                            In the

United States Court of Appeals
              For the Seventh Circuit

No. 07-3954

IN THE M ATTER OF:

   S TEFANIE K IM K UEHN,
                                                 Debtor-Appellee.
A PPEAL OF:

   C ARDINAL S TRITCH U NIVERSITY, INC.


            Appeal from the United States District Court
               for the Western District of Wisconsin.
        No. 07-cv-00368-bbc—Barbara B. Crabb, Chief Judge.



       A RGUED M AY 28, 2008—D ECIDED A PRIL 16, 2009




 Before E ASTERBROOK, Chief Judge, and R IPPLE and
W OOD , Circuit Judges.
  E ASTERBROOK, 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-as-
you-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 bor-
rowed 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 discharg-
ing 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. L EXIS 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 bank-
ruptcy 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 pre-
petition 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 (utili-
ties 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 em-
ployers 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 com-
petitors, 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 under-
mines 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 con-
tract 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 fed-
eral 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 tran-
scripts. 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, main-
tains, 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). Univer-
sities 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 tran-
script 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. Intangi-
ble grades are worthless without proof. Kuehn’s school
district increases compensation only after it receives a
certified transcript. Other employers have similar poli-
cies. 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 educa-
tion. 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 hard-
ship. 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 rea-
soning 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.
                                               A FFIRMED




                         4-16-09
