Cal. Coast Univ. v. Aleckna (In re Aleckna)

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: FUENTES, Circuit Judge.
• Citation: Cal. Coast Univ. v. Aleckna (In re Aleckna), 13 F.4th 337 (3rd Cir. 2021)
• Decision Date: 09 September 2021
• Docket Number: No. 20-1309,20-1309
• Parties: IN RE: Steven Richard ALECKNA; Jaime Sue Aleckna, Debtors California Coast University, Appellant v. Jaime Sue Aleckna

13 F.4th 337

IN RE: Steven Richard ALECKNA; Jaime Sue Aleckna, Debtors

California Coast University, Appellant

v.Jaime Sue Aleckna

No. 20-1309

United States Court of Appeals, Third Circuit.

Submitted Pursuant to Third Circuit L.A.R. 34.1a December 16, 2020

Opinion Filed: September 9, 2021

Jeffery J. Daar, Daar & Newman, 21700 Oxnard Street, Suite 350, Woodland Hills, CA 91367, Robert P. Sheils, Jr., Sheils Law Associates, 108 North Abington Road, Clarks Summit, PA 18411, Counsel for Appellant

Brett M. Freeman, Carlo Sabatini, Sabatini Law Firm, 216 North Blakely Street, Dunmore, PA 18512, Counsel for Appellee

Before: GREENAWAY, JR., SHWARTZ, and FUENTES, Circuit Judges.

OPINION OF THE COURT

FUENTES, Circuit Judge.

California Coast University ("CCU" or the "University") appeals from the District Court's order affirming an award of attorneys’ fees and other relief to its former student, Jaime Aleckna. When Aleckna filed for Chapter 13 bankruptcy, she still owed CCU tuition. The filing of her bankruptcy petition, however, imposed an "automatic stay" of all collection actions against her, and therefore enjoined the University from attempting to recover that debt during the course of the proceedings.¹

While her case was pending, Aleckna, who had completed her coursework, asked CCU to send her a copy of her transcript. The University responded but would only provide her with an incomplete one that did not include a graduation date, explaining that a "financial hold" had been placed on her account.² Aleckna eventually filed a counterclaim against CCU in the Bankruptcy Court arguing that it violated the automatic stay by refusing to provide her with a complete certified transcript. The Bankruptcy Court found in Aleckna's favor, concluding that she was entitled to receive her complete transcript, as well as damages and attorneys’ fees because the University's violation was "willful."³ CCU appealed to the District Court, arguing that its violation could not have been "willful" under this Court's decision in In re University Medical Center ,⁴ which provides a limited defense in some cases.

On appeal, we must first decide whether University Medical remains good law in light of subsequent amendments to the Bankruptcy Code—specifically, to § 362, which governs alleged violations of the automatic stay.⁵ We conclude that it does, but that CCU has failed to establish a defense under that case. For the reasons that follow, we will affirm.

I.

Aleckna was a student at CCU until 2009, but she stopped making tuition payments some time that year. By the time she filed for bankruptcy, she still owed CCU approximately $6,300, which she initially characterized in her schedules as "disputed" debt.⁶ Aleckna informed the University that she had filed for bankruptcy and requested copies of her transcript for her files.⁷ As a matter of policy, CCU has not invoked the legal process to recover debts owed by its students. Instead, the University will consider any student with a past-due balance to have not technically graduated and may withhold the student's transcript or diploma as a result.

After some back-and-forth regarding the status of her bankruptcy case, CCU eventually sent Aleckna copies of her transcript, but no graduation date was listed on them. Aleckna inquired about the missing date and was informed that she did not technically graduate due to the financial hold on her account. CCU then filed an action in the Bankruptcy Court seeking an order declaring that Aleckna's debt was a non-dischargeable educational loan. In response, Aleckna filed a counterclaim against CCU arguing that the debt was dischargeable and the University violated the stay by failing to issue her a complete transcript.⁸ In other words, Aleckna asserted that the University's withholding of her transcript was an unlawful attempt to collect on pre-petition debt.⁹ The University still refused to provide her with a complete transcript and opposed her counterclaim, but later agreed to withdraw its non-dischargeability action with prejudice.¹⁰ This withdrawal was essentially a concession that Aleckna's debt was dischargeable under the Bankruptcy Code and would be extinguished upon termination of the proceedings.¹¹

A bench trial was held on Aleckna's counterclaim after CCU unsuccessfully moved for summary judgment. The Bankruptcy Court concluded that a "final transcript, with no graduation date, [is] akin to a letter of reference with no signature," and was essentially useless.¹² The Bankruptcy Court determined that because providing an incomplete transcript is tantamount to providing no transcript at all, CCU had violated the automatic stay. The Bankruptcy Court also found that CCU's violation was "willful," so it awarded Aleckna damages and attorneys’ fees associated with litigating the transcript issue.¹³ As of 2016, those fees had climbed to approximately $100,000.

CCU appealed to the District Court arguing, among other things, that the award of damages and fees was improper under University Medical . In that case, we held that a defendant does not "willfully" violate the automatic stay if the law governing the alleged violation was "sufficiently uncertain."¹⁴ CCU contends that, at the time of its violation, the law may have required it to provide a transcript, but did not explicitly require it to provide Aleckna with a complete one that included a graduation date. The District Court rejected this defense, noting that CCU could not point to any persuasive authority supporting its position, and affirmed the Bankruptcy Court's order.¹⁵ This appeal followed.¹⁶

II.¹⁷

On appeal, CCU does not argue that its conduct did not violate the automatic stay; rather, it maintains that it did not do so willfully , and that the District Court erred in affirming the award of damages and fees.

We must first decide whether this Court's decision in University Medical has been legislatively overruled. Like CCU, the defendant in University Medical argued that its violation was not "willful," and it was therefore not liable for damages and attorneys’ fees.¹⁸ When University Medical was decided in 1992, the applicable § 362 provision stated that "[a]n individual injured by any willful violation of a stay ... shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages."¹⁹ The statute was silent on whether a "good faith" defense existed in any context, but we had previously held in In re Atlantic Business & Community Corporation that a defendant's good-faith belief that its actions complied with the stay did not, on its own, establish a defense to willfulness.²⁰

In University Medical , however, the defendant not only acted in good faith, but was able to show that the law surrounding its violation was "uncertain," and relied on persuasive authority to support its position.²¹ We held that while "good faith" alone was insufficient, the "uncertain" nature of the issue coupled with the defendant's reliance on persuasive authority negated any finding of willfulness, and the defendant was therefore not liable for certain damages and costs:

A willful violation does not require a specific intent to violate the automatic stay. ... Here, however, the actions of the [defendant] were neither in defiance of a court order nor were they contrary to ... section[ ] 362 [of the Bankruptcy Code]. [Defendant] believed in good faith that he was not violating the stay. This of course is not sufficient under Atlantic Business to escape liability. ... However, [defendant] also had persuasive legal authority which supported his position. ... [W]e conclude that the withholding by [defendant] did not fall within the parameters of "willfulness" as such actions have been described in Atlantic Business and that [defendant] should not be penalized for the position [it] took ....²²

In 2005, the relevant provision was amended and is now § 362(k). Section 362(k) provides that an individual who commits a willful violation is liable for damages and attorneys’ fees unless "such violation is based on an action taken by an entity in the good faith belief" that the stay had terminated due to the debtor's failure to file a timely notice of intention.²³ Because § 362(k) can be read to establish a good-faith defense that is narrower than the one articulated in University Medical , several bankruptcy courts within our Circuit have concluded that the case has been statutorily overruled.²⁴ Aleckna agrees with those decisions, and her reasoning tracks that of a Pennsylvania bankruptcy court in In re Mu'min . That court concluded that University Medical was "judicial gloss" on the pre-amendment Code and is therefore no longer good law.²⁵ It explained that in enacting § 362(k), "Congress provided for only a limited, statutory good faith exception" that is "more limited than the one expressed in University Medical ."²⁶ Accordingly, the court concluded that § 362(k) overruled our existing case law.²⁷ Several courts have since followed or otherwise agreed with the Mu'min decision.²⁸

In the present case, however, the District Court concluded (and at least one other court has agreed)²⁹ that University Medical did not create the sort of "good faith" defense contemplated by § 362(k). Rather, the District Court found that University Medical merely provides a mechanism for defendants to challenge a finding of "willfulness," and § 362(k) does not speak to that particular element. The D.C. bankruptcy court summarized the distinction as follows:

Some decisions characterize [ University Medical ] as creating a "good faith" exception ... But the defense to a finding of "willfulness" ... is not a defense of good faith, and (as in civil contempt law) is a defense, separate and distinct from good faith, that when the law is sufficiently unsettled, willful violation of the statutory command is absent, and damages are not recoverable, because the offending party has not acted in violation of a

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