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In re Hurley

United States Bankruptcy Appellate Panel of the Ninth Circuit

June 26, 2019

In re: PAUL HURLEY, Debtor.
UNITED STATES OF AMERICA; ACCESSLEX INSTITUTE dba Access Group, Appellees. PAUL HURLEY, Appellant, Adv. No. 2:17-ap-01025-TWD

          Submitted Without Oral Argument on May 23, 2019

          Appeal from the United States Bankruptcy Court for the Western District of Washington Honorable Timothy W. Dore, Bankruptcy Judge, Presiding

          Appellant Paul Hurley pro se on brief; Annette L. Hayes and Pooja Faldu Davé on brief for Appellee the United States of America; Joseph Ward McIntosh of McCarthy & Holthus, LLP on brief for Appellee Accesslex Institute dba Access Group.

          Before: BRAND, KURTZ and FARIS, Bankruptcy Judges.


          BRAND, Bankruptcy Judge


         Appellant Paul Hurley appeals a summary judgment order in favor of the United States and Accesslex Institute, dba Access Group (together, "Defendants"). The bankruptcy court determined that, given Hurley's legal background and the nature of his criminal conduct, he was unable to establish good faith under Brunner[1] and therefore was not entitled to a hardship discharge of his student loans under § 523(a)(8).[2] We AFFIRM.


         A. Prepetition events

         Hurley received his law degree in 2004 and his L.L.M. in tax in 2006. He received federal and private student loans to fund his legal education and bar examination costs. Hurley was admitted to practice law in the state of Washington in November 2006 but changed his license to inactive status in January 2010.

         Hurley has made payments on both his federal and private student loans. He consolidated his federal student loans in 2010 and entered into an Income Based Repayment Plan. He has also been diligent in his efforts to obtain deferments and forbearances. Hurley was not in default on his student loans at the time he filed for bankruptcy.

         In June 2009, Hurley was hired as a revenue agent for the Internal Revenue Service. Hurley conducted audits of taxpayers' federal tax returns.

         In July 2015, Hurley began auditing the 2013 and 2014 tax returns for Have a Heart Compassion Care, Inc., a medical marijuana dispensary.[3]Hurley met with Ryan Kunkle, the representative for Have a Heart, on several occasions to discuss the tax returns. After the men had completed the audit process and signed the necessary forms, they went outside to have a discussion "off the record." As part of that discussion, Hurley told Kunkle that he had saved Have a Heart over $1 million in taxes. Hurley then solicited a bribe of $20, 000 from Kunkle, which Hurley stated he needed to help pay his student loan debt. Fearing that Hurley would not present the signed audit documents to his superiors to complete the matter, Kunkle agreed to make the payment. Kunkle immediately reported the incident to law enforcement, who arrested Hurley after Hurley was recorded accepting two cash payments of $5, 000 and $15, 000 from Kunkle. Subsequently, Hurley resigned from the IRS, and he was indicted for federal offenses in connection with this conduct.

         On May 13, 2016, Hurley was convicted for the crimes of Receiving a Bribe by a Public Official and Receiving an Illegal Gratuity by a Public Official, both felonies. He was sentenced to thirty months' imprisonment and three years' supervised release. Following his conviction, Hurley was disbarred from the practice of law by order of the Washington Supreme Court. Hurley was released from prison in June 2018 and is living in a halfway house in Seattle.

         B. Postpetition events

         Hurley filed a chapter 7 bankruptcy case one month after his conviction. His debts consist almost entirely of his student loan debt. Hurley represented that, as of the petition date, his student loan debt totaled approximately $256, 000. Hurley was granted a discharge on September 14, 2016.

         1. Hurley's § 523(a)(8) complaint

         In February 2017 and while incarcerated, Hurley filed a complaint against Defendants, [4] seeking to discharge his entire student loan debt under § 523(a)(8). In support of his undue hardship claim, Hurley noted his conviction, incarceration, disbarment from the practice of law, and resulting financial circumstances. Hurley stated that due to his disbarment and felony record, he would be unable to return to his former profession or be employed at the same income level, even if he could find any substantive employment following his release. Therefore, requiring him to pay his student loan debt would impose an undue hardship on him and his dependents. At the time Hurley sought his hardship discharge, he was 45 years old and had a 3-year-old son. Hurley did not note any medical or other condition that prevented him from working in the future.

         2. Defendants' motion ...

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