Third Circuit affirms award of sanctions against University for willful stay violation in refusing to provide transcripts

The ruling came in  Cal Coast Univ. v. Alekna (In re Aleckna), 2021 U.S. App. LEXIS 27128, 2021 WL 4097155 (3rd Cir. 9 September 2021).  The debtor owed $6,300 toward tuition payments prepetition, and had scheduled the university as disputed.  Upon seeking transcripts and advising the university of the bankruptcy, the university eventually sent transcripts with no graduation date shown.  Upon inquiry, the university asserted that she did not technically graduate due to the financial hold on her account.  The university filed a complaint alleging that the debt was nondischargeable and Ms. Aleckna filed a counterclaim that the university violated the automatic stay by failing to issue a transcript in an attempt to collect on the prepetition debt.  The university agreed to withdraw the nondischargeability action with prejudice.  After a bench trial, the bankruptcy court determined that providing an incomplete transcript is tantamount to providing no transcript, and that this constituted a violation of the automatic stay.  It went further to find this violation willful justifying attorneys fees and damages, which totaled approximately $100,000 as of 2016.  The District Court affirmed, rejecting the university’s argument that the law on the issue was ‘sufficiently uncertain as to whether it was solely required to provide a transcript, not a complete transcript.

The University cited to a prior decision in  In re University Medical Center, 973 F.2d 1065 (3rd Cir. 1992) that allowed a defense to a willful violation if the alleged violation was ‘sufficiently uncertain’, allowing a good faith defense to such an action when the law on the issue was uncertain.  The 3rd Circuit initially concluded that the 2005 amendment contained in 11 U.S.C. 362(k) did not overruled the University Medical case.  This provision limits the exception to §362 damages to when such violation is based on an action taken by an entity in good faith belief that the stay had terminated due to the debtor’s failure to file a timely notice of intention.  §362(k) does not provide a means to disprove willfulness, but rather that the defendant is not liable for a willful violation as log as it believed in good faith that the stay had terminated.  University Medical provided a mechanism to challenge the willfulness element itself.

The Circuit Court then went on to find that the University could not avail itself of the remedy in University Medical, as it could not identify any persuasive authority that supports its position that the law was uncertain.  It noted no authority that addresses the specific issue of whether a college violates the stay by refusing to provide a transcript that affirmatively includes the graduation date.  In the absence of such authority it must point to authority that reasonably supports its belief that its actions were in accordance with the stay.   The cases cited by the University were distinguishable in that the debt in such cases was concededly nondischargeable.

The final argument by the University was that there was no affirmative injury to the debtor, other than $230.16 for the time she took off to attend the trial in the case.  The 3rd Circuit found that such damages constituted a legitimate financial harm, and that attorneys fees incurred constitute additional financial harm when incurred to enjoin further violations of the stay.  Finally, the District Court addressed her injuries in awarding 1) three copies of her certified transcript including the graduate date, 2) a diploma, as well as 3) prelitigation attorneys fees.  While the first two are non-monetary, the stay is intended to protect both financial and non-financial interests.1

In re Lansaw, 859 F.3d 657, 667-68 (3rd Cir. 1992)

Michael Barnett
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