Withholding Graduation Date from Transcript Violates Stay

Posted by NCBRC - September 4, 2019

Excluding the graduation date from the debtor’s transcript was tantamount to withholding the transcript altogether and constituted a violation of the automatic stay for which the debtor was entitled to damages, even though those damages consisted only of the costs associated with vindicating her rights. California Coast Univ. v. Aleckna, No. 16-158 (M.D. Pa. Aug. 28, 2019).

At the time the chapter 13 debtor completed her coursework at California Coast University she owed $6,300 in overdue tuition. When she and her husband filed for bankruptcy she listed the tuition debt as unsecured and disputed. She later sought an official copy of her transcript. CCU provided a transcript that omitted the graduation date, explaining that, because of the outstanding debt, she had not officially graduated. CCU filed an action in the bankruptcy case seeking a finding that the tuition debt was non-dischargeable. Ms. Aleckna counterclaimed that CCU’s refusal to provide her complete transcript violated the automatic stay. The bankruptcy court found in favor of Ms. Aleckna and awarded damages for lost wages in the amount of $230.16, and unspecified attorney’s fees and costs.

On appeal, CCU argued that it did not willfully violate the stay because the law as to whether withholding a transcript constitutes a stay violation was unsettled. It further argued that even if it did violate the stay, Ms. Aleckna suffered no damages other than costs of the trial and those do not suffice to fulfill the injury element of a stay violation.

For a stay violation to be deemed willful in the Third Circuit, the creditor must be aware of the stay, and its actions in violation of it must be intentional. Specific intent to violate the stay is not a requirement. Relying on In re University Medical Center, 973 F.2d 1065 (3rd Cir. 1992), CCU argued that, when the law is unsettled as to whether certain conduct violates the stay, a creditor cannot be found to have willfully violated the stay by that conduct. In University Medical Center, the court found that the creditor did not willfully violate the stay because the law underpinning the violation was unsettled and the creditor had relied on law supporting its conduct.

The Aleckna court distinguished that case on the basis that it is well-settled that withholding a transcript as a means of forcing a debtor to pay the debt violates the stay. The court added that even if that were not the case, CCU presented no evidence that it relied on interpretation of any law, settled or unsettled, when it withheld the debtor’s complete transcript.

In a footnote, the court noted that the recent case of Taggart v. Lorenzen, 139 S.Ct. 1795, __ U.S. __ (2019) involved violation of the discharge injunction and found, therefore, that its holding relieving the creditor of liability where it believed its conduct did not violate the injunction and it had an objective basis for that conclusion, was inapplicable to this case.

Based on CCU’s awareness of the bankruptcy and its intentional conduct, as well as the inapplicability of the defense that was successfully advanced in University Medical Center, the court found that it violated the automatic stay when it failed to include the debtor’s graduation date on the official transcript.

The court turned to the issue of appropriate damages under section 362(k)(1). Specifically, CCU argued that the bankruptcy court erred in finding that Ms. Aleckna suffered any damages by reason of the stay violation because her only damages were those incurred in the course of the litigation. The court disagreed. It found that protection from the conduct committed by CCU by withholding her transcript was exactly the type of harm the automatic stay was designed to address. The court further found that even if that harm were not enough, Ms. Aleckna’s costs associated with vindicating her rights were properly considered damages for purposes of establishing a stay violation under section 362(k)’s broad language.

The court affirmed the bankruptcy decision and remanded for the bankruptcy court to calculate the proper award of attorney’s fees and costs.

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