Opinion
Case No. 95-20805, Chapter 7, Adversary No. 96-2008
October 28, 1996
OPINION ON DEBTOR'S COMPLAINT TO DETERMINE DISCHARGEABILITY
This case came before the court for trial on September 9, 1996 on the complaint of the plaintiff/debtor, Randall W. Tarufelli, to determine whether the obligation he owes the defendant, Wyoming Joint Electrical Apprenticeship and Training Committee (JATC) is dischargeable under 11 U.S.C. § 523(a)(8). The court has considered the testimony and other evidence, the arguments of the parties, and the relevant law, and for the reasons stated, the court finds that the debt is not discharged.
JURISDICTION
The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 157 and 1334. This case is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I).
ISSUES
The issues are whether the obligation is a "loan" made by a "nonprofit institution" within the meaning of § 523(a)(8); if so whether that obligation is in violation of Wyoming Statutes §§ 277-109 through 112 (1991), Wyoming's "right to work" law; or is dischargeable because repayment will constitute an undue hardship on the debtor and his dependents.
FINDINGS OF FACT
The JATC is a committee established by the International Brotherhood of Electrical Workers and The National Electrical Contractors Association, Inc. to provide training to electrician apprentices and pursuant to a Training Trust Fund Agreement. The program is operated in accordance with prescribed standards of the electrical contracting industry and in compliance with the Wyoming Statutes governing electrical safety and licensing, which now require a program approved by the United States Department of Labor.
The trust fund consists of payments made by electrical contractors under their respective collective bargaining agreements. Any time a journeyman electrician is working under a collective bargaining agreement, the employer apparently makes contributions toward the trust. Consequently, the program is administered through contributions calculated from all journeyman electricians, not just those who were formerly apprentices.
Any apprentice who is enrolled in the program must sign a scholarship loan agreement each year. The scholarship loan document states that the committee provides a scholarship loan to the apprentice, and that the committee will "expend significant sums of money for the training of the apprentice." Each apprentice must personally pay the cost of his books and tuition for the college courses taken in connection with the program. The scholarship itself covers whatever costs JATC incurs to operate the program. At no time does the apprentice receive any funds directly from the committee or the trust fund.
In addition to the courses taken, the apprentice receives on-the-job training with compensation based on a sliding scale. Under the terms of the agreement, the apprentice is indentured to the committee. After the training is complete, and for each year worked as a journeyman electrician in a job under a collective bargaining agreement, the apprentice receives a credit towards the loan repayment.
If the apprentice does not work in a job under a collective bargaining agreement, or if he does not complete the training for whatever reason, any loans are immediately due and owing. The amount of each loan is calculated by the committee as a prorata portion of the total administrative costs for all enrolled apprentices for that year.
Mr. Tarufelli was an apprentice in the program from 1990 to 1995. Each year he signed one of the required loan agreements. Mr. Tarufelli is a licensed journeyman electrician, employed by a non-union contractor. Because this non-union employment is a default under the contract, the JATC obtained a judgment in the Wyoming Seventh Judicial District Court for the amounts owing plus interest, i.e., $15,497.82.
The judgment was entered on October 5, 1995. Mr. Tarufelli filed his voluntary petition for relief under chapter 7 on November 8, 1995 and filed this adversary on February 12, 1996. Mr. Tarufelli admitted that the only reason he filed the chapter 7 was to discharge the obligation to the JATC.
At the time of trial, Mr. Tarufelli was employed and earning net income of $407 per week. His wife is also employed. They have little disposable income, but included in their budget is a payment for a four-wheel recreational vehicle and two other vehicles. Within two years, two of these will be paid for, increasing the disposable income by at least $500.
Mr. Tarufelli expects soon to be a partner in the electrician company for which he is employed. His prospects for improving his financial situation appear excellent.
CONCLUSIONS OF LAW
Mr. Tarufelli brought this complaint to have his debt: to the JATC declared dischargeable by his chapter 7 discharge. Under § 523(a)(8), the chapter 7 discharge does not discharge a debt "for an educational . . . loan . . . made under any program funded in whole or in part by a . . . nonprofit institution, unless . . . excepting such debt from discharge" will impose an undue hardship on the debtor or his dependents. The provisions of this section are self-executing, and lenders need not file complaints to determine whether the debt is dischargeable. When JATC began to execute on its judgment, Mr. Tarufelli filed his voluntary petition for relief under chapter 7.
Nonprofit Institution
Mr. Tarufelli first argues that the JATC is not a nonprofit organization. JATC presented unrefuted evidence that it is a qualified trust under the Employee Retirement Income Security Act, 29 U.S.C. § 1103 et seq. (ERISA). The JATC is also exempt from state and federal taxes under Wyoming tax law and 26 U.S.C. § 501 (c)(3) due to its nonprofit status. This evidence was not seriously challenged by the debtor and, thus, the court concludes that the JATC is a nonprofit institution.
Educational Loan
Mr. Tarufelli contends that the obligation owed to the JATC was not for an educational loan. The JATC directed the court to what is apparently the only reported decision addressing this precise question. In re Rosen, 179 B.R. 935 (Bankr.D.Or. 1995). In that case, the court rejected a similar argument, relying on decisions holding that even attendance at college without paying tuition is a loan.
This court has found that the case law is unsettled as to whether funds must be expended to create an actual loan. In re Najafi, 154 B.R. 185 (Bankr.E.D.Pa. 1993) (holding that attending classes without paying tuition was a loan); contra, In re Peller, 184 B.R. 663 (Bankr.D.N.J. 1994). Generally, a loan does not require that the borrowed funds be paid directly to the debtor in order for the loan to be valid. Black's Law Dictionary defines a loan as, among other things, a lending; a borrowing of money; the creation of debt by the lender's payment or agreement to pay to the debtor or a third party; or the creation of debt by a credit. Black's Law Dictionary 844 (5th ed. 1979).
A fairly broad definition of a loan is also found in In re Merchant, 958 F.2d 738, 741 (6th Cir. 1992). That court held that a loan included liquidated credit extensions when the parties intended to create a loan. The court in In re Alibatya, 178 B.R. 335, 339 (Bankr.E.D.N.Y. 1995), also looked to the intent of the parties at the time the debtor/creditor relationship was established.
This case is somewhat different from those reported decisions in that Mr. Tarufelli signed a loan contract. Mr. Tarufelli actually seems to be arguing that the contract is invalid because no consideration was given by the JATC in exchange for his agreement to repay. He states that he was forced to sign the loan agreements in order to remain in the apprenticeship program, and that the JATC did not expend any funds either directly to him or in support of the training.
The JATC representative testified that the amount of each loan represents a proration of the direct costs of providing and administering the program, arranging for the on-the-job training, and paying for facilities and equipment. Certainly, Mr. Tarufelli received the benefit of an electrician's training through a program sponsored and operated by the JATC, and he was generally employed throughout. Mr. Tarufelli's present employment demonstrates that the program was educational.
Mr. Tarufelli entered into a consensual written loan agreement which specifically set forth the terms and requirements of the obligation. Both he and the JATC intended that in return he would be enrolled in an educational program funded by the JATC. The fact that he had additional costs to pay, such as books and tuition, is irrelevant. The court concludes that the agreements are loans for purposes of § 523(a)(8).
Wyoming's Right to Work Law
Next, Mr. Tarufelli claims that the scholarship loan agreements are not enforceable because they constitute indenture agreements which violate Wyoming's right to work laws. To paraphrase Wyoming Statutes § 27-7-109 through 112, no person can be required to become or remain a member of any labor organization or to pay any charges to any labor organization as a condition of employment.
Under the terms of the loan agreements, if the trained electrician continues to work under a collective bargaining agreement, the obligations do not have to be repaid by him. The debt is gradually forgiven because contributions are made to the JATC by the contractor/ employer. The apprenticeship program is thus assured of continuous funding intended to preserve its existence. If the former apprentice leaves the program early, or does not gain employment by a union contractor, no contributions are forthcoming to the JATC fund based on that apprentice's future employment, and the amounts represented by the loan agreement become due.
The agreement Mr. Tarufelli signed is admittedly an indenture agreement, but the note is a voluntary, consensual contract between him and the JATC. The JATC is not a "labor organization." Mr. Tarufelli is free to chose employment at either a union or nonunion job and is free to quit at any time. He is not required to become a member of the labor organization as a condition of employment. Rather, union employment is a condition of debt forgiveness. In retrospect, this condition may seem unfair to Mr. Tarufelli. However, it does not violate the plain words of the right to work law.
Furthermore, the debt due in this case was reduced to judgment by a Wyoming state district court. Thus, that judgment is res judicata to all arguments that the underlying promissory notes are invalid. That leaves the only question before this court, whether the debt qualifies as a nondischargeable educational loan for purposes of § 523(a)(8). The court concludes that it is an educational loan.
Undue Hardship
Lastly, Mr. Tarufelli asks the court to declare the debt discharged because its repayment will be an undue hardship on him and his dependents. Although not raised in his complaint, he did present evidence on this question at the trial.
This court has previously discussed the undue hardship discharge provision. The court applies a fact sensitive case-by-case approach and considers the totality of the circumstances when determining whether undue hardship is shown. In re Hjelmstad, case no. 94-1005 slip opinion at 6 (Bankr.D.Wyo. 1994).
In this case, the evidence shows that Mr. Tarufelli's family has sufficient current income to pay its ongoing expenses. His wages are attributable to the training he received through participation in the apprenticeship program. His prospects as potential part-owner of an electrical contracting business is obviously intended by him to increase his resources. At least one of his monthly expenses is not a necessity, and in less than two years he will increase his disposable income by at least $500 by retiring some installment debt. Since the filing, Mr. Tarufelli has incurred some postpetition credit card and other debt, presumably assuming that he can pay them because the JATC loans will be discharged.
The court does not view payment of this judgment as an undue hardship, either now or in the future. Mr. Tarufelli is wellsituated to pay this nondischargeable obligation and still maintain a better than minimal standard of living.
CONCLUSION
In conclusion, the obligation owed to the Joint Apprenticeship Training Commission is not dischargeable under § 523(a)(8) or § 523 (a) (8)(B) because it represents a valid educational loan made to the debtor by a nonprofit institution, the repayment of which is not an undue hardship on the debtor or his dependents. The court will issue a judgment in accordance with this opinion.