In re Adams, Bankruptcy No. 87-05906.

Citation106 BR 811
Decision Date20 January 1989
Docket NumberBankruptcy No. 87-05906.
PartiesIn re David ADAMS and Elizabeth Litchendorf Adams, Debtors.
CourtU.S. Bankruptcy Court — District of New Jersey

Neil I. Sternstein, P.C. by Neil I. Sternstein, Woodbury, N.J., for debtors.

W. Cary Edwards, Atty. Gen. of New Jersey by Nancy M. Mahoney, Deputy Atty. Gen., Trenton, N.J., for State of N.J., Div. of Motor Vehicles.



The matter before the court arises from a motion to enforce the automatic stay filed on February 16, 1988 by David Adams the co-debtor herein against the State of New Jersey, Division of Motor Vehicles ("DMV")1 wherein the debtor seeks an order and injunction against DMV: (1) to prohibit that agency from further attempts to collect a New Jersey surcharge from the debtor, David Adams ("debtor"); (2) for payment of the debtor's attorneys' fees in connection with the motion; and (3) for the restoration of David Adams' driving privileges which were suspended due to his failure to pay surcharges imposed upon the debtor by DMV pursuant to N.J.S.A. 17:29A-35(b)(2) and (3) and N.J.A.C. 13:19-13.1 et seq., for the debtor's violation of N.J.S.A. 39:4-50(a) and N.J.S.A. 39:3-40. The undisputed facts of this case follow.

On or about February 9, 1984 the debtor was convicted of operating a motor vehicle under the influence of alcohol in violation of N.J.S.A. 39:4-50(a). Pursuant to that conviction the debtor's driver's license was suspended for six months and a fine was imposed by the New Jersey municipal court pursuant to N.J.S.A. 39:4-50. That suspension was honored and that fine was paid. Under the New Jersey Merit Rating Plan, N.J.S.A. 17:29A-35(b)(2), the DMV is required to levy annually for a three year period Merit Rating Plan surcharges of not less than $1,000.00 per year, on all New Jersey licensees convicted of operating a motor vehicle under the influence of alcohol. Accordingly, on June 12, 1985, DMV surcharged the debtor $1,000.00 for the 1985 surcharge period; on July 12, 1986, DMV surcharged the debtor $1,000.00 for the 1986 period; and on June 15, 1987, DMV surcharged the debtor $1,000.00 for the 1987 period.

On April 10, 1986 the debtor was convicted of operating a motor vehicle while his driver's license was suspended in violation of N.J.S.A. 39:3-40. In connection with this conviction the debtor was surcharged $250.00 pursuant to N.J.S.A. 17:29A-35(b)(3) and N.J.A.C. 13:19-13.1 et seq., which surcharge was levied on June 15, 1987, the same time as the 1987 surcharge for debtor's previous conviction on June 15, 1987. Under N.J.A.C. 13:19-13.1 et seq. $250.00 surcharges are assessed annually for a three-year period upon persons convicted of driving while their licenses are suspended.2

The debtor paid in full by installments the $1,000.00 surcharge levied by DMV in connection with the 1985 surcharge period and $565.00 of the $1,000.00 levied in connection with the 1986 surcharge period. David Adams has paid no portion of the surcharge levied in 1987 related to either his 1984 conviction ($1,000.00) or his 1986 conviction ($250.00). On August 14, 1987 the debtor's New Jersey driving privileges were suspended pursuant to N.J.S.A. 17:29A-35(b)(2) for failure to remit the remaining Merit Rating Plan surcharges.

On September 28, 1987 David Adams and Elizabeth Litchendorf Adams, the debtors, filed a joint voluntary Chapter 13 petition under the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Amendments and Federal Judgeship Act of 1984 and the Bankruptcy Judges, United States Trustees and Family Farmer Bankruptcy Act of 1986 (hereinafter "Code" or "Bankruptcy Code"). An order of dismissal of the debtors' Chapter 13 was entered by this court on January 20, 1988. That order was entered based upon the failure of the debtors to appear at the scheduled confirmation hearing on December 16, 1987 and the failure to make plan payments then due to the Chapter 13 Standing Trustee. On February 16, 1988 the debtors filed a notice of motion to reinstate the bankruptcy petition. Also on February 16, 1988 the instant motion to enforce the automatic stay was filed by the debtor David Adams. On March 30, 1988 the DMV restored the debtor's New Jersey driving privileges pending the outcome of the instant proceeding. On April 6, 1988 the court heard the debtors' motion to reinstate their Chapter 13 petition, granted the relief requested, reinstating the Chapter 13 petition, and entered an order to that effect on April 28, 1988. On April 21, 1988, the DMV filed a brief and appendix in opposition to the debtor's motion to enforce the automatic stay. This court heard oral argument on the motion on June 15, 1988 and reserved opinion on the matter until this time.

The debtors' Chapter 13 Statement filed with their original Chapter 13 petition lists the State of New Jersey Automobile Insurance Surcharge & Collections as an unsecured creditor.3 The debt is listed in the amount of $755.00 as a liability of debtor David Adams. The debtors' Chapter 13 Plan, as amended and filed on January 13, 1988, proposes a payment of $3,500.00 to be distributed pro rata to unsecured creditors over a period of 36 months. The debtors' amended plan was confirmed by order of this court entered October 25, 1988.

The debtors' position is that enforcement of the New Jersey Automobile Insurance Reform Act of 1982 against David Adams is in direct conflict with the "fresh start" policy underlying the Bankruptcy Code; that New Jersey state statutes are invalidated by the supremacy clause of the United States Constitution, Article 6, Clause 2, to the extent that they are in conflict with federal bankruptcy law; and that enforcement of the New Jersey Automobile Insurance Reform Act of 1982 against the debtor is a violation of the automatic stay of 11 U.S.C. § 362. (See Debtor's "Brief in Support of Motion to Enforce Automatic Stay Against State of New Jersey-AISC" at pp. 2-3).

The State argues that Merit Rating Plan surcharges imposed pursuant to N.J.S.A. 17:29A-35 are nondischargeable such that the debtor herein may not escape obligations under the laws governing insurance in this state. The State rejects the proposition that the debtor is exempt from the Merit Rating Plan laws by virtue of the debtor's filing of a bankruptcy petition. Specifically, DMV argues:

(1) that application of New Jersey's Merit Rating Plan is not subject to or violative of the automatic stay provisions of 11 U.S.C. § 362(a);

(2) that the Merit Rating Plan's surcharges are not debts within the meaning of 11 U.S.C. § 101(11), are nondischargeable, and are therefore unaffected by the automatic stay;

(3) assuming plan surcharges are "debts", plan surcharges which arise from convictions for operating a motor vehicle while intoxicated in violation of N.J.S.A. 39:4-50 are nondischargeable under 11 U.S.C. § 523(a)(9);

(4) plan surcharges are otherwise nondischargeable under 11 U.S.C. § 523(a)(7);

(5) the Merit Rating Plan, N.J.S.A. 17:29A-35, does not discriminate against the debtor and therefore does not violate 11 U.S.C. § 525; and

(6) the state defendants are immune from suit in this court by virtue of the Eleventh Amendment to the United States Constitution.

(See "State of New Jersey, Division of Motor Vehicles Brief in Opposition to Debtor's Motion to Enforce Automatic Stay.")

This court's jurisdiction over this proceeding arises pursuant to 28 U.S.C. § 1334(a) and (b) and § 157(a). On July 10, 1984, the Bankruptcy Amendments and Federal Judgeship Act of 1984 (1984 Act) became law. The 1984 Act amended 28 U.S.C. § 1334 to vest the district courts with "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Section 157 of 28 U.S.C. limits the authority of bankruptcy judges to act in referred matters. Title 28 U.S.C. § 157 provides in relevant part:

(a) Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.
(b)(1) Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.

Pursuant to an order dated July 23, 1984, and signed by Chief Judge Clarkson Fisher of the United States District Court for the District of New Jersey, the District Courts of this District have referred to bankruptcy judges "all cases under Title 11 of the United States Code and any or all proceedings arising under Title 11 of the United States Code, or arising in or relating to a case under Title 11 of the United States Code." The legislative history relating to Title 28 U.S.C. § 157 evidences an intent that only a narrow category of cases be construed as non-core proceedings. See, 130 Cong.Rec. H 7492, 98th Cong., 2d Sess. reprinted in 1984 U.S.Code Cong. & Ad. News 576, 579. Title 28 U.S.C. § 157(b)(2) contains a nonexhaustive list of "core" proceedings, including:

(A) matters concerning the administration of the estate;
(O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims.

28 U.S.C. § 157(b)(2)(A), (O).

The controversy presently before this court is whether the enforcement of N.J.S.A. 17:29A-35(b)(2) and (b)(3) against the debtor violates 11 U.S.C. §§ 362(a) and 525. Such a case falls squarely within 28 U.S.C. § 157(b)(2)(A) and (O) since it concerns the administration of the debtor's estate and affects the debtor-creditor relationship.

The court will first address the preliminary matter...

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