UNITED BLDG. CENTERS v. Ochs

• Decision Date: 31 March 2010
• Docket Number: No. 25259.,25259.
• Citation: 2010 SD 30,781 N.W.2d 79
• Parties: UNITED BUILDING CENTERS, Plaintiff and Appellee, v. David OCHS, Defendant and Appellant.
• Court: South Dakota Supreme Court

781 N.W.2d 79

2010 SD 30

UNITED BUILDING CENTERS, Plaintiff and Appellee, v. David OCHS, Defendant and Appellant.

No. 25259.

Supreme Court of South Dakota.

Considered on Briefs January 11, 2010.

Decided March 31, 2010.

Eric C. Schulte, Timothy M. Gebhart, Davenport Evans Hurwitz & Smith, LLP, Sioux Falls, South Dakota, for plaintiff and appellee.

Randall B. Turner, Pierre, South Dakota, for defendant and appellant.

GILBERTSON, Chief Justice.

¶ 1. United Building Centers (UBC) filed a complaint under SDCL 23A-28-1 to have a criminal restitution order converted into a civil judgment in its favor after David Ochs (Ochs) failed to submit all payments as ordered. Ochs denied the complaint and claimed the restitution order entered as part of his state criminal conviction was discharged in his Chapter 7 federal bankruptcy proceedings. The circuit court concluded a restitution order entered as part of a criminal penalty for violation of state law was not dischargeable in a federal bankruptcy proceeding. It also concluded the criminal restitution order satisfied the United States Supreme Court's three-part test in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986). However, the circuit court did not analyze whether the conversion of the restitution order into a civil judgment by a victim of the criminal activity was permitted under state law, or whether it satisfied the three-part Kelly test. Ochs appeals. We affirm in part, reverse in part, remand, and vacate the circuit court's civil judgment and order in favor of UBC.

FACTS

¶ 2. On January 26, 2001, Ochs passed an insufficient funds check to UBC for $25,336.42. On December 6, 2001, Ochs filed for Chapter 7 bankruptcy and listed UBC as an unsecured creditor in his filings. The bankruptcy trustee timely notified UBC of the bankruptcy filing, but UBC elected not to file any motions or adversarial actions against Ochs. On March 5, 2002, the federal bankruptcy court entered the Chapter 7 discharge of debtor order, which included the UBC debt.

¶ 3. On March 13, 2002, eight days after the federal bankruptcy court entered the discharge order in the Chapter 7 proceedings, Ochs pleaded guilty in circuit court to violating SDCL 22-41-1, currently SDCL 22-30A-24 transferred by SL 2005, ch 120, § 139, by passing the insufficient funds check to UBC. He also pleaded guilty to two additional counts of passing an insufficient funds check to two other victims. The circuit court entered an order suspending the imposition of sentence and placing Ochs on probation for five years on condition that Ochs pay court costs, serve ten days in the Brown County jail, and make full restitution to the three victims.

¶ 4. On August 5, 2002, the circuit court entered an order approving the restitution plan for $31,236.70. Of that amount, $30,711.36 represented restitution for the insufficient funds check passed to UBC. The balance represented restitution for the insufficient funds checks passed to the other two businesses for $475.34, and $50.00.

¶ 5. The order approving the restitution plan required Ochs to remit $250.00 monthly payments to the Brown County Clerk of Courts commencing September 5, 2002. The circuit court ordered Ochs to make full restitution by March 13, 2007. The order further stated that failure to comply with the terms of the restitution plan constituted a violation of the conditions of probation.

¶ 6. Ochs made payments to the Brown County Clerk of Courts totaling $1,100.00 before making no further attempt to satisfy the restitution order. On January 13, 2003, the circuit court entered an order revoking Ochs' suspended sentence and probation for failing to make full restitution as ordered. As a result, the circuit court ordered Ochs to serve two years in the state penitentiary with all but ninety days suspended.

¶ 7. On May 19, 2005, UBC filed a complaint under SDCL 23A-28-1 to have the restitution order transformed into a civil judgment. SDCL 23A-28-1 provides:

It is the policy of this state that restitution shall be made by each violator of the criminal laws to the victims of the violator's criminal activities to the extent that the violator is reasonably able to do so. An order of restitution may be enforced by the state or a victim named in the order to receive the restitution in the same manner as a judgment in a civil action.

(Emphasis added.) At the time UBC filed its complaint, the unpaid balance totaled $27,651.63 exclusive of interest.

¶ 8. In his answer, Ochs admitted the restitution order existed, but maintained the Chapter 7 bankruptcy proceedings discharged the debt he owed UBC and, therefore, the restitution order was also discharged. Ochs also argued that the conversion of a restitution order into a civil judgment by the victim of the criminal activity did not satisfy the three-part test in Kelly, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216. He also filed a counterclaim alleging UBC's actions violated 11 U.S.C. § 524(a)(2) and (3).¹ Ochs requested damages for contempt and attorney fees with sanctions under SDCL 15-6-11(c).

¶ 9. UBC moved for summary judgment and the parties submitted the matter to the circuit court on stipulated facts. The circuit court concluded the restitution order, authorized by SDCL 23A-28-1, was exempt from discharge under the federal bankruptcy code. It also concluded that the restitution order itself satisfied the United States Supreme Court's three-part test in Kelly, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216. However, the circuit court did not analyze whether the conversion of the restitution order into a civil judgment was permitted by state law. It also did not analyze whether such a conversion passed the three-part test in Kelly. The circuit court then entered an order converting the restitution order to a civil judgment against Ochs and in favor of UBC.

¶ 10. Ochs appeals raising two issues:

1. The circuit court erred when it concluded the restitution order was not discharged in Ochs' Chapter 7 bankruptcy proceedings.

2. Ochs is entitled to attorney fees and costs in the circuit court proceedings by UBC's violation of the bankruptcy court's discharge injunction.

STANDARD OR REVIEW

Our standard of review on summary judgment requires this Court to determine whether the moving party has demonstrated the absence of any genuine issue of material fact and entitlement to judgment on the merits as a matter of law. The circuit court's conclusions of law are reviewed de novo. However, all facts and favorable inferences from those facts must be viewed in a light most favorable to the nonmoving party. We will affirm the circuit court's ruling on a motion for summary judgment when any basis exists to support its ruling.

Dakota Plains AG Ctr., L.L.C. v. Smithey, 2009 SD 78, ¶ 14, 772 N.W.2d 170, 178 (quoting Weitzel v. Sioux Valley Heart Partners, 2006 SD 45, ¶ 16, 714 N.W.2d 884, 891). Statutory construction is also an issue of law subject to the de novo standard of review. Discover Bank v. Stanley, 2008 SD 111, ¶ 15, 757 N.W.2d 756, 761 (citing Martinmaas v. Engelmann, 2000 SD 85, ¶ 49, 612 N.W.2d 600, 611).

ANALYSIS AND DECISION

¶ 11. Both Ochs and UBC agree that the issue before this Court, whether a restitution order imposed in a criminal sentence is discharged by a federal bankruptcy court's discharge order, is controlled by the United States Supreme Court's three-part test in Kelly, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216. That test is based on the language in 11 U.S.C. § 523(a)(7) of the bankruptcy code, which provides an exception to the discharge of debts permitted under 11 U.S.C. § 727(b). Kelly, 479 at 50-1, 107 S.Ct. at 361-62, 93 L.Ed.2d 216. Debts are discharged under Chapter 7 bankruptcy proceedings with some exceptions, including:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

. . .

(7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss .

11 U.S.C. § 523(a)(7) (emphasis added).

¶ 12. Ochs argues the first element of the Kelly test is not satisfied because the restitution award was not a fine or penalty for the offense of passing an insufficient funds check to UBC. Instead, Ochs argues the ninety days of incarceration he served constituted the only penalty for his criminal offense. He further argues the second part of the test is not met because the money UBC sought was not for the benefit of a government unit, but for the benefit of UBC as the ultimate recipient of the restitution. Finally, Ochs argues the third element of the test also fails because the claim represented a pecuniary loss suffered by UBC when Ochs received $25,336.42 in goods in exchange for the insufficient funds check.

Criminal restitution orders survive bankruptcy proceedings

¶ 13. In Kelly, the United States Supreme Court reviewed the issue of whether a criminal restitution order was dischargeable under Chapter 7 bankruptcy proceedings. 479 U.S. at 38, 107 S.Ct. at 355, 93 L.Ed.2d 216. A Connecticut state court convicted the defendant, Robinson, of larceny in the second degree for the wrongful receipt of $9,932.95 in welfare benefits from the Connecticut Department of Income Maintenance (Department). It then sentenced Robinson to a prison term of no less than one year and no more than three years. The state court suspended execution of the sentence and placed Robinson on five years probation. Id. at 38-39, 107 S.Ct. at 355, 93 L.Ed.2d 216. As a condition of her probation, the state court ordered Robinson to make monthly $100.00 restitution payments to the Connecticut Office of Adult Probation. Id. at 39, 107 S.Ct. at 355, 93 L.Ed.2d 216. After the restitution order was entered, Robinson filed a voluntary Chapter 7 bankruptcy petition. Robinson listed the restitution order as a debt in her petition....