In re Ball
| Citation | 257 BR 309 |
| Decision Date | 09 January 2001 |
| Docket Number | Bankruptcy No. B-99-09154-PHX-RJH. Adversary No. 00-00593. |
| Parties | In re Craig Norman BALL, Debtor. Louis A. Movitz, Chapter 7 Trustee, Plaintiff, v. Maricopa County, Defendant. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Arizona |
Terry Dake, Phoenix, Arizona, for trustee.
Barbara Lee Caldwell, Hebert Schenk & Johnsen, P.C., Phoenix, Arizona, for Maricopa County.
The Chapter 7 Trustee is entitled to summary judgment in this adversary proceeding to recover a preferential transfer by the Debtor to the Maricopa County Attorney's Office.
The material facts are not disputed. Prior to filing the bankruptcy petition, the Debtor wrote a number of checks to Ribelin Sales, a creditor of the Debtor. Eleven of those checks, written between September and November, 1998, were returned for insufficient funds. Ribelin Sales tendered the checks to the Maricopa County Attorney's Office, Bad Check Division, in an attempt to collect on the returned checks.
The Maricopa County Attorney's Office prosecuted the Debtor for issuing bad checks, pursuant to Arizona Revised Statutes ("A.R.S.") § 13-1807.1 The Debtor subsequently paid $10,000.00 to the County Attorney's Office on July 14, 1999.2 The County Attorney's Office paid $8,855.81 to Ribelin Sales3 and kept the balance of $1,144.19 as a fee pursuant to A.R.S. § 13-1809.4 The Debtor filed Chapter 7 on August 2, 1999, which was within ninety days of the payment to the Maricopa County Attorney's Office.
The Chapter 7 Trustee takes the position that the $10,000.00 payment made by the Debtor within ninety days of the bankruptcy petition is an avoidable preferential transfer pursuant to 11 U.S.C. § 547. Ribelin Sales has returned to the Chapter 7 Trustee the $8,855.81 that it received from the Maricopa County Attorney's Office. On September 18, 2000, the Trustee filed this adversary complaint seeking a judgment against Maricopa County5 in the amount of the $1,144.19 fee withheld by the County, plus the Trustee's costs and attorneys' fees.
The Maricopa County Attorney's Office maintains that the $1,144.19 is not an avoidable preference because the fee was collected pursuant to A.R.S. § 13-1809. Maricopa County asserts that the fee paid is not an avoidable transfer because the County Attorney's Office was not a creditor of the Debtor. The County also argues that the payment of the fee was in the nature of restitution and cannot be avoided as a preference.
The County's principal argument is that "the County Attorney's Office is not a creditor." Because "creditor" includes any "entity that has a claim against the debtor that arose . . . before the order for relief," 11 U.S.C. § 101(10), and "entity" includes a "governmental unit," 11 U.S.C. § 101(15), which indisputably includes the County, the essence of this argument must be that the County's prepetition entitlement to fees pursuant to A.R.S. § 13-1809 does not constitute a "claim." The County does not explain how its right to collect the bad check processing fee is not a claim.
Regardless of what the fee may be called,6 it is a "right to payment," which makes it a claim pursuant to 11 U.S.C. § 101(5).
Some question whether a criminal restitution constitutes a claim was created by dicta in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), where the Court considered whether a criminal restitution obligation, imposed as a condition of probation, was dischargeable in a chapter 7 case. The Court noted that some courts had construed the prior Bankruptcy Act to exclude "criminal penalties" from the discharge, and others had expanded this exclusion to restitution obligations imposed as part of a criminal sentence. 107 S.Ct. at 359. One state court concluded that such a restitution obligation "does not create a debt nor a debtor-creditor relationship. . . ." Id., quoting State v. Mosesson, 78 Misc.2d 217, 356 N.Y.S.2d 483, 484 (1974).
Of course the Court noted that the Bankruptcy Code dramatically altered the definition of "claim," but the Kelly dicta could be interpreted to imply that the current Code definition of "claim" must be interpreted in light of the history under the Act, suggesting that such prior history would exclude criminal restitution obligations from the discharge, and perhaps even except restitution from the definition of "claim":
We recognize, as the Court of Appeals emphasized, that the Code\'s definition of "debt" is broadly drafted, and that the legislative history, as well as the Code\'s various priority and dischargeability provisions, supports a broad reading of the definition. But nothing in the legislative history of these sections compels the conclusion that Congress intended to change the state of the law with respect to criminal judgments.
Ultimately, however, the Kelly Court did not conclude that criminal restitution was excluded from the Code's definition of "claim," but rather only that restitution was excluded from discharge pursuant to 11 U.S.C. § 527(a)(7):
We have serious doubts whether Congress intended to make criminal penalties "debts" within the meaning of § 101(4). But we need not address that question in this case, because we hold that § 523(a)(7) preserves from discharge any condition a state criminal court imposes as part of a criminal sentence.
The actual holding in Kelly, of course, has no application here, because the fee at issue here was not imposed "as a part of a criminal sentence," since there has been no criminal sentence, and, more importantly, the issue here is not whether the fee obligation was dischargeable, but rather whether its payment prepetition was a preference.
The Supreme Court subsequently answered the question left unanswered in Kelly, holding unequivocally that restitution is a "debt" within the meaning of § 101(12), and therefore a "claim" within the meaning of § 101(5), even if it arises under criminal law. Penn. Dept. of Public Welfare v. Davenport, 495 U.S. 552, 557-60, 110 S.Ct. 2126, 2130-31, 109 L.Ed.2d 588 (1990) (). Accord, Wyle v. C.H. Rider & Family (In re United Energy Corp.), 944 F.2d 589 (9th Cir.1991) (); In re Towers, 162 F.3d 952 (7th Cir.1998), cert. denied Illinois ex rel. Ryan v. Towers, 527 U.S. 1004, 119 S.Ct. 2340, 144 L.Ed.2d 237 (1999) (); Hardenberg v. Virginia (In re Hardenberg), 42 F.3d 986 (6th Cir.1994) (); Babitzke v. Mantelli (In re Mantelli), 149 B.R. 154, 156 (9th Cir. BAP 1993) (); California v. Heincy (In re Heincy), 78 B.R. 246 (9th Cir. BAP 1987) (), rev'd on other grounds, 858 F.2d 548 (9th Cir. 1988) (); Zimmerman v. Itano Farms, Inc. (In re Currey), 144 B.R. 490 (Bankr.D.Idaho 1992) (); Becker v. County of Sacramento (In re Hackney), 83 B.R. 20 (Bankr.N.D.Cal. 1988) (same).
Consequently, regardless whether the fee obligation pursuant to A.R.S. § 13-1809 is a criminal fine or a restitution obligation, it creates a "debt" and therefore a "claim" by the County. Because the County is an entity that has a claim, it is a creditor by virtue of the plain language of § 101(10), and therefore payment of that fee satisfies the first element of a preference pursuant to § 547(b)(1).
The County repeatedly emphasizes that A.R.S. § 13-1809 is a criminal statute, and that "bankruptcy laws are not a haven for criminal offenders." This argument rests on two fundamental misconceptions of bankruptcy law and preference law. These same misconceptions underlie the holding in Becker v. County of Santa Clara (In re Nelson), 91 B.R. 904 (N.D.Cal.1988) (). Nelson was decided after Kelly but prior to Davenport, and Nelson relied on the policy analysis contained in the dictum in Kelly that was subsequently rejected by the Supreme Court in Davenport. The County relies heavily on Nelson, even though in that case the restitution had been imposed as part of a criminal conviction, whereas here there has been no conviction or other judgment.
To the extent that a state criminalizes the mere failure to pay a debt, the bankruptcy laws in fact are a haven, and have been so intended for at least 250 years. One of the original purposes of the bankruptcy laws was to discharge a debtor from debtor's prison, on the condition that he disclose and make available to his creditors all of his nonexempt assets. England's Statute of 4 Anne, adopted in 1705, is generally regarded as the first discharge provision in a bankruptcy law, whose "primary purpose" "was to facilitate creditors' recoveries" by encouraging debtors to disclose their assets.7 A similar discharge provision was contained in the Statute of 5 George, which was adopted in 1732 and...
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