BUSSON-SOKOLIK v. MILWAUKEE SCHOOL OF ENGINEERING (February 10, 2011)

Dustin Busson-Sokolik attended the Milwaukee School of Engineering. In 1999, he signed a promissory note with the school in the amount of $3000. In the note, he promised to repay the money and to pay all reasonable collection costs. The School sued Busson-Sokolik in 2005 to recover the unpaid amount and obtained a default judgment of almost $6000. Busson-Sokolik filed for bankruptcy shortly thereafter. An adversary proceeding in the bankruptcy court determined that the debt was non-dischargeable. The School obtained a judgment of over $16,000 that included costs and fees. Busson-Sokolik appealed the decision to the district court, where the proceedings became rather contentious. Busson-Sokolik accused the School of false statements. The School moved to strike a portion of Busson-Sokolik's reply brief because it raised arguments not raised in the bankruptcy court or in his opening brief. Chief Judge Clevert (E.D. Wis.) denied Busson-Sokolik's motion for sanctions, granted the School's motion to strike portions of the brief and motion for costs and fees, and affirmed the bankruptcy court's judgment on the merits. He awarded over $80,000. Busson-Sokolik and his attorney appeal.

In their opinion Judges Power, Flaum, and Hamilton affirmed in all respects except that it reduced the sanction portion of the award by half. The Court noted that bankruptcy proceedings generally discharge all of a debtor's financial obligations. There are exceptions, however. One exception is for an educational loan under § 523(a)(8)(A). The Court rejected Smith's argument that the $3000 was not a loan. In order for there to be a loan, there must be a) a contract, b) the transfer of money, and c) a promise to repay the money at a later date. Those three elements are all present here. The Court also rejected Smith's argument that the loan was not educational. The Court acknowledged that some courts apply a "use" test while others apply a "purpose" test. It adopted the "purpose" test as being more consistent with the statutory language in the broader statutory goals. Here, the purpose test was satisfied because Smith was a student, he had to be a student to qualify for the loan, the money was deposited into his student account, and the loan was part of a total financial assistance package. The purpose of the loan was educational and the district court was correct in concluding that the loan was not discharged. The Court also affirmed the award of fees and costs. Although fees and costs are normally not awarded in American litigation, they are where there is a statute or a contract, unless otherwise prohibited. The promissory note contained Busson-Sokolik’s promise to pay these costs. That promise is enforceable. The Court did not consider Busson-Sokolik's arguments that fees and costs were improper under the merger doctrine. Smith did not raise that argument in either the bankruptcy court or in his initial district court brief. Thus, he has waived it twice and no exceptional circumstances exist that would compel the Court to overlook the waivers. The Court found no error in the denial of Busson-Sokolik's motion for sanctions, in that he failed to honor the safe harbor provision of Rule 9011. The Court also found ample evidence in support of the district court’s award of sanctions against Busson-Sokolik and his attorney. They ignored deadlines, filed baseless pleadings, ignored procedural requirements, and made duplicative filings. But they did not necessarily act in bad faith and the appeal was not necessarily frivolous. The merits of the merger argument was never considered because of waiver and it does have some basis in law. In light of all that and also considering Busson-Sokolik’s status as a student who has filed for bankruptcy, the Court exercised its discretion to reduce the sanctions by half.