Richard A. Hazelton v. Board of Regents for the Unive ( 2020 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 19-1405
RICHARD A. HAZELTON
and KELLY J. HAZELTON,
Appellees,
v.
THE BOARD OF REGENTS FOR THE
UNIVERSITY OF WISCONSIN SYSTEM
AND ITS UNIVERSITY OF WISCONSIN-STOUT,
Appellant.
____________________
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 18-cv-159-jdp — James D. Peterson, Chief Judge.
____________________
ARGUED NOVEMBER 8, 2019 — DECIDED MARCH 16, 2020
____________________
Before RIPPLE, ROVNER, and SYKES, Circuit Judges.
SYKES, Circuit Judge. Richard and Kelly Hazelton asked a
bankruptcy court to sanction the University of Wisconsin-
Stout for collecting an educational debt after their debts
were discharged in Chapter 7 bankruptcy. The bankruptcy
2 No. 19-1405
judge held that the debt was a nondischargeable student
loan, so UW-Stout did not violate the discharge injunction.
The district court reversed, concluding that the debt was not
a student loan and thus was not excluded from the bank-
ruptcy discharge. The district judge remanded to the bank-
ruptcy court for further proceedings on the question of
sanctions.
UW-Stout asks us to review the district court’s order. We
cannot do so. Our jurisdiction in bankruptcy cases under
28 U.S.C. § 158(d)(1) is limited to appeals from final district-
court orders that resolve “discrete disputes” within the
bankruptcy case. Bullard v. Blue Hills Bank, 135 S. Ct. 1686,
1692 (2015). The dispute at issue here is whether UW-Stout
should be sanctioned for violating the discharge injunction.
The district court did not resolve that dispute. Rather, the
judge decided a subsidiary legal issue and remanded to the
bankruptcy court for resolution of the sanctions dispute.
Accordingly, we lack jurisdiction and must dismiss the
appeal.
I. Background
In 2008 Kelly Hazelton began her studies at the Universi-
ty of Wisconsin-Stout. As part of the enrollment process, she
and her husband, Richard, signed a document titled
Payment Plan Agreement/Email Authorization. The docu-
ment sets forth “credit terms” for the payment of tuition by
students who choose to use the Partial Payment Plan. The
Partial Payment Plan permits a student to defer tuition
payments for the fall and spring semesters, with interest to
accrue on the unpaid balance at an annual rate of 18%.
No. 19-1405 3
Kelly withdrew from school in 2011 but re-enrolled in
2014 and registered for classes in the summer 2015 term. She
eventually completed her degree but did not pay her tuition
bill. Because she owed back tuition, UW-Stout withheld her
degree.
In 2016 the Hazeltons filed a Chapter 7 bankruptcy peti-
tion and received a discharge later that same year. Although
UW-Stout was notified of the discharge, the school collected
the tuition debt for the summer 2015 term by intercepting
the Hazeltons’ 2016 income-tax refund. UW-Stout then
granted Kelly her degree.
The Hazeltons reopened their bankruptcy case and
moved for sanctions against UW-Stout for violating the
discharge injunction. The bankruptcy judge determined that
the debt was a student loan and therefore was not subject to
discharge. She reasoned that money did not need to change
hands for a loan to take place. She also relied on language in
the tuition-payment agreement referring to “credit” and an
18% annual interest rate on unpaid tuition. For these reasons
the judge classified the debt as a nondischargeable student
loan and denied the motion for sanctions.
The district judge reversed, holding that the debt to UW-
Stout was indistinguishable from the tuition debt at issue in
In re Chambers, 348 F.3d 650 (7th Cir. 2003). There we held
that nonpayment of tuition qualifies as a nondischargeable
student loan under 11 U.S.C. § 523(a)(8) only if funds have
changed hands or the school has extended credit. Id. at 657.
The judge noted that no funds had changed hands in the
Hazeltons’ case, nor was there an extension of credit: alt-
hough the tuition-payment agreement permitted a student
to defer payment for the fall or spring semesters, it did not
4 No. 19-1405
permit deferral of payment for a summer term. Accordingly,
the judge held that the Hazeltons’ debt to UW-Stout was not
excluded from the discharge. He remanded the case to the
bankruptcy court to decide whether sanctions should be
imposed, and if so, in what amount.
II. Discussion
We begin, as we must, with the question of our jurisdic-
tion. Ball v. City of Indianapolis, 760 F.3d 636, 640 (7th Cir.
2014). When a district court sits in a bankruptcy-appellate
capacity, the source of our jurisdiction to review the judge’s
order is 28 U.S.C. § 158(d)(1). That statute provides: “The
courts of appeals shall have jurisdiction of appeals from all
final decisions, judgments, order, and decrees entered under
subsections (a) and (b) of this section.” As relevant here,
subsection (a) gives the district courts “jurisdiction to hear
appeals … from final judgments, orders, and decrees … of
bankruptcy judges entered in cases and proceedings referred
to the bankruptcy judges under section 157 of this title.” 28
U.S.C. § 158(a)(1). 1
The Supreme Court has explained that § 158 authorizes
appeal as of right from “orders in bankruptcy cases … if
they finally dispose of discrete disputes within the larger
[bankruptcy] case.” Bullard, 135 S. Ct. at 1692 (quotation
marks omitted). The rationale for this more flexible approach
1 Two other provisions in subsection (a) address the district court’s
jurisdiction to review nonfinal orders of the bankruptcy court. See 28
U.S.C. § 158(a)(2) (conferring jurisdiction to hear appeals from interlocu-
tory orders increasing or reducing certain time periods); id. § 158(a)(3)
(addressing review of interlocutory orders by leave of court). Subsection
(b) addresses the judicial council’s authority to establish a bankruptcy
appellate panel. These provisions are not at issue here.
No. 19-1405 5
to finality in the bankruptcy context is that “[a] bankruptcy
case involves an aggregation of individual controversies,
many of which would exist as stand-alone lawsuits.” Id.
(quotation marks omitted). However, when the order in
question does not finally resolve a discrete dispute and
“[t]he parties’ rights and obligations remain unsettled,” the
order lacks sufficient finality to support appellate jurisdic-
tion. Id. at 1693.
The district court had jurisdiction under § 158(a)(1) to
hear the Hazeltons’ appeal. The bankruptcy judge denied
their motion for sanctions against UW-Stout, fully and
finally resolving that dispute. Our jurisdiction to hear UW-
Stout’s appeal under § 158(d)(1) is another matter. The
district judge did not finally resolve the sanctions dispute.
Rather, he decided a subsidiary legal issue embedded within
the sanctions dispute and remanded to the bankruptcy court
to determine whether sanctions are warranted. His order
resolved a discrete issue; it did not resolve the sanctions
dispute.
Our decision in In re Ferguson is instructive on this point.
In that case, a junior creditor asked the bankruptcy court to
order marshaling: “When a senior creditor can seek repay-
ment from sources A and B, and a junior creditor from only
B, marshaling under Illinois law allows a court to order the
senior creditor to recover from A so long as that wouldn’t
harm the senior creditor.” In re Ferguson, 834 F.3d 795, 797
(7th Cir. 2016). The bankruptcy court approved the request,
but the district court reversed and remanded to the bank-
ruptcy court. Id. at 798. The junior creditor appealed the
district court’s order.
6 No. 19-1405
We dismissed the appeal for lack of jurisdiction, holding
that under Bullard, a district court’s order in a bankruptcy
appeal “is not final, and therefore is not appealable, unless
only ministerial acts remain for the bankruptcy court.” Id.
We noted that on remand the bankruptcy court would have
more than ministerial acts to perform: the bankruptcy judge
had to determine how to divide the estate among the credi-
tors. We explained that although the district court had
finally resolved the issue of marshaling, “the dispute—Who
gets how much money?—remains open.” Id. at 800. Under
those circumstances, the district court’s order was not an
appealable final decision under § 158(d)(1). Id.
The same reasoning applies here. The dispute between
the Hazeltons and UW-Stout is whether sanctions are war-
ranted for violation of the discharge injunction, and if so, in
what amount. The district judge’s order did not finally
resolve that dispute. The judge decided only that the tuition
debt was not excluded from the Chapter 7 discharge. That
ruling leaves several nonministerial tasks for the bankruptcy
court on remand. The bankruptcy judge must decide wheth-
er UW-Stout had an objectively reasonable basis to conclude
that its conduct was lawful under the discharge order. See
Taggart v. Lorenzen, 139 S. Ct. 1795, 1801–02 (2019). If it did
not—if indeed there was “no fair ground of doubt” that the
discharge order prohibited UW-Stout from intercepting the
Hazeltons’ 2016 income-tax refund—then the bankruptcy
judge must decide the appropriate sanction. Id. at 1799. Until
the bankruptcy judge decides these remedial questions,
“[t]he parties’ rights and obligations remain unsettled.”
Bullard, 135 S. Ct. at 1693.
No. 19-1405 7
In short, the district judge’s order resolving the issue of
dischargeability doesn’t finally resolve the sanctions dispute.
We lack jurisdiction to hear this appeal.
DISMISSED