In re The Bible Speaks, Bankruptcy No. 86-40392-JFQ.

• Decision Date: 15 January 1987
• Docket Number: Bankruptcy No. 86-40392-JFQ.
• Citation: 69 BR 368
• Parties: In re THE BIBLE SPEAKS, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

69 B.R. 368 (1987)

In re THE BIBLE SPEAKS, Debtor.

Bankruptcy No. 86-40392-JFQ.

United States Bankruptcy Court, D. Massachusetts.

January 15, 1987.

Norman Roy Grutman, Grutman, Miller, Greenspoon & Hendler, New York City, Charles W. Morse, Jr., Sullivan & Worcester, Boston, Mass., for The Bible Speaks.

Joyce Kirby, Asst. Counsel, Boston, Mass., for Bd. of Regents of Higher Educ. of the Commonwealth.

MEMORANDUM

JAMES F. QUEENAN, Jr., Bankruptcy Judge.

The Debtor is a non-profit religious and educational organization. It operates two educational facilities: one for children in kindergarten through the twelfth grades, and one for adults known as The Stevens School of The Bible. The Debtor moves that an order be issued directing the Agent for Veteran Affairs of the Massachusetts Board of Regents of Higher Education (the "Board") to show cause why the Board should not be enjoined from withdrawing its approval of The Stevens School of The Bible (the "School") as one whose veteran students are eligible to receive veterans' benefits under 38 U.S.C. § 1776. No objection having been made to the Debtor seeking such relief by way of a motion rather than a complaint, see BANKR.R. 7001, we proceed to the merits.

Veterans may receive educational benefits from the federal government in either one of two ways. They may take so-called "accredited courses," primarily those of an institution whose courses have been accredited by a nationally recognized accrediting agency, and thereby become eligible for benefits provided that the institution satisfies rather minimal statutory requirements.¹ They may, on the other hand, take courses which have not been accredited by a nationally recognized accrediting agency, if the institution providing such courses meets much more detailed criteria.² The present question involves approval of non-accredited courses offered by the School. The Board acts as the designated³ state approving agency for the federal government.

The Debtor filed a voluntary petition seeking reorganization under Chapter 11 (11 U.S.C. § 1101 et seq.) on July 29, 1986. By letter dated August 8, 1986, the United States Veterans Administration wrote to the Board informing it that the Debtor had "petitioned for bankruptcy." It requested the Board to investigate to determine whether the School continued to meet the requirements of 38 U.S.C. 1776(c)(9) that the "institution is financially sound and capable of fulfilling its commitments for training." The Board's Agent for Veteran Affairs visited the School on August 14th. During that visit, he reminded the School's president of the statutory financial requirement, and "requested financial data to show future finances and an ability to meet the School's commitments for training." Having received no further information, the Board sent the School a letter dated August 20th stating that the Board had suspended approval of the School, and that approval would be completely withdrawn if "proof of the school's financial stability" was not provided within 60 days. On August 26th, the Debtor's counsel wrote to the Board, stating in part: "The Debtor has available to it potential sources of additional funds from the sale of surplus real estate that should enable it to emerge from Chapter 11 reorganization, hopefully within a period of a year to 18 months from this date." That letter also enclosed a statement of the Debtor's pastor, dated July 30, 1986, which disclosed in some detail that the cause of the Chapter 11 filing was a disputed $7 million claim of a former contributor. The statement asserted that the claim was without merit and that the Debtors' assets were more than sufficient to pay its liabilities exclusive of this disputed claim.

The Board responded to counsel that these documents did not provide sufficient information to establish that the School "is financially sound." The Board informed counsel that any additional financial documents would be carefully reviewed before a final decision was made on October 20th to either reinstate or withdraw approval. Although the parties had telephone conversations thereafter, for some unexplained reason the Debtor furnished no further written financial information to the Board. On October 20th, the Board informed the school that its approval was withdrawn "because the school is not financially stable."

The Debtor contends that the Board's application of 38 U.S.C. § 1776(c)(9) amounts to a determination that any debtor who files a bankruptcy petition is ipso facto financially unsound. The Debtor argues that Congress has expressed a policy against such actions in 11 U.S.C. § 365(e), which invalidates ipso facto clauses in executory contracts. The Debtor asks that the Court use its equitable powers under 11 U.S.C. § 105(a) to enjoin the Board's withdrawal of approval. The Board argues that it did not act because of the Debtor's Chapter 11 petition, but rather because of the Debtor's financial condition, and then only in a nondiscriminatory manner by applying the same standards which it would apply to a school that was not in a bankruptcy proceeding. As proof of this, the Board points to its sustained efforts to obtain financial information concerning the Debtor beyond the mere fact of the Debtor's Chapter 11 petition. We hold that, even so, the Board's action was not permissible. We base our decision upon 11 U.S.C. § 525(a), a statute not relied upon by the Debtor.

11 U.S.C. § 525(a) provides as follows:

Except as provided in the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499a-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. 402), 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 bankrupt 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.

We conclude that the Board is a "governmental unit," see 11 U.S.C. § 101(24), and that its revocation of approval of the School for veterans' benefits purposes constitutes the revocation of "a license, permit, charter, franchise, or other similar grant . . . solely because . . . the Debtor . . . has been insolvent . . . during the case . . ." within the meaning of Section 525(a) of the Bankruptcy Code.

The terms "license," "permit," "charter" and "franchise" are not defined in 11 U.S.C. § 101. Black's Law Dictionary defines a "license" as "permission to do a particular thing, to exercise a certain privilege or to carry on a particular business or to pursue a certain occupation." BLACK'S LAW DICTIONARY 829 (5th ed. 1979). A "franchise" is defined as "a special privilege conferred by government on individual or corporation, and which does not belong to citizens of country generally of common right sic." Id. at 592.

Although the "scope of protection represented by these undefined terms has not yet been clarified," Goldrich v. New York State Higher Education Services Corp. (In re Goldrich), 771 F.2d 28, 30 (2d Cir. 1985), the Board's actions here are within the plain language of § 525(a). 38 U.S.C. § 1776 required the School to be the applicant to the Board for certification of its courses. By approving the School, the Board conferred privileges on the school analogous to a license or franchise. After approval, the School had the right to represent to veteran students that the Board had approved its unaccredited courses. The School also obtained assurance that the students' tuition for these courses would be subsidized and therefore more likely to be paid. These privileges are not indirect or tenuous. The School had to apply for them, and subjected itself to the oversight of a government agency in order to continue receiving them. We conclude, therefore, that the privileges in question here are a "similar grant" under § 525(a).⁴

The more troublesome issue here is whether the Board's action was discriminatory within the meaning of § 525(a). The statute prohibits certain actions taken by governmental units:

1) solely because the person is or has been a debtor under the Bankruptcy Code;

2) solely because the debtor has been:

a) insolvent before the petition; or

b) insolvent after the petition but before grant or denial of discharge; or

3) solely because the debtor has failed to pay a debt dischargeable in the bankruptcy case.

The legislative history of § 525(a) raises problems. The House interpreted the statute to allow a governmental agency to "examine the factors surrounding bankruptcy, impose financial responsibility rules if they are not imposed only on former bankrupts, or examine prospective financial condition or managerial ability." H.R.REP. NO. 595, 95th Cong., 1st Sess. 165 (1977), U.S.Code Cong. & Admin.News 1978, p. 6126. The House believed that discrimination was not present if "the causes of a bankruptcy are intimately connected with the license, grant, or employment in question" and that "an examination into the circumstances surrounding the bankruptcy will permit governmental units to pursue appropriate regulatory policies and take appropriate action without running...