute of limitations, and the res judicata doctrine. He contended that litigating his student loans following the discharge of his debt and National Collegiate's failure to file a claim during the bankruptcy proceedings would constitute a rehash of an already-settled matter.

The lower court agreed, and granted De Leon's motion for summary judgment premised on the res judicata argument. National Collegiate subsequently appealed.

The Third DCA noted the trial court's decision and De Leon's argument was rooted in language from a 2006 decision issued by the appellate court. The case, The Educational Research Institute, Inc. v. Rickard, also concerned a creditor attempting to collect on student loan debt following a borrower's bankruptcy proceeding.

"The entirety of borrower's argument is premised upon the following sentence from this court's decision in Education Resources Institute Inc. v. Rickard: 'Under the federal law of res judicata, a final judgment on the merits of an action precludes the re-litigation of claims that were previously raised or could have been raised in a former action,'" the opinion said with an emphasis on "could have been raised."

However, the court said De Leon utilized the appellate court's order "without appreciating the distinguishing facts" of the aforementioned case.

"In Rickard's bankruptcy proceedings the creditor had both raised, and affirmatively pursued to judgment, the identical claim it sought to pursue later in the creditor's state court action," the Third DCA said. "Thus, the doctrine of res judicata applied in Rickard to prevent Rickard's creditor from again asserting that exact same claim in the subsequent state court action."

The opinion said the precedent established in the Rickard case did not apply because National Collegiate had not commenced proceedings against De Leon in the past and there were no rulings regarding his student loan.

"Although in its final order the bankruptcy court generally noted that student loans are not discharged in a Chapter 7 bankruptcy case, the record reflects that the bankruptcy court was not presented with a question to decide regarding the subject student loan," the appeals court said. "Therefore, we conclude the res judicata doctrine is inapplicable."

The trust's appellate counsel — Sessions, Fishman, Nathan & Israel attorneys Jocelyn C. Smith and Dayle Van Hoose — did not immediately return requests for comment.

De Leon was represented by Coral Gables attorney and South Miami mayoral candidate Bruce B. Baldwin. The attorney told the Daily Business Review the matter "remains a defensible case in the trial court."

Bruce Baldwin, with Debt Defense Law in Coral Gables, FL. Courtesy photo Bruce Baldwin, with Debt Defense Law in Coral Gables. Courtesy photo

"The trial court said [National Collegiate] didn't get another bite at the apple and the Third DCA said they do get another bite at the apple," Baldwin said, summarizing the appellate court's finding in favor of the trust. "The irony is that the ruling in De Leon implies that a lender can be better off in the long run having sat on its rights in a bankruptcy rather than assert them."

"The law of the case now is that National Collegiate does have the ability to seek its claim in spite of the bankruptcy [discharge] but that doesn't mean I'm robbed of De Leon's other defenses," he added. Baldwin brought up the defense that National Collegiate lacks standing because it doesn't truly own his client's debt.

"It's not the lender, it's a big venture," he said, noting National Collegiate was not the original source of De Leon's loan and purchased his debt later on. "So we're back to restarting in the trial court [and] could still prevail on those defenses."

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