Sanctions, costs, and attorneys’ fees turn $3k student loan debt
into nearly $50k
The Seventh Circuit Court of Appeals upholds sanctions against the
client and his lawyer amounting to nearly $32,000 for filing a frivolous
claim. That’s just half of what the U.S. District Court for the
Eastern District of Wisconsin imposed.
By org jforward wisbar Joe Forward, Legal Writer,
State Bar of Wisconsin
Feb. 16, 2011 – The U.S. Court of Appeals for the Seventh Circuit
ruled that a student loan debt cannot be discharged in bankruptcy. Now,
a former student at the Milwaukee School of Engineering (MSOE) who
borrowed $3,000 is on the hook for nearly $50,000.
Dustin Busson-Sokolik, a student at MSOE in 1999-2000, signed a
promissory note to repay a $3,000 loan from MSOE. The promissory note
made Busson-Sokolik liable for reasonable collection costs and
attorneys’ fees necessary to collect any amount not paid when
In April 2005, MSOE obtained a default judgment in Racine County
Circuit Court against Busson-Sokolik for nearly $6,000, representing
principal plus interest not paid when due.
Two months later, the former MSOE student filed for bankruptcy and
petitioned the court to determine the dischargability of his student
loan debt to MSOE.
The bankruptcy court determined the debt was not dischargeable and
found that Busson-Sokolik owed $16,248, representing the circuit court
default judgment award plus nearly $9,000 in attorneys’ fees.
The U.S. District Court for the Eastern District of Wisconsin, Chief
Judge Charles Clevert Jr., affirmed the bankruptcy court’s
judgment and sanctioned Busson-Sokolik and his attorney, Chomi
Prag, almost $62,000 for filing a frivolous claim under Fed. R.
Bankr. P. 8020. The district court concluded that both were jointly
and severally liable for the $62,000 sanction, and Busson-Sokolik alone
was liable for the remainder. Both appealed.
v. Milwaukee School of Engineering, Nos. 08-4317, 09-4009 and
10-1456 (Feb. 10, 2011), a three-judge appeals panel affirmed the
district court’s ruling but reduced the sanctions amount by half
The bankruptcy code creates an exception to the general discharge of
debt in bankruptcy for educational loans made by a governmental unit or
nonprofit organization. Busson-Sokolic argued that the transfer was not
a “loan” and was not “educational.”
The appeals panel – in an opinion written by Judge William Bauer
– found that the promissory note and subsequent transfer of money
to Busson-Sokolik’s student account met the elements necessary to
constitute a loan, and the purpose was educational.
“[W]e need only ask whether the lender’s agreement with the
borrower was predicated on the borrower being a student who needed
financial support to get through school,” Judge Bauer wrote.
Attoneys’ fees and sanctions
State court default judgment
$5,909 (principal + interest + costs)
Bankruptcy court judgment
$16,248 (principal + interest + costs + attorneys’ fees)
District court judgment
$80,290 (principal + interest + costs + attorneys’ fees +
Appeals court judgment
$49,318 (principal + interest + costs + attorneys’ fees + half
the sanctions amount)
Busson-Sokolik argued that the bankruptcy court improperly allowed MSOE
to recover collection costs and attorneys’ fees under the
promissory note. But the appeals panel noted that an enforceable
contract with provisions for attorneys’ fees can override the
“American Rule” that a litigant ordinarily cannot collect
attorneys’ fees from a losing side.
The panel explained that a contract-based claim for attorneys’
fees is allowed in a bankruptcy court case unless disallowed by a
provision in the bankruptcy code. No provision in the bankruptcy code
disallows recovery in this case, the panel explained.
Additionally, the appeals panel ruled that Busson-Sokolik did not
provide any support for the claim that a nearly $9,000 bill for
attorneys’ fees was unreasonable or unfair.
Finally, the appeals court upheld the district court’s imposition
of monetary damages against Busson-Sokolik and Prag for filing a
frivolous appeal under Fed. R. Bankr. P. 8020, finding that errors were
“numerous and well-documented” even if not made in bad
However, the appeals panel concluded that a reduction in the sanction
damages amount by half was warranted, noting that Busson-Sokolik is a
student who has filed for bankruptcy and “finding no evidence of
bad faith on the part of Busson-Sokolik or his attorney.”
The panel concluded that Busson-Sokolik was solely liable for $18,347
in debt principal, collection costs, attorneys’ fees, and interest
under the terms of the promissory note.
For violating Rule 8020, the court concluded that Busson-Sokolik and
his attorney are jointly and severally liable for $30,971.