In re Johnson-Allen
| Decision Date | 23 January 1987 |
| Docket Number | Bankruptcy No. 86-01239K,Adversary No. 86-0463K,86-00205K,86-0464K. |
| Parties | In re Lorraine JOHNSON-ALLEN, Debtor. COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, Plaintiff, v. Lorraine JOHNSON-ALLEN, Defendant. In re Ruby STEFFLER a/k/a Ingrid J. Steffler, Debtor. COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, Plaintiff, v. Ruby STEFFLER a/k/a Ingrid J. Steffler, Defendant. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Andrew A. Coates, Dept. of Public Welfare, Office of Fraud and Abuse Investigation and Recovery, Philadelphia, Pa., for plaintiff.
Gary Klein, Philadelphia, Pa., for defendant Lorraine Johnson-Allen.
David A. Searles, Philadelphia, Pa., for defendant Ruby Steffler a/k/a Ingrid J. Steffler.
James J. O'Connell, Philadelphia, Pa., Chapter 13 Standing Trustee.
Peter Berson, District Attorney's Office, Government Frauds Unit, Philadelphia, Pa.
These consolidated adversarial proceedings present the issues of whether the liability of a Chapter 13 debtor to pay criminal restitution constitutes a "claim" dischargeable in the Chapter 13 case; and, assuming that the restitution obligation is a dischargeable claim, what remedies are available to the debtor to prevent collection of future payments and to recover post-petition payments made. We hold that a criminal restitution obligation does constitute a dischargeable "claim" and that the appropriate remedy is to direct the recipient of the restitution to remit all post-petition sums collected to the Trustee and to prevent the recipient from retaining future restitution remittances, but not, unless such directives are ignored, to enjoin any state proceedings or parties or to declare the restitution recipient to be in contempt of court.
These adversarial proceedings were filed separately by the Plaintiff, Commonwealth of Pennsylvania, Department of Public Welfare (hereinafter referred to as "DPW"), against each of the Debtors, Lorraine Johnson-Allen1 and Ruby Steffler, a/k/a Ingrid J. Steffler, on May 19, 1986. Each of the Complaints, which are prepared in identical form, aver that the Debtors pleaded guilty to several counts of prepetition welfare fraud and were ordered to make restitution payments to the County Probation Department on behalf of DPW. The relief sought in each Complaint was a declaration that the respective Debtors' restitution obligations were non-dischargeable, on three (3) separate grounds: (1) They were within the scope of 11 U.S.C. §§ 523(a)(2), (a)(4), (a)(6), and/or (a)(7); (2) The "claim" of the DPW was not a "debt;" and (3) DPW "is immune from suit and this court is foreclosed from discharging" DPW's "claim" by the Eleventh Amendment to the federal Constitution.
Steffler filed an Answer and Counterclaims on July 18, 1986, and Johnson-Allen filed an Answer on June 30, 1986, and thereafter, on August 26, 1986, an Amended Answer and Counterclaims, the latter of which virtually identical to that filed by Steffler. In these pleadings, the Debtors averred that, since the filing of their Petitions on January 14, 1986, and March 14, 1986, respectively, they had made payments on the restitution obligations and they therefore sought damages against DPW for violation of the automatic stay imposed by 11 U.S.C. § 362 and sought to avoid the postpetition transfers to DPW per 11 U.S.C. §§ 549, 522(h), and 522(g)(1).
The matters were listed for trial before us on September 9, 1986, and were continued to October 9, 1986. Only Counsel for the Debtors appeared on the latter date, and indicated that they were not prepared to try the case that day, but believed that the matters raised exclusively legal issues which could be resolved on cross-motions for summary judgment.
We therefore entered an Order on October 14, 1986, consolidating the adversarial matters for all purposes; directing the Debtors to either prepare a Stipulation of Facts or a Motion for Summary Judgment and file same with a Brief on or before November 10, 1986; and directing DPW to file any materials in response to the Debtors' filing on or before December 12, 1986.
On November 10, 1986, the Debtors opted to file a Motion for Summary Judgment, accompanied by their personal Unsworn Declarations. Coincidentally, two (2) days later, the United States Supreme Court filed one of the initial Opinions of the term, Kelly v. Robinson, ___ U.S. ___, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), which reversed the Debtors' principal supporting authority, In re Robinson, 776 F.2d 30 (2d Cir.1985). Therefore, we issued an Order according the Debtors an opportunity to address the pertinence of Kelly v. Robinson in a Supplemental Brief to be filed on or before November 28, 1986, and holding the December 12, 1986, date as the deadline for DPW's reply. On November 20, 1986, the Debtors directed a letter to the Court addressing the impact of the Supreme Court's decision in lieu of a Supplemental Brief.
On December 12, 1986, DPW opted to file a Cross-Motion for Summary Judgment, attaching thereto an Unsworn Declaration of Mary B. Sieverling, Assistant Counsel for DPW.
The parties, by their Cross-Motions for Summary Judgment, indicate agreement that there are no genuine issues of material fact to be resolved in the disposition of these cases, and the Court also agrees that this matter is appropriate for disposition in this procedural manner per Bankruptcy Rule 7056 and Federal Rule of Civil Procedure 56. This Court therefore need not and will not make separate Findings of Fact, but shall herein fill out the record by reference to uncontested averments in the respective Unsworn Declarations accompanying the Cross-Motions for Summary Judgment.
On June 18, 1985, JOHNSON-ALLEN pleaded guilty to four (4) counts of welfare fraud for receiving $6,300.00 in unauthorized benefits between April 11, 1980, and October 30, 1982. The sentence of the said Debtor was probation and repayment of the $6,300.00 in payments of $10.00 monthly from July, 1985, to December, 1985, and $20.00 monthly thereafter. The said Debtor made all of these payments through her filing date. Shortly thereafter, both she personally and her counsel, by letter, advised DPW and the County Probation Department of her bankruptcy filing and indicated that they believed that the bankruptcy stayed collection of the restitution obligation, which would be covered by her Chapter 13 Plan and hence ultimately discharged in these proceedings upon completion of her Plan payments. Upon advice from the Probation Department that it did not accept the reasoning of her or her Counsel and advice that she would "get in trouble" if she ceased making payments, the said Debtor, upon advice of Counsel, resumed payments pending disposition of this proceeding.
The facts of Steffler's matter are similar, and are hence recited only when divurgent from the facts relating to Johnson-Allen. On January 17, 1984, Steffler pleaded guilty to welfare fraud which occurred between June 8, 1979, and June 11, 1981. The said Debtor was similarly placed on probation and ordered to make restitution in the amount of $5,506.64 at the rate of $20.00 monthly, probably commencing in early 1984. It should be noted that Steffler listed DPW as a creditor in the amount of $18,000.00 and that DPW filed a Proof of Claim in this amount, indicating that she probably had received sums in addition to those ordered to be repaid in her sentence of restitution. The said Debtor and her Counsel, by certified letter, indicated to the County Probation Department, shortly after the filing, that Steffler would cease payments because of her intention to deal with this obligation in her Chapter 13 Plan. Despite subsequent correspondence from Counsel citing the decision in In re Robinson, the County District Attorney scheduled a probation violation hearing for the said Debtor. At this point, upon advice of Counsel, Steffler resumed her payments.
The starting point of our discussion is that section of the Bankruptcy Code setting forth the scope of debts covered by a Chapter 13 discharge, which is as follows:
This provision, pertinent to Chapter 13 discharges, can be contrasted with the exceptions to discharge cited in 11 U.S.C. § 523(a), pertinent to discharges pursuant to Chapter 7 and 11, and Chapter 13 "hardship" discharges pursuant to 11 U.S.C. § 1328(b). Among the exceptions cited in 11 U.S.C. § 523(a) is, in 11 U.S.C. § 523(a)(7), an exception for "a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit," including certain tax liabilities.
In Kelly v. Robinson, the Supreme Court resolved a previous split among court decisions, the most prominent of which was the Second Circuit Court of Appeals decision to the contrary, which it reversed, as to whether 11 U.S.C. § 523(a)(7) prevented discharge of restitution imposed in connection with a state criminal sentence in a Chapter 7 bankruptcy case. However, albeit with certain language which is not comforting to the position of the Debtors here, the Court, apparently intentionally, left open the question as to whether such restitution is a "debt" (and it, might be added, fines or court costs imposed on criminal defendants as well), and hence whether such obligations are dischargeable in a Chapter 13 bankruptcy case.
It is clear to us that, except for the issue of whether charges imposed in a criminal case...
To continue reading
Request your trial