Rosen v. Attorney Registration & Disciplinary Committee
Filing
23
MEMORANDUM Opinion and Order. Signed by the Honorable Rebecca R. Pallmeyer on 9/29/2017. Mailed notice (rp, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re:
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DONALD ROSEN,
)
)
)
Debtor
)
___________________________________ )
)
DONALD ROSEN,
)
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Plaintiff,
)
)
v.
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ATTORNEY REGISTRATION AND
)
DISCIPLINARY COMMISSION; and
)
EDUCATIONAL CREDIT MANAGEMENT )
CORPORATION,
)
)
Defendants.
)
___________________________________ )
On appeal from U.S. Bankruptcy Court
for the Northern District of Illinois
Eastern Division
Bankr. Case No. 15-0897 (DRC)
Judge Rebecca R. Pallmeyer
Civil Case No. 16 C 10686
MEMORANDUM OPINION AND ORDER
Appellant Donald P. Rosen is a well-educated man.
bachelor’s degree, two master’s degrees, and a J.D.
Since 1980, he has earned a
He is a certified public accountant and a
member of the Illinois state bar. Like many others, Rosen funded his education with student
loans. Today, having spent several years in school and having deferred all but about $11,000 in
payments over 37 years, Rosen’s student loan debt has ballooned to more than half a million
dollars. 1
Rosen has other problems as well. After misappropriating $80,000 of client funds, he
lied to a police officer and falsified bank records in an unsuccessful effort to conceal his
wrongdoing.
The Illinois Attorney Registration and Disciplinary Commission (“ARDC”) has
suspended Rosen’s law license until at least September 2018.
1
Rosen’s student loan debt stood at $495,036.87 as of Sept. 7, 2016. (Bankr. R.
222.) With interest accruing at $52.55 per day, that amount is now just over $515,000.
1
While the disciplinary proceedings were pending, Rosen filed a Chapter 7 bankruptcy
proceeding. He asked the bankruptcy court to discharge his student loan debt and enter a
declaratory judgment that ARDC had violated his constitutional rights. The Bankruptcy Court
denied both requests. The court concluded it had no jurisdiction over the declaratory judgment
claim and therefore dismissed his claim against ARDC. The court also found Rosen’s extensive
student loan debt not dischargeable under 11 U.S.C. § 523(a). For the reasons explained here,
both orders are affirmed.
FACTUAL BACKGROUND
Donald P. Rosen has devoted substantial time to higher education.
He earned a
bachelor’s degree in accounting from Northeastern Illinois University in 1983. (Bankr. R 222.)
While working as an accountant for non-profit organizations, he pursued master’s degrees in
Accounting and Business Administration at DePaul, finishing in 1993. (Id.) In 1994, Rosen
enrolled at Chicago-Kent College of Law. He earned his law degree in 2001, and was admitted
to the Illinois Bar in 2003 at the age of 50. (Bankr R. 250.)
After earning his law degree, Rosen consolidated his various student loans into one
federally-backed loan with Appellee Educational Credit Management Corporation (“ECMC”).
(Bankr. R. 222.) This consolidated loan extinguished all Rosen’s prior student loans dating back
to 1980, leaving him with a single indebtedness that had grown to $495,036.87 as of September
7, 2016. Because he was in school for many of the years since his first student loan, payments
were deferred until 2007.
(Bankr. R. 250.)
With the help of his mother, Rosen made
approximately $11,000 in payments before defaulting on the loan in 2011. (Bankr. R. 233.) 2
After being admitted to the practice of law, Rosen continued working as the chief
financial officer of a non-profit organization, the Larkin Center, while attempting to establish a
2
Rosen originally claimed to have paid just $3,000 towards his debt (Bankr. R.
254), but testified at the bankruptcy trial to payments of $11,000. (Bankr. R. 233). Appellee
ECMC did not dispute this change.
2
private law practice. Rosen was terminated from his position with Larkin Center, where he was
earning $80,000 per year, in 2008, and then began practicing law full time.
His practice did not go smoothly. In August 2012, ARDC charged Rosen with several
violations of the Illinois Rules of Professional Conduct. In a complaint at that time and amended
a year later, ARDC asserted that Rosen had knowingly misappropriated some $85,000 from his
client escrow account and then lied to a police officer investigating the matter. (Bankr. R. 270.)
ARDC charged that Rosen had lied during the course of the course of the ARDC’s own
investigation as well, and had presented fabricated bank records in an attempt to cover up his
wrongdoing. (Id.) The ARDC’s Hearing Board heard Rosen’s case at a proceeding held across
four days: September 26 and 27, 2013; December 16, 2013; and January 3, 2014. (Id.)
Rosen, acting pro se, defended himself against the charges by placing the blame on his
82-year-old mother, Selma Frazin, who he claimed had been helping him with ministerial tasks
at his office. (Bankr. R. 279–86.) “Her unfamiliarity with the difference between business and
trust fund accounts,” Rosen stated, led her to “inadvertently” use client funds for Rosen’s own
business expenses. (Bankr. R. 251.)
Frazin, who “was embarrassed and did not want [her
son] to be upset” with her, then falsified the bank statements that an unknowing Rosen later
provided to his clients, the police, and the ARDC’s investigators. (Bankr. R. 283) (quoting an
affidavit signed by Ms. Frazin and provided to the Hearing Board).
On May 14, 2014, the ARDC’s Hearing Board found by clear and convincing evidence
that Rosen had engaged in the charged conduct. (Bankr. R. 302.) In ruling, the Hearing Board
stated that it found Rosen and his mother’s testimony lacking in credibility and truthfulness:
“[Rosen] and Ms. Frazin have changed their stories so many times it is impossible to determine
when, if ever, they are telling the truth.” (Bankr. R. 272.) Based on the available evidence, the
Hearing Board doubted that Rosen’s mother had the knowledge or ability to alter the bank
statements—or that she was even in Illinois at the time. (Bankr. R. 286, 294.) The Hearing
Board recommended that the Illinois Supreme Court suspend Rosen’s law license for three
3
years and until further order of the court. The Board felt “strongly that he should be required to
establish his fitness before he is allowed to return. Nothing in the record demonstrates that
[Rosen] is currently willing or able to abide by the Rules of Professional Conduct.” (Bankr. R.
305.) The Hearing Board further recommended that Rosen be required to pay $57,646.78 in
restitution to one of his former clients. (Bankr. R. 306.)
Rosen appealed the Hearing Board’s decision to the ARDC’s Review Board, alleging
numerous procedural and substantive errors. On September 18, 2014, the Review Board ruled
in Rosen’s favor, “reluctantly find[ing] that the Hearing Board erred by accepting a written
summation of the evidence” by reviewing a PowerPoint presentation the ARDC’s Administrator
had used during his closing argument. 3
(Bankr. R. 311.) The Review Board remanded the
case for a new hearing.
The Administrator then appealed the decision to remand, filing a petition for leave to file
exceptions with the Review Board’s ruling with the Illinois Supreme Court. On January 16,
2015, the Illinois Supreme Court issued two orders. The first, M.R. 26812, enforced a rule to
show cause previously issued in the case and imposed an immediate interim suspension of
Rosen’s law license under Supreme Court Rule 774. (Bankr. R. 318 (“Interim Suspension
Order”).) The second, M.R. 27001, granted the Administrator’s petition to file exceptions and
ordered the Review Board to consider the merits of the Hearing Board’s findings of misconduct,
“unrelated to whether the Hearing Board violated Commission Rule 284(b).” (Bankr. R. 315
(“Procedural Order”).) On remand one month later, the Review Board reaffirmed the Hearing
Board’s original findings and recommendations.
(Bankr. R. 324.)
Rosen’s disciplinary
proceeding was finally concluded on September 21, 2015, when the Illinois Supreme Court lifted
the interim suspension order and adopted the Hearing and Review Boards’ recommendations:
3
The Review Board’s written opinion noted that the Chair of the Hearing Board
was apparently aware of the rule, quoting from a transcript of the Chair stating: “We’re not going
to consider it for evidence; but it’s a nice way to consolidate some of the evidence that’s been
around.” (Bankr. R. 310.)
4
the Court ordered that Rosen pay restitution of $57,646.74 and suspended his law license for
three years and until further order of court. (Appellant Brief [9] (“Appellant’s Opening Br.”), 6.)
Rosen has not worked since his law license was suspended.
Ever since, he has
asserted that the ARDC’s “character assassination” renders it impossible for him to obtain
professional employment. (Bankr. R. 226.) He has also claimed to be in poor health and
incapable of physical labor. His only income comes from Social Security payments amounting
to $15,600 per year (or $1,300 per month). (Id.) Rosen’s wife still works and earns roughly
$60,000 per year. (Id.) She is responsible for all of the Rosen household’s expenses of $2,300
per month, although Rosen contributes $500 per month out of his Social Security income.
(Bankr. R. 225.) Rosen’s only personal expense is a $100 monthly cell phone bill. (Id.) Rosen
has no dependents, and no debt aside from the student loan—having paid off his home
mortgage in 2014 and discharged the remainder of his debt in bankruptcy. (Id.) At the time he
filed this appeal, Rosen was 63 years old.
PROCEDURAL POSTURE
On March 13, 2015—after the Review Board’s final report but before the Illinois
Supreme Court finalized Rosen’s punishment—Rosen filed a Chapter 7 bankruptcy petition.
(Appellant’s Opening Br. 6.) On June 8, 2015, Rosen filed the current adversary action against
ARDC and ECMC. 4 Rosen asserted two claims for relief. Count I sought the discharge of his
student loans in bankruptcy as an “undue hardship” within the meaning of 11 U.S.C. §
523(a)(8). Count II sought a declaration that the Illinois Supreme Court violated Rosen’s due
process rights by depriving him of a fair disciplinary hearing. (Bankr. R. 248–56.)
1.
Rosen’s Declaratory Judgment Claim against the ARDC
The ARDC promptly moved to dismiss Count II under Federal Rule of Civil Procedure
12(b)(1) (lack of subject matter jurisdiction) and (b)(6) (failure to state a claim upon which relief
4
Rosen originally sued several banks and credit institutions, but ECMC intervened
and replaced those institutions as the proper party in interest as the guarantor of Rosen’s loans.
(Bankr. R. 221.)
5
can be granted), and to dismiss itself as a defendant. (Bankr. R. 261.) ARDC argued that
Rosen’s complaint amounted to “an improper attempt to secure a reversal” of a state court
decision in federal court and was therefore barred by the Rooker-Feldman doctrine. (Bankr. R.
265) (citing Hukic v. Aurora Loan Servs., 588 F.3d 420, 431 (7th Cir. 1999)). The Bankruptcy
Court agreed, and granted the motion to dismiss with prejudice on July 24, 2015. (Bankr. R.
334.)
Rosen sought rehearing under Federal Rule of Bankruptcy Procedure 8015, but Judge
Cassling declined to revisit his ruling.
(Bankr. R. 547.) 5
First, he found that the Rooker-
Feldman doctrine did indeed apply to bar Rosen’s claims. (Bankr. R. 547:16–551:16.) While at
that point the Illinois Supreme Court had only imposed the interim suspension—the final threeyear suspension came down one month later—Judge Cassling found that “[u]nder Illinois law,
an interim suspension order is a final judgment” sufficient to trigger Rooker-Feldman. (Bankr. R.
550:1–2) (citing Mehta v. Att’y Reg. & Discip. Comm. of the Sup. Ct. of Ill., 681 F.3d 885, 887
(7th Cir. 2012)).
Though Rosen framed his argument as a procedural challenge to his
suspension, the bankruptcy court recognized that it sought the same end as a direct
challenge—a review of Rosen’s suspension—and was nonetheless barred by the RookerFeldman doctrine. (Bankr. R. 551:7–14.)
Independent from the Rooker-Feldman question, Judge Cassling also found that the
bankruptcy court lacked subject-matter jurisdiction to enter the declaratory judgment. (Bankr. R.
551:17–553:3.) A declaration concerning Rosen’s purported due process violation was not
properly before the bankruptcy court, Judge Cassling concluded, because such a declaration
would “not affect the amount of property available for distribution or the allocation of property
among creditors.” (Bankr. R. 552:20–22.) As a result, Rosen’s claim was neither a “core
5
Judge Cassling noted that a Rule 8015 motion for rehearing was not the proper
avenue to challenge the dismissal, and that Rosen should have moved for relief from judgment
under Rule 9023 or 9024. (Bankr. R. 547:5–15.) Judge Cassling nevertheless addressed
Rosen’s objections on the merits.
6
proceeding” under 28 U.S.C. § 157(b) nor a “non-core related proceeding” under 28 U.S.C. §
157(c), and the Bankruptcy Court lacked jurisdiction to hear it. (Bankr. R. 552:24–553:3.)
After losing his motion for rehearing, Rosen next filed a motion for leave to appeal the
dismissal of Count II to the District Court. This too was unsuccessful. Judge Guzman of this
court concluded that Rosen was not permitted to appeal the dismissal of Count II (the due
process challenge) as of right, because the other prong of the adversary case—the core
dischargeability question—was still pending. (Bankr. R. 207) (applying FED. R. CIV. P. 54(b) and
28 U.S.C. § 1291.) Judge Guzman also rejected Rosen’s alternate contention that the matter
was appropriate for discretionary interlocutory review under 28 U.S.C. § 1292(b). (Id.) To the
contrary, he concluded, accepting an appeal from the dismissal of Count II would not “materially
advance the ultimate termination of the litigation,” but would instead delay it. (Id.) (quoting 28
U.S.C. § 1292(b)).
After Rosen’s request for leave to appeal was denied on November 3, 2015, the
bankruptcy court returned to Count I: Rosen’s request for a discharge of his student loan
indebtedness.
2.
Rosen’s Undue Hardship Claim to Discharge His Student Loans
On September 19, 2016, the Bankruptcy Court held a trial on that claim. (Bankr. R.
221–234.) Student loans are presumptively non-dischargeable in bankruptcy; to overcome that
presumption, Rosen bears the burden of proving that his loans imposed an “undue hardship” on
himself and his dependents. (Bankr. R. 223, ¶ E) (citing In re Hanson, 397 F.3d 482, 484 (7th
Cir. 2005). The legal standard for “undue hardship” from student loans is known as the Brunner
test, after Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir.
1987). Under the Brunner test, Rosen had to prove: (1) that he could not maintain a minimal
standard of living if he were required to repay the loan; (2) that additional circumstances exist to
suggest this state of affairs is likely to persist; and (3) that he had made good faith efforts to
7
repay the loan. (Bankr. R. 224) (citing Tetzlaff v. Educ. Credit Mgmt. Corp., 794 F.3d 756, 758–
59 (7th Cir. 2015)).
Judge Cassling conducted a one-day trial on Count I; Rosen was the only witness. After
hearing his testimony, Judge Cassling declined to discharge Rosen’s student loans. (Bankr. R.
223, 234.) He found that Rosen failed to satisfy a single element of the Brunner test: on the first
prong, Judge Cassling observed that Rosen had not maximized his income, and thus failed to
show that making monthly payments would prevent him from maintaining a minimum standard
of living.
(Bankr. R. 225–229.)
On the second, Rosen had failed to show a “certainty of
hopelessness” in his financial affairs going forward. (Bankr. R. 232) (citing Goulet v. Educ.
Credit Mgmt. Corp., 284 F.3d 773, 778 (7th Cir. 2002)). The court also found that Rosen had
not made a good faith effort to repay his loan. (Bankr. R. 234.) Finally, Judge Cassling was
unmoved by Rosen’s arguments that the disciplinary proceedings were a primary driver of his
hardship.
Instead, the judge observed, Rosen’s suspension and subsequent “character
assassination” were entirely self-inflicted. (Bankr. R. 226–227, 230.) In any event, as Rosen’s
three-year suspension would expire in 2018, he will be eligible then for reinstatement and could
seek to resume his career as an attorney. (Id.)
DISCUSSION
Rosen appeals both aspects of the bankruptcy court’s judgment. With respect to the
student loan discharge ruling (Count I), Rosen contends that the court erred in its conclusions
regarding the Brunner test, and that the underlying factor in his error is the judge’s mistaken
belief Rosen could resume his legal career in 2018. (Appellant’s Opening Br. 3–4.) With
respect to Count II, he contends the court erred by applying the Rooker-Feldman doctrine to bar
the complaint, and in concluding that the court lacked subject-matter jurisdiction over that claim.
(Id. at 3.)
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1.
Standard of Review
This court has jurisdiction to hear appeals from the final orders and judgments of
bankruptcy courts.
28 U.S.C. § 158(a). On appeal, this court reviews the Bankruptcy Court’s
legal conclusions de novo and its findings of fact for clear error.
In re Mississippi Valley
Livestock, Inc., 745 F.3d 299, 302 (7th Cir. 2014).
Factual findings are deemed clearly erroneous where, despite supporting evidence, “the
reviewing court on the entire evidence is left with the definite and firm conviction that a mistake
[was] committed.” Kovacs v. United States, 614 F.3d 666, 672 (7th Cir. 2010) (quoting United
States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). Whether a debtor has properly shown
“undue hardship” sufficient to discharge his student loans is “a case-specific, fact-dominated
standard, which implies deferential appellate review.” Krieger v. Educ. Credit Mgmt. Corp., 713
F.3d 882, 884 (7th Cir. 2013); see also Tetzlaff, 794 F.3d at 759.
2.
The Bankruptcy Court Lacked Jurisdiction over Rosen’s Claim Against ARDC
Rosen believes that United States Bankruptcy Court is the appropriate forum to
challenge alleged denials of due process in his attorney disciplinary proceedings.
The
bankruptcy court and district court (on interlocutory appeal) disagreed, and, as explained below,
this court does as well.
a.
The Rooker-Feldman Doctrine Bars the Court from Deciding Count II
The Rooker-Feldman doctrine bars lower federal courts from reviewing the final
judgments of state courts that were rendered before the federal proceedings commenced.
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 554 U.S. 280, 284 (2005). Rooker-Feldman
prevents state-court losers from seeking review of adverse judgments in federal courts other
than the Supreme Court. Hukic, 558 F.3d at 431. If the alleged injury resulted from or is
“inexorably intertwined with” the state court’s judgment, the federal court lacks jurisdiction to
hear the claim. Lewis v. Anderson, 308 F.3d 768, 772 (7th Cir. 2002) (quoting Pennzoil Co. v.
Texaco, Inc., 481 U.S. 1, 25 (1987)). As Rosen’s claimed injury arises from a final judgment of
9
the Illinois Supreme Court, the bankruptcy court lacked jurisdiction and properly dismissed
Count II and the ARDC as a party to this lawsuit.
The Illinois Supreme Court issued two orders in Rosen’s disciplinary proceeding: the
Interim Suspension Order (M.R. 26812) imposed under Illinois Supreme Court Rule 774, and
the Procedural Order (M.R. 27001) which remanded his case to the Review Board to review his
case without regard for whether the Hearing Board committed procedural error by reviewing the
PowerPoint presentation. Rosen insists that he accepts the finality of his interim suspension,
and is only seeking a declaratory judgment as to whether the second Procedural Order violated
his due process rights. (Reply Brief of Appellant to Brief of Defendant-Appellee ARDC [20]
(“Appellant’s Reply to ARDC”), 3–4.)
The bankruptcy court was unconvinced by Rosen’s
suggestion that by addressing procedural wrongs, he was not in fact challenging the Supreme
Court’s decision.
The Seventh Circuit has consistently held that the Rooker-Feldman doctrine bars
collateral attacks on state-imposed attorney discipline. See Johnson v. Sup. Ct. of Ill., 165 F.3d
1140, 1141 (7th Cir. 1999) (collecting cases).
That discipline, however, must be imposed
pursuant to a final judgment. See Mains v. Citibank, N.A., 852 F.3d 669, 675 (7th Cir. 2017)
(“The Rooker-Feldman doctrine prevents lower federal courts from exercising jurisdiction over
cases brought by state-court losers challenging state-court judgments rendered before the
district court proceedings commenced.”). A state’s law determines the finality of its own court’s
decisions. United States v. Kashamu, 656 F.3d 679, 683 (7th Cir. 2011). Orders disbarring or
suspending attorneys for a term of years clearly count as “final.” See Johnson, 165 F.3d at
1141 (blocking plaintiff’s Section 1983 suit against the ARDC after he was disbarred).
Additionally, in a case very similar to this one, Mehta v. Attorney Registration & Disciplinary
Commission of the Supreme Court of Illinois, 681 F.3d 885 (7th Cir. 2012), the Seventh Circuit
held that interim suspensions imposed under Rule 774 also constitute final judgments for the
purposes of Rooker-Feldman. Id. at 887 (“A Rule 774 suspension is ‘interim’ only in the sense
10
that a later case, initiated separately in the Illinois Supreme Court to seek disbarment, might
supersede it.”). Mehta, like Rosen, faced an interim suspension before his final punishment for
converting his clients’ money and then lying about it. Id. at 886. He challenged the Illinois
Supreme Court’s suspension order in federal court as creating an “unconstitutional risk of bias”
in his overall proceedings, but the Seventh Circuit applied Rooker-Feldman to bar Mehta’s
claim. Id. at 887.
As a result, any attempt by Rosen to challenge the finality of the Interim Suspension
Order must fail. Rosen admits as much, stating instead that the Bankruptcy Court’s error was in
thinking Mehta applied at all. (Appellant’s Opening Br. 11.) The Procedural Order, he claims, is
not a final judgment under Illinois law, and is therefore ripe for collateral attack in federal court.
(Id. at 12.) Rosen distinguishes Mehta on this basis, attempting to thread the needle by saying
that his rights were not violated by the suspension, but by procedural errors underlying the
suspension. (Id. at 11.)
In reality, it makes no difference what order Rosen claims to be challenging: either one is
“inexorably intertwined” with his interim suspension. See Levin v. Att’y Reg. & Discip. Comm. of
the Sup. Ct. of Ill., 74 F.3d 763, 767 (7th Cir. 1996) (“The gravamen of Levin's entire complaint
is that his disciplinary proceedings were unconstitutional. All of Levin's claimed injuries stem
from the application of allegedly unconstitutional Illinois Supreme Court Rules to his disciplinary
proceedings, and he seeks relief to redress these particular injuries.”). Whether through a direct
attack on his Rule 774 interim suspension or a roundabout challenge as to the procedural
rightness of the underlying hearings, Rosen wants his suspension overturned.
His stated
rationale for trying to wedge this declaratory judgment claim into a student loan discharge
proceeding makes this goal abundantly clear. To receive a discharge, Rosen had to show that
his present hardship was not self-inflicted: “In other words, whether Appellant actually
committed the egregious acts that he was accused of.”
(Appellant’s Reply to ARDC 2)
(emphasis added). “The question of whether Appellant received a fair hearing was significant in
11
that determination and would have helped determine whether the student loan was
dischargeable.” (Id.)
To allow Rosen to pursue his declaratory judgment claim in federal court would be to
“effectively void the state court ruling.” Levin, 74 F.3d at 766; see also Johnson, 165 F.3d at
1141–42 (applying Rooker-Feldman to bar a former attorney’s lawsuit even though it was based
on “the actions that led to the disbarment, rather than the disbarment itself.”). With section 1983
actions like that brought in Mehta, the Seventh Circuit has long stated that “[a] plaintiff may not
circumvent the effect of the Rooker–Feldman doctrine simply by casting [his] complaint in the
form of a federal civil rights action.” Remer v. Burlington Area School Dist., 205 F.3d 990, 997
(7th Cir. 2000) (quoting Maple Lanes, Inc. v. Messer, 186 F.3d 823, 825 (7th Cir.1999)). Nor
may a plaintiff attempt to do so under the guise of a declaratory judgment, as Rosen seeks to do
here.
Rosen insists that both Bankruptcy Judge Cassling and District Judge Guzman did not
understand the nuanced argument he was making, and “assum[ed] that [he] sought review of
Order M.R. 26812”—the Interim Suspension Order. The record defeats this notion. In denying
Rosen’s Rule 8015 Motion for Rehearing, Judge Cassling stated:
The debtor [ ] states that he simply seeks this Court to review the procedural
proceedings and the Supreme Court order and rule on the question of whether
his due process rights were violated by not following the remand order of the
Review Board for a new hearing. [citation omitted]. This Court finds that the
debtor’s arguments lack merit. The debtor candidly admits in this motion that he
is asking this Court to review the proceedings and the Illinois Supreme Court’s
order.
...
[I]t is clear that the debtor is a state-court loser complaining of injuries caused by
an order of the Illinois Supreme Court. While the debtor denies this, he is, in fact
indirectly asking this Court to review the Illinois Supreme Court decision to
suspend him from practicing law. Success before this Court would require
overturning the Illinois Supreme Court decision.
(Bankr. R. 550:14–24, 551:7–14.)
In denying Rosen leave for interlocutory appeal, Judge
Guzman added: “there are simply no ‘substantial grounds for difference of opinion’ with the
12
bankruptcy court. Its Rooker-Feldman analysis is plainly supported by the Seventh Circuit’s
recent decision in Mehta[.]” (Bankr. R. 207.) This court agrees and affirms the dismissal of
Rosen’s declaratory judgment claim.
b.
The Bankruptcy Court Lacked Jurisdiction under 28 U.S.C. § 157
Defendant-Appellee ARDC did not initially raise the lack of subject-matter jurisdiction
(Bankr. R. 261–268), but courts have an independent duty to ensure subject-matter jurisdiction,
which cannot be waived by the parties. Dexia Credit Local v. Rogan, 602 F.3d 879, 883 (7th
Cir. 2010). Bankruptcy Judge Cassling properly noted the lack of core jurisdiction in open court
when denying Rosen’s Rule 8015 Motion for Rehearing. (Bankr. R. 551–553.)
Bankruptcy courts may hear and determine all cases and “core proceedings” arising
under Title 11 of the U.S. Code. 28 U.S.C. § 157(b)(1). “[A] proceeding is core under section
157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature,
could arise only in the context of a bankruptcy case.” Diamond Mortg. Corp. of Ill. v. Sugar, 913
F.2d 1233, 1239 (7th Cir. 1990) (quoting Barnett v. Stern, 909 F.2d 973, 981 (7th Cir. 1990)).
The statute also provides a non-exhaustive list of “core proceedings” which include: orders to
turn over property, motions modifying the automatic stay, or “determinations as to the
dischargeability of particular debts.” 28 U.S.C. § 157(b)(2)(E), (G), (I). Bankruptcy courts may
also hear non-core proceedings “related to” cases under Title 11.
28 U.S.C. § 157(c)(1).
Controversies are not “related to” a bankruptcy within the meaning of Section 157(c) unless their
resolution “affects the amount of property available for distribution or the allocation of property
among creditors.” Home Ins. Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 749 (7th Cir. 1989)
(quoting In re Xonics, Inc., 813 F.2d 127, 131 (7th Cir. 1987)).
Rosen’s declaratory judgment claim does not fit either category. He attempts to link
potential reinstatement as an attorney to the dischargeability of his student loan debt, but there
is no serious argument that this declaratory judgment “could arise only in the context of a
bankruptcy case.” Aptly stated by District Judge Guzman, “[t]he adversary proceeding against
13
ARDC really has nothing to do with Plaintiff’s underlying bankruptcy.
The ARDC is not a
creditor, and the resolution of his Due Process claim would not affect the assets in his
bankruptcy estate[.]” (Bankr. R. 206.) Simply put, United States Bankruptcy Courts are not in
the business of issuing declaratory judgments on the constitutionality of state court attorneydiscipline hearings.
Rosen cites no case law that that challenges this conclusion. He merely repeats that
vindication in his disciplinary proceeding will demonstrate that his hardship is not self-inflicted
and therefore support his claim for a discharge under Brunner. (Appellant’s Opening Br. 13;
Appellant’s Reply to ARDC 2.) But this argument fails on the facts and the law. Even if this
court heard the claim and declared that the Illinois Supreme Court violated Rosen’s
constitutional rights, there is little evidence that Rosen would prevail on the merits in a new
disciplinary hearing. Rosen’s charges were proved with clear and convincing evidence. The
Review Board did at one point agree that Rosen deserved a new hearing, but did so only
“reluctantly.” (Bankr. R. 311.) Then, considering the matter a second time, the Review Board
stated:
Respondent expressed no remorse for the harm he caused. The Hearing Board
considered Respondent’s attempts to portray everyone else wrongdoers as
aggravating. Indeed, instead of accepting responsibility for his misappropriations,
Respondent embarked on a path of lies and misrepresentations in an effort to
blame others, including his own mother, for his own misdeeds.
(Bankr. R. 330.) In short, a declaratory judgment is unlikely to alter the result of the disciplinary
proceeding.
The court notes, further, that if Rosen were to prevail on his declaratory judgment, the
result might not be what he expects; a declaration that effectively clears Rosen’s name before
the ARDC would undermine his claim that he is unable to pay his student loan. That result
confirms, in the court’s view, that this dispute is independent of Rosen’s efforts to discharge his
student loan.
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3.
The Bankruptcy Court Properly Found Rosen’s Student Loans Non-Dischargeable
Student loans are generally non-dischargeable in Chapter 7 bankruptcy unless failing to
discharge the loans “would impose an undue hardship on the debtor.” 11 U.S.C. § 523(a)(8).
The Bankruptcy Code does not define “undue hardship,” but the statutory language suggests
that Congress did not mean to permit “garden-variety” hardship of the kind accompanying all
bankruptcy filings. O’Hearn v. Educ. Credit Mgmt. Corp., 339 F.3d 559, 564 (7th Cir. 2003).
The Seventh Circuit, like many others, follows the “Brunner test” when evaluating undue
hardship from student loans. Matter of Roberson, 999 F.2d 1132, 1135 (7th Cir. 1993) (citing
Brunner, 831 F.2d at 396). That test requires a debtor claiming “undue hardship” to establish
three elements:
(1) that the debtor cannot maintain, based on current income and expenses, a
“minimal” standard of living for [himself] and [his] dependents if forced to repay
the loans; (2) that additional circumstances exist indicating that this state of
affairs is likely to persist for a significant portion of the repayment period of the
student loans; and (3) that the debtor has made good faith efforts to repay the
loans.
Id.
The debtor bears the burden of proving all three elements by a preponderance of the
elements. Goulet, 284 F.3d at 777 (citing Grogan v. Garner, 498 U.S. 279, 291 (1991)). As
explained below, Judge Cassling did not err in finding that Rosen failed to meet any prong of the
Brunner test. Accordingly, Rosen’s student loans were properly found to be non-dischargeable
in bankruptcy.
a.
“Minimal Standard of Living”
The first prong of Brunner calls for analysis of whether requiring the debtor to repay his
loans “would cause his standard of living to fall below that minimally necessary.” Roberson, 999
F.2d at 1135. This requires showing “more than simply tight finances.” In re Kehler, 326 B.R.
142, 147 (N.D. Ind. Bankr. 2005) (“[T]he debtor cannot succeed under this prong by
demonstrating that the repayment of the student loans would require him to make major
15
personal and financial sacrifices and to live within a restricted budget.”) A common starting
point is to ask whether the debtor is minimizing his expenses and maximizing his income.
Armstrong v. U.S. Dep’t of Educ., No. 10-8118, 2011 WL 6779326, at *5 (C.D. Ill. Bankr. Dec.
27, 2011). Since the standard-of-living inquiry is judged on a household basis, it is appropriate
to consider a non-debtor spouse’s income when determining whether a debtor can service his
loans. See Clark v. U.S. Dep’t of Educ., 341 B.R. 238, 251 (N.D. Ill. Bankr. 2006); Armstrong,
2011 WL 6779326 at *4 (collecting cases).
Rosen is married and has no dependents. His wife works and earns a salary of $60,000
per year. (Bankr. R. 226.)
Rosen is currently unemployed, but takes in $1,300 per month in
Social Security benefits. (Id.) Ms. Rosen is responsible for their household expenses, which
amount to $2,300 per month. (Bankr. R. 225.) Though Rosen testified that “he voluntarily
contributes $500 per month” to the monthly household expenses, his only personal expense is a
$100 monthly phone bill. (Id.) The Rosens have owned their home for nearly 30 years, and
paid off their mortgage in 2014. (Id.)
As ECMC conceded that Rosen had minimized his expenses, the bankruptcy court
focused on whether Rosen had maximized his income. (Bankr. R. 226–227.) It found Rosen’s
efforts sorely lacking. Rosen testified at trial that his suspension prevents him from working in
his preferred field as an attorney, and that the negative publicity surrounding his suspension
prevents him from working in alternative white-collar fields like accounting or marketing. (Bankr.
R. 226.)
He claims to have applied for approximately one hundred jobs, including many
managerial and executive roles. (Id.) The court noted, however, that Rosen “offered little to no
evidence as to the details of the job positions for which he had applied, the requirements of the
jobs, or the results of his application submissions. . . . [Rosen] pursued a very narrow job search
focused solely on jobs in the finance area.” (Bankr. R. 227.) Rosen also cites poor health as an
additional factor in his failure to obtain employment. Judge Cassling noted how this, too, was
not supported by evidence showing that Rosen’s health prevented him from working. (Bankr. R.
16
227.) Rosen admitted to managing his various ailments with medication. (Id.) Judge Cassling
ultimately rejected Rosen’s contention that his “self-diagnosis of morbid obesity” and other
treatable health issues were a substantial impediment to employment. (Id.); see also Owens v.
U.S. Dep’t of Educ., 525 B.R. 719, 722 (C.D. Ill. Bankr. 2015) (denying the debtor’s healthbased arguments for hardship where the debtor offered no evidence that they were substantial
impediments).
On this record, Judge Cassling did not err in finding that Rosen failed to adequately
maximize his income.
Rosen may believe work outside of the legal or financial fields is
inappropriate, but, as the Seventh Circuit noted, “it is not uncommon for individuals to take jobs
not to their liking in order to pay off their student loans, or for that matter to meet all sorts of
other financial obligations.” O’Hearn, 339 F.3d at 566.
Rosen hotly contests the bankruptcy court’s findings, particularly findings concerning
income required for loan repayment. (Appellant’s Opening Br. 16, 18–19.) Judge Cassling
found that Rosen could afford to pay off his loans in full over a thirty-year period if he were to
supplement his existing Social Security income by $14,000. (Bankr. R. 228–229.) As Rosen
was 62 years old at the time of trial, he insists that “anything over a ten-year repayment period
would be unreasonable.”
(Appellant’s Opening Br. 19.)
A ten-year repayment period,
meanwhile, would require monthly payments of $5,558, or a yearly income of $66,696 after
taxes.
Rosen claims that he cannot be expected to live—much less work—until his early
nineties, and cannot be expected to earn enough money to pay off the loan in a shorter period.
(Id. at 16, 18–19.)
A thirty-year repayment schedule may well be unrealistic, given Rosen’s age and
purported health, but this is not dispositive. As the Bankruptcy Court noted, “the possibility that
the Plaintiff will not live until the end of the repayment period is not a factor that the Court must
consider in applying the Brunner test.” (Bankr. R. 229) (citing Armstrong, 2011 WL 6779326, at
*9). Courts nationwide have reached the same conclusion: repayment into advanced age is a
17
consequence of taking out loans late in life. See, e.g., Kehler, 326 B.R. at 148 (finding a 25year repayment period to be a reasonable option for a 62-year old debtor); Spence v. Educ.
Credit Mgmt. Corp., 541 F.3d 538, 544 (4th Cir. 2008) (refusing to discharge a 61-year-old
debtor’s loans); Connor v. U.S. Dep’t of Educ., No. 15-10541, 2016 WL 1178264, at *3 (E.D.
Mich. Mar. 28, 2016) (collecting cases). Likewise, this court is not convinced that Rosen should
be rewarded in 2017 with a repayment period ending earlier than the one he faced when he
took out the loan in 2001. The maximum thirty-year repayment period, had Rosen made regular
payments from the outset, would have ended when he was 78 years old. If measured from the
end of Rosen’s final deferment in 2007, he would have been on the hook for minimum monthly
payments until the age of 84. It is disingenuous for Rosen to argue now that any repayment
period that has him working until he is over 72 years old is “unreasonable.”
In any event, arguing over the actual duration of Rosen’s remaining work life is not
meaningful. Rosen failed to prove that he was maximizing his income, and as result, any
repayment target he proposes is pure conjecture. Roberson, 999 F.2d at 1137 (“While any
precise prediction of his future earnings and expenses is necessarily speculative, Mr. Roberson
has not indicated his road to recovery is obstructed[.]”). Rosen also failed to corroborate his
testimony with evidence of his numerous reasons why he could not be expected to work at
present or into the future. See id.; O’Hearn, 339 F.3d at 567 (remanding to the bankruptcy court
based on insufficient evidence to support the debtor’s discharge). This court agrees with Judge
Cassling that Rosen failed to prove by a preponderance of the evidence that being required to
pay his loan would reduce his standard of living below a minimum acceptable level.
b.
“Additional Circumstances”
The second Brunner factor is whether “additional circumstances exist indicating that
[Rosen’s inability to pay] is likely to persist for significant portion of the repayment period.”
Tetzlaff, 94 F.3d at 759 (citation omitted). The Seventh Circuit has expanded on this prong by
stating that student loan discharges should be based on “a certainty of hopelessness” requiring
18
evidence “of additional exceptional circumstances, strongly suggestive of continuing inability to
repay.” Goulet, 284 F.3d at 778 (citation omitted). In addition, “undue hardship encompasses a
notion that the debtor must not willfully or negligently cause his own default, but rather his
condition must result from factors beyond his reasonable control.” Roberson, 999 F.2d at 1136
(internal citation and quotations omitted).
On this front, Rosen repeats his arguments that his health, age, poor credit, non-profit
industry specialization, and lack of work history since 2008 all serve as “impediments to
employment.” (Appellant’s Opening Br. 20.) Rosen’s health and age have been addressed at
length by both the Bankruptcy Court, and by this court.
convincing, nor particularly relevant.
The remaining factors are not
Poor credit history does not render a person
unemployable. And while Rosen has not worked as an accountant since 2008, he ran his own
legal practice from that time until his suspension in 2015.
Rosen’s remaining arguments ignore the fact that he possesses valuable skills, apart
from his law license.
As noted, he has master’s degrees in accounting and business
administration, and 24 years of accounting experience, including work as the chief financial
officer of a non-profit charity. (Bankr. R. 226, 231.) Judge Cassling concluded that Rosen “is
clearly capable of earning a living” and observed that his “capable pro se representation”
throughout his bankruptcy case is a strong “indicator of his marketable job skills.” (Id. at 231)
(quoting Tetzlaff, 794 F.3d at 760). There is little evidence that Rosen suffers from the barriers
traditionally viewed as sufficient “additional circumstances” under Brunner. See Goulet, 284
F.3d at 778 (listing psychiatric problems, lack of usable job skills, and severely limited education
as standard examples). This court is not persuaded that Rosen’s unemployment will continue
indefinitely.
Rosen asserts an additional error: that the Bankruptcy Court wrongly assumed that his
circumstances stood to improve as soon as the suspension of his law license ended in 2018.
(Appellant’s Opening Br. 3.) The Illinois Supreme Court suspended Rosen for three years and
19
until further order of the court. According to Rosen, this means he will never be able to practice
law again, and qualifies as a permanent additional circumstance required by Brunner.
(Appellant’s Opening Br. 20–21.)
Illinois Supreme Court Rule 767(f) outlines six factors relevant to a request for
reinstatement: (1) the nature of the misconduct; (2) the petitioner’s maturity and experience at
the time discipline was imposed; (3) whether the petitioner recognizes the nature and
seriousness of the misconduct; (4) whether the petitioner has made restitution; (5) the
petitioner's conduct since being disciplined; and (6) the petitioner's candor and forthrightness in
presenting evidence. Other than his good conduct since being suspended, Rosen asserts that
he “cannot meet any of the other factors for reinstatement.” (Appellant’s Opening Br. 21.) This
court is not convinced. Every single factor listed above is within Rosen’s reasonable control. If
Rosen indeed faces a permanent suspension, it is only because he continues to deny
responsibility for his actions. Rosen, for example, freely admits that he has not made the courtordered restitution payment of $57,646.74 to his former clients. 6
(Id.)
This is notable
considering Rosen has $1,200 per month to spend as he pleases. The Hearing and Review
Boards recommended that Rosen show cause for his reinstatement because “[n]othing in the
record demonstrates that [Rosen] is currently willing or able to abide by the Rules of
Professional Conduct.”
(Bankr. R. 305.)
Rosen’s arguments here on appeal confirm that
observation.
For the same reasons, Rosen laments his injured reputation—which “any prospective
employer can search [for] . . . on Google.”
(Reply Brief of Appellant to Response Brief of
Defendant-Appellee ECMC [21] (“Appellant’s Reply to ECMC”), 11.) Rosen asserts:
6
The record does not say whether Rosen managed to discharge the $57,646.74
restitution order in bankruptcy. Rosen implies that he did (Appellant’s Opening Br. 21 n.4)—
although numerous subsections of 11 U.S.C. § 523(a) suggest otherwise. Regardless, the fact
that Rosen’s obligation was discharged in bankruptcy does not prohibit the Illinois Supreme
Court from considering it in its reinstatement calculus.
20
The reasoning of the [Bankruptcy] Court fails to consider that, whether purposeful
or not, the published information by the ARDC and others makes it impossible for
Appellant to find employment from an employer who expects honesty in their new
hire. There are few positions, professional or otherwise, where honesty is not
required.
(Appellant’s Opening Br. 17.) The record shows the bankruptcy court did consider Rosen’s
argument, but concluded that the negative information posted online is the result of Rosen’s
own willful actions. (Bankr. R. 230.)
The court declines to disturb the bankruptcy court’s determination on this issue. Rosen
did not establish an ongoing inability to repay his loans—or, at least, that the inability was not
self-inflicted.
c.
“Good Faith Efforts to Repay”
The final prong of the Brunner test—good faith efforts—can be dealt with briefly. Rosen
emphasizes case law showing what he is not required to show: efforts to maximize income,
payment of a minimum amount or percentage of income, or enrollment in an income-based
repayment plan. (Appellant’s Reply to ECMC 11–12) (citing Henry v. U.S. Dep’t of Educ., No.
14-7021, 2016 WL 3681201, at *6 (C.D. Ill. Bankr. July 5, 2016); Krieger, 713 F.3d at 884). The
court has no quarrel with these observations; but Rosen has made virtually no effort to show
what he has done to establish his good faith.
The evidence is flatly inconsistent with such a finding.
paying his student loans, regardless of his income.
Rosen has never prioritized
Rosen worked and earned a salary
throughout his graduate studies, which he pursued back-to-back over the course of 16 years. In
his final year at the Larkin Center, he reported a salary of $80,000. Yet Rosen paid just $11,000
towards his loans over the span of 37 years. To pay even that small percentage, he enlisted his
mother’s assistance. Rosen has made no real effort to maximize his income. Finally, and most
tellingly, Rosen defaulted on his student loan in 2011, while he was still a lawyer in good
standing.
He was not charged with misconduct by the ARDC until August 2012, and not
suspended until January 2015. In the meantime, Rosen did not make even partial payments
21
towards his loans out of his $1,200 monthly surplus income or his household’s yearly income
tax returns.
Rosen takes pride in some of these facts, asserting that the duration of time between
finishing school and pursuing a student loan discharge is an important signal of good faith.
(Appellant’s Opening Br. 23) (citing Owens v. U.S. Dep’t of Educ., 525 B.R. 719, 723 (C.D. Ill.
Bankr. 2015) (denying a discharge to a “young, healthy, employable person with a master's
degree, who has made no payments and filed bankruptcy within three years”)).
Notably,
however, the very case Rosen cites, Owens, includes this observation:
The debtor contends that the fact that he has consolidated his loans and applied
for and been granted several deferments, satisfies the requirement of a good
faith effort to repay the loans. . . . Deferments and forbearances afford a way for
the borrower to retain or be restored to a non-default status without having to
make a payment. The third Brunner prong contemplates payment efforts, not
administrative reconfigurations that merely adjust the contractual terms or the
borrower's default status.
525 B.R. at 722–23.
Rosen managed to avoid default on his student loans for 31 years
because he attended school (and kept taking out more loans) nearly the entire time. Even after
graduating law school in 2001, Rosen kept his loans in deferment until 2007.
This is not
evidence of a good faith effort to pay.
In the end, the primary driver of any sympathy for Rosen’s current situation is the sheer
magnitude of his student loan debt. The fact that he may be unable, practically, ever to repay
the loan in full does not, however, move the court. Rosen appears to believe that because the
likelihood of paying off the entire loan within his lifetime is slim, he should not bother trying.
(See Appellant’s Reply to ECMC 13 (“The question is not whether Appellant could earn some
amount of money from employment, but whether [he] can earn a sufficient amount to repay the
student loans.”)) The court disagrees. “It would be perverse to allow the debtor to benefit from
[his] own inaction, delay and recalcitrance by automatically granting discharge simply because
the debt is a sizeable one.” Educ. Credit Mgmt. Corp. v. Jesperson, 571 F.3d 775, 781 (8th Cir.
22
2009) (quoting United States v. Kephart, 170 B.R. 787, 792 (W.D.N.Y. 1994).
This court
declines to reward Rosen’s choices at the expense of American taxpayers.
CONCLUSION
For the reasons stated, the judgment of the Bankruptcy Court is AFFIRMED.
ENTER:
Dated: September 29, 2017
_________________________________________
REBECCA R. PALLMEYER
United States District Judge
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