Hardenberg, In re

• Citation: 42 F.3d 986
• Decision Date: 09 December 1994
• Docket Number: No. 93-4183,93-4183
• Parties: , 32 Collier Bankr.Cas.2d 520, Bankr. L. Rep. P 76,222 In re James David HARDENBERG, Debtor. James David HARDENBERG, Plaintiff-Appellee, v. COMMONWEALTH OF VIRGINIA, DEPARTMENT OF MOTOR VEHICLES; Commonwealth of Virginia, 19th Judicial District, Fairfax County General District Court, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 986

42 F.3d 986

63 USLW 2388, 32 Collier Bankr.Cas.2d 520,

Bankr. L. Rep. P 76,222

In re James David HARDENBERG, Debtor.

James David HARDENBERG, Plaintiff-Appellee, v. COMMONWEALTH OF VIRGINIA, DEPARTMENT OF MOTOR VEHICLES;

Commonwealth of Virginia, 19th Judicial District,

Fairfax County General District Court,

Defendants-Appellants.

No. 93-4183.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 6, 1994.

Decided Dec. 9, 1994.

Larry Gene Crowell, Englewood, OH, for plaintiff-appellee.

Jeffrey A. Spencer (argued and briefed), Richmond, VA, for defendants-appellants.

Before: JONES, SILER, and GODBOLD, Circuit Judges. ^*

NATHANIEL R. JONES, Circuit Judge.

Defendants-Appellants Virginia Department of Motor Vehicles and the Fairfax County General District Court of Virginia ("Virginia") present the following issue: Do fines and costs, imposed as punishment for state criminal convictions constitute "debts" for purposes of the Bankruptcy Code, so that they are dischargeable in a Chapter 13 bankruptcy proceeding pursuant to 11 U.S.C. Sec. 1328(a)? ¹ The bankruptcy court held that state criminal fines and costs are "debts," as defined in 11 U.S.C. Sec. 101, ² and as such are dischargeable in a Chapter 13 bankruptcy. The district court affirmed the bankruptcy court's decision, and we also affirm.

I.

In 1985, Plaintiff-Appellee James David Hardenberg was convicted of Driving While Intoxicated in the County of Fairfax, Virginia. The Fairfax County Court imposed a fine and costs as punishment for his conviction. Additionally, Hardenberg's driving privileges in Virginia were suspended until he paid the fine, court costs, and a reinstatement fee, and filed proof of financial responsibility. As a result of the suspension in Virginia, the State of Ohio also suspended Hardenberg's driving privileges until he could provide a "Letter of Clearance" from Virginia to the Ohio Bureau of Motor Vehicles.

Subsequently, Hardenberg filed a Chapter 13 bankruptcy petition and listed the Fairfax County Court as an unsecured creditor. Hardenberg's Chapter 13 plan provided that the Fairfax County Court would receive twenty percent dividends on its unsecured claim. Despite the payment schedule set forth in the bankruptcy plan, Virginia refused to provide the "Letter of Clearance" until Hardenberg completed the wage earner plan and had been discharged from bankruptcy.

On January 6, 1989, Hardenberg commenced an adversary proceeding against Virginia and claimed that Virginia had violated the automatic stay provisions of the bankruptcy code, 11 U.S.C. Sec. 362(a)(6), ³ by failing to reinstate his driving privileges and to issue a "Letter of Clearance." The bankruptcy court considered the action, which was directed at the effect of the automatic stay, to be a core bankruptcy proceeding. Virginia defended its actions on the basis that its refusal to reinstate Hardenberg's driving privileges was a continuation of a criminal action or proceeding against the debtor, and thus within the meaning of the 11 U.S.C. Sec. 362(b)(1) ⁴ exception to the automatic stay of section 362(a). Although the bankruptcy court ruled that Virginia's actions were not automatically stayed, the court held that Hardenberg's obligation to pay his criminal fine and court costs constituted a "debt" for bankruptcy purposes, subject to discharge upon successful completion of the Chapter 13 plan. Because Hardenberg had, by this time, completed all of his plan payments, the bankruptcy court ordered the issuance of a discharge.

Upon the issuance of such discharge, the debtor's obligation to the Commonwealth of Virginia will be discharged, and the injunction of Sec. 524 will become effective. At such time Virginia will be required to reinstate the debtor's driving privileges and to issue a Letter of Clearance.

J.A. at 18. The bankruptcy court entered judgment on September 6, 1991, and Virginia appealed to the district court. The district court affirmed the bankruptcy court's decision and held that "criminal fines and penalties are dischargeable in Chapter 13 proceedings, after completion of all payments under the plan." J.A. at 36, 37. This appeal followed.

II.

The question before this court is a question of law or statutory interpretation, and it is reviewed de novo. See United States v. Brown, 915 F.2d 219, 223 (6th Cir.1990) ("A district court engages in statutory construction as a matter of law, and we review its conclusions de novo."); Waxman v. Luna, 881 F.2d 237, 240 (6th Cir.1989) ("Conclusions of law are ... subject to de novo review."); In re Edward M. Johnson & Assocs., Inc., 845 F.2d 1395, 1398 (6th Cir.1988) (stating that decision of district court on questions of law is reviewed de novo ).

Virginia claims that the issue in this case carries great significance for the criminal justice systems of all fifty states. The decisions of the lower courts do raise obvious questions about the ability of state courts to impose criminal penalties without fear of interference from federal bankruptcy courts. Emphasizing principles of federalism, the Supreme Court has repeatedly acknowledged the right of state courts to enforce state criminal laws without federal interference.

The right to formulate and enforce penal sanctions is an important aspect of the sovereignty retained by the States. This Court has emphasized repeatedly "the fundamental policy against federal interference with state criminal prosecutions."

Kelly v. Robinson, 479 U.S. 36, 47, 107 S.Ct. 353, 360, 93 L.Ed.2d 216 (1986) (quoting Younger v. Harris, 401 U.S. 37, 46, 91 S.Ct. 746, 751, 27 L.Ed.2d 669 (1971)). The Court has extended this principle to its interpretation of the Bankruptcy Code: "Our interpretation of the Code also must reflect ... a deep conviction that federal bankruptcy courts should not invalidate the results of state criminal proceedings." Id.

In light of this principle, Virginia contends that the lower courts in this case have incorrectly interpreted the Bankruptcy Code and more particularly the definition of "debt" in 11 U.S.C. Sec. 101(11), and that as a result, the federal courts have impermissibly interfered with Virginia's criminal proceedings. Thus, Virginia asks this court to reverse the decision of district court and hold that fines and costs imposed as punishment for a state criminal conviction are not dischargeable "debts" as defined in Chapter 13 of the Bankruptcy Code. We decline to do so.

III. Historical Perspective and Statutory Interpretation

Shortly after Congress enacted the Bankruptcy Code in 1978 to replace the Bankruptcy Act of 1898, a California bankruptcy court held that state criminal fines and costs constituted "debts" under the new Bankruptcy Code and that such "debts" could be discharged in a Chapter 13 bankruptcy pursuant to 11 U.S.C. Sec. 1328(a). In re Young, 10 B.R. 17, 19 (Bankr.S.D. Cal.1980). The court arrived at this conclusion because, unlike 11 U.S.C. Sec. 523(a)(7), ⁵ which specifically excepted criminal fines from discharge in a Chapter 7 bankruptcy, section 1328(a) contained no express provisions excepting state criminal penalties from discharge in a Chapter 13 proceeding. See id. at 18-19; see also In re Smith, 58 B.R. 78, 81 (Bankr.E.D.Pa.1986) (noting that state criminal fine, like traffic citation, would be excepted from Chapter 7 or 11 discharge according to 11 U.S.C. Sec. 523(a)(7), although debtor would be exonerated from paying such debt under Chapter 13 discharge pursuant to 11 U.S.C. Sec. 1328(a)), rev'd on other grounds sub nom. Smith v. Pennsylvania Dept. of Transp., 66 B.R. 244 (E.D.Pa.1986).

Furthermore, in 1986, a Tennessee bankruptcy court held that a debtor's obligations to pay a state criminal fine and court costs constituted "debts" for bankruptcy purposes, which were subject to discharge in a Chapter 13 proceeding. In re Gilliam, 67 B.R. 83, 85-86 (Bankr.M.D. Tenn.1986). The court began its analysis by recognizing that, based on statutory language and legislative history, the term "debt" was to be given its broadest possible definition. Id. at 85 (quoting Brown v. Shriver (In re Brown), 39 B.R. 820, 822 (Bankr.M.D. Tenn.1984) (citing 11 U.S.C.A. Secs. 101(4) and 101(11) (West 1979); S.Rep. No. 989, 95th Cong., 2d Sess. 21-22, reprinted in 1978 U.S.C.C.A.N. 5787, 5808; H.R.Rep. No. 595, 95th Cong., 1st Sess. 309, reprinted in 1978 U.S.C.C.A.N. 5963, 6266)). This meant that the term "debt" should include all payment obligations, however incurred. Id.

Additionally, the court found that the statutory language of 11 U.S.C. Sec. 523(a)(7), see supra note 5, compelled the conclusion that state criminal fines were "debts" for bankruptcy purposes. Id. Congress' use of the terms "debt" and "fine" in this statute, clearly revealed to the court that fines payable to a governmental unit were "debts" under the Bankruptcy Code. Id. at 85-86.

Finally, because Congress did not include a discharge exception in 11 U.S.C. Sec. 1328(a) (Chapter 13 proceeding) parallel to the specific exception from discharge in 11 U.S.C. Sec. 523(a)(7) (Chapter 7 proceeding), the court held that state criminal fines and court costs were debts subject to discharge in a Chapter 13 bankruptcy. Id. at 86. Thus, the court found that the discharge in a Chapter 13 case, after the completion of all payments under a confirmed plan, was broader than the discharge available under Chapter 7. Id.

One month after the Gilliam decision, however, the Supreme Court rendered its decision in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986). Although the Kelly decision considered restitution orders of state criminal courts rather than fines, and although Kelly was a Chapter 7 case instead of a Chapter 13 case, Virginia argues that the analysis of the Court in Kelly is directly applicable to the question considered in this case--whether state criminal fines are debts that can be discharged under the Bankruptcy Code.

The Court in Kelly began its...