Fussell, In re, F-V

• Decision Date: 17 April 1991
• Docket Number: F-V,No. 90-8261,90-8261
• Citation: 928 F.2d 712
• Parties: 24 Collier Bankr.Cas.2d 1695, 21 Bankr.Ct.Dec. 978, Bankr. L. Rep. P 73,924 In re William Michael FUSSELL f/d/b/aRanch and Julia White Fussell, Debtor. William Michael FUSSELL, f/d/b/aRanch, Appellant, v. Karen PRICE as District Attorney of Shelby County, Texas, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 712

928 F.2d 712

24 Collier Bankr.Cas.2d 1695, 21 Bankr.Ct.Dec. 978,

Bankr. L. Rep. P 73,924

In re William Michael FUSSELL f/d/b/a F-V Ranch and Julia

White Fussell, Debtor.

William Michael FUSSELL, f/d/b/a F-V Ranch, Appellant, v. Karen PRICE as District Attorney of Shelby County, Texas, Appellee.

No. 90-8261.

United States Court of Appeals, Fifth Circuit.

April 17, 1991.

Rehearing Denied May 20, 1991.

R. Mike Borland, Borland & Borland, Midland, Tex., for appellant.

W. Burgess Wade, Boyd, Sanders, Wade, Cropper & Prothro, Midland, Tex., for appellee.

Appeal from the United States District Court for the Western District of Texas.

Before GOLDBERG, JOLLY and WIENER, Circuit Judges.

GOLDBERG, Circuit Judge:

William Fussell sold some cattle he had mortgaged and applied the proceeds to expenses and lease payments. He was indicted for hindering enforcement of a security interest. A few weeks later, Fussell filed a Chapter 7 proceeding. Contending that the prosecution was a bad-faith attempt to collect a debt dischargeable in bankruptcy, Fussell asked that the bankruptcy court enjoin the state criminal proceeding. The bankruptcy court denied the injunction and the district court affirmed.

We hold that a bankruptcy court may enjoin a state criminal proceeding only if the requisites of both Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), and the Anti-Injunction Act, 28 U.S.C. Sec. 2283, are met. Among these requirements are that the debtor identify a federally protected right threatened by the prosecution. Our precedent establishes that a debtor does not have a federal right to prevent a criminal court from requiring that he repay debts that are the subject of his bankruptcy proceedings; also, the prosecution at issue here is not motivated by the sort of bad faith that our precedent condemns. Accordingly, we find that Fussell has failed to meet the exacting standard enunciated in Younger and we therefore AFFIRM.

Facts and Proceedings Below

Starting in 1982 or 1983, Fussell borrowed money from the Shelby County Savings Bank. ¹ The loans, secured by land and cattle, served as operating capital for Fussell's ranch. Fussell would fatten the cattle and sell them at the end of each operating year. Then, with the knowledge and consent of the Bank, he would divide the proceeds from the sale, using a portion of the money to purchase new cattle for the upcoming year, and the remainder as payments on the loans. Necessarily, there would be an interim period before the new cattle were purchased during which the loan would be collateralized in part by cash rather than cattle.

At some point, the Bank foreclosed on the loan. At the time this occurred, Fussell had sold all his cattle, and held only land whose value was inadequate to fully collateralize the loan. Although Fussell had applied some of the proceeds of the sale of the cattle to the loan, he applied a portion of the cash to ranch expenses and lease payments, as his longtime partner had failed to make certain payments owed to the partnership. The net result was that the loan was under-secured.

On July 23, 1988, Fussell was indicted in Shelby County under Tex. Penal Code Ann. Secs. 32.33(b), (c) (Vernon 1989), which punish one who intentionally "hinder[s] enforcement of [a] security interest or lien." The Shelby County District Attorney at the time was John Walker, later replaced by Karen Price. Assistant District Attorney Robert Allen Goodwin was assigned to the case. Fussell's defense attorney was William Barton. A few weeks after the indictment, on August 12, Fussell filed a Chapter 7 proceeding.

The crux of Fussell's complaint is that the criminal prosecution is malicious, in that it is motivated by a desire to aid the Bank in collecting Fussell's debt. Certain deposition testimony supports this view. For example, District Attorney Price testified that she would continue prosecution "until the money had been received." When Fussell satisfied the security agreement, Price "would consider dismissal." Assistant District Attorney Goodwin testified that "he would have clearly indicated to" Fussell's attorney that if the Bank withdrew the complaint, the DA's office "would be happy not to open another file on it." Asked whether this meant that the Bank's withdrawal of the complaint would "essentially" result in the dismissal of the indictment, Goodwin answered "That's correct." Goodwin also testified that his office "might have" sent Fussell a letter telling him that if the Bank's complaint was not resolved, it would probably be presented to the grand jury. He testified that restitution would "ordinarily" be required as part of a plea bargain, since a "collateral purpose" of plea negotiations is "to try to make the victim whole."

Other testimony, however, indicates that the question of the District Attorney's motivation was complex. When asked whether the purpose of the prosecution was "to obtain restitution for" the Bank or "to prosecute a criminal," Goodwin answered "[B]oth. Our primary purpose was to prosecute the criminal act, ... [b]ut ... restitution would be a collateral issue."

The Bank's attitude is also illustrated by the testimony. A Bank employee testified that a director and owner of the Bank told him to tell Fussell that unless Fussell signed a renewal note with a substantial down payment, the owner-director would see to it personally that Fussell was put in the penitentiary. The Bank employee also testified that the Bank's directors felt that the prosecution could be used to pressure Fussell's brother or mother into paying the debt.

Standard of Review

We review findings of fact by the Bankruptcy and District courts under the clearly erroneous standard, and consider questions of law de novo. See In re Waller Creek, Ltd., 867 F.2d 228, 232 & n. 3 (5th Cir.1989).

Discussion

This appeal raises the question of whether a bankruptcy court should enjoin a state criminal prosecution premised on a debt owed by a bankrupt. This vexing issue has sharply divided bankruptcy courts in the various circuits, and, to a lesser extent, district courts and courts of appeal. ² On the one hand, the Bankruptcy Code is intended to relieve the honest debtor by "permit[ting] him to start afresh," Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934); on the other, States certainly have the right to punish economic crime involving debts. The procedural aspect of this issue is equally complex; although the Bankruptcy and Supremacy Clauses vest the Bankruptcy Code with a primacy over state law, it is beyond dispute that considerations of comity and equity militate against lightly enjoining a state criminal prosecution. See Kugler v. Helfant, 421 U.S. 117, 123, 95 S.Ct. 1524, 1530, 44 L.Ed.2d 15 (1975); Younger, 401 U.S. at 42-43, 91 S.Ct. at 749-750; Perez v. Ledesma, 401 U.S. 82, 84-85, 91 S.Ct. 674, 676-677, 27 L.Ed.2d 701 (1971); cf. 11 U.S.C. Sec. 362(b)(1) (excluding criminal prosecutions from scope of automatic bankruptcy stay).

Against this backdrop, Fussell asks us to adopt the reasoning of In re Seidelman, 57 B.R. 149 (Bankr.D.Md.1986) and In re Dettler Farms, 58 B.R. 404 (Bankr.D.S.D.1986), cases from other circuits in which the bankruptcy courts granted the requested injunctions. However, bankruptcy courts in our circuit have not been so willing to enjoin state criminal proceedings. See In re Little Giant Mobile Homes, 60 B.R. 194 (Bankr.W.D.La.1986); In re First Texas Petroleum, supra. Further, our own precedent dictates a framework that precludes us from granting the requested injunction.

In contexts other than bankruptcy, this circuit has indicated that a federal court order enjoining a state criminal prosecution must pass two tests. Milner v. Burson, 470 F.2d 870, 874 (5th Cir.1972). First, the order must satisfy Younger, 401 U.S. at 43-46, 91 S.Ct. at 750-752, which permits a federal court to enjoin a state criminal prosecution only if 1) the party requesting the injunction is without adequate remedy at law; 2) the party stands to suffer "irreparable injury" that is "both great and immediate"; and 3) the threatened injury relates to his "federally protected rights ... [and] cannot be eliminated by his defense against a single criminal prosecution." Additionally, Younger explains that although "bad faith, harassment, or other unusual circumstances" may justify an injunction, the mere "cost, anxiety, and inconvenience of having to defend against a single criminal prosecution" do not. Id. at 46, 54, 91 S.Ct. at 751, 755. Second, the Milner framework requires that the order fall within the scope of one of the exceptions enumerated in the Anti-Injunction Act, 28 U.S.C. Sec. 2283, ³ which permits a federal court to enjoin a state court proceeding only where "expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."

Although we have not had occasion to consider whether the Milner framework is applicable to injunctions in the bankruptcy court, we readily conclude that it is. First, it is clear that Bankruptcy Code Sec. 105 (11 U.S.C. Sec. 105) is an "expressly authorized" exception to the Anti-Injunction Act, ⁴ so an injunction issued pursuant to Sec. 105 satisfies the second part of the Milner test. The more substantive question is whether Younger is applicable to Sec. 105 injunctions. Other circuits have held that it is, as have bankruptcy courts in our own circuit. ⁵ We agree, as we find nothing in the bankruptcy power that justifies disregarding the balancing of interests embodied in Younger. Accordingly, we hold that the Milner two-part framework is applicable to injunctions under Sec. 105. See Barnette, 673 F.2d at 1252 (implying that Fifth Circuit precedent supports two-part framework in bankruptcy context).

Under this framework, Fussell's complaint falls short of the strict requirements for the injunction he seeks. Younger...