Jaime Aleckna was a student at California Coast University until 2009, and she met all the academic requirements for graduating. However, she still owed CCU $6215 when she filed for bankruptcy in 2012. Under the Bankruptcy Code, her bankruptcy petition triggered an automatic stay on all collection actions.
CCU filed an adversary complaint against Ms. Aleckna, arguing that her student loans were non-dischargeable in bankruptcy. Then, while the bankruptcy proceedings were pending, Aleckna asked CCU to send her college transcript.
CCU sent Aleckna an incomplete transcript that did not note her graduation date. The university argued that she had not technically graduated because CCU had put a "financial hold' on her account.
Aleckna then filed a counterclaim against CCU in the bankruptcy court, charging the university with violating the automatic stay provision when it failed to send her a transcript that included her graduation date. She argued that CCU had unlawfully attempted to collect on a pre-petition debt by withholding her full transcript. Aleckna asked the bankruptcy court to award her damages and attorneys' fees.
CCU filed a motion to dismiss Aleckna's counterclaim, which the bankruptcy court denied in 2013. The university then withdrew its adversary complaint against Aleckna. According to the Third Circuit Court of Appeals, CCU's withdrawal "was essentially a confession that Aleckna's debt was dischargeable under the Bankruptcy Code . . . ."
CCU and Aleckna ultimately went to trial on her claim that the university had willfully violated the automatic stay provision and was liable for her damages and attorney fees. CCU lost the case in 2016 and faced a potential judgment for Aleckna's fees.
CCU appealed to the Third Circuit Court of Appeals, where it argued that it had complied with any legal obligation to give Aleckna her transcript when it sent her a transcript that did not include her graduation date.
A panel of Third Circuit judges didn't buy CCU's arguments. In a 2021 decision, the panel agreed with the bankruptcy court that "'a final transcript, with no graduation date, [is] akin to a letter of reference with no signature,' and was essentially useless."
The Third Circuit also agreed with the bankruptcy court that "providing an incomplete transcript is tantamount to providing no transcript at all." The Third Circuit affirmed the lower court ruling that CCU's action was a willful violation of the automatic stay provision, making the university liable for Aleckna's damages and attorney's fees.
The end result? CCU's foray into a Pennsylvania bankruptcy court was costly. In a failed effort to recover $6,215 from Aleckna, it wound up being liable for her attorney fees--which the Third Circuit estimated to be around $100,000! And, of course, CCU's own attorney fees were undoubtedly substantial.
Perhaps a lesson can be gleaned from California Coast University v. Aleckna. A college would be wiser to write off a small debt owed by a bankrupt former student rather than litigate in the federal courts for eight years.
Why? Because, as philosopher Forrest Gump might have put it, bankruptcy court "is like a box of chocolates. You never know what you're gonna get."
California Coast University v. Aleckna, 494 B.R. 647 (Bankr. M.D. Pa. 2013).
California Coast University v. Aleckna, Adversary No. 5:12–ap–00247–RNO, 2014 WL 4100702 (Bankr. M.D. Pa. 2014).
California Coast University v. Aleckna, 543 B.R. 717 (Bankr. M.D. Pa. 2016).
California Coast University v. Aleckna, 3:16-cv-00158, 2019 WL 4072405 (M.D. Pa. 2019).
California Coast University Aleckna, 13 F.4th 337 (3d Cir. 2021).