230 B.R. 657 (Bkrtcy.D.N.J. 1999), 98, In re Raphael

Docket Nº:Bankruptcy No. 98-18044/JHW.
Citation:230 B.R. 657
Party Name:In the Matter of Almon RAPHAEL, Debtor.
Case Date:February 04, 1999
Court:United States Bankruptcy Courts, Third Circuit

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230 B.R. 657 (Bkrtcy.D.N.J. 1999)

In the Matter of Almon RAPHAEL, Debtor.

Bankruptcy No. 98-18044/JHW.

United States Bankruptcy Court, D. New Jersey.

February 4, 1999

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Morton Feldman, Atlantic City, NJ, for Debtor.

Marc Alan Krefetz, Deputy Attorney General, Department of Law & Public Safety, Division of Law, Richard J. Hughes Justice Complex, Trenton, NJ, for State of New Jersey.


JUDITH H. WIZMUR, Bankruptcy Judge.

In this Chapter 13 case, the debtor proposes to pay municipal court traffic fines through his plan. Presented here is debtor's motion to compel certain municipal courts to rescind their respective suspensions of the debtor's driving privileges by notifying the Division of Motor Vehicles ("DMV") to restore the debtor's driving privileges. The State of New Jersey has filed a special appearance objecting to the debtor's motion, asserting sovereign immunity under the Eleventh Amendment with respect to the DMV, whom the state contends is the real party in interest.

An order dated November 30, 1998, was entered directing that each of the municipalities

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involved, Atlantic City, Bass River, Clementon and Pleasantville, issue an order rescinding the suspension of the debtor's driving privileges, to the extent that the suspension was based on the debtor's failure to pay a court imposed fine. The decision below is rendered to clarify the bases for my earlier determinations in this matter.


The debtor filed a voluntary petition under Chapter 13 of the Bankruptcy Code on August 28, 1998. Debtor's Chapter 13 plan proposes to pay $33.40 per month for 36 months as a dividend to unsecured creditors, comprised of the four municipal courts (for traffic and parking fines), the New Jersey Automobile Insurance Surcharge and Collections ("A.I.S.C.") (for motor vehicle surcharges) and the Beneficial Finance Co. (for a personal loan). Debtor's intention is to pay the Internal Revenue Service on a priority claim outside of his plan.

By way of background, debtor explains that he operates motorized equipment at his place of business and desires to regain his driver's license in order to retain his current employment. At the time of the filing of this motion, the debtor believed that his driver's license had been suspended by four different municipal courts. Debtor's schedules indicated that traffic fines were imposed by the municipalities of Absecon 1, Atlantic City, Bass River and Clementon. 2 Proofs of claim have been filed on behalf of each of the municipal courts by the debtor. 3

All listed creditors, including the four municipalities and the New Jersey A.I.S.C., were noticed with debtor's motion seeking to direct the municipalities to rescind their respective suspensions of the debtor's driving privileges. No opposition was received from any of the municipalities. We note as well that the New Jersey A.I.S.C. forwarded a notice to the debtor on September 11, 1998, following the filing of his petition, indicating that any suspension of the debtor's driving privileges for the nonpayment of insurance surcharges would be marked "satisfied".

The only objection to the debtor's motion was raised by the State of New Jersey, which responded on behalf of the DMV by way of a special appearance, for the limited purpose of asserting the protection of sovereign immunity under the Eleventh Amendment. The DMV seeks to have the debtor's motion dismissed, relying primarily upon Judge Tuohey's decision in In re Perez, 220 B.R. 216 (Bankr.D.N.J.1998), aff'd, Civ. No. 98-2043/NHP (D.N.J. August 10, 1998) (unpublished letter opinion).

This matter was considered in court on November 9, 1998, and again on November 16, 1998. At the hearings, I expressed the view that the municipal courts were the real parties in interest in debtor's quest for relief, and that the municipal courts did not have sovereign immunity under the Eleventh Amendment. I recognized debtor's opportunity to treat municipal court fines as unsecured claims in his Chapter 13 plan, 4 and agreed that the automatic stay precluded the conduct of collection activities against the debtor by the municipal courts during the pendency of the case. I also determined that the municipal courts could be directed to rescind any pending suspensions of the debtor's driving privileges which were based on the debtor's failure to pay fines imposed by the municipal courts.

Because further clarification was needed from the debtor regarding the bases of his various suspensions, the matter was adjourned again and reconvened by telephone conference call on November 30, 1998. Following the conference call, on the same day, I

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entered an order directing each of the four municipalities to "issue an order rescinding the suspension of debtor's driving privileges and communicate its issuance to the Division of Motor Vehicles." The rescission applied to any such suspension that was not occasioned by the debtor's failure to appear in response to a summons or a statutory suspension.

During the conference call on November 30, 1998, the State raised an additional issue, asserting that because the District Court had affirmed the Perez decision, this court was bound by the conclusions drawn in that decision. The State was afforded an opportunity to supplement the record on this question and I considered the State's arguments in that regard at a hearing on December 7, 1998.

Because of the disjointed state of this record, which includes three court appearances and one conference call, I determined to clarify my rulings in writing.


Three issues are presented for resolution here. First, we must determine whether the Division of Motor Vehicles, an arm of the state, is the real party in interest in this case. Second, we must determine whether the district court's ruling in In re Perez, Civ. No. 98-2043/NHP (D.N.J. August 10, 1998) (unpublished letter opinion) is binding on this court. Third, we will consider the issue of whether New Jersey municipal courts are protected from suit in the federal courts by the Eleventh Amendment.

I. Is the DMV a Real Party in Interest?

The test to determine whether the state is the real party in interest is "if the decision rendered in a case would operate against the sovereign, expending itself on the public treasury, interfering with public administration, or compelling the State to act or refrain from acting." In re Kish, 212 B.R. 808, 814 (D.N.J.1997) (citing to Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 101 n. 11, 104 S.Ct. 900, 908 n. 11, 79 L.Ed.2d 67 (1984)).

Recently, Judge Tuohey, in In re Perez, 220 B.R. 216 (Bankr.D.N.J.1998), addressed the same question facing this court today, namely: can a municipal court be compelled to reinstate the driving privileges of a Chapter 13 debtor? Upon reconsideration, Judge Tuohey concluded that he "lack[ed] subject matter jurisdiction to issue orders compelling the restoration of driving privileges, since to do so would interfere with the State of New Jersey's Eleventh Amendment immunity involving licensing practice and procedures, and would, of necessity, impact upon the legal rights of the DMV, an arm of the State." 220 B.R. at 221. Citing to In re Kish, 212 B.R. 808 (D.N.J.1997) for the proposition that the State's sovereign immunity extended to the DMV, the court focused on whether or not the DMV was the "real party in interest". Turning to state law, the court explained that:

under New Jersey law, specifically, N.J.S.A. 39:4-139.10(a), upon the failure to pay a municipal parking judgment, the municipal court is to give notice to the DMV in a manner prescribed by the director, and pursuant to subsection (b), the judge or the director may suspend the driver's license of an individual who has not satisfied outstanding parking violations. Moreover, pursuant to N.J.S.A. 39:4-139.11, when the fine imposed by the municipality has been satisfied, the municipal court is to forward a notice to the DMV to restore the license.

Id. at 224.

The court concluded that:

From its review of the District Court holding in Kish, in light of the above referenced statutes, it is clear to this Court that the DMV is a "real party-in-interest" in this case and clearly entitled to Eleventh Amendment immunity, since a ruling herein concerning restoration of debtor's driving privileges, either through issuance of an order to the municipal courts or directly to the DMV, upon confirmation of a debtor's Chapter 13 Plan, would, of necessity, compel the state to act or refrain from acting.

Id. As a result of "the identity of interest between the Director of the DMV and municipal

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judges ... as well as the extensive control over motor vehicle licensing procedures exercised by the State of New Jersey," Perez determined that "clearly the suspension or restoration of a driver's license, albeit for municipal parking violations, cannot be administered by the municipality independent of the DMV." Id. Accordingly, sovereign immunity applied to preclude adjudication of the issue in federal court. See also In re Burkhardt, 220 B.R. 837 (Bankr.D.N.J.1998) (subsequent opinion by Judge Tuohey reaching the same conclusion).

We readily recognize that the DMV, as an arm of the State, is entitled to Eleventh Amendment sovereign immunity, and we acknowledge the "extensive control over motor vehicle licensing procedures exercised by the State." 220 B.R. at 224. We do not challenge the district court conclusion reached in Kish that the DMV is a real party in interest in administering the state's motor vehicle surcharge program. However, we conclude that the DMV is not the real party in interest in this matter.

In Kish, the...

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