Where a district judge resolved part of an issue in a bankruptcy dispute and remanded it for bankruptcy court to make further determinations, the decision was not final and the 7th U.S. Circuit Court of Appeals lacked appellate jurisdiction.

The 7th U.S. Circuit Court of Appeals dismissed an appeal stemming from a decision by Chief U.S. District Judge James D. Peterson, Western District of Wisconsin.

In 2008 Kelly Hazelton began her studies at the University of Wisconsin-Stout. Kelly and her husband, Richard, signed a document titled Payment Plan Agreement/Email Authorization which set forth “credit terms” for tuition payments by students who choose to use the University’s Partial Payment Plan. The plan permits students to defer tuition payments for the fall and spring semesters, with interest to accrue on the unpaid balance at an annual rate of 18%.

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. Kelly did not, however, pay her tuition bill. The university withheld Kelly’s degree because she owed back tuition. In 2016, the Hazeltons filed a Chapter 7 bankruptcy petition 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 the debt was a student loan and therefore was not subject to discharge. The judge reasoned that money did not need to change hands for a loan to take place. The judge relied on language in the tuition payment agreement referring to “credit” and an 18% annual interest rate on unpaid tuition. The judge classified the debt as a non-dischargeable student loan and denied the motion for sanctions.

The Hazeltons appealed, and a U.S. District Court judge reversed, holding that the debt to UW-Stout was indistinguishable from the tuition debt at issue in In re Chambers. The district court noted in Chambers that the 7th Circuit held that nonpayment of tuition qualified as a non-dischargeable student loan only if funds had changed hands or the school had extended credit. The district court found that no funds had changed hands and the school had not extended credit because it did not permit deferral of payment for a summer term. The court determined the debt was not excluded from discharge and remanded the case to the bankruptcy court to decide whether sanctions should be imposed. UW-Stout then appealed.

The federal appeals panel began by stating that the Supreme Court held in Ball v. City of Indianapolis, that 28 U.S.C. § 158(d)(1) authorizes appeal as of right from orders in bankruptcy cases if the order finally disposes of discrete disputes within the larger bankruptcy case. The panel then stated that the district court properly had jurisdiction under § 158(d)(1), but the jurisdiction of the 7th Circuit was a different matter. The panel noted that the district judge did not finally resolve the sanctions dispute, instead remanding it to the bankruptcy court to determine whether sanctions were warranted. The panel then stated the bankruptcy judge must decide whether UW-Stout had an objectively reasonable basis to conclude that its conduct was lawful under the discharge order. The panel found that because of the unresolved matters in the dispute, it lacked jurisdiction to hear the appeal and it therefore dismissed the appeal.

Richard A. Hazelton and Kelly J. Hazelton v. The Board of Regents for the University of Wisconsin System and Its University of Wisconsin-Stout

No. 19-1405

Writing for the court: Judge Diane S. Sykes

Concurring: Judges Ilana Diamond Rovner and Kenneth F. Ripple

Released: March 16, 2020