APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (D.C. Civil No. 93-cv-06460).
Before: Scirica, Lewis and Seitz, Circuit Judges.
This appeal requires us to determine whether loans made pursuant to the terms of an employment contract, and which are used to repay educational debt, are non-dischargeable within the meaning of 11 U.S.C. § 523(a)(8). The Bankruptcy Court concluded that they are dischargeable. Because we do not believe that such loans are educational in nature and are therefore not subject to the non-dischargeability exception set forth in section 523(a)(8), we will affirm.
On June 20, 1978, Appellee Dr. Elizabeth Crowe Segal ("Dr. Crowe") signed a Scholarship Program Contract ("Scholarship Contract") with the National Health Service Corps ("NHSC"), which allowed her to receive educational benefits from, and caused her to incur an obligation to, the NHSC.*fn1 Under the terms of the contract, Dr. Crowe received medical school tuition support and various stipends during the course of her studies, which she completed in 1982. Also in 1982, Dr. Crowe married Appellee Dr. Stanton Segal ("Dr. Segal") who was at no time a party to, nor obligated under, the Scholarship Contract.*fn2
Pursuant to the Scholarship Contract, Dr. Crowe became obligated, upon her graduation from medical school, to provide medical services for approximately four years at a location designated by the NHSC. She apparently received a deferment to begin service immediately after completing a residency, and she began practicing at an approved NHSC site in Jasper, Florida, in July 1986. Dr. Crowe worked at the Jasper site until April 1989, thereby satisfying all but approximately 19 months of her four-year obligation to NHSC. At that time, Dr. Crowe elected to satisfy the remaining obligation under the Scholarship Program by way of repayment. (The Scholarship Contract provided that in lieu of services, a cash payment could be made to satisfy the obligation. See 42 U.S.C. § 254o.) The means by which Dr. Crowe obtained the funds to satisfy her obligation to the NHSC, detailed below, give rise to the controversy over the scope of section 523(a)(8).
During the time that Dr. Crowe was practicing in Jasper, Dr. Segal became affiliated with Lake Shore Hospital in Lake City, Florida. Lake Shore Hospital is owned by Santa Fe HealthCare, Inc. ("HealthCare"), which also owns Appellant Santa Fe Medical Services ("Santa Fe"), a Gainesville, Florida, nonprofit corporation. HealthCare was recruiting physicians to provide Obstetrics and Gynecological ("OB/GYN") services in the area surrounding Lake Shore Hospital. Dr. Crowe was both willing and able to provide these medical services, but she first had to satisfy her obligation to the NHSC. After some negotiation, Dr. Crowe and Santa Fe, by and through its principal, HealthCare, entered into a Physician Employment Contract ("Employment Contract"), the terms of which included a loan from Santa Fe to Dr. Crowe. Section 7 of the Employment Contract provides, in pertinent part:
(a) In addition to [Dr. Crowe's] salary, SantaFe shall loan [Dr. Crowe] up to Two Hundred Thousand dollars ($200,000) upon the execution of this Agreement by the Physician and upon the execution of the attached promissory note by the Physician and her husband. Said amount shall be used solely and exclusively to satisfy the Physician's obligation to the United States National Health Service.
The promissory note referred to in Section 7 of the Employment Contract states at the outset:
For value received, we Betsy Crowe, M.D., and Stanton Segal, M.D. (collectively referred to as "the Maker") promise to pay to the order of SantaFe Medical Services, Inc. ("Payee") the sum of Two Hundred Thousand dollars ($200,000.00) in the following manner: in thirty-six equal monthly payments of then outstanding principal each, beginning May 15, 1991, and due on the first day of each month thereafter until the entire amount is paid, with interest on the unpaid balance at the prime rate . . . .
In accordance with the provisions of the Employment Contract, Santa Fe loaned the Debtors $182,619.17, an amount which corresponds to the precise figure owed by Dr. Crowe to the NHSC.*fn3 On October 31, 1989, Santa Fe issued a check for that amount made payable to the Debtors and the Health Resources and Services Administration, a division of the then Department of Health, Education, and Welfare.*fn4 The Debtors do not dispute that they received this amount, nor is there any suggestion that the funds were not paid to the NHSC.
It is likewise undisputed that by April 29, 1992, the date upon which Drs. Crowe and Segal filed a petition for bankruptcy relief under Chapter 7, ...