In re Barnett, Bankruptcy No. 81-40388
| Decision Date | 19 November 1981 |
| Docket Number | Adv. No. 81-0188.,Bankruptcy No. 81-40388 |
| Parties | In re Marcia Kay BARNETT a/k/a Marcia K. Barnett, Debtor. Marcia Kay BARNETT a/k/a Marcia K. Barnett, Plaintiff, v. K-MART, For Kids Only and Robert E. Davis, Leavenworth County Attorney, Defendants. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas |
Byron C. Loudon, Carl S. Black, McDowell, Rice & Smith, Kansas City, Kan., for debtor.
William E. Pray, Chief Deputy County Atty., Leavenworth, Kan., for defendant Davis.
Lloyd C. Swartz, Topeka, Kan., Trustee.
The debtor, Marcia Kay Barnett, filed a motion seeking an order to show cause why the Leavenworth Kansas County Attorney should not be held in contempt for violating the automatic stay provided by § 362 of the Code, for filing three criminal complaints against the debtor after the debtor filed a chapter 13 petition and plan.
The County Attorney, Robert E. Davis, replied alleging no violation of the automatic stay.
The issues for determination are:
1. Has a punishable contempt been committed.
2. Does K.S.A. § 21-3707 or a portion of it conflict with the Bankruptcy Code.
3. If a conflict exists, what resolution of the conflict is required.
The parties have submitted legal memoranda, the Court has heard oral arguments and the matter is ready to be resolved.
In March, 1981 the County Attorney of Leavenworth County, Kansas filed a criminal action under K.S.A. § 21-3707 (1974) on one insufficient fund check (NSF). The debtor pleaded guilty on March 30, 1981 and was sentenced on May 15, 1981. Part of the sentence ordered restitution to the creditor on the check.
On May 29, 1981 the debtor filed a chapter 13 petition in this Court.
On June 2, 1981 the Leavenworth County Attorney filed a criminal complaint charging the debtor with giving a worthless check in the amount of $21.38 to K-Mart on September 26, 1980 (Case No. 81 CR 377). No notice that this check had been dishonored was received by the debtor prior to filing bankruptcy though notice was received on June 7, 1981.
On June 17, 1981 the debtor's attorney filed a motion to dismiss the complaint alleging it violated the automatic stay provisions of § 362 of the Bankruptcy Code.
On June 18, 1981 another complaint alleging the issuance of a worthless check in the amount of $33.01 to K-Mart on May 7, 1981 was filed by the Leavenworth County Attorney (Case No. 81 CR 444). On June 19, 1981 the debtor's attorney objected on the same grounds as the previous objection, arguments were heard by the Leavenworth County, Kansas District Court, and the matter was taken under advisement.
On June 25, 1981 the district court denied dismissal (a Journal Entry was filed August 3, 1981).
On July 21, 1981 a third complaint was filed for the same offense on a third check issued September, 1980 payable to "For Kids Only" in the amount of $6.73 (Case No. 81 CR 497). On August 20, 1981 the debtor's attorney filed this adversary proceeding. On August 21, 1981 trial was held in the state court on the three criminal charges and the Judge took the matter under advisement.
No notice of dishonor was received by the debtor before filing bankruptcy on any of the three checks that are the subject of the state criminal action. The creditors K-Mart and For Kids Only were not listed in the debtor's schedules; however, according to debtor's counsel, an amended plan providing payment to all NSF creditors is to be filed.
The Court is asked to determine if a conflict exists between the Bankruptcy Code and state legislation making it a crime to issue a worthless (NSF) check, and to resolve any conflicts. As the United States Supreme Court said:
Deciding whether a state statute is in conflict with a federal statute and hence invalid under the Supremacy Clause is essentially a two-step process of first ascertaining the construction of the two statutes and then determining the constitutional question whether they are in conflict.
Perez v. Campbell, 402 U.S. 637, 644, 91 S.Ct. 1704, 1708, 29 L.Ed.2d 233, 239 (1971). This Court will therefore proceed to apply this two-step process.
The Kansas statute in issue is K.S.A. § 21-3707 (1974) providing:
In prosecutions under K.S.A. § 21-3707, in addition to imposing a fine or term of confinement under K.S.A. § 21-4501 to 4503 (Supp.1980), a court may require the defendant to make restitution, a civil remedy, to the victim under K.S.A. § 21-4603 (Supp. 1980):
(3) This section shall not deprive the court of any authority conferred by any other section of Kansas Statutes Annotated to . . . impose any other civil penalty as a result of conviction of crime.
See generally, Note, Creative Punishment: A Study of Effective Sentencing Alternatives, 14 Washburn L.J. 57, 64-65, 67-68 (1975). That restitution is a civil collection remedy is further supported by the Kansas court's own characterization of the NSF statute when it held The worthless check act does not concern itself with whether or not the offender was able to keep his ill-gotten gains. Foor v. State, 196 Kan. 618, 620, 413 P.2d 719 (1966). Thus Kansas has a fairly typical NFS check statute and provides fairly typical remedies. See Comment, Insufficient Funds Checks in the Criminal Area: Elements, Issues, and Proposals, 38 Mo.L.Rev. 432 (1973).
State v. Morris, 190 Kan. 93, 96-97, 372 P.2d 282 (1962); State v. Avery, 111 Kan. 588, 589, 207 P. 838, 839 (1922). Other courts and commentators have said the purpose of NSF check statutes is anti-nuisance. Note, Worthless Check Statute — Penalty Provision, 14 U.Miami L.Rev. 486, 487 (1960), to preserve the integrity of commercial paper, Anderson v. Bryson, 94 Fla. 1165, 1170, 115 So. 505, 507 (1927), prevent fraud, discourage use of worthless checks, facilitate prosecution by defining standards of criminal conduct, and provide merchants with simple and effective methods to recoup money. Note, The North Carolina Bad Check Law: A Study and a Proposal, 50 N.C.L.Rev. 1079, 1096 (1972) (hereinafter, Note, Bad Check Law). Though some have denied the final purpose, it cannot seriously be questioned that the statute is designed to protect merchants especially when the remedy of restitution is imposed because restitution helps only the individual merchant. A 1954 survey in Kansas showed nearly all recipients of NSF checks were not interested in prosecution. It is quite clear that the vast majority of merchants and others who receive worthless checks regard law enforcement officers and the courts as mere agencies to collect their money. Callahan, The Worthless Check Problem, 22 J.B.A.K. 195, 196 (1954). This attitude prevails in other states where surveys show a significant number . . . of merchants rely upon . . . worthless statutes rather than upon a civil remedy. Note, Bad Check Law, 50 N.C.L.Rev. supra at 1086.
K.S.A. § 21-3707(2) incorporates a presumption of intent to defraud and knowledge if the drawer does not cure the NFS check within 7 days of receiving notice. The statute does not specify from whom the notice must come, but it is clear the creditor can and often does activate the presumption by sending out notice, State v. Calhoun, 224 Kan. 579, 581 P.2d 397 (1978); State v. Fisher, 2 Kan.App.2d 546, 583 P.2d 1038 (1978) (). See also Comment, Insufficient Funds Checks in the Criminal Area: Elements, Issues and Proposals, 38 Mo.L. Rev. 432, 439 (1973). Notice is not a prerequisite to prosecution under K.S.A. § 21-3707, but without notice, the state cannot establish intent and knowledge by a presumption, but must prove the drawer's intent and knowledge. State v. Shannon, 194 Kan. 258, 262, 398 P.2d 344 (1965).
As a preliminary matter, this Court notes it does not have the power to enjoin another court, 28 U.S.C. § 1481, though it does have the power to issue any order . . . that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. § 105. Section 362(a) of the Code stays any acts aimed at collection of debts owed by the debtor arising before...
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