Opinion
Case No. 81-22348.
December 10, 1981
Saul Kay, Esq., Memphis, TN, Attorney for Debtor.
MEMORANDUM OPINION AND ORDER
This cause came on to be heard on November 3, 1981, upon the Debtor's request to require the University of Tennessee ("UT") to release a copy of the transcript of the Debtor, William Nabors, in order for the Debtor to, inter alia, further his education at another university.
After arguments of counsel and presentation of proof at the aforementioned hearing and consideration of the entire record herein, the Court makes the following findings of facts and conclusions of law.
The ultimate question for judicial determination here is whether or not UT should be required to release a copy of the transcript to the Debtor.
Briefly stated, the facts of this cause are as follows: On July 8, 1981, the Debtor filed a Chapter 13 wage earner case and plan under the Bankruptcy Reform Act of 1978; and said plan was confirmed on August 3, 1981, and subsequently modified as to the home mortgage on August 31, 1981. The Debtor, on September 28, 1981, requested the Court to amend his schedules to add the Department of Health, Education and Welfare to the unsecured creditors in the amount of $1,215.50. Additionally, the Debtor filed the instant request to require UT to release a copy of the his transcript from UT in order for him to enroll in graduate school at another university. Both requests of the Debtor were set for hearing on November 3, 1981. After the hearing on that date, the Debtor filed an amendment to his Chapter 13 wage earner plan proposing a 100% payment to the Department of Health, Education and Welfare.
Mr. Nabors graduated from UT in 1974. On June 12, 1978, UT began writing letters to Mr. Nabors at his last known address concerning the balance of payment arising out of a student loan obtained from UT while in college. Mrs. Faye Chance, an employee of UT, testified at the November 3rd hearing that she wrote again on July 14, 1978, and no response was ever received by UT from Mr. Nabors. On August 14, 1978, due to Mr. Nabors' failure to respond to her collection letters, Mrs. Chance declared Mr. Nabors "financially irresponsible". Mrs. Chance again wrote Mr. Nabors on October 6, 1978, informing him of the "financially irresponsible" status and the loan was thereafter assigned to HUD. The Debtor now owes HUD (or heretofore Department of Health, Education and Welfare) the amount of the loan and does not owe UT any money — i.e. UT is not a creditor in this Chapter 13 case.
Mr. Nabors now desires to obtain a masters degree from the University of Arkansas at the Navy Campus in Millington, Tennessee. It is argued that he will not be admitted to this program without a valid transcript of his undergraduate work at UT. UT refuses to release a copy of this transcript on the basis that Mr. Nabors has been declared "financially irresponsible" by Mrs. Chance and all services by UT are denied to a person in this classification. Mrs. Chance essentially testified on behalf of UT that a person will be declared "financially responsible" by her once a debt is paid and that it is merely a matter of economics (and not morals). The Chapter 13 case filed by Mr. Nabors has no bearing on the status of financial responsibility in UT's opinion, nor is this an action by UT to collect a prepetition debt.
The Court first looks to 11 U.S.C. § 525, which, under the Bankruptcy Reform Act of 1978, was enacted to prohibit discrimination by a governmental unit due to the filing of a bankruptcy petition.
"Section 525. Protection against discriminatory treatment.
Except as provided in Perishable Agricultural Commodities Act, 1930 (7 U.S.C. § 4991-499s), the Packers and Stockyards Act, 1921 ( 7 U.S.C. § 181-229), and section 1 of the Act entitled `An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,' approved July 12, 1943 ( 57 Stat. 422; 7 U.S.C. § 204), a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankruptcy or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act." (Emphasis added.)
Additionally, the Court considers 11 U.S.C. § 362 (a)(6):
"Section 362. Automatic stay.
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title operates as a stay, applicable to all entities, of —
. . .
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
Clearly, UT, therefore, cannot discriminate against the Debtor due to any debt discharged in bankruptcy or due to the mere filing of a bankruptcy based on Section 525 of the Code. UT further, by virtue of Section 362(a), cannot act to recover any prepetition debt (i.e. student loan) after the filing of the petition for itself or any third party (e.g. HUD). UT contends that the denial of the transcript is not based on the filing of the Chapter 13 petition, nor any action by it for collection or recovery of a debt so as to violate Section 362(a).
Congress, in enacting Section 525 of the new Code, intended that this list under Section 525 ". . . does not prohibit consideration of other factors such as future financial responsibility or ability. Rather, Section 525 is designed to protect persons from discriminatory treatment based solely on past financial difficulty." Collier On Bankruptcy, Para. 525.02, page 525-3 (15th ed. 1979). The ultimate purpose of Section 525 is ". . . to prevent governmental units from frustrating the `fresh start' policy of the Bankruptcy Code by discriminating against persons who have been debtors under the Code or bankrupts or debtors under the prior act." Collier On Bankruptcy, Para. 525.02, page 525-2 (15th ed. 1979). In any analyzation of whether an act is discriminatory against a debtor, one must remember that there are ". . . various forms of discrimination against debtors, therefore, (those listed are) . . . not exhaustive and . . . (are) not intended to permit other forms of discrimination not listed therein." H.R. Rep. No. 590, 95th Congress, 1st Sess. 366-7 (1977); S.Rep. No. 989, 95th Congress, 2nd Sess. 81 (1978). This Court is mindful of these considerations in the determination of whether a questioned act is discriminatory.
UT states the university is not attempting to collect a prepetition debt; and, therefore, the line of cases denying transcripts to former students based solely on nonpayment of debts or filing of a bankruptcy petition do not apply to the instant cause. Therefore, by UT's contentions the only theory applicable would be that denial is acceptable in a situation whereby it is based on moral character. Such as in In re Alessi, 7 BCD 1037 (B.C.N.D. Ill. 1981), where the State Racing Board denied a license to a Chapter 7 debtor based on the fact the Debtor had insufficient checks outstanding and these debts endangered the integrity of the sport if a license was granted. The Court held the denial was within the police power of the state to regulate horse racing, and, therefore, does not conflict with the Code. Also, the Supreme Court of Minnesota, in In re Gahan, 279 N.W.2d 826 (Minn. 1979), affirmed the Minnesota Bar's decision to deny an applicant admission due to a student loan discharged in bankruptcy. The Minnesota case was decided under the former Act. The Board of Law Examiners was held to be able to take into consideration a bankruptcy in assessing good moral character and a failure to honor legal commitments adversely reflects on an applicant's ability to practice law. The legislative history states that ". . . in those cases where the causes of a bankruptcy are intimately connected with the license, grant, or employment in question, an examination into the circumstances surrounding the bankruptcy will permit governmental units to pursue appropriate regulatory policies and take appropriate action without running afoul of bankruptcy." H.Rep. No. 95-595, p. 165.
Cases declaring denial of transcript is unlawful: In re Lee, 1 B.R. 781 (D.C.N.Y. 1979); In re Sanford, 10 B.R. 132 (B.C. D.Minn. 1981); In re Howren, 7 BCD 43 (B.C. D.Kansas 1980);Handsome v. Rutgus University, 445 F.S. 1362 (D.N.J. 1978); In re Ware, 7 BCD 373 (B.C. W.D.Mo. 1981); In re Heath, 6 BCD 169 (N.D. Ill. 1980).
This Court does not deem the instant cause analogous to the above stated cases. UT is not utilizing police power as contemplated under Section 362(b)(4) or denying on the basis of moral character. UT's employee, Mrs. Chance, testified it was merely a matter of economics. The Court does not find the compelling factors present so as to allow examination of the bankruptcy as in Alessi or Grahan.
The Court further finds that although UT denies the action has any connection with the Debtor's bankruptcy filing, in reality, the Court must look behind UT's statements to determine the true effect of this status declaration. The status of "financially irresponsible" was determined prior to the filing of the Debtor's Chapter 13 petition and, therefore, not due to the filing of the bankruptcy. The Court finds it persuasive that UT would declare the Debtor "financially responsible" upon payment of the student loan. This appears to be inconsistent with UT's contentions in that UT is not owed any money and the Debtor proposes a 100% payment to HUD on the student loan under this Chapter 13 plan. The Court finds that this is, at a minimum, an indirect attempt to pressure Debtors into paying prepetition loans in violation of Section 362(a)(6), and, therefore, adopts the line of cases heretofore cited in footnote 1. The transcript is perhaps vital to a "fresh start" and successful financial rehabilitation of the Debtor.
Considering the totality of the circumstances, and looking beyond the testimony of the party to the substance of their actions, the Court finds the denial of the transcript to the Debtor by UT is improper, and, therefore, UT must turnover or furnish a copy of the transcript to the Debtor. UT should not be permitted, under the circumstances, to do indirectly what it cannot do if it were a creditor of the Debtor. UT may, however, require the payment of any customary processing fees upon the release of such transcript to the Debtor.
Also see section 542(e) which requires a turnover of information to a trustee or debtor upon applicable notice and hearing. See also Interim Bankruptcy Rule 1001(b)(3).
IT IS ORDERED, ADJUDGED AND DECREED:
1. That the Debtor's motion is hereby granted and the University of Tennessee is ordered to release a copy of the transcript of the Debtor's record at UT within ten (10) days of the entry of this order.
2. That the Debtor is hereby ordered to pay to UT any customary processing fees or costs in connection with the transcript release.