In re Byrd
| Decision Date | 16 November 2000 |
| Docket Number | No. 98-02060-5-ATS.,98-02060-5-ATS. |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | In re George Merle BYRD, Debtor. |
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Jeffrey M. Seigle, Raleigh, NC, for debtor.
Terri L. Gardner, Raleigh, NC, Chapter 7 Trustee.
David M. Grogan, Charlotte, NC, for Circus Circus, Inc.
ORDER DENYING MOTION FOR SANCTIONS
The matter before the court is chapter 7 debtor George Merle Byrd's motion to require Circus Circus Las Vegas and Caesar's Palace Casino (collectively, "the casinos"), both former creditors of the debtor, and the Clark County District Attorney's Office in Clark County, Nevada, to show cause why they have not violated the automatic stay and discharge injunction provisions of the United States Bankruptcy Code §§ 362(a) and 524(a)(2). A hearing was held in Raleigh, North Carolina on October 10, 2000. For the reasons that follow, the court finds that §§ 362(a) and 524(a)(2) have not been violated, and the debtor's request for sanctions will be denied.
In April of 1998, debtor George Merle Byrd presented one check for $3000 to Circus Circus Las Vegas and five checks in the amount of $5000 each to Caesar's Palace Casino in Las Vegas, Nevada. All of the checks were returned unpaid by Byrd's bank. The casinos notified the Clark County District Attorney's Bad Check Diversion Unit, which sent notices and warnings of prosecution to Byrd regarding the bad checks in July 1998. Byrd apparently did not respond to these notices.
On September 11, 1998, Byrd filed a petition for relief under chapter 7 of the Bankruptcy Code. He listed both casinos as creditors, and notice of the bankruptcy filing was given to both the casinos and the Clark County District Attorney's Office (hereinafter "Clark County"). On October 3, 1998, Clark County sent written notice to Byrd's attorney stating that it intended to proceed with criminal charges against Byrd, and informing him that although it was not the policy of Clark County's "Bad Check Collection Unit" to force restitution from offenders who obtain a stay of collection during bankruptcy proceedings, Byrd could avoid prosecution by paying full restitution and a processing fee. (Debtor's Ex. F.) On November 10, 1998, a warrant was issued for Byrd's arrest on charges of larceny arising from the bad checks. According to Clark County, bail was then set at $31,140.00 cash (the exact amount owing to the casinos, including fines) or a surety bond of ten times that amount. (Aff. of Daniel E. Ahlstrom at ¶ 10.)
Neither Circus Circus nor Caesar's Palace objected to the debtor's discharge or filed a complaint to determine the dischargeability of Byrd's debts, and on December 14, 1998, Byrd received his discharge.
On May 2, 2000, Byrd was involved in an automobile accident in Raleigh, Wake County, North Carolina. The Raleigh police ran a check on his license, the Clark County warrant was discovered, and he was arrested. Bail in the amount of $32,000 cash was set by a Wake County, North Carolina magistrate, and the Release Order specifically stated that "cash bond of $32,000 may be posted or subject may be released to Clark County, Nevada officials only." (Debtor's Ex. E.) The $32,000 cash bond required in Wake County is somewhat higher than the $31,140 bail required by Clark County, and the Wake County order includes no mention of a surety bond.
To get Byrd out of jail, Byrd's spouse collected $31,140 in personal and borrowed funds and wired that amount to the County of Clark District Attorney Check Restitution Trust Fund in Las Vegas. (Debtor's Exs. C, D.) Clark County then informed the Raleigh Police Department that Clark County would not extradite Byrd. It stated that Byrd had paid full bail and that it had started proceedings to quash the arrest warrant and dismiss the case. (Debtor's Ex. E.) Clark County also gave notice to the Las Vegas Township court requesting that it (Debtor's Ex. E.) All of the foregoing events took place on May 2, 2000. Subsequently, the funds recovered by Clark County were paid to Circus Circus Las Vegas and to Caesar's Palace Casino.
Though the facts are simple, the issues raised by them are not. There are matters of interpretation pertaining to the Bankruptcy Code and far-reaching questions of federalism, comity, and application of the Younger doctrine. Clark County argues that exercise of the court's equitable powers would infringe on state sovereignty and Eleventh Amendment immunity. And on a more basic level, the parties disagree about what constitutes restitution as compared to outright debt collection, and whether restitution should even be available. Though these issues are diverse, they arise fairly frequently in bankruptcy, and often are packaged together in much the same way as in this case. There are many thoughtful treatments of these issues in the reported decisions of other courts, but no clear path through the conflicting precedents. The precise issues raised by the facts of this case appear not to have previously arisen in this circuit.
Byrd argues that the casinos and Clark County violated the discharge injunctions of 11 U.S.C. § 524(a) and the automatic stay provisions of 11 U.S.C. § 362(a)(1), and seeks to recover from Clark County and the casinos the $31,140 wired by his wife to Clark County and then paid over to the casinos, as well as his attorney's fees and punitive damages. According to Byrd, Clark County's recovery of the amount owing to the casinos, plus fines, constituted the collection of a discharged debt for the benefit of the casinos.
Clark County makes a number of arguments in response. It claims that Byrd "requested" participation in Nevada's deferred prosecution program rather than return to Nevada to stand trial, and that § 362(b)(1) of the Bankruptcy Code, which exempts from the automatic stay the commencement or continuation of a criminal action or proceeding against the debtor, specifically authorized its ongoing prosecution of Byrd. Clark County was "not attempting to collect a debt, dischargeable or otherwise," it claims; "instead, the District Attorney was seeking to punish and rehabilitate Byrd because he committed a crime." (Clark County Br. at 5-6.) The County argues further that the Younger abstention doctrine prevents this court from enforcing the discharge injunction, and that even if Younger does not apply, Byrd cannot show that the "primary purpose" of the prosecution was to serve as a debt collection device. Finally, Clark County contends that the District Attorney's Office has absolute immunity from claims for monetary damages or penalties, and that the office also is protected from lawsuits by the Eleventh Amendment.
Section 362(b)(1) of the Bankruptcy Code provides that the filing of a bankruptcy petition does not stay "the commencement or continuation of a criminal action or proceeding against the debtor." 11 U.S.C. § 362(b)(1). A discharge, however, "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor...." 11 U.S.C. § 524(a)(2).
The apparent dichotomy between these statutes is obvious, given that many criminal actions are prompted by a debtor/defendant's failure to pay a debt. In the court's view, however, they can in this instance be reconciled. Moreover, the court concludes that these statutes authorize not only the commencement or continuation of the criminal action by Clark County against Byrd, but also Clark County's recovery of the discharged debts for the purpose of providing restitution to the casinos.
The most fundamental issue to be resolved in this matter is the role of a federal bankruptcy court in the context of a state criminal proceeding. The concerns that arise and the precedents that articulate them were succinctly recited in Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074 (9th Cir.2000) (en banc), as follows:
We maintain the "deep conviction that federal bankruptcy courts should not invalidate the results of state criminal proceedings." Kelly v. Robinson, 479 U.S. 36, 47, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986). This rule reflects a "fundamental policy against federal interference with state criminal prosecutions." Younger v. Harris, 401 U.S. 37, 46, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). It also recognizes that "the right to formulate and enforce penal sanctions is an important aspect of the sovereignty retained by the States." Kelly, 479 U.S. at 47, 107 S.Ct. 353.
Gruntz, 202 F.3d at 1084 (parallel citations omitted).
In Gruntz, the chapter 11 debtor failed to pay child support, prompting his exspouse to complain to the Los Angeles District Attorney. He was charged with and convicted of failure to support his dependent children. Gruntz was sentenced to jail, and then filed an adversary proceeding in the bankruptcy court arguing that the automatic stay should have precluded the criminal action because it was initiated for the purpose of debt collection. The court disagreed. It acknowledged that bankruptcy courts had developed an "array of tests for assaying any hint of a collector in the prosecutor's guise," but concluded that those efforts — and the court's own prior precedent — were simply "at odds with the plain words of the statute." Id. at 1085 & n. 10. The court concluded that "interpreting § 362(b)(1) as rendering the automatic stay ... inapplicable to all criminal proceedings is consistent with `the provisions of the whole law, and to its object and policy.'" Id. at 1085. The court also found no basis on which to differentiate between "economic and...
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