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FisherBroyles Partners Edmund Brown and Patricia B. Fugée Succeed in a Unique Case at the Intersection of Charter Schools, Treasurer Liability, and Discharge in Bankruptcy

Mar 23, 2020
  • Bankruptcy and Creditors' Rights
  • FisherBroyles News

On March 18, 2020, the U.S. District Court for the Southern District of Ohio (the “District Court”), acting as appellate court for the U.S. Bankruptcy Court for the Southern District of Ohio (the “Bankruptcy Court”), affirmed the Bankruptcy Court’s decision that certain alleged liability of the Debtor, Edward Dudley, Sr., stemming from his role as treasurer for certain charter schools, was dischargeable and not exempt from bankruptcy discharge under 11 U.S.C. § 523(a)(8)(A)(ii). The State had argued that Mr. Dudley’s alleged liability arose because the schools for which he served made improper payments to third parties and as treasurer, he is strictly liable for the funds. The State further argued that his liability is not dischargeable in bankruptcy because the school’s funds are an “educational benefit” excepted under section 523(a)(8)(A)(ii), which is the same provision that exempts student loans and similar obligations from discharge. Representing Mr. Dudley, FisherBroyles partners Edmund Brown and Patricia B. Fugée successfully argued before the Bankruptcy Court and the District Court that the goals of section 523(a)(8) are specifically “to address the abuse resulting from the circumstance in which a debtor obtains the ability to increase his, her or their children’s future income, but seeks to discharge the obligation to pay for the increased earning potential that the debtor or their children obtained.” Mr. Dudley’s alleged liability for the school’s improper payments does not fall into that purpose since he is not a student and did not receive any kind of educational benefit from the funds in question. It appears to be the first time that these novel arguments were brought before an appellate court.

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