Mark W. Tetzlaff v. Educational Credit Management , 794 F.3d 756 ( 2015 )


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  •                                In the
    United States Court of Appeals
    For the Seventh Circuit
    ____________________
    No. 14-3702
    MARK WARREN TETZLAFF,
    Plaintiff-Appellant,
    v.
    EDUCATIONAL CREDIT MANAGEMENT CORPORATION,
    Defendant-Appellee.
    ____________________
    Appeal from the United States District Court for the
    Eastern District of Wisconsin.
    No. 14-cv-767 — Lynn S. Adelman, Judge.
    ____________________
    ARGUED APRIL 22, 2015 — DECIDED JULY 22, 2015
    ____________________
    Before FLAUM, MANION, and HAMILTON, Circuit Judges.
    FLAUM, Circuit Judge. Mark Tetzlaff currently owes ap-
    proximately $260,000 in student loan debt, which is guaran-
    teed by Educational Credit Management Corporation. When
    Tetzlaff filed for Chapter 7 bankruptcy in 2012, he sought to
    have this debt discharged, claiming that repayment consti-
    tuted an “undue hardship” under 11 U.S.C. § 523(a)(8). After
    a trial, the bankruptcy court held that Tetzlaff’s student debt
    could not be discharged. The United States District Court for
    2                                                            No. 14-3702
    the Eastern District of Wisconsin affirmed. We, in turn, af-
    firm the district court.
    I. Background
    Mark Tetzlaff is fifty-six years old and lives in Waukesha,
    Wisconsin with his eighty-five-year-old mother; they both
    subsist on the income from her Social Security payments.
    Tetzlaff is divorced, has no children, and is currently unem-
    ployed. From the mid-1990s until 2005, Tetzlaff pursued a
    Masters in Business Administration from Marquette Univer-
    sity, as well as a law degree from Florida Coastal School of
    Law (“Florida Coastal”). 1 Most relevant to this appeal, Tetz-
    laff took out various federally guaranteed student loans to
    finance his graduate education. 2 In 2004, Tetzlaff consolidat-
    ed his student loan debt, and Educational Credit Manage-
    ment Corporation (“Educational Credit”) is now the guaran-
    tor for the outstanding loan amount.
    Tetzlaff has been unsuccessful at passing a state bar exam
    to date (although he has made two attempts). Prior to at-
    tending graduate school, Tetzlaff worked as a financial advi-
    sor, an employee-benefits consultant, an insurance salesman,
    and a stock broker. Over the years, Tetzlaff has struggled
    with depression and alcohol abuse; he has also been in-
    volved in domestic disputes. Tetzlaff has several misde-
    1Tetzlaff also attended DePaul University College of Law, but was dis-
    missed from the program without a degree.
    2 Tetzlaff financed his education at Florida Coastal directly with the
    school. Tetzlaff’s Florida Coastal debt was not included in this discharge
    action. However, as we will explain later, Tetzlaff argues that payments
    made to Florida Coastal should influence our analysis of his good faith
    efforts to pay the student loan debt at issue in this action for discharge.
    No. 14-3702                                                   3
    meanor convictions, including convictions for disorderly
    conduct and intimidating a victim. He claims that all of these
    factors combined make it very difficult for him to secure
    employment.
    In February 2012, Tetzlaff filed for Chapter 7 bankruptcy
    in the United States Bankruptcy Court for the Eastern Dis-
    trict of Wisconsin. At the time, Tetzlaff owed approximately
    $260,000 in student loan debt, which was guaranteed by Ed-
    ucational Credit. In July 2012, Tetzlaff filed an adversary
    complaint seeking to discharge his student loan debt; the
    complaint named two financial institutions (who are not
    parties to this appeal) as defendants. Educational Credit
    subsequently filed a motion to substitute itself as a real party
    of interest, and the bankruptcy court granted this motion.
    The bankruptcy court held a trial in May 2014 to deter-
    mine whether Tetzlaff was eligible to discharge his student
    loans. The court determined that Tetzlaff failed to show that
    repaying his student loans would constitute an “undue
    hardship,” and thus found that Tetzlaff could not discharge
    them. The United States District Court for the Eastern Dis-
    trict of Wisconsin affirmed. Tetzlaff appealed.
    II. Discussion
    Student loans are generally not dischargeable in bank-
    ruptcy unless the debtor proves that excluding the loans
    from discharge “would impose an undue hardship on the
    debtor.” 11 U.S.C. § 523(a)(8). To determine which situations
    constitute an “undue hardship,” we have adopted the Brun-
    ner test for student loan discharge proceedings, which re-
    quires a debtor to show that:
    4                                                    No. 14-3702
    (1) [he] cannot maintain, based on current in-
    come and expenses, a “minimal” standard of
    living for himself and his dependents if forced
    to repay [his] loans;
    (2) additional circumstances exist indicating
    that this state of affairs is likely to persist for a
    significant portion of the repayment period;
    and
    (3) [he] made good faith efforts to repay the
    loans.
    In re Roberson, 
    999 F.2d 1132
    , 1135 (7th Cir. 1993) (citing
    Brunner v. N.Y. State Higher Educ. Servs. Corp., 
    831 F.2d 395
    ,
    396 (2d Cir. 1987)). A debtor must satisfy each element of the
    Brunner test in order to have his loans discharged. 
    Id. at 1135–36.
    In this case, the bankruptcy court found that Tetz-
    laff met the first element of the Brunner test, but that he
    failed to meet the second two. Educational Credit does not
    challenge the bankruptcy court’s analysis of the first Brunner
    prong. Thus, we accept for purposes of our analysis that
    Tetzlaff meets the first Brunner requirement, and we proceed
    to examine the remaining elements: the “additional circum-
    stances” prong and the “good faith” prong. The bankruptcy
    court found that neither element fell in Tetzlaff’s favor.
    We review the factual findings of the bankruptcy court
    for clear error. 
    Id. at 1137.
    In Krieger v. Educational Credit
    Management Corp., we held that the additional circumstances
    prong represents a “factual finding,” and thus is only re-
    versible if shown to be clearly erroneous. 
    713 F.3d 882
    , 884
    (7th Cir. 2013). In analyzing the good faith prong, we held
    that this determination “combines a state of mind (a fact)
    No. 14-3702                                                      5
    with a legal characterization (a mixed question of law and
    fact).” 
    Id. While we
    acknowledged in Krieger that there may
    be circumstances in which the “only real dispute is legal”—
    in which case our review would be less deferential—we rec-
    ognized that the good faith analysis is “a predominantly fac-
    tual understanding” and that the “undue hardship” inquiry
    as a whole is “a case-specific, fact-dominated standard,
    which implies deferential appellate review.” 
    Id. With such
    deference in mind, we find that the bankruptcy court’s con-
    clusions on the additional circumstances prong and the good
    faith prong must both be affirmed.
    A. Additional Circumstances
    The second prong of the Brunner test contemplates
    whether “additional circumstances exist indicating that [the
    inability to pay] is likely to persist for a significant portion of
    the repayment period … .” 
    Roberson, 999 F.2d at 1135
    . We
    have noted that “the dischargeability of student loans
    should be based upon the certainty of hopelessness, not
    simply a present inability to fulfill financial commitment.”
    
    Id. at 1136
    (citing In re Briscoe, 
    16 B.R. 128
    , 131 (Bankr.
    S.D.N.Y. 1981)). While in Krieger we noted that the “certainty
    of hopelessness” standard “sounds more restrictive than the
    statutory ‘undue hardship’ [standard]” we also noted that “a
    judge asked to apply a multi-factor standard interpreting an
    open-ended statute necessarily has latitude; the more vague
    the standard, the harder it is to find error in its 
    application.” 713 F.3d at 885
    . Here, the bankruptcy court found that Tetz-
    laff’s financial situation has the ability to improve given that
    “he has an MBA, is a good writer, is intelligent, and family
    issues are largely over.” The court also concluded that “Tetz-
    laff is not mentally ill and is able to earn a living.” On the
    6                                                   No. 14-3702
    topic of Tetzlaff’s mental health, the court mentioned the tes-
    timony of Dr. Marc Ackerman—a forensic psychologist
    hired by Educational Credit—and Dr. Amy Gurka—
    Tetzlaff’s treating psychologist. The bankruptcy court noted
    that Dr. Gurka diagnosed Tetzlaff with Narcissistic Personal-
    ity disorder, but that Tetzlaff’s “anxiety and depression do
    not reach clinical levels.” The court also noted that tests per-
    formed by Dr. Ackerman indicated that Tetzlaff “scored
    very high on several malingering scales,” indicating that
    Tetzlaff was perhaps feigning his psychological symptoms.
    On these facts, the bankruptcy court’s analysis of the ad-
    ditional circumstances prong was not clearly erroneous.
    Given Tetzlaff’s academic degrees, prior work experience,
    and age, we agree with the bankruptcy court that he is capa-
    ble of earning a living. (In fact, Tetzlaff’s capable pro se rep-
    resentation in this case is, in our opinion, an indicator of his
    marketable job skills.) While Tetzlaff references obstacles re-
    lated to his mental health, testimony presented to the bank-
    ruptcy court indicates that he does not suffer from clinical
    levels of anxiety or depression, and further indicates that
    Tetzlaff may, in fact, be exaggerating his symptoms. As we
    stated in Roberson, “undue hardship encompasses a notion
    that the debtor may not willfully or negligently cause his
    own default, but rather his condition must result from fac-
    tors beyond his reasonable 
    control.” 999 F.2d at 1136
    (cita-
    tion and internal quotation marks omitted).
    On appeal, Tetzlaff notes that the bankruptcy court did
    not permit him to present the testimony of two experts that
    would have helped his case, particularly on the topic of his
    future ability to secure employment and earn a living. Prior
    to trial, the bankruptcy court excluded the proposed testi-
    No. 14-3702                                                  7
    mony of: (1) a forensic psychologist who would have testi-
    fied that Tetzlaff had memory problems that would likely
    prohibit him from ever passing a bar exam; and (2) a voca-
    tional counselor who would have testified that Tetzlaff was
    unlikely to find employment paying more than $31,000 to
    $37,000 per year. The bankruptcy court excluded this testi-
    mony due to Tetzlaff’s late disclosure of the experts. The
    bankruptcy court previously granted three extensions of the
    court’s pretrial deadline to disclose experts, such that Tetz-
    laff had until August 2, 2013 to do so. On April 10, 2014,
    Tetzlaff filed an emergency motion seeking permission to
    disclose the additional experts, and the bankruptcy court
    denied the motion. The district court affirmed, noting that
    under Federal Rule of Civil Procedure 16(b)(4), a pretrial
    scheduling deadline may only be modified for “good cause.”
    Tetzlaff explained that it did not occur to him to seek testi-
    mony on memory loss until he failed two exams needed to
    work in the financial industry in November 2013 (several
    months after the expert disclosure deadline had passed). For
    the next six months, Tetzlaff apparently gathered the
    “memory evidence” that he wished to present at trial, and
    then filed the emergency motion with the bankruptcy court
    regarding the two additional experts. However, even assum-
    ing that Tetzlaff could not have recognized the need for
    “memory experts” prior to November 2013, Tetzlaff waited
    another six months to raise the issue with the bankruptcy
    court (and this was after the deadline for expert disclosure
    had been thrice extended). We therefore agree with the dis-
    trict court that Tetzlaff did not show good cause for the late-
    ness of his expert disclosure, and thus we reject Tetzlaff’s
    argument that the bankruptcy court erred in excluding his
    two proposed experts.
    8                                                  No. 14-3702
    B. Good Faith
    A debtor’s good faith efforts to repay his student loans
    are measured by his ability to “obtain employment, maxim-
    ize income, and minimize expenses.” 
    Roberson, 999 F.2d at 1136
    . Good faith is also assessed by the debtor’s demonstrat-
    ed efforts to pay off his existing loans. In Krieger, we recog-
    nized that the question of good faith under Brunner neces-
    sarily implicates the debtor’s past efforts to pay down the
    debt at issue (rather than a resolve to pay the debt in the fu-
    ture, which directly conflicts with the very nature of a loan
    discharge 
    proceeding). 713 F.3d at 884
    . The bankruptcy court
    noted that “[Tetzlaff] repaid much of the loan to Florida
    Coastal Law School, but nothing on the loan at issue in this
    adversary proceeding.” Drawing on these facts, the bank-
    ruptcy court concluded that, as with the additional circum-
    stances prong, Tetzlaff did not meet Brunner’s good faith re-
    quirement.
    Tetzlaff argues that the bankruptcy court erred in refus-
    ing to consider his payments to Florida Coastal (which are
    not included in the instant discharge action) in concluding
    that he had not made a good faith effort to repay the debt
    held by Educational Credit. However, Tetzlaff’s position is
    without legal support. Educational Credit points to In re
    Roberta Spence, 
    541 F.3d 538
    , 545 (4th Cir. 2008), in which a
    debtor also sought to discharge student loan debt (also held
    by Educational Credit) and argued that her attempt to pay
    Perkins Loans should qualify as a “good faith” effort to re-
    pay her Educational Credit debt. The Fourth Circuit noted
    that “[Spence’s] choice to repay some of the Perkins Loans
    does not demonstrate a good faith effort to repay the student
    loans held by [Educational Credit].” Id.; see also In re Cun-
    No. 14-3702                                                 9
    ningham, No. 04-2636, 
    2006 WL 1133923
    , at *4 (N.D. W.Va.
    Apr. 26, 2006) (holding that “there is no authority that sug-
    gests that a debtor who pays down one loan while neglect-
    ing another acts in good faith”) Tetzlaff has not identified
    any competing authority. Additionally, Tetzlaff’s argument
    conflicts with the very nature of the undue hardship analy-
    sis, which is an inquiry about the ability of a debtor to pay
    student loan debt subject to a discharge action. See 11 U.S.C.
    § 523(a)(8). The bankruptcy court was not required to con-
    sider Tetzlaff’s payments to Florida Coastal as evidence of a
    good faith effort to repay Educational Credit, as his Florida
    Coastal debt was not included in the discharge action. Fur-
    thermore, as the bankruptcy court noted, it seems that Tetz-
    laff repaid his debt to Florida Coastal largely because he
    needed the school’s cooperation in releasing his diploma
    and transcript. Thus, Tetzlaff was motivated by certain in-
    centives to pay down his Florida Coastal debt that do not
    apply to the repayment of his debt held by Educational
    Credit. Therefore, we decline to hold that the bankruptcy
    court erred when it refused to consider the repayment of
    debt not included in the loan discharge proceeding before it
    in making a determination of good faith under the Brunner
    test. Further, we affirm the bankruptcy court’s conclusion
    that Tetzlaff has not made a good faith effort to pay down
    his student loan debt.
    III. Conclusion
    Accordingly, we AFFIRM.