In re Mills, Bankruptcy No. 02-14934-EEB.

• Decision Date: 26 March 2003
• Docket Number: Adversary No. 02-1212-SBB.,Bankruptcy No. 02-14934-EEB.
• Parties: In re Tia A. MILLS, Debtor. Farmers Insurance Exchange, Plaintiff, v. Tia A. Mills, Defendant.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado

290 B.R. 822

In re Tia A. MILLS, Debtor Farmers Insurance Exchange, Plaintiff, v. Tia A. Mills, Defendant.

Bankruptcy No. 02-14934-EEB.

Adversary No. 02-1212-SBB.

United States Bankruptcy Court, D. Colorado.

March 26, 2003.

COPYRIGHT MATERIAL OMITTED

Wayne E. Stockton, Lakewood, CO, for Plaintiff.

Helen E. Arnold, Englewood, CO, for Defendant.

MEMORANDUM OPINION AND ORDER

SIDNEY B. BROOKS, Chief Judge.

THIS MATTER comes before the Court on (1) the Motion for Summary Judgment filed by Farmers Insurance Exchange ("Plaintiff") on November 13, 2002; (2) the Brief in Support of Plaintiff's Motion for Summary Judgment filed on November 13, 2002; (3) the Opposition thereto filed by Tia A. Mills ("Defendant") on December 2, 2002; (4) Defendant's Motion for Summary Judgment filed on December 2, 2002; and (5) Defendant's Combined Brief: In Support of Defendant's Motion for Summary Judgment and in Opposition to Plaintiff's Motion for Summary Judgment filed on December 2, 2002. The Court, having reviewed the file and being advised in the premises, makes the following findings, conclusions and Order.

For the reasons stated herein, this Court will:

(1) GRANT the Plaintiff's Motion for Summary Judgment and

(2) DENY Defendant's Motion for Summary Judgment.

The Court will enter a Judgment in favor of the Plaintiff determining that the restitution ordered in favor of the Plaintiff and its insured, Mr. Perry D. Houston ("Mr.Houston"), in People of the State of Colorado v. Tia Anita Mills, Case No.2001 T 182 is not discharged under 11 U.S.C. § 523(a)(7).

I. ISSUE

The issue before the Court is whether a Colorado state court's order of restitution made payable by a defendant to a victim in a criminal misdemeanor action, as part of the state court's criminal sentence, is nondischargeable under 11 U.S.C. § 523(a)(7).

The precise issue before the Court has recently been considered and decided by two Judges of this Court. The first case was decided by the late Honorable Donald E. Cordova, Chief Bankruptcy Judge for the District of Colorado, in Hunt v. Clack (In re Clack), Ch. 7 Case No. 01-22810-DEC, Adv. No. 01-1557 (Bankr.D.Colo. October 29, 2002). Less than two months later, the Honorable A. Bruce Campbell, Bankruptcy Judge for the District of Colorado, made a different ruling on the same issue in Olson v. McNabb (In re McNabb), 287 B.R. 820 (Bankr.D.Colo.2003).

Thus, there is a split of authority within the Bankruptcy Court for the District of Colorado on the issue at hand. Adding to this dissonance is the fact that courts across the United States have ruled in differing ways on this issue and, moreover, the Tenth Circuit and the District Court of Colorado have not recently addressed the issue of whether restitution made payable by a defendant in a criminal misdemeanor action to a victim as part of the state court's criminal sentence is nondischargeable under 11 U.S.C. § 523(a)(7).

In Clack, the complaint was filed by a victim of a debtor's reckless driving and was brought under 11 U.S.C. § 523(a)(6) and (a)(7). Under the claim for relief under 11 U.S.C. § 523(a)(6), Judge Cordova concluded that the legislature's preemptive predetermination of the dischargeability question under 11 U.S.C. § 523(c), incorporated in the restitution statute, was inappropriate. Judge Cordova went on to conclude that, under the circumstances in the Clack case, the facts did not support an exception to discharge for "willful and malicious" injury. The Court nevertheless concluded that the restitution debt was not dischargeable under 11 U.S.C. § 523(a)(7). The Court relied almost exclusively on the broad holding in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), whereby the Supreme Court concluded that 11 U.S.C. § 523(a)(7) preserves restitution obligations from discharge. See further discussion infra Section IV.C.

In McNabb, Judge Campbell held that a criminal restitution order was dischargeable where the restitution imposed on the debtor was to and for the benefit of the victims of the debtor and not a "governmental unit." Moreover, he held that the state statute relied upon by the plaintiff's which provides that restitution debts are nondischargeable as "willful" and "malicious" was preempted by federal bankruptcy law. Further, he found that plaintiffs did not plead in their complaint nondischargeability under the "willful and malicious injury" provisions of 11 U.S.C. § 523(a)(6). See discussion infra Section IV.D.

This Court's decision, as set forth in the following pages, concurs with the legal conclusions of Judge Cordova in his Clack opinion and reflects a differing view from that of Judge Campbell in McNabb with respect to (1) applicable state law in Colorado on restitution and (2) dischargeability under 11 U.S.C. § 523(a)(7).

II. STANDARD FOR SUMMARY JUDGMENT

Summary judgment is appropriate only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56 made applicable to adversary proceedings by Fed. R. Bankr.P. 7056. "A fact is `material' if, under the governing law, it could have an effect on the outcome of the lawsuit." Sports Unlimited, Inc. v. Lankford Enter., Inc., 275 F.3d 996, 999 (10th Cir.2002) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)). Here, the parties do not dispute any material facts. The only remaining question is whether either party, on their respective motions, is entitled to judgment as a matter of law.

III. UNDISPUTED FACTS

On February 10, 2001, on U.S. Highway 285 in Park County, Colorado, an automobile owned and operated by Mr. Houston, the Plaintiff's insured, was involved in a motor vehicle accident with the Defendant. The Defendant had lost control of her vehicle resulting in a collision with Mr. Houston.

As a result of the accident, Defendant was issued a criminal summons and complaint, charging her with three violations:

(1) Careless Driving Resulting in Injury — COLO.REV.STAT. § 42-4-1402,

(2) Failure to Maintain Automobile Insurance — COLO.REV.STAT. § 42-4-1409 and (3) Driving While License Suspended under the Financial Responsibility Act — COLO.REV.STAT. § 42-7-422.¹

The criminal misdemeanor case was filed in the District Court of Park County, Colorado and was styled People of the State of Colorado v. Tia Anita Mills, Case No.2001 T 182. The parties agreed to the facts of the case which resulted in the entry of a minute order of restitution ("Restitution Order"). The Honorable Stanley Joseph Mayhew, by way of the Restitution Order, sentenced the Defendant to serve a 365 day jail term and imposed a fine of $1,000.00, plus court costs. The jail term and $900.00 of the fine were suspended. In addition, Judge Mayhew ordered that — as a condition of suspending the jail sentence and fine — the Defendant was to make restitution to the Plaintiff in the amount of $17,703.44 and to the Plaintiff's insured, Mr. Houston, in the amount of $5,320.00.² As of the date that Defendant filed her Chapter 7 petition, Plaintiff had paid $5,959.58 for property damages to the insured for vehicle repair and $26,678.15 for Mr. Houston's medical expenses.

In conjunction with the filing of the Plaintiff's Motion for Summary Judgment, the Plaintiff provided an Affidavit of Judge Mayhew. The information contained in the Affidavit is not contested by the Defendant. In the Affidavit, Judge Mayhew, states, in part, as follows:

4. Article 18.5 of the Colorado Revised Statues requires that I consider restitution in every criminal case in which there is a conviction. My restitution orders are based upon information provided by the prosecuting attorney who is required by law to compile victim impact statements and use other means to determine the amount of restitution and the identities of the victims. A defendant is given an opportunity to be heard and to present evidence on the issue at the time the order is entered.

5. § 16-18.5-103(4)(a) C.R.S. provides that any order for restitution shall be a final civil judgment in favor of the state and any victim. Payments are ordered to be paid to the probation department.

6. At the time I entered the restitution order, I considered such factors as the defendant's ability to pay; the seriousness of the offense; the circumstances surrounding the offense; the costs to the taxpayers if the victim's treatment is not paid for by the defendant; the impact on the defendant, her family, and on society of a jail sentence; and the extent to which restitution may serve to rehabilitate an offender and deter future criminal behavior.

7. I may suspend a jail sentence so that restitution can be paid, since I recognize that restitution payments are unlikely to be made while someone is serving a jail sentence.

8. Restitution to the victim is part of the punishment I impose in a criminal case, and to the extent restitution is not paid, other aspects of the sentence may be harsher.

(emphases and italics added).

On February 6, 2002, between the time that the Restitution Order entered and before the filing of the Defendant's bankruptcy case, Plaintiff filed a "Notice of Intent to Pursue Collection by Victim" pursuant to COLO.REV.STAT. § 16-18.5-107, and assumed an active role in collecting on the Restitution Order.³ This notice relieved the state's collection investigator from further collection action under the statute and permitted the Plaintiff to pursue collection directly. However, in accordance with COLO.REV.STAT. § 16-18.5-107(1), this bankruptcy filing did not alter the restitution as a condition of the Defendant's probation.

On April 9, 2002, the Defendant filed for relief under Chapter 7 of the Bankruptcy Code. Among the debts she seeks to discharge in bankruptcy is the debt due and owing to Plainti...