Girardier v. Webster College

• Decision Date: 24 August 1977
• Docket Number: No. 76-1922,76-1922
• Citation: 563 F.2d 1267
• Parties: Robert GIRARDIER and Susan L. Luzkow, Appellants, v. WEBSTER COLLEGE, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1267

563 F.2d 1267

Robert GIRARDIER and Susan L. Luzkow, Appellants, v. WEBSTER COLLEGE, Appellee.

No. 76-1922.

United States Court of Appeals,

Eighth Circuit.

Submitted March 17, 1977.

Decided Aug. 24, 1977.

Ronald S. Preuss (argued), and Frank Susman (made rebuttal), St. Louis, Mo., filed brief for appellants.

Wayne L. Millsap, St. Louis, Mo., argued and filed brief for appellee.

Before BRIGHT and ROSS, Circuit Judges, and URBOM, District Judge. ^*

URBOM, Chief District Judge.

The issue here is whether a college may refuse to release transcripts of credits to former students for the sole reason that those students have not repaid to the college their National Defense Education Act loans and have obtained discharges in bankruptcy of those loans.

The plaintiff Robert Girardier took out a National Defense Student Loan with the defendant, Webster College, under Subchapter II of the National Defense Education Act, 20 U.S.C. §§ 421-429. He received his bachelor's degree in May, 1972. Thereafter, that plaintiff defaulted on the loan and filed bankruptcy papers, listing the college as an unsecured creditor in the sum of $1,500.00. He was subsequently discharged in bankruptcy from the payment of the loan. ¹ At a later time he applied to the defendant for a transcript of his undergraduate credits, tendering the $2.00 fee therefor. The defendant refused, for the sole reason that the plaintiff owed the defendant $1,500.00 from the plaintiff's discharged student loan, citing a provision in the college handbook that "No transcript is released until all accounts are paid." Counsel for the defendant admits that, if the plaintiff were to pay the obligation in full, the college would furnish the requested transcript. ² The plaintiff alleges that a transcript is necessary for him to receive his master's degree, to which he is otherwise entitled, from the University of Missouri-St. Louis.

The plaintiff Luzkow is in an almost identical posture. Sometime after receiving her bachelor's degree from Webster College in May, 1973, she too defaulted on her National Defense Student Loan. She filed bankruptcy, listing the college as an unsecured creditor in the amount of $1,900.00, and was subsequently discharged. She then sought copies of her college transcript, and the defendant similarly refused her request. She alleges that she needs a transcript as a necessary part of her applications to graduate school.

Although the complaints were filed separately, they have been dealt with by the parties and the district court as if consolidated. The Girardier complaint seeks damages only, while the Luzkow complaint asks for declaratory, injunctive, and monetary relief.

I. JURISDICTION

Among the jurisdictional grounds alleged is that of the presence of a federal question, articulated in 28 U.S.C. § 1331(a), which grants to federal district courts jurisdiction of all civil actions exceeding in value $10,000, exclusive of interest and costs, and arising under the laws of the United States. If these controversies arise under the laws of the United States, the district court had jurisdiction.

The claims of the plaintiffs, as stated in their complaints, are not merely that under state law the college is obligated to provide transcripts of credits earned, but rather that the college's reliance upon nonpayment of loans as the reason for refusal to furnish transcripts is in contravention of the federal Bankruptcy Act. The plaintiffs sue on the theory that they acquired rights from the Bankruptcy Act which the college has violated. Whether the Act afforded such right to the plaintiffs is a matter of interpretation of a federal law and is thus a federal issue.

In Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946), the court interpreted the statute which is now 28 U.S.C. § 1331(a), saying:

Jurisdiction . . . is not defeated . . . by the possibility that the averments might fail to state a cause of action on which petitioners could actually recover. For it is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction. Whether the complaint states a cause of action on which relief could be granted is a question of law and just as issues of fact it must be decided after and not before the court has assumed jurisdiction over the controversy. * * * (A) suit may sometimes be dismissed for want of jurisdiction where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous. The accuracy of calling these dismissals jurisdictional has been questioned. The Fair v. Kohler Die Co., * * * 228 U.S. (22) at 25, (33 S.Ct. (410) at page 411, 57 L.Ed. 716). But cf. Swafford v. Templeton, * * * (185 U.S. 487, 22 S.Ct. 783, 46 L.Ed. 1005). ³

As framed by the pleadings and as briefed and argued on appeal, the core of the issue is whether a discharge under the Bankruptcy Acts forbids the withholding by creditors of benefits they otherwise would grant but for the failure to pay the indebtedness listed in the bankruptcy petition. The college in its brief to this court acknowledges that, "Thus the determination of the issue at bar rests solely on the interpretation of the meaning and intent of the federal Bankruptcy Act and the effect of a discharge thereunder." ⁴ The issue of the effect of a discharge is not immaterial and made solely for the purpose of obtaining jurisdiction. Upon analysis of the merits of the issue, we conclude that the issue is not wholly insubstantial or frivolous. Jurisdiction thus lodged in the district court.

Because substantiality of the federal issue depends upon the degree of plausibility of its merits, and because counsel have briefed fully the merits, we proceed to them.

II. STATE OF THE BANKRUPTCY LAW PRIOR TO 1970

Prior to 1970 there was sound authority for inflicting various hardships on bankrupts following their discharge, based solely on the fact of bankruptcy. Indeed, the Supreme Court of the United States had twice sanctioned such hardships in the area of motorists' financial responsibility laws.

Reitz v. Mealey, 314 U.S. 33, 62 S.Ct. 24, 86 L.Ed. 21 (1941), considered a New York law which provided a suspension of one's driver's license and auto registration by reason of his or her nonpayment of a judgment for injury resulting from the operation of a motor vehicle. The statute provided that a discharge in bankruptcy would not remove this suspension. The court found no conflict between this statute, which it found a valid exercise of the state's police power designed to enforce a public policy that irresponsible drivers shall not with impunity be allowed to injure others, and 11 U.S.C. § 35, the discharge provision of the Bankruptcy Act. Four justices dissented on the ground that the New York statute was in conflict with the purpose of the Bankruptcy Act, as expressed in Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934), of giving the bankrupt "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt."

In Kesler v. Dept. of Public Safety, 369 U.S. 153, 82 S.Ct. 807, 7 L.Ed.2d 641 (1962), the court confronted a Utah statute which was similar to New York's in Reitz but which gave the individual creditor greater control over the sanctions to be imposed by the state for the nonpayment of the judgment. Justice Frankfurter, writing for the court, discussed the discharge provisions and their consequences thus:

Section 17 of the Bankruptcy Act, 11 U.S.C. § 35, provides that "A discharge in bankruptcy shall release a bankrupt from all of his provable debts," with exceptions not here material. See also 11 U.S.C. § 1(15). A discharge relieves the bankrupt "from legal liability to pay a debt that was provable," Zavelo v. Reeves, 227 U.S. 625, 629, (33 S.Ct. 365, 367, 57 L.Ed. 676) (1913); it is a valid defense in an action brought in a state court to recover the debt. A State cannot deal with the debtor-creditor relationship as such and circumvent the aim of the Bankruptcy Act in lifting the burden of debt from a worthy debtor and affording him a new start. The limitations imposed upon the States by the Act raise constitutional questions under the Supremacy Clause, Art. VI. Thus, a discharge does not free the bankrupt from all traces of the debt, as though it had never been incurred. This Court has held that a moral obligation to pay the debt survives discharge and is sufficient to permit a State to grant recovery to the creditor on the basis of a promise subsequent to discharge, even though the promise is not supported by new consideration. Zavelo v. Reeves, supra. The theory, the Court declared, is that "the discharge destroys the remedy but not the indebtedness," 227 U.S., at 629, (33 S.Ct. (365) at 367). And in Spalding v. New York ex rel. Backus, 4 How. 21, (11 L.Ed. 858) (1846), under an earlier bankruptcy law, the Court held that a discharge did not prevent the State from collecting a fine for contempt in violation of an injunction issued to aid in the execution of a judgment debt, although the fine was turned over to the creditor. States are not free to impose whatever sanctions they wish, other than an action of debt or assumpsit, to enforce collection of a discharged debt. But the lesson Zavelo and Spalding teach is that the Bankruptcy Act does not forbid a State to attach any consequence whatsoever to a debt which has been discharged." (Emphasis added) 369 U.S. at 169-171, 82 S.Ct. at 817-81.

The court upheld the law on the same theory as that expressed in Reitz.

Furthermore, prior to 1970 there was nothing in the Bankruptcy Act to prohibit a wide variety of acts by private parties (including the bringing of actions on the debt in state court) aimed at inducing...