In the

United States Court of Appeals

For the Seventh Circuit

No. 07-3954

IN THE MATTER OF:

STEFANIE KIM KUEHN,

Debtor-Appellee.

APPEAL OF:

CARDINAL STRITCH UNIVERSITY, INC.

Appeal from the United States District Court

for the Western District of Wisconsin.

No. 07-cv-00368-bbc—Barbara B. Crabb, Chief Judge.

ARGUED MAY 28, 2008—DECIDED APRIL 16, 2009

Before EASTERBROOK, Chief Judge, and RIPPLE and

WOOD, Circuit Judges.

EASTERBROOK, Chief Judge. This case presents a single

question: Does a university violate the Bankruptcy Code’s

automatic stay or discharge injunction by refusing to

provide a transcript because pre-petition debt remains

unpaid?

Stefanie Kim Kuehn, an art teacher, enrolled in a

two-year master’s degree program at Cardinal Stritch
2 No. 07-3954

University. She took advantage of the University’s pay-asyou-go plan but stopped paying midway through the

first year. The University nonetheless allowed her to

take exams, receive grades, and sign up for new classes.

She completed all of the work required for a master’s

degree, which the University awarded. But when Kuehn

asked for a transcript—the proof necessary to receive an

increase in salary from her school district—the University

refused because she owed more than $6,000 in tuition.

Unwilling to pay her debt to the University—even

though the increase in her salary would cover the whole

tuition in less than two years, and she could have borrowed against that increase—and unable to obtain a

transcript without payment, Kuehn filed a bankruptcy

petition listing the University as a creditor. (Kuehn’s

lawyer had advised her that the University would have

to provide her a transcript if she filed for bankruptcy.)

While the case was pending Kuehn again requested a

transcript, and the University again refused to provide

one. After the bankruptcy court issued an order discharging her debt to the University, 11 U.S.C. §727, Kuehn yet

again asked for a transcript and as before agreed to pay

the transcript fee, but not the tuition. Again the University

refused. Kuehn contends that the pre-discharge refusal

violated the Bankruptcy Code’s automatic stay, 11 U.S.C.

§362(a), and the later one the discharge injunction,

11 U.S.C. §524(a), because the refusals were acts to

collect her unpaid debt. Bankruptcy Judge Martin

ordered the University to provide a transcript and pay

damages and attorneys’ fees. The district court affirmed.

2007 U.S. Dist. LEXIS 88191 (W.D. Wis. Nov. 30, 2007). It
No. 07-3954 3

followed In re Merchant, 958 F.2d 738, 741 (6th Cir. 1992),

the only appellate decision on the subject—but, alas, an

unreasoned one.

Section 362(a)(6) prohibits pre-petition creditors from

taking “any act to collect, assess, or recover a claim

against the debtor that arose before [the filing of a bankruptcy petition]” until the bankruptcy proceeding is

closed or dismissed. Section 524(a)(2) “operates as an

injunction against . . . an act, to collect . . . [discharged debt]

as a personal liability of the debtor”. Other subsections

prohibit using legal process to collect, enforcing a prepetition judgment, or exercising control over the property

of the debtor. See §§ 362(a)(1)–(3), 524(a)(1)–(3). Kuehn

argues that the University violated these sections when

it refused to produce her transcript. According to

her, because a transcript has no intrinsic value to the

University, a refusal to provide one must be an act to

collect. The University concedes that its policy is

designed to induce students to pay their tuition, but it

maintains that an “act to collect” for the purpose of the

Bankruptcy Code is limited to a positive step, such as

repossessing a car. A passive failure to do what the

debtor desires is not an “act,” the University submits. The

University treats the transcript as a product that it is

not obliged to sell to someone with whom it no longer

wants to do business.

If Kuehn had attempted to purchase a transcript on

credit, and the University, having been burned once,

proved unwilling to make another loan, this would be

an easy case. Sections 362(a) and 524(a)(2) apply only
4 No. 07-3954

when a creditor acts to collect a pre-petition or discharged

debt. Although the failure to repay a debt factors into a

credit score, the use of a credit score is forward-looking.

Potential creditors consider creditworthiness to evaluate

the wisdom of future transactions, not to collect unpaid

debts. Any other entity deciding whether to extend

credit would consider Kuehn’s failure to pay, and the

University may do the same.

Other sections of the Bankruptcy Code set out some

circumstances in which creditors may not consider a

debtor’s prior bankruptcy filing. See 11 U.S.C. §366 (utilities may not refuse services if the debtor provides

adequate assurance of payment within 20 days); 11 U.S.C.

§525 (anti-discrimination provision applicable to employers and government entities). Otherwise, however,

yesterday’s failure to pay is a proper basis for tomorrow’s

refusal to extend credit. The Fair Credit Reporting Act

permits bankruptcy filings to appear on consumer

reports for 10 years from the date of discharge. See 15

U.S.C. §1681c. It follows that within 10 years from the

date of discharge a prospective creditor may consider

discharged debts in determining creditworthiness.

But Kuehn is willing to pay in advance for a transcript

of her grades, and the University’s only reason for

balking is to induce her to pay for the education—yet that

debt has been discharged. The University contends that

it does not have a contractual obligation to provide a

transcript and that, without an obligation, a passive

refusal to deal cannot be an act to collect. It relies on

Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995),
No. 07-3954 5

which it says establishes that refusal to deal cannot be

an “act to collect”. Strumpf held that a bank did not

violate the automatic stay by placing a hold on a

checking account while asking the bankruptcy court to

lift the stay, so that the bank could set off the

account’s balance against an obligation the debtor owed

to the bank. The Court concluded that a hold designed

to maintain the status quo while the bankruptcy

court considers the request does not violate §362. See

516 U.S. at 21. This does not imply that the bank could

keep the account blocked no matter what happened in

the bankruptcy, or even after a discharge. The Court

concluded that the bank’s delay was not an act to collect

because it had a right under state law, a right preserved

by the Bankruptcy Code, to set off the checking-account

balance against the debt to the bank. That right would

be undercut if the automatic stay permitted the debtor to

drain the checking account while the bank’s hands were

tied. But money owed to a university cannot be set off

against a transcript of grades—the two items are not

of similar character, see Boston & Maine Corp. v.

Chicago Pacific Corp., 785 F.2d 562 (7th Cir. 1986)—and

the University’s refusal is not designed to afford time

for judicial decision.

The district court applied what several courts have

dubbed a “coercive effects” test: a creditor acts to collect

a debt if it acts or fails to act, in a coercive manner, with

the sole purpose of collecting that debt. This “test” can’t

be found in the Code, and situations to which it

applies will be rare, because most acts or failures to act

have multiple purposes, such as minimizing risk based on
6 No. 07-3954

creditworthiness. A rational creditor does itself no

favors by refusing to engage in future transactions

when the debtor will pay cash. See In re Kmart Corp., 359

F.3d 866, 873 (7th Cir. 2004). If the creditor has competitors, the debtor will deal with them and the creditor

loses profit. If the creditor has market power in the

goods or services being sold, it will maximize its profit

by setting a monopoly price for future transactions, not

by trying to collect a debt. Pursuing bygones is a sure

way to reduce future profits. If the University is not

obligated to provide Kuehn a transcript, its best course

of action is to sell the transcript for as much money as

possible. That amount is unrelated to Kuehn’s unpaid debt.

At oral argument we asked the University if it could

charge Kuehn a large sum (say, 25% of the salary

increase she stands to receive from her employer) for a

transcript. It replied that it could not. That answer undermines its position that it has no obligation to provide a

transcript to Kuehn. A provider of goods and services

usually is free to charge whatever the market will bear.

We could not find any laws or regulations limiting the

price of college transcripts. So why does the University

think that the fee for a transcript must be nominal, limited

to the costs of printing and certifying the grades? Perhaps

the answer is that providing a transcript is an implicit

part of the educational contract, covered by the fee for

the course hours, and that Kuehn therefore has a contract or property right for which she has already paid.

(Well, she hasn’t paid, but her obligation to do so has

been discharged, so it comes to the same thing.) The

University cannot charge Kuehn extra if the fee for instruc-
No. 07-3954 7

tion covers transcripts too. Then the University’s refusal

to certify a transcript of Kuehn’s grades would be an act

to collect the discharged debt and would violate both

the automatic stay and the discharge injunction. See

In re UAL Corp., 412 F.3d 775, 778 (7th Cir. 2005).

Well, then, does Kuehn have a property interest because

a certified transcript is part of the package of goods and

services that a college offers in exchange for tuition?

Property interests are created and defined by state law

unless a federal law requires a different result. Butner

v. United States, 440 U.S. 48, 55 (1979). Nothing in the

Bankruptcy Code creates or alters property rights in

grades or the right to receive a transcript. Other federal law addresses privacy concerns but not property

interests. See 20 U.S.C. §1232g (Family Educational

Rights and Privacy Act). What remain are state statutes

and common law. See Board of Regents v. Roth, 408 U.S.

564, 577 (1972).

Only one federal court of appeals (and no state supreme

court) has considered whether a current or former

student has a property right to receive a transcript. Juras

v. Aman Collection Service, Inc., 829 F.2d 739 (9th Cir.

1987), concluded that Montana’s statutory definition of

property does not give students property rights in transcripts. Montana defines property ownership as “the

right of one or more persons to possess and use [a thing]

to the exclusion of others”. Mont. Code §70-1-101. The

court concluded that because a university creates, maintains, and possesses the grade record to the exclusion of

others it is the owner of the official transcript. The ninth
8 No. 07-3954

circuit’s conclusion is questionable. Universities in

Montana are limited by both state and federal law

in what they can do with a student’s grades. Mont. Code

§20-25-515 says that a university “shall release a

student’s academic record . . . when requested by the

student”. This sounds like a rule that the student has a

property interest in the information, even though the

school also may use the data. (Shared property rights

are common. Both landlord and tenant have property

interests in the premises. Or think of land subject to

an easement for transit.) But, right or wrong, Juras is

unhelpful—Cardinal Stritch University is located in

Wisconsin, whose law does not define property rights

in the same way as Montana.

Wisconsin courts have not considered whether a

student has a contract or property right to receive

a transcript. No Wisconsin statute is on point. Under

Wisconsin common law, property rights may arise from

custom and usage. See Delaplaine v. Chicago & N.W. Ry., 42

Wis. 214 (Wis. 1877) (riparian water rights); Keogh v.

Daniell, 12 Wis. 163 (Wis. 1860) (movable fixtures). Universities have consistently provided transcripts at or

around cost. A transcript currently sets students back $4

at Cardinal Stritch University, $3 at Harvard University,

and nothing at the University of Chicago if delivered

electronically (otherwise $12). Fees at other universities

are similar. We could not find any case in any court

where a university had asserted that it could charge a

student more than cost for a transcript, and, as far as we

can tell, no university has ever tried to profit by charging

a fee based on the transcript’s effect on a student’s
No. 07-3954 9

future income. This custom is similar to those in

Delaplaine and Keogh.

That Wisconsin has not previously recognized a right

to receive a transcript does not affect our analysis. Since

colleges don’t treat registrars’ offices as profit centers,

the question has not arisen. What we need to know is

how the Supreme Court of Wisconsin would handle it if

it were to come up. And we think it likely—it is impossible

to say more—that the state judiciary would deem

the students and colleges to be joint owners of the data

reflecting grades, because that is how the educational

contract is routinely understood.

A longstanding custom or practice does not prevent

change. For example, airlines used to carry checked

baggage without a fee. But nobody, including the

Supreme Court of Wisconsin, would conclude that

United Airlines is depriving passengers of their property

when it now charges for checked bags. The cost

of checking baggage is determined by contractual

rights that can be altered by the parties. Cardinal Stritch

University could announce to future students that transcript fees would reflect the value of the education. But

the University did not say any such thing to Kuehn

when she enrolled, or even when she graduated, and it

can’t change the terms of a contract after the fact—even

when those terms are implied rather than express.

Kuehn’s property right might be limited to her grades, an

intangible right similar to the right in a name or

likeness, see Hirsch v. S.C. Johnson & Son, Inc., 90 Wis. 2d

379, 280 N.W.2d 129 (Wis. 1979), and not include a right
10 No. 07-3954

to receive a transcript from the University certifying

those grades. But the custom of universities has been to

provide certified transcripts, and for good reason. Intangible grades are worthless without proof. Kuehn’s school

district increases compensation only after it receives a

certified transcript. Other employers have similar policies. In Hirsch the Wisconsin Supreme Court relied on the

property right in a football player’s nickname to conclude

that the tort of misappropriation was available at common

law. It reasoned that the tort was necessary to give value to

the property right. Id. at 383. See also Baker v. Libbie, 210

Mass. 599, 97 N.E. 109 (Mass. 1912) (a letter writer has a

right to receive copies of a letter owned by another in

order to give value to the writer’s common-law property

interest in the contents of the letter). That reasoning

applies equally here. A right to receive a certified copy

of a transcript is essential to a meaningful property right

in grades.

That a student has a right to a copy of the transcript does

not leave educational institutions without the means to

collect tuition. The University is unable to collect

Kuehn’s tuition only because it was careless. When Kuehn

failed to pay her mounting bills the University could have

refused to let her enroll in new classes. It could have

refused to let her take exams. It could have refused to

award a degree. Or the University could have required

Kuehn to borrow from a third party to pay for her education. Student loans are not dischargeable unless a debtor

can show undue hardship, see 11 U.S.C. §523(a)(8), and

it is unlikely that Kuehn could have shown undue hardship. She was gainfully employed, and her debt to the
No. 07-3954 11

University was substantially less than the extra income

the master’s degree afforded. Presumably the University

will protect itself in one or more of these ways in the

future.

Giving weight to custom that amounts to an implicit

term of the educational contract, and following the reasoning in Hirsch, we conclude that Kuehn has a state-law

right to receive a certified copy of her transcript. The

University’s refusal to honor that right until Kuehn paid

her back tuition was an act to collect a debt and thereby

violated the automatic stay and discharge injunction.

AFFIRMED

4-16-09