united states bankruptcy court southern district of...

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA

INDIANAPOLIS DIVISION IN RE: § § ITT EDUCATIONAL SERVICES, INC., et al.1 § Case No. 16-07207-JMC-7A § Debtors. § Jointly Administered

TEXAS HIGHER EDUCATION COORDINATING BOARD’S BRIEF REGARDING ITS OBJECTIONS TO TRUSTEE’S MOTION TO ESTABLISH

CERTAIN PROTOCOLS AND PROCEDURES FOR REQUESTING DOCUMENTS

Comes now the Texas Higher Education Coordinating Board (“THECB”), by and through

the Texas Attorney General’s Office, and respectfully files this Brief in response to the Court’s

Order dated May 3, 2017 (Dkt. 1602), regarding the applicability of 28 U.S.C. § 959(b) to the issue

of whether any state agency is entitled to an administrative expense claim in accessing Academic

Records and Student Files under the protocols and procedures proposed by the Chapter 7 Trustee

(the “Issue”). The Court has requested that each party (a) address the applicability of 28 U.S.C. §

959(b) to the Trustee; (b) focus on the meaning of the phrase “manage and operate” within 28

U.S.C. § 959(b); and (c) state its position regarding which state law is applicable and the operative

date for the “State in which such property is situated” under 28 U.S.C. § 959(b). THECB

respectfully states as follows:

Overview

THECB believes the Chapter 7 Trustee (“Trustee”) has an affirmative obligation in

carrying out her duties to comply with applicable non-bankruptcy law specifically triggered by the

closing of a private college (now in Chapter 7) and that 28 U.S.C. § 959(b) should apply to

1 The debtors in these cases, along with the last four digits of their respective federal tax identification numbers are ITT Educational Services, Inc. [1311]; ESI Service Corp. [2117]; and Daniel Webster College, Inc. [5980].

Case 16-07207-JMC-7A Doc 1794 Filed 06/05/17 EOD 06/05/17 11:58:07 Pg 1 of 22

liquidating trustees in this context.2 THECB respectfully contends that the Chapter 7 Trustee

should be required to comply with the applicable state statutes governing student records at the

time the Debtors filed bankruptcy—in this instance, 19 TEX. ADMIN. CODE § 7.5(d) for the records

situated in Texas at the time the bankruptcy case commenced.3 See Exhibits A and B, copies of

applicable Texas statutes.

Important Public Policy Behind Permanent Retention of Academic Records

Laws requiring that academic records be maintained in perpetuity, such as the Texas

statutes at issue, serve an important public policy and consumer protection interest. Pursuant to

the Texas statutes, THECB seeks to ensure that the academic records are safeguarded in

accordance with Texas law for the benefit, protection and interest of a closed institution’s former

students in all the ways such records customarily function (including but not limited to further

academic study, future job placements, and as evidentiary documentation for use by students in

any litigation about their student loans or otherwise, etc.). Specific examples of when former

students may need access to their past academic records, including records that are many years

old, include a nurse who is seeking to relocate to another state (who would require a copy of his

or her transcript in order to obtain a license in the state to which the nurse moves), a person seeking

employment for which proof of a degree is required, a person applying to graduate school for

2 As the Court is aware, Texas initially sought to have these issues determined in the context of an adversary proceeding (Adv. Pro. No. 17-50080), which the Court has now stayed. The other objecting states initially framed the dispute as a contested matter. See States’ Limited Objection to Trustee’s Motion to Establish Certain Protocols and Procedures for Requesting Documents, or, in the alternative, Motion for a Continuance at Dkt. 1365, filed on behalf of regulatory authorities in 16 jurisdictions. 3 Texas state law requires private postsecondary educational institutions, such as the Debtors, to securely and permanently maintain student academic records. 19 TEX. ADMIN. CODE § 7.4(a)(19). Texas state law further requires that in the event such institution proposes to discontinue operations in the state, it “shall cause to be filed with the Board the original or legible true copies of all such academic records of said institution.” 19 TEX. ADMIN. CODE § 7.5(d).

further education and an individual separating from the military and looking for private-sector

employment for the first time since completing his or her academic studies.4 THECB submits that

the permanent maintenance and retention of academic records is primarily for the benefit of its

citizens and, only secondarily, for the benefit of the State itself.

Argument

I. Chapter 7 Trustees Do Not Operate Wholly Outside of State Regulation

A Chapter 7 Trustee has a general duty to maintain and preserve property of the estate. See

generally 11 U.S.C. § 704; Exec. Office for U.S. Trustees, U.S. Dep't of Justice, Handbook for

Chapter 7 Trustees (2012). Further, Chapter 7 Trustees do not have the latitude to operate carte

blanche in liquidating the assets of a bankruptcy estate. Matter of Scott Housing Systems, Inc. 91,

B.R. 190, 196 (Bankr. S.D. Ga. 1988). Rather, Chapter 7 Trustees are obligated to comply with

certain categories of state statutes and regulations in the exercise of their duties. The Supreme

Court has acknowledged that, “Congress did not intend for the Bankruptcy Code to pre-empt all

state laws that otherwise constrain the exercise of a trustee’s power.” Midlantic Nat’l Bank v. New

Jersey Dep’t of Envt’l Prot., 474 U.S. 494, 505 (1986).5 See e.g., Trauner v. Thadikamalla, 488

B.R. 791, 793-94 (Bankr. N.D. Ga. 2013) (bankruptcy did not alter Chapter 7 Trustee’s obligations

4 Often, entities requesting a transcript want an official transcript. An official transcript is characterized by two things: (1) it is generated by the institution and sent by the institution. The student usually has no contact with the actual sent transcript. (2) The transcript carries the official seal of the institution. Thereby the institution attests to the accuracy of the transcript. A repository of student records maintained by THECB would carry the imprimatur of the State, thus lending a certain level of veracity to the document. 5 While not directly on point, THECB asserts that Midlantic does offer some guidance for the instant situation. In Midlantic, the Supreme Court held that a “trustee may not abandon property in contravention of a state statute or regulation that is reasonably designed to protect the public health or safety from identified hazards.” Midlantic, 474 U.S. at 507. In the instant case, as set out above, academic record retention laws serve an important public policy and consumer protection interest and, one of the common situations in which a former student may require access to his or her transcript many years after completing school would be in the case of a nurse who is moving between states and requires a copy of his/her transcript in order to seek a license in the new state. Clearly, whether or not to license a nurse could be framed as a health and safety issue.

to comply with wind-up procedures under applicable Georgia law) and 11 U.S.C. § 351 (providing

alternative provision in the event a Chapter 7 Trustee lacks sufficient funds to comply with

applicable state law pertaining to storage of patient records).6 THECB contends that the statutes

at issue, laws specifically triggered by the closing of a private college (in effect dealing with the

aftermath of that closure and offering some protection to former students), are a type of statute

with which Chapter 7 Trustees should be expected to comply, especially when, as here, there are

ample resources available to help address the issue.7 While there is scant case law in this area,

other liquidating trustees of private colleges have recognized the import of retaining student

academic records.8

6 THECB raises this statute as an analogy and is cognizant that at a prior hearing the Court pointed out that Congress has not drafted a similar provision with respect to academic records. However, THECB respectfully submits that the mere existence of Section 351 (which provides the Trustee an alternate mechanism to dispose of patient records if he/she cannot comply with state law) demonstrates an expectation that a Trustee would be complying with applicable patient record laws. Otherwise, there would be no reason to supply a statutory alternative to compliance with the law. 7 This is not a typical, no-asset Chapter 7 case in which the Trustee lacks the funds to comply with state law. At a hearing last week, Trustee’s counsel advised the Court that there is presently in excess of $25 million in unencumbered funds in the estate. 8 While no Circuit has addressed whether Section 959(b) should apply to state record retention laws in the case of a failed private college, the issue of retention of student academic records has arisen in at least two prior cases. In In re Corinthian Colleges Inc., the Chapter 11 Plan of Liquidation provided for the establishment of a Student Trust to, inter alia, maintain student records. Case no. 15-10952, United States Bankruptcy Court for the District of Delaware. In that case, the Court approved procedures proposed by the Trust which provided for the scanning and electronic maintenance of certain “Critical Documents” including diplomas and transcripts. Id. at Dkt. 1307 (Court order dated November 15, 2016. In proposing those procedures, the Trust recognized that the “failure to preserve the Critical Documents could prejudice students that need such documents for debtor relief or job placement in the future.” Id. at Dkt. 1255 (Motion of Student Trust for Entry of an Order Establishing Procedures Regarding the Retention, Abandonment, or Disposal of Student Records). In In re Computer Learning Centers, Inc., the Chapter 7 Trustee “recognized a distinct obligation with respect to student records as opposed to ordinary business records.” 298 B.R. 569, 576 (Bankr. E.D. Va. 2003). In that case, the Trustee represented that he had “to the best of his ability, complied with all regulatory requirements with regard to student records by turning those records over to third parties who will act as a custodian of those records.” Id. at 573. Although the Court in Computer Learning Centers ultimately disallowed the California Bureau of Private Postsecondary & Vocational Education’s request for allowance of an administrative expense claim for its expenses in maintaining student records, the case is distinguishable from the instant case because in that case, the Trustee had previously transferred the records to the Bureau and, at that time, the records ceased to be property of the estate such that the Bureau could “preserve” them for the benefit of the estate. Id. at 577.

II. 28 U.S.C. § 959(b) Should Apply to the Trustee’s Maintenance of Academic Records

28 U.S.C. §959(b) requires that “a trustee . . .shall manage and operate the property in his

possession as such trustee . . .according to the requirements of the valid laws of the State in which

such property is situated, in the same manner that the owner or possessor thereof would be bound

to do if in possession thereof.” Although the Trustee has argued that since she is not “operating”

the Debtors’ businesses, she is not bound by 28 U.S.C. §959(b),9 THECB submits there is ample

authority, bolstered by a compelling public policy argument, for this Court to find that 28 U.S.C.

§959(b) does apply to the Trustee in this instance. THECB respectfully contends that this specific

issue-- whether Section 959(b) should apply to state record retention laws in the case of a failed

private college-- is an issue of first impression.10

A. Other Circuits Have Imposed a Duty to Comply with State Law on Liquidating Trustees

While Midlantic did not directly address whether 28 U.S.C. §959(b) applies in a

liquidation, the Supreme Court relied upon the Congressional intent behind the statute in reaching

its conclusion in that case (that a Chapter 7 Trustee was not permitted to abandon contaminated

property “in contravention of a state statute or regulation that is reasonably designed to protect

public health or safety from identified hazards”). Midlantic, 474 U.S. at 507. In reaching its

holding, the Court included in its analysis a discussion of Section 959(b), stating that “Title 28

U.S.C. §959(b) provides additional evidence that Congress did not intend for the Bankruptcy Code

9 Trustee’s Supplemental Omnibus Reply to Objections to Trustee’s Motion to Establish Certain Protocols and Procedures for Requesting Documents at Dkt. 1439. 10 To the extent that the Trustee argues that SEC v. Wealth Management LLC, 628 F.3d 323 (7th Cir. 2010) is binding upon this Court, THECB believes that case is distinguishable as set forth below and is expressly arguing for the extension and modification of existing law. It is precisely because THECB believes this to be an issue of first impression that it initially sought relief in the context of a declaratory judgment action as opposed to a suit for injunctive relief. See Adv. Pro. No. 17-50080.

to pre-empt all State laws.” Id. at 505. And the Court dismissed the argument that Section 959(b)

only applies to operating businesses. Id.

Other Circuits have extended the Supreme Court’s reasoning in Midlantic to find 28 U.S.C.

§959(b) applicable to liquidating trustees. Although these cases arose in the environmental context,

THECB respectfully contends that they provide a basis for the Court to consider whether, as

THECB contends, the statutes at issue in the present case are sufficiently protective of the public’s

welfare so as to require the Chapter 7 Trustee’s compliance with them.

In In re Wall Tube & Metal Products Co., 831 F.2d 118, 122 (6th Cir. 1987) the Sixth

Circuit held that Section 959(b) required a Chapter 7 Trustee to comply with state laws pertaining

to the maintenance of hazardous waste on premises leased by the Debtor. In that case, the Court

found that since Midlantic would not have permitted the Trustee to abandon the contaminated

property in contravention of Tennessee’s hazardous waste laws, it followed that he should not

maintain or possess “the estate in continuous violation of that same law.” Id. The Court went on

to reason that the fact “the trustee in this case is liquidating the estate rather than reorganizing it is

inconsequential, especially in the critical context of the public’s welfare.” Id.

The Fifth Circuit reached the same conclusion in In the Matter of H.L.S. Energy Co., 151

F.3d 434, 438 (5th Cir. 1998). In that case, the Court considered 28 U.S.C. § 959(b) in the context

of deciding whether the State’s claim for expenses incurred in plugging the Debtor’s unproductive

wells was entitled to administrative priority. Id. The Court reasoned that the Trustee could not

have abandoned the wells in contravention of a Texas state law requiring operators to plug wells

that have remained unproductive for a year, and further that Section 959(b) required compliance

with state law. Id. “Thus, a combination of Texas and federal law placed on the trustee an

inescapable obligation to plug the unproductive wells.” Id. In deciding that the State’s plugging

costs were entitled to administrative priority, the Court rejected the Trustee’s contention that

because the estate never “operated” the wells to produce any oil or generate revenue, there was no

“benefit” to the estate. Id.at 439. “It therefore matters not whether the bankrupt estate produced

any oil or received any revenue from the wells. As the operator, it was required to plug them.” Id.

B. Seventh Circuit Has Not Spoken to this Issue in the Context of a Bankruptcy

THECB respectfully contends that, to the extent the Seventh Circuit and courts within have

reached a different conclusion regarding the applicability of Section 959(b) to liquidating trustees,

those cases are distinguishable from the instant case. Further, THECB contends that the nature of

the record retention statutes at issue here provide sufficient justification for this Court to find that

28 U.S.C. § 959(b) should apply in the specific, narrow circumstances presented by this case—

specifically, to state record retention laws in the case of a failed private college.11

In SEC v. Wealth Management LLC, 628 F.3d 323 (7th Cir. 2010), the Court held that

Section 959(b) did not apply to monetary distributions in a receivership. Id. at 334. In that case (a

securities fraud receivership, not a bankruptcy), the objecting parties sought to utilize 28 U.S.C. §

959(b) to effect a different distribution priority than the pro-rata distribution proposed by the

receiver. Id. In reaching its holding, the Court noted that Section 959(b) “has no particular

significance for distribution decisions in a liquidation; that is, it does not affect the receiver’s-- or

the court’s—classification or subordination of claims.” Id. (emphasis in original). The Court went

on to address the Wall Tube decision in a footnote suggesting that “it appears that the Sixth Circuit

meant to suggest only that §959(b) requires a liquidating receiver to comply with state laws

regulating public health, safety and welfare when liquidating receivership property.” Id. at fn 7.

11 THECB contends that this issue of preserving the academic records of a failed academic institution is of significant importance given both the dearth of existing case law and the projected rise in the closure rate of private colleges.

In making this statement, the Court appears to leave unresolved the question of whether there are

any circumstances pursuant to which Section 959(b) might apply to a Chapter 7 Trustee in the

Seventh Circuit.12

THECB respectfully contends that the instant dispute presents just such a circumstance.

Here, the state law record retention requirements could fairly be characterized as laws regulating

the public welfare in that they seek to effectuate the important public policy of providing former

students access to their academic records. The statutes at issue in the instant case have nothing to

do with distribution under the Bankruptcy Code and are easily distinguishable from the Wisconsin

laws governing classification of investors’ claims which the Court considered in the Wealth

Management case.

III. Trustee is “Managing and Operating” the Debtors’ Property

THECB respectfully contends that the appropriate inquiry under 28 U.S.C. § 959(b) is not

whether the Trustee is operating the Debtors’ business, but whether she is operating the Debtors’

“property.” In the instant situation, it is clear that the Trustee is actively managing certain property

of the Debtors (including the academic records) even though she is not operating the Debtors’

business. Specifically with respect to the academic records, the Trustee has hired agents to

transport, safeguard, store and facilitate access to the academic records. Moreover, the Trustee

has instituted protocols to enable former students and other applicable parties (who did not object

to the underlying motion)13 access to their student records.

12 But see In re Globe Building Materials, Inc., 345 B.R. 619, 638-40 (Bankr. N.D. Ind. 2006) (finding that Section 959(b) does not apply to a liquidating trustee). Globe Building was decided prior to the Wealth Management case and is not binding upon this Court. THECB respectfully urges this Court not to follow Globe Building. 13 It is this motion, the Trustee’s Motion to Establish Certain Protocols and Procedures Requesting Documents which generated the instant dispute regarding the whether the Trustee is obligated to comply with state law records retention requirements. While the Motion has been granted in part, it does not apply to Objecting Parties. Order at Dkt. 1490.

IV. The Petition Date is the Operative Date for Determining the “State in which such property is situated” for Purposes of 28 U.S.C. § 959(b)

Pursuant to 28 U.S.C. § 959(b), a Trustee is obligated to manage and operate property

“according to the valid laws of the State in which such property is situated.” The Court has

inquired whether the operative date for determining where the property is “situated” is the petition

date or the present date. While it appears to be an open question of law,14 THECB respectfully

contends that a literal reading of the statute to mean where the property is currently situated would

create an inequitable result.

By court order, all of the Debtors’ records have been moved from locations around the

country (where they were situated on the petition date) to Indiana. Upon information and belief,

there are well over 66,000 boxes of Debtors’ records presently being stored at GRM, with

additional boxes potentially still arriving to the extent any remaining document storage contracts

are discovered. If the court were to apply Indiana law to this massive volume of documents, it

would seem an improper burden to place on Indiana.

Upon information and belief, the applicable Indiana statute reads as follows:

Sec. 10. (a) A postsecondary credit bearing proprietary educational institution shall maintain at least the following records for each student: (1) The program in which the student enrolls.

(2) The length of the program.

(3) The date of the student's initial enrollment in the program.

(4) A transcript of the student's academic progress.

(5) The amount of the student's tuition and fees.

(6) A copy of the enrollment agreement.

14 Counsel has located no bankruptcy law interpreting what happens if the subject property is moved during the pendency of the bankruptcy case.

(b) Upon the request of the board for proprietary education, a postsecondary credit bearing proprietary educational institution shall submit the records described in subsection (a) to the board for proprietary education. (c) If a postsecondary credit bearing proprietary educational institution ceases operation, the postsecondary credit bearing proprietary educational institution shall submit the records described in subsection (a) to the Indiana archives and records administration not later than thirty (30) days after the institution ceases to operate.

Ind. Code Ann. § 21-18.5-6-10 (emphasis added). THECB has no knowledge regarding the

resources of the Indiana archives to adequately index records from all ITT locations or its ability

to retrieve such academic records and provide them to former students in a timely manner.

THECB respectfully contends that the Court would reach a more equitable result by reading the

statute to mean the State where the property was situated as of the petition date.

V. What Will Happen to Academic Records in the Alternative?

In the event that the Trustee is not required pay the costs of providing the academic records

(or legible true copies thereof) to the states, it is unclear what will become of the records. The

Trustee has previously suggested that she may seek to abandon the records, “dispose” of them

pursuant to 11 U.S.C. § 725, or that she may seek to “surcharge” the states under 11 U.S.C. §

506(c).15 THECB respectfully contends that none of these options are viable in this case and that

the potential options for the ultimate disposition of these records, should the court find 28 U.S.C.

§ 959(b) to be inapplicable, is an issue that merits consideration at this juncture of the case.16

15 See Trustee’s Supplemental Omnibus Reply at Dkt. 1439 at para. 1 and fn 13; see also Trustee’s Second Supplemental Omnibus Reply to Objections to Trustee’s Motion to Establish Certain Protocols and Procedures for Requesting Documents at Dkt. 1557. 16 THECB recognizes that these issues are not presently before the Court and accordingly, reserves all rights to supplement and amend its objections to these options at the time the Trustee affirmatively seeks to pursue any or all of them. Nevertheless, THECB contends that the ultimate disposition of the records is a consideration which the court and the parties should be factoring in to the Section 959(b) arguments, as THECB contends that there may be no good option to deal with the academic records in the event they are not provided to the regulators.

To the extent the Court finds that the Trustee is not obligated to comply with the states’

record retention laws and the Trustee seeks to abandon the academic records under Section 554 of

the Bankruptcy Code, (or “dispose” of the under Section 725 of the Bankruptcy Code17) THECB

believes that the Family Educational Rights and Privacy Act (“FERPA”)18 would require the

documents to be permanently destroyed in order to protect the personally identifiable information

contained in the records. Upon information and belief, destruction of this volume of documents

would be extremely expensive (and perhaps as expensive as permanently maintaining the

records).19

Moreover, THECB submits that that the Trustee would not be able to surcharge THECB for

her costs incurred in preserving and ultimately disposing of the academic records from Texas under

Section 506(c).20 Texas is not a secured creditor21 of the Debtors, and the records are not properly

17 THECB does not have a “lien” in the academic records. “The term ‘lien’ means charge against or interest in property to secure payment of a debt or performance of an obligation.” 11 U.S.C. §101(37). 18 20 U.S.C. § 1232g; 34 C.F.R. pt. 99. FERPA is a federal privacy law which protects, in part, the disclosure of personally identifiable information from education records. 19 THECB would voice no opposition to the Trustee contracting with GRM to maintain the records in perpetuity, provided that GRM had the capacity to adequately index the records and provide copies to former students upon request. 20 Section 506(c) provides that:

The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property.

11 U.S.C. § 506(c).

21 While reserving its right to seek an administrative expense claim, THECB does not have a “claim” as defined by 11 U.S.C. §101(5) against the Debtors and therefore is not a “creditor” as defined by 11 U.S.C. §101(10). Further, THECB does not have the right, upon a default by the Debtors, to “proceed against collateral and apply it to the payment of the debt.” Secured creditor,Black's Law Dictionary (10th ed. 2014) citing to UCC § 9-102(a)(73). THECB’s rights in this instance would be for injunctive relief to compel the Trustee to comply with applicable state law. It is axiomatic that injunctions in bankruptcy do not constitute “claims.” See e.g., United States v. Apex Oil Co., 579 F.3d 734, 737 (7th Cir. 2009).

categorized as collateral.22

VI. THECB Does Not Seek Relief from the Court’s Order Granting Trustee’s Application to Employ Tiger Capital Group, LLC

THECB does not seek relief from the Court’s Order Granting Trustee’s Application to

Employ Tiger Capital Group, LLC as Auctioneer and Property Manager Effective as of October

3, 2016 (Dkt. 255), as THECB does not believe the Order was improvidently entered. Counsel for

THECB was aware of the relief requested by the Trustee in hiring Tiger and THECB believes it

was well within the reasonable exercise of the Trustee’s duties under 11 U.S.C. § 704 to gather

and safeguard all of the Debtors’ records to a central location before determining how best to

proceed. At the time the Order entered, neither THECB nor the Trustee were aware of the volume

of documents the Trustee would gather from Texas or how many of those records would be

“academic records” that THECB would be seeking to have permanently maintained in accordance

with the Texas statutes (as opposed to, e.g., payroll, financial aid or general business records).

Further, at the time the Order entered, THECB did not know what steps the Trustee or her

professionals would undertake to sort through the Debtors’ records to determine what types of

records existed.23

Indeed, the scope of the dispute, at least as to the documents from the Debtors’ Texas

locations, remains unclear even now. Upon information and belief, there are approximately 8,600

boxes of documents from the Debtors’ Texas locations and, on May 17 and 18, two employees of

22 Collateral is defined as “[p]roperty that is pledged as a security against a debt; the property subject to a

security interest or agricultural lien.” Collateral, Black's Law Dictionary (10th ed. 2014). 23 To the extent the Trustee anticipates advancing an argument that THECB’s failure to object to the Tiger Application constitutes a waiver of THECB’s rights to charge the estate for the costs of returning the academic records, THECB respectfully submits that there could be no “waiver” when, at the time it allegedly failed to act, so little was known about the volume and type of records or what actions the Trustee proposed to take with respect to the academic records.

THECB traveled to GRM’s warehouse in Indianapolis to inspect a sample of the Texas boxes to

determine, inter alia, what types of documents were included within the records and whether any

additional, relevant information could be added to the indices of the boxes. THECB

representatives reviewed 200 boxes and determined that only 20 of those boxes contained

documents that THECB believes to be pre-2001 “academic records” covered by the Texas statutes,

which would need to be filed with THECB as they were not handled by Parchment. However

within those same 20 boxes there were some non-academic records or other documents that would

not be covered by the Texas statutes. THECB is expressly not seeking access to the Debtors’ non-

academic records in the Trustee’s possession, and it is unclear upon what legal basis the Trustee

could file with THECB any non-academic records, not covered by the Texas statutes.

Accordingly, as of the filing of this pleading, THECB remains altogether unable to

ascertain the volume of academic records from Texas which are actually in dispute. Moreover, it

has recently been brought to THECB’s attention, by the Trustee, that the Trustee has possession

of hard drives from various campuses.24 THECB wishes to work with the Trustee to quickly

ascertain whether there exists data on those hard drives which would contain the academic records

THECB is seeking. Given that the Texas statute expressly permits “legible true copies” of ITT’s

academic records to be filed with THECB (which would include in an electronic format), if the

records do exist on the hard drives, it could present a quick path to resolve the instant dispute.25

Conclusion

WHEREFORE, for the reasons set forth above, the THECB respectfully requests that the

Court enter an order finding that 28 U.S.C. §959(b) applies to the Trustee in this case so as to

24 In fact, THECB is advised that at a representative of one state found a box of hard drives from her state during her visit to the GRM warehouse. 25 See 19 TEX. ADMIN. CODE § 7.5(d).

require her compliance with state law record retention laws including 19 TEX. ADMIN. CODE §

7.5(d).

Respectfully submitted, KEN PAXTON Attorney General of Texas JEFFREY C. MATEER First Assistant Attorney General BRANTLEY STARR Deputy First Assistant Attorney General JAMES E. DAVIS Deputy Attorney General for Civil Litigation RONALD R. DEL VENTO Assistant Attorney General Chief, Bankruptcy & Collections Division /s/ Hal F. Morris Hal F. Morris* Texas State Bar No. 14485410 Ashley F. Bartram** Texas State Bar No. 24045883 Bankruptcy & Collections Division P. O. Box 12548 Austin, Texas 78711-2548 P: (512) 475-2173/F: (512) 936-1409 hal.morris@oag.texas.gov ashley.bartram@oag.texas.gov ATTORNEYS FOR THE TEXAS HIGHER EDUCATION COORDINATING BOARD *Hal Morris Motion to Appear Pro Hac Vice granted at Dkt. 18 **Ashley Bartram Motion to Appear Pro Hac Vice granted at Dkt. 19

CERTIFICATE OF SERVICE

I hereby certify that on June 5, 2017, a copy of the foregoing Brief was filed electronically. Notice of this filing will be sent to the following party/parties through the Court’s Electronic Case Filing System. Party/parties may access this filing through the Court’s system. Robert N Amkraut ramkraut@riddellwilliams.com Scott S. Anders scott.anders@jordanramis.com, litparalegal@jordanramis.com Manuel German Arreaza manuel.arreaza@cfpb.gov Todd Allan Atkinson tatkinson@ulmer.com Darren Azman dazman@mwe.com Joseph E Bain joe.bain@emhllp.com Kay Dee Baird kbaird@kdlegal.com, rhobdy@kdlegal.com;crbpgpleadings@kdlegal.com;ayeskie@kdlegal.com Michael I. Baird baird.michael@pbgc.gov, efile@pbgc.gov Christopher E. Baker cbaker@hbkfirm.com, thignight@hbkfirm.com James David Ballinger jim@kentuckytrial.com, jennifer@kentuckytrial.com Joseph E. Bant jebant@lewisricekc.com William J. Barrett william.barrett@bfkn.com, mark.mackowiak@bfkn.com Ashley Flynn Bartram ashley.bartram@oag.texas.gov, elizabeth.martin@oag.texas.gov Alex M Beeman alex@beemanlawoffice.com, alexbeemanECF@protonmail.com Thomas M Beeman tom@beemanlawoffice.com Richard James Bernard rbernard@foley.com Brandon Craig Bickle bbickle@gablelaw.com Robert A. Breidenbach rab@goldsteinpressman.com Wendy D. Brewer wbrewer@jensenbrewer.com, info@jeffersonbrewer.com Kayla D. Britton kayla.britton@faegrebd.com, rachel.jenkins@faegrebd.com;sarah.herendeen@faegrebd.com Jason R Burke jburke@bbrlawpc.com, kellis@bbrlawpc.com Erin Busch ebusch@nebraska.edu Yan Cao yacao@law.harvard.edu Kevin M. Capuzzi kcapuzzi@beneschlaw.com, chartman@beneschlaw.com;docket@beneschlaw.com James E. Carlberg jcarlberg@boselaw.com, mwakefield@boselaw.com;rmurphy@boselaw.com Steven Dean Carpenter scarpenter1@dor.in.gov Deborah Caruso dcaruso@rubin-levin.net, dwright@rubin-levin.net;jkrichbaum@rubin-levin.net;atty_dcaruso@bluestylus.com Deborah J. Caruso trusteecaruso@rubin-levin.net, DJC@trustesolutions.net Joshua W. Casselman jcasselman@rubin-levin.net, angie@rubin-levin.net;atty_jcasselman@bluestylus.com Ben T. Caughey ben.caughey@mcdlegalfirm.com Sonia A. Chae chaes@sec.gov John Andrew Chanin jchanin@lindquist.com, srummery@lindquist.com Michael Edward Collins mcollins@manierherod.com Michael Anthony Collyard mcollyard@robinskaplan.com, rhoule@robinskaplan.com

Eileen Connor econnor@law.harvard.edu Lawrence D. Coppel lcoppel@gfrlaw.com Heather M. Crockett Heather.Crockett@atg.in.gov, carrie.spann@atg.in.gov;molly.funk@atg.in.gov J Russell Cunningham rcunningham@dnlc.net, reaster@dnlc.net David H DeCelles david.h.decelles@usdoj.gov Dustin R. DeNeal dustin.deneal@faegrebd.com, rachel.jenkins@faegrebd.com;sarah.herendeen@faegrebd.com Laura A DuVall Laura.Duvall@usdoj.gov, Catherine.henderson@usdoj.gov Henry A. Efroymson henry.efroymson@icemiller.com Abby Engen aengen@nmag.gov, eheltman@nmag.gov Annette England annette.england@btlaw.com Charles Anthony Ercole cercole@klehr.com, acollazo@klehr.com Carolyn Meredith Fast carolyn.fast@ag.ny.gov Elaine Victoria Fenna elaine.fenna@morganlewis.com Andrew W Ferich awf@chimicles.com Patrick F.X. Fitzpatrick pfitzpatrick@beneschlaw.com, docket@beneschlaw.com;sgarsnett@beneschlaw.com;ccanny@beneschlaw.com;mdabio@beneschlaw.com John David Folds dfolds@bakerdonelson.com, sparson@bakerdonelson.com Jennifer N Fountain jfountain@iislaw.com, sfilippini@iislaw.com Sarah Lynn Fowler Sarah.Fowler@icemiller.com, Kathy.chulchian@icemiller.com Lydia Eve French lydia.french@state.ma.us Jonathan William Garlough jgarlough@foley.com, mstockl@foley.com;mdlee@foley.com Robert P Goe rgoe@goeforlaw.com Douglas Gooding dgooding@choate.com John Andrew Goodridge jagoodridge@jaglo.com, angray@jaglo.com;dwhiggs@jaglo.com Michael Wayne Grant michael.w.grant@doj.state.or.us Alan Mark Grochal agrochal@tydingslaw.com Gregory Forrest Hahn ghahn@boselaw.com, jmcneeley@boselaw.com Julian Ari Hammond Jhammond@hammondlawpc.com, ppecherskaya@hammondlawpc.com Wallace M Handler whandler@swappc.com, jnicholson@swappc.com Adam Craig Harris adam.harris@srz.com Brian Hauck bhauck@jenner.com Jeffrey M. Hawkinson jhawkinson@pcslegal.com, danderson@pcslegal.com Claude Michael Higgins Michael.Higgins@ag.ny.gov Michael W. Hile mhile@jacobsonhile.com, assistant@jacobsonhile.com Sean M Hirschten shirschten@psrb.com Robert M. Hirsh robert.hirsh@arentfox.com John C. Hoard johnh@rubin-levin.net, jkrichbaum@rubin-levin.net;atty_jch@trustesolutions.com Andrew E. Houha bkecfnotices@johnsonblumberg.com James C Jacobsen jjacobsen@nmag.gov, eheltman@nmag.gov Christine K. Jacobson cjacobson@jacobsonhile.com, assistant@jacobsonhile.com Jay Jaffe jay.jaffe@faegrebd.com, sarah.herendeen@faegrebd.com;rachel.jenkins@faegrebd.com

Benjamin F Johns bfj@chimicles.com, klw@chimicles.com Russell Ray Johnson russj4478@aol.com Kenneth C. Jones kcjones@lewisricekc.com Anthony R. Jost tjost@rbelaw.com, baldous@rbelaw.com Timothy Q. Karcher tkarcher@proskauer.com John M. Ketcham jketcham@psrb.com, scox@psrb.com Taejin Kim tae.kim@srz.com Edward M King tking@fbtlaw.com, lsugg@fbtlaw.com;tking@ecf.inforuptcy.com Michael Orrin King kingm5@michigan.gov, outwaterd@michigan.gov Roy F. Kiplinger bankruptcy@kiplingerlaw.com, bankruptcy@kiplingerlaw.com Harris J. Koroglu hkoroglu@shutts.com, fsantelices@shutts.com Lawrence Joel Kotler ljkotler@duanemorris.com Robert R Kracht rrk@mccarthylebit.com Andrew L. Kraemer akraemer@johnsonblumberg.com, akraemerlawoffice@att.net Jerrold Scott Kulback jkulback@archerlaw.com Jay R LaBarge jlabarge@stroblpc.com Vilda Samuel Laurin slaurin@boselaw.com Jordan A Lavinsky jlavinsky@hansonbridgett.com David S Lefere dlefere@mikameyers.com, jfortney@mikameyers.com Martha R. Lehman mlehman@salawus.com, marthalehman87@gmail.com;pdidandeh@salawus.com Gary H Leibowitz gleibowitz@coleschotz.com, jdonaghy@coleschotz.com;pratkowiak@coleschotz.com Donald D Levenhagen dlevenhagen@landmanbeatty.com Elizabeth Marie Little elizabeth.little@faegrebd.com Melinda Hoover MacAnally Melinda.MacAnally@atg.in.gov, Carrie.Spann@atg.in.gov Christopher John Madaio Cmadaio@oag.state.md.us John A. Majors jam@morganandpottinger.com, majormajors44@yahoo.com Steven A. Malcoun dsmith@mayallaw.com Jonathan Marshall jmarshall@choate.com Thomas Marvin Martin tmmartin@lewisricekc.com Jeff J. Marwil jmarwil@proskauer.com, npetrov@proskauer.com;pyoung@proskauer.com;jwebb@proskauer.com Patrick Francis Mastrian Patrick.mastrian@ogletreedeakins.com, dayna.kistler@ogletreedeakins.com Ann Wilkinson Matthews amatthews@ncdoj.gov Rachel Jaffe Mauceri rachel.mauceri@morganlewis.com Michael K. McCrory mmccrory@btlaw.com, bankruptcyindy@btlaw.com Maureen Elin McOwen molly.mcowen@cfpb.gov Harley K Means hkm@kgrlaw.com, kmw@kgrlaw.com;smr@kgrlaw.com;tjf@kgrlaw.com Toby Merrill tomerrill@law.harvard.edu Robert W. Miller rmiller@manierherod.com Thomas E Mixdorf thomas.mixdorf@icemiller.com, carla.persons@icemiller.com Evgeny Grigori Mogilevsky eugene@egmlegal.com, jolynn@egmlegal.com James P Moloy jmoloy@boselaw.com, dlingenfelter@boselaw.com;mwakefield@boselaw.com

Ronald J. Moore Ronald.Moore@usdoj.gov Hal F Morris hal.morris@oag.texas.gov Michael David Morris michael.morris@ago.mo.gov Kevin Alonzo Morrissey kmorrissey@lewis-kappes.com, soliver@lewis-kappes.com;leckert@lewis-kappes.com;kwilliams@lewis-kappes.com Whitney L Mosby wmosby@bgdlegal.com, floyd@bgdlegal.com;smays@bgdlegal.com C Daniel Motsinger cmotsinger@kdlegal.com, cmotsinger@kdlegal.com;crbpgpleadings@kdlegal.com;shammersley@kdlegal.com;ayeskie@kdlegal.com Lee Duck Moylan lmoylan@klehr.com, acollazo@klehr.com Abraham Murphy murphy@abrahammurphy.com Justin Scott Murray jmurray@atg.state.il.us Alissa M. Nann anann@foley.com, DHeffer@foley.com Henry Seiji Newman hsnewman@dglaw.com Kevin M. Newman knewman@menterlaw.com, kmnbk@menterlaw.com Cassandra A. Nielsen cnielsen@rubin-levin.net, atty_cnielsen@bluestylus.com Ryan Charles Nixon rcnixon@lamarcalawgroup.com Kathryn Elizabeth Olivier kathryn.olivier@usdoj.gov, denise.woody@usdoj.gov;kristie.baker@usdoj.gov Gregory Ostendorf gostendorf@scopelitis.com, agregory@scopelitis.com Pamela A. Paige ppaige@plunkettcooney.com, amiller@plunkettcooney.com Danielle Ann Pham danielle.pham@usdoj.gov Zachary David Price zach@indianalawgroup.com Jack A Raisner jar@outtengolden.com Jonathan Hjalmer Reischl jonathan.reischl@cfpb.gov James Leigh Richmond James.Richmond@fldoe.org Melissa M. Root mroot@jenner.com David A. Rosenthal darlaw@nlci.com James E Rossow jim@rubin-levin.net, ATTY_JER@trustesolutions.com;robin@rubin-levin.net;lisa@rubin-levin.net Rene Sara Roupinian rsr@outtengolden.com, jxh@outtengolden.com;kdeleon@outtengolden.com;rmasubuchi@outtengolden.com;rfisher@outtengolden.com;gl@outtengolden.com Victoria Fay Roytenberg vroytenberg@law.harvard.edu, moconnorgrant@law.harvard.edu Craig Damon Rust craig.rust@doj.ca.gov, Lindsay.Bensen@doj.ca.gov Karl T Ryan kryan@ryanesq.com, lindsey@ryanesq.com Joseph Michael Sanders jsanders@atg.state.il.us Thomas C Scherer tscherer@bgdlegal.com, floyd@bgdlegal.com James R. Schrier jrs@rtslawfirm.com, lrobison@rtslawfirm.com;jlandes@rtslawfirm.com Ronald James Schutz rschutz@robinskaplan.com H. Jeffrey Schwartz jschwartz@robinskaplan.com Courtney Michelle Scott cscott1@dor.in.gov Joseph E Shickich jshickich@riddellwilliams.com, ctracy@riddellwilliams.com William E Smith wsmith@k-glaw.com, clipke@k-glaw.com Patricia K. Smoots psmoots@mcguirewoods.com Lauren C. Sorrell lsorrell@kdlegal.com, ayeskie@kdlegal.com;swaddell@kdlegal.com

Catherine L. Steege csteege@jenner.com, mhinds@jenner.com;thooker@jenner.com Jesse Ellsworth Summers esummers@burr.com, sguest@burr.com Jonathan David Sundheimer jsundheimer@btlaw.com Nancy K. Swift nswift@buchalter.com, cbohnsack@buchalter.com Eric Jay Taube eric.taube@wallerlaw.com, annmarie.jezisek@wallerlaw.com;sherri.savala@wallerlaw.com Meredith R. Theisen mtheisen@rubin-levin.net, dwright@rubin-levin.net;mcruser@rubin-levin.net Meredith R. Theisen mtheisen@rubin-levin.net, jkrichbaum@rubin-levin.net;lisa@rubin-levin.net;atty_mtheisen@bluestylus.com Jessica L Titler jt@chimicles.com Todd Christian Toral todd.toral@dlapiper.com, todd-toral-9280@ecf.pacerpro.com Ronald M. Tucker rtucker@simon.com, cmartin@simon.com,bankruptcy@simon.com U.S. Trustee ustpregion10.in.ecf@usdoj.gov Michael Ungar MUngar@mwe.com Sally E Veghte sveghte@klehr.com, acollazo@klehr.com Rachel Claire Verbeke rverbeke@stroblpc.com Amy L VonDielingen avondielingen@woodmclaw.com Carolyn Graff Wade Carolyn.G.Wade@doj.state.or.us Louis Hanner Watson louis@watsonnorris.com Jeffrey R. Waxman jwaxman@morrisjames.com, jdawson@morrisjames.com;wweller@morrisjames.com Christine M.H. Wellons christine.wellons@maryland.gov Philip A. Whistler philip.whistler@icemiller.com, carla.persons@icemiller.com Bradley Winston bwinston@winstonlaw.com, lwheaton@winstonlaw.com Brandon Michael Wise bwise@prwlegal.com Cathleen Dianne Wyatt cwyatt@fbtlaw.com, tacton@fbtlaw.com Joseph Yar jyar@nmag.gov, eheltman@nmag.gov James T Young james@rubin-levin.net, lking@rubin-levin.net;atty_young@bluestylus.com James E. Zoccola jzoccola@lewis-kappes.com

I further certify that on June 5, 2017, a copy of the foregoing Objection was mailed by first-class U.S. Mail, postage prepaid and properly addressed, to the following: BGBC Partners, LLP 300 N. Meridian Street, Suite 1100 Indianapolis, IN 46204 City Wide Maintenance of Central Maryland 1818 Pot Spring Rd, Ste 24 Lutherville, MD 21093 Eboney Cobb Perdue Brandon Fielder Collins Mott LLP 500 E Border Street Suite 640 Arlington, TX 76010

Daniel Webster College, Inc. 20 University Drive Nashua, NH 03063 John P Dillman Attorney in Charge for Taxing Authorities PO Box 3064 Houston, TX 77253 ESI Service Corp. 13000 N. Meridian Street Carmel, IN 46032-1404 Earle Browne Tower LLP c/o Krieg DeVault LLP C. Daniel Motsinger One Indiana Square, Suite 2800 Indianapolis, IN 46204 T. Todd Egland Belden Blaine Raytis, LLP P.O. Box 9129 Bakersfield, CA 93389-9129 Daniel M. Fitzpatrick c/o Jeffrey A. Hokanson 201 North Illinois Street, Suite 1900 Indianapolis, IN 46204 Florida Department of Education Office of Student Financial Assistance PO Box 7019 Tallahassee, FL 32314-7019 Chris W Halling for Solar Drive Business LLC 23586 Calabasas Rd, Ste 200 Calabasas, CA 91302 ITT Educational Services, Inc. 13000 N. Meridian Street Carmel, IN 46032-1404

Jordan A Lavinsky, Esq for Market-Turk Company 425 Market St, 26th Floor San Francisco, CA 94105 Todd Lehman 3700 Deer Lake Dr Evansville, IN 47720 Joseph A Malfitano for Tiger Capital Group LLC 747 Third Ave, 2nd Floor New York, NY 10017 Northwest Natural Gas Company 220 NW 2nd Avenue Portland, OR 97209 Polstar Commercial Cleaning Inc 5124 Pontiac Trl Ann Arbor, MI 48105 RREF II Walnut Creek, LLC c/o Jeffrey A. Hokanson Frost Brown Todd LLC 201 North Illinois Street, Suite 1900 Indianapolis, IN 46204 Recovery Management Systems Corporation for Synchrony Bank 25 SE 2nd Ave, Ste 1120 Miami, FL 33131-1605 Rubin & Levin, P.C. 135 N Pennsylvania St Ste 1400 Indianapolis, IN 46204 Carl O Sandin for Clear Creek Independent School Distr 1235 North Loop West, Ste 600 Houston, TX 77008 Kevin Schwin Law Office of Kevin Schwin 1220 E. Olive Avenue Fresno, CA 93728

TN Dept. of Revenue c/o TN Atty General, Bankruptcy Div PO Box 20207 Nashville, TN 37202-0207 Tammy Jones, Pro Se Oklahoma County Treasurer 320 Robert S. Kerr Room 307 Oklahoma City, OK 73102 Paul Weiser Esq. Bachalter Nemer 16435 North Scottsdale Road, Suite 440 Scottsdale, AZ 85254-1754 Elizabeth Weller Linebarger Goggan Blair & Sampson, LLP 2777 N. Stemmons Freeway, Suite 1000 Dallas, TX 75207

/s/ Hal F. Morris HAL F. MORRIS Assistant Attorney General

Excerpts of 19 TEX. ADMIN. CODE § 7.4(a)(19) and 7.5(d)

Case 16-07207-JMC-7A Doc 1794-1 Filed 06/05/17 EOD 06/05/17 11:58:07 Pg 1 of 2

(19) Academic Records. Adequate records of each student's academic performance shall be securely and permanently maintained by the institution.

(A) The records for each student shall contain:

(i) student contact and identification information, including address and telephone number;

(ii) records of admission documents, such as high school diploma or GED (if undergraduate) or undergraduate degree (if graduate);

(iii) records of all courses attempted, including grade; completion status of the student, including the diploma, degree or award conferred to the student; and

(iv) any other information typically contained in academic records.

(B) Two copies of said records shall be maintained in separate secure places.

(C) Transcripts shall be provided upon request by a student, subject to the institution's obligation, if any, to cooperate with the rules and regulations governing state and federally guaranteed student loans.

19 Tex. Admin. Code § 7.4

(d) Transfer of Records--In the event any institution now or hereafter operating in this state proposes to discontinue its operation, the chief administrative officer, by whatever title designated, of said institution shall cause to be filed with the Board the original or legible true copies of all such academic records of said institution as may be specified by the Commissioner. Such records shall include, without limitation:

(1) such academic information as is customarily required by colleges when considering students for transfer or advanced study; and

(2) the academic records of each former student.

19 Tex. Admin. Code § 7.5

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