In re Hemingway
| Decision Date | 12 September 1983 |
| Docket Number | No. 83-CV-574.,83-CV-574. |
| Parties | In re Gary W. HEMINGWAY, Debtor. PEOPLE OF the STATE OF NEW YORK, Appellant, v. Gary W. HEMINGWAY, Appellee. |
| Court | U.S. District Court — Northern District of New York |
Robert Abrams, Atty. Gen., State of N.Y., Albany, N.Y., for appellant; Michael J. Hungerford, Asst. Atty. Gen., Syracuse, N.Y., of counsel.
Frank H. Armani, Syracuse, N.Y., for appellee; James M. Sullivan, Jr., Syracuse, N.Y., of counsel.
This is an appeal from a decision of the Bankruptcy Court, Leon J. Marketos, Bankruptcy Judge, dismissing with prejudice the appellant's complaint to determine the dischargeability of certain debts incurred by appellee Gary W. Hemingway. Judge Marketos held that the State of New York lacked standing to sue and refused to allow the substitution of parties whom it was alleged did not have such standing. The Attorney General, representing the State, argues that these rulings constituted reversible error and has brought the instant appeal.
Appellee Hemingway was a general contractor who received certain sums of money from individuals who contracted with him to perform construction services. As a result of various complaints about the way Hemingway was conducting his business, the Attorney General instituted consumer fraud proceedings against him in the New York State Courts. In 1978, Hemingway defaulted in these proceedings which alleged that he had made numerous false representations to consumers in the course of his business.
As part of the relief obtained in the state court proceeding, Hemingway was enjoined from violating New York State consumer protection laws, and was ordered to pay restitution to the State of New York on behalf of six named consumers injured by his fraudulent conduct. The Attorney General, as plaintiff in the action, was granted a $2,000.00 additional allowance pursuant to Section 8303 of the New York Civil Practice Law and Rules. N.Y.Civ. Prac.Law § 8303 (McKinney 1981 & Supp. 1982-83) (hereinafter CPLR). Upon further default, contempt proceedings were commenced against Hemingway and some payments of restitution were made to the Attorney General pursuant to the court order.
On August 9, 1982, Hemingway filed his petition in bankruptcy, and the Attorney General filed his complaint on September 30, 1982. According to the complaint filed in the Bankruptcy Court below, the Attorney General alleges that the monies ordered to be paid to him for distribution to the named consumers are a debt incurred through false pretenses in contravention of 11 U.S.C. § 523(a)(2)(A) (Supp. V 1981). Moreover, the Attorney General further alleges that the $2,000.00 additional allowance is a "fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss. . . ." 11 U.S.C. § 523(a)(7). If this were the case, then the debt would be nondischargeable under the Code.
The purpose of an additional award of costs under the CPLR is "to indemnify a successful party for expenses beyond those usually incurred. . . ." Metropolitan Sav. Bank v. Tuttle, 183 Misc. 879, 880, 52 N.Y.S.2d 472, 473 (Sup.Ct., Bronx Co.1944) (citing Town of Brighton v. Rochester Vulcanite Pavement Co., 149 Misc. 592, 268 N.Y.S. 795). See also CPLR § 8303 practice commentary C8303:1 at 223. The payment is made to the party bearing the burden of prosecuting a particularly difficult case.
In the instant case, the Attorney General was the plaintiff in the consumer fraud proceedings and the additional allowance was granted to him rather than to any particular consumer fraud victim. See State of New York by Lefkowitz v. Daro Chartours, Inc., 72 A.D.2d 872, 422 N.Y.S.2d 146 (3d Dep't 1979). Thus, this Court disagrees with the ruling of the Bankruptcy Court below that the additional allowance was to be paid to the State for distribution to the listed creditors. See Memorandum-Decision and Order at 2. The question still remains, however, as to the dischargeability of this debt.
Under 11 U.S.C. § 523(a)(7), debts incurred as a result of a "fine, penalty or forfeiture payable to and for the benefit of a governmental unit" are nondischargeable in bankruptcy. Here, as noted above, the $2,000.00 additional allowance is payable to and for the benefit of a governmental unit. Therefore, the issue that arises is whether this amount is a "fine, penalty or forfeiture" within the meaning of the statute.
In this Court's view, the $2,000.00 additional allowance is not a "fine, penalty or forfeiture." Rather, it is simply a recognition by the state court that the prosecution was an unusual one and that some additional compensation was required to make the prosecuting party whole again. A review of the case law interpreting 11 U.S.C. § 523(a)(7) supports this Court's opinion that the additional allowance is a dischargeable debt under the Bankruptcy Code. The cases decided under this section all deal with criminal or tax related penalties and not anything analogous to the award of costs in a civil proceeding. See, e.g., In re Osborn, 4 B.R. 431 (W.D. Mo.1979) (); In re Daugherty, 25 B.R. 158 (Bkrtcy.E.D.Tenn.1982) (); In re Newton, 15 B.R. 708 (Bkrtcy.N.D.Ga.1981) (); In re Tauscher, 7 B.R. 918 (Bkrtcy.E.D.Wis. 1981) (); In re Young, 10 B.R. 17 (Bkrtcy.S.D.Cal.1980) (). Accordingly, the Bankruptcy Court's dismissal of this part of appellant's complaint is hereby affirmed.
The Attorney General of the State of New York filed the instant complaint in the Bankruptcy Court as part of his continuing effort to protect the citizens of the State from consumer fraud. Earlier, the Attorney General had pursued state court remedies against appellee for violation of the State's consumer protection laws. Nevertheless, the Bankruptcy Court dismissed appellant's complaint because the order of restitution from the state court was for the benefit of the named consumers. Thus, according to the court below, the Attorney General was not a "creditor to whom such debt is owed" pursuant to 11 U.S.C. § 523(c), and, therefore, the Attorney General lacked standing to bring the action. See Memorandum-Decision and Order at 3 (citing In re Pierson, 17 B.R. 822, 823 (Bkrtcy.D.Minn.1982); In re Meredith, 4 Bankr.Ct.Dec. 652 (Bankr.S.D.Ohio 1978)).
While the Bankruptcy Court's interpretation of section 523(c) was correct, this Court finds that the court below was too rigid in its construction of the law and the general policy behind the Bankruptcy Code. In addition, this Court believes that the Attorney General has standing to maintain this action under the doctrine of parens patriae as a representative of the six named consumers. Therefore, the Bankruptcy Court's grant of summary judgment on this aspect of appellant's complaint is hereby reversed and this matter is remanded to the Bankruptcy Court for proceedings consistent with this opinion.
In Alfred L. Snapp & Sons, Inc. v. Puerto Rico ex rel. Barez, 458 U.S. 592, 102 S.Ct. 3260, 73 L.Ed.2d 995 (1982), the Supreme Court summarized the decisional law with respect to the doctrine of parens patriae and made several observations. To begin with, a state will have standing to sue under the doctrine when it can "articulate an interest apart from the interests of particular private parties, i.e., the state must be more than a nominal party." Id. at 607, 102 S.Ct. at 3269. One such interest that can be articulated, and it is of particular importance to the case at bar, is the "quasi-sovereign interest." In its broadest form, the Court noted that states have quasi-sovereign...
To continue reading
Request your trial
-
In re DeFelice, Case No. 5-86-00648
...I disagree with DeFelice's argument that § 523(c) must be applied literally. The district court in People of the State of New York v. Hemingway (In re Hemingway), 39 B.R. 619 (N.D.N.Y.1983) reached a similar conclusion and permitted the Attorney General to challenge the dischargeability of ......
- Langella v. Weisz, CV 83-4220.