The Unfortunate Case of Mark Tetzlaff, a law school graduate with more than a quarter million dollars in student loans. Bankruptcy is the only reasonable option.

One would have to have a stone-cold heart (or no heart at all) not to feel some sympathy for Mark Tetzlaff.  Tetzlaff obtained a law degree from Florida Coastal School of Law in 2005, but so far at least, he has been unable to pass a bar exam.

In 2012, Tetzlaff filed an adversary proceeding in a Wisconsin bankruptcy court, seeking to discharge more than a quarter of a million dollars in student loans.  Tetzlaff had actually paid off his law-school debt but he had incurred $260,000 in student loans to pursue various other degrees.

During his adversary proceeding, Tetzlaff tried to explain why he had been unable to find steady employment. "He introduced evidence showing that he is a recovering alcoholic, that he has been convicted of several misdemeanor offenses and that these convictions have hindered his ability to find a job." Tetzlaff v. Educational Credit Management Corporation, 521 B.R. 875, 877-878 (E.D. Wis. 2014), aff'd, 794 F.3d 756 (7th Cir. 2015). He also introduced evidence from a psychiatrist that he suffered from narcissistic personality disorder, anxiety and depression.

In addition, Tetzlaff attempted to introduce testimony from a forensic psychologist that he had serious memory problems that prevented him from passing the bar. He also had a vocational counselor lined up to testify that his memory problems were serious enough to hinder him from finding a well-paying job.

An unsympathetic  bankruptcy judge refused to allow Tetzlaff's forensic psychologist and vocational counselor to testify because Tetzlaff he had not disclosed these witnesses by the deadline established in the court's pretrial order. But the judge allowed Educational Credit Management Corporation, Tetzlaff's student-loan creditor, to introduce its own forensic psychologist to testify.

ECMC's psychologist tested Tetzlaff to determine whether he was feigning his psychological symptoms. Not surprisingly ECMC's hired gun concluded that Tetzlaff was a malingerer and that he was feigning his symptoms.

The judge herself concluded that Tetzlaff had not made good faith efforts to find a job and that most of "[Tetzlaff's] energy over the last several years has been directed at making excuses for his failure . . . rather than securing employment." Id. at 880. Accordingly, the judge refused to discharge Tetzlaff's student loans.

Tetzlaff appealed the bankruptcy court's decision to a federal district court, which upheld the bankruptcy judge's decision. And he appealed again to the Seventh Circuit Court of Appeals, which also upheld the bankruptcy judge. And then he sought review by the US Supreme Court, which refused to hear his appeal.

Over the years, Tetzlaff has taken the bar exam at least five times--twice in Illinois and three times in Wisconsin. He failed the exam all five times.  In July 1917, he sued the Illinois Board of Admissions, demanding extra time to take the bar exam along with the right to consult written materials and to take the test in a semi-private room free of distractions.  Tetzlaff claims he is entitled to these "reasonable accommodations" under the Americans with Disabilities Act.

Tetzlaff is now in his late fifties. Twelve years after graduating from law school, he still cannot practice law. Somewhere along his life's journey, he also picked up an MA degree and an MBA; and he is currently pursuing a LLM degree from Temple Law School.

What are we to make of this saga?

First, I believe the bankruptcy court was wrong to deny Tetzlaff a discharge of his student loans. Tetzlaff graduated from a bottom-tier law school, which has very low admission standards. It should not be surprising that he failed the bar exam multiple times. Numerous graduates of Florida Coastal School of Law have failed the bar.  And, as Paul Campos pointed out in his book Don't Go To Law School (Unless), many people who graduate from mediocre law schools will never earn an income that will justify the enormous debt load they take on to get their JD degrees.

Second, I understand why the bankruptcy judge refused to allow a couple of Mr. Tetzlaff's witnesses to testify. Parties to litigation are expected to comply with pretrial orders; and apparently Tetzlaff was granted several extensions to list his expert witnesses before the judge ruled that she would not hear their testimony.

But what kind of justice system do we have that permits a well-heeled creditor like Educational Credit Management Corporation to bring in paid experts to testify that a distressed student-loan debtor is a malingerer? Expert witnesses are hired for one purpose and one purpose only--to help their clients win their cases. ECMC is hounding student debtors in bankruptcy courts all over the United States, and it has almost unlimited resources to hire experts to testify against people who are penniless. Is that fair?

Finally, Mr. Tetzlaff's story illustrates the crazy system of higher education we have constructed in this country that allows an individual to borrow money to obtain multiple degrees when it is clear that this money will never be paid back. Mr. Tetzlaff is a case in point. According to news accounts, he has four academic degrees--a J.D., an MA, an MA, and a BBA--and is pursuing a fifth degree--an LLM.

Let us face facts. Bankruptcy relief is the only sensible option for someone like Mr. Tetzlaff. Even if he eventually passes a bar exam and practices law, it is highly unlikely that he will ever pay back $260,000 in student loans (along with accruing interest).

Mark Tetzlaff (seated on the left) (photo credit Bruce Vielmetti, Milwaukee Journal Sentinel)

References

Mike Brown.  Student Loan Plaintiff Mark Tetzlaff Sues Illinois Board of Admissions to the Bar. Lendedu.com, July 31, 2017.

Tetzlaff v. Educational Credit Management Corporation, 521 B.R. 875, 880 (E.D. Wis. 2014), aff'd, 794 F.3d 756 (7th Cir. 2015).

Tetzlaff v. Educational Credit Management Corporation, 794 F.3d 756 (7th Cir. 2015),  cert. denied, 2016 U.S. LEXIS 61 (U.S. Jan. 11, 2015).

Bruce Vielmetti. Waukesha man sues for double the time, and an open book, to take Illinois bar exam. Milwaukee Journal Sentinel, July 26, 2017.

William Vogeler. Law Graduate Sues for Open-Book Bar Exam. findlaw.com, July 27, 2017.

Trouble in Paradise: Thomas Jefferson Law School is sued by one of its graduates, who accuses the school of "fraudulent business practices"

Law school, it has been said, is the best option for people who want to make a lot of money but are risk adverse.

Once, there was once a lot of truth in that observation. Twenty-five years ago, law-school graduates had great employment opportunities.  People graduating from the most prestigious law schools commanded very high salaries, and even people who graduated from second-tier schools and had mediocre grades had a fair chance at earning a decent living.

But that is no longer true. The job market for attorneys has collapsed. There is a massive glut of lawyers in the United States, and there is now only about one job available for every two law-school graduates.

At the same time, tuition rates at the nation's law schools has shot up.  To cite one example, it now costs 36 times more to attend the University of Texas School of Law than it did when I was a student there 35 years ago (from $1,000 a year to $36,000 a year).

Today, most people can't attend law school without borrowing a lot of money, and job prospects for people who graduated from second- and third-tier law schools are not good. Thousands of law-school graduates are carrying student-loan debt that they can't repay.

Unfortunately, some law schools continued to tout high employment rates for their graduates--rates that bore no resemblance to reality in a falling job market. Some graduates are claiming they were enticed into attending law school by false representations that there were good jobs awaiting them when they graduated.

Clark Moffatt sues his alma mater for "fraudulant and deceptive business practices."

This brings me to the case of Moffatt v. Thomas Jefferson School of Law. Clark Moffatt, a 2009 graduate of TJSL,  filed a lawsuit against his alma mater in 2014, alleging "fraudulent and deceptive business practices."

Moffatt claims he decided to enroll in TJSL based on the school's representation that a high percentage of its graduates got jobs. The law school's employment statistics were published in U.S. News & World Report. Reasonably relying on TJSL's representations, Moffatt says, he borrowed about $100,000 to pay TJSL's tuition.

TJSL's representations, Moffatt alleged, were "false, misleading, inflated, and inaccurate." According to Moffatt, TJSL claimed that 92.1 percent of its 2009 graduating class were employed nine months after graduation, which suggested that more than 90  percent of its graduates were working in full-time, law-related positions.

In fact, Moffatt charges, those employment figures included people who were working part time or in non-law related jobs. "In other words, if graduates accept part-time employment working as a waiter or a clerk at a convenience store, they are considered to be 'employed nine months after graduation.'"

Moffatt claimed that TJSL categorized many people who were not working in law jobs as being employed in "business/industry," including people working in unskilled positions. "TJSL admits that its policy is to categorize all unskilled labor positions as 'business/industry,' including TJSL graduates who are employed as a stripper, cocktail waitresses, and restaurant servers."

In spite of a plummeting job market for lawyers, Moffatt said in his complaint, TJSL increased the number of students it enrolled each year, and it also lowered its admission standards. In 2005, the law school accepted only about one applicant out of four. By 2012, "TJSL's acceptance rate jumped to 73 percent. In 2013, according to Moffatt, TJSL accepted more than 4 out of 5 applicants.

Most of TJSL's students borrowed money. Indeed, Moffatt's complaint alleges, the New York Times reported in 2011 that TJSL led the nation's law schools in student indebtedness, with 95 percent of students graduating with debt.  The average debt load for TJSL graduates, Moffatt said in his complaint, is $180,000!

Moffatt's complaint in Moffatt v. Thomas Jefferson School of Law is 18 pages long and well worth reading. Its description of TJSL's policies, if accurate, shows a a mediocre law school with very high tuition and high levels of student debt increasing its enrollment and dropping its admission standards during a falling job market for lawyers. Not a pretty picture.

Will Clark Moffatt win his law suit?

The Moffatt case is scheduled for trial in March of this year. It may be settled before trial; and in fact, the case may already have been settled under terms that were not publicly disclosed.  It is common for institutions to settle high-profile litigation like the Moffatt case under terms that forbid the parties from disclosing any details. This is how the Catholic Church settled many of the priest abuse lawsuits that were filed against it.

Even if the case goes to trial, Clark Moffatt may lose. Graduates of Thomas M. Cooley Law School lost their fraud case against a Michigan non-profit law school. The Sixth Circuit Court of Appeals ruled that it was unreasonable for the law school's graduates to rely on the school's salary statistics. And a student at Arizona Summit Law School lost her fraud claim against a for-profit law school operated by Infilaw Corporation.

Judges may be reluctant to rule against law schools in cases like Mr. Moffatt's. If he wins, then hundreds of Thomas Jefferson law graduates might also have valid claims. And a fraud judgment against a law school would open the door for former students to petition the Department of Education for student-loan forgiveness. One judgement against a law school based on facts like those Moffatt alleged could have cascading financial consequences.

Why is Moffatt v. Thomas Jefferson School of Law significant?

Regardless of the outcome, Moffatt v. Thomas Jefferson School of Law is a significant case because it illustrates the high risks that students run when they borrow money to enroll in law school--particularly second- and third-tier schools like Thomas Jefferson, Arizona Summit, and Thomas M. Cooley.

Tuition at all these schools is extremely high, and most students must take out student loans in order to pay their tuition bills. Obviously, people who attend these schools hope they will find a good job after graduation that will justify six-figure debt loads. As Clark Moffatt said in his complaint, "Nobody attends law school to get a job as a convenience store clerk."

Nationwide, law-school enrollment levels are dropping as many intelligent individuals conclude that going to law school is not longer a good financial bet.  But law schools have not lowered their enrollments enough to match the falling demand for lawyers.

Instead, many have kept their enrollment-levels high while lowering their admission standards.  Some law schools have admission standards so low that a majority of their graduates are at high risk of failing the bar exam.

The law schools have not been responsible in addressing the imploding job market for lawyers.  They admit too many students, and their tuition rates are too high. In my view, there is no justification for the stratospheric rise in law-school tuition.

Some law-school graduates who were unable to find well-paying legal jobs have filed for bankruptcy, but the courts have not always been sympathetic.  In Tetzlaff v Educational Credit Management Corporation, for example, the Seventh Circuit Court of Appeals refused to discharge the student-loan debt of a law-school graduate who graduated from a bottom-tier law school with mountains of debt and who had failed the bar exam twice.

In my opinion, American law schools have put revenues ahead of their students' welfare, and the American Bar Association has not policed legal education in a responsible way. Thus far, unemployed and underemployed lawyers who are swamped by student-loan debt have only two options for relief. They can file for bankruptcy, hoping to discharge their debts in the bankruptcy courts. Or they can do what Clark Moffatt did and sue their alma maters for misrepresentation.

References

Steven J. Harper. Too Many Law Students, Too Few Legal Jobs, New York Times, August 25, 2015. Accessible at: http://www.nytimes.com/2015/08/25/opinion/too-many-law-students-too-few-legal-jobs.html

Lorona v. Arizona Summit Law School, No. CV-15-00972-PHX-NVW, 2015 U.S. Dist. LEXIS 168862 (D. Ariz. Dec. 16, 2015).

McDonald v. Thomas M. Cooley Law School, 724 F.3d 654 (6th Cir. 2013).

Moffatt v. Thomas Jefferson Law School, No. 37-2014-00033723-CU-PN-CTL, filed in California Superior Court for the County of San Diego, Oct. 2, 2014.

David Segal, Is Law School A Losing Game? New York Times, January 8, 2011. Accessible at: http://www.nytimes.com/2011/01/09/business/09law.html?_r=0

Joshua Wright. The Oversaturated Job Market for Lawyers Continues and On-the-Side Legal Work Grows. EMSI blog, January 10, 2014. Accessible at: http://www.economicmodeling.com/2014/01/10/the-oversatured-job-market-for-lawyers-continues/