In re Nam
| Decision Date | 08 December 1999 |
| Docket Number | Bankruptcy No. 99-16565DWS. Adversary No. 99-0815. |
| Citation | 255 BR 149 |
| Parties | In re Gi Yeong NAM, Debtor. City of Philadelphia, Plaintiff, v. Gi Nam, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Eric L. Frank, Philadelphia, PA, for Defendant/Debtor.
Steven m. Schain, Philadelphia, PA, for Plaintiff.
Marvin Krasny, Philadelphia, PA, Chapter 7 Trustee.
Dave P. Adams, Office of U.S. Trustee, Philadelphia, U.S. Trustee.
Before the Court is the motion to dismiss ("Motion") of defendant, Gi Nam ("Debtor"), seeking to have the complaint ("Complaint") which the City of Philadelphia ("City") filed against him dismissed. According to the Complaint, Debtor agreed to act as a surety on a bail bond for his son, David H. Ham, in a criminal proceeding. When the son failed to appear for a court proceeding, a judgment ("Judgment") was entered against the Debtor on the bail bond.1 In the Complaint, the City requests the Court to enter an order pursuant to 11 U.S.C. § 523(a)(7) that the Judgment is nondischargeable.
A hearing on the Motion was held on October 25, 1999. At the conclusion of the hearing, the matter was taken under advisement. After consideration and for the reasons set forth below, I grant the Motion and dismiss the Complaint.
Debtor's son was charged with several criminal offenses in connection with a murder and robbery. Complaint ¶ 7. Pursuant to a Certification of Bail and Discharge ("Certification") signed on January 12, 1998, Debtor agreed to serve as surety for the $1,000,000 bail set as a condition for his son's release. Id. ¶ 8 & Complaint Exhibit A (copy of Certification). According to the Certification, the bond was conditioned upon, inter alia, Debtor "appearing before the issuing authority and in the Courts of the County of Philadelphia, Pennsylvania, at all times as his presence may be required, ordered or directed. . . ." Certification at 2. The Certification included a provision authorizing the entry of a judgment by confession in favor of the Commonwealth of Pennsylvania and against the Debtor in the amount of the bond, with or without a default of the bond conditions.2 Certification at p. 2.
On April 6, 1998, after the Debtor's son failed to appear for a pre-trial status listing regarding the aforementioned criminal charges, the Judgment for $1,000,018.503 was entered against Debtor in the Court of Common Pleas Criminal Section.4 Complaint ¶ 10. Notably, there is no allegation in the Complaint that the Judgment was entered against the Debtor because he was charged with or committed any criminal act. Rather, the Judgment was entered against him solely because he was the surety on the bail bond for his son.
On or about May 19, 1999, Debtor filed a Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. Id. ¶ 11. In his Schedules, Debtor listed the Judgment as an "unsecured non-priority claim." Id. ¶ 12.
On August 27, 1999, the City commenced the instant adversary proceeding by filing the Complaint seeking to have the Judgment declared non-dischargeable under ¶ 523(a)(7). Approximately one month later, on September 22, 1999, Debtor filed his Motion. On October 15, 1999, Debtor filed a memorandum of law in support of the Motion ("Debtor's Memorandum"). Thereafter, the City filed its response ("City's Memorandum") to the Motion.
A motion to dismiss is the "proper means by which a defendant challenges the legal sufficiency of a complaint." Sterling v. Southeastern Pennsylvania Transportation Authority, 897 F.Supp. 893, 895 (E.D.Pa.1995). In ruling upon such a motion, the Court is required to accept as true all facts alleged by plaintiff in the complaint as well as any reasonable inferences that can be drawn from those facts after construing them in the light most favorable to the non-movant. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). A complaint is properly dismissed only if it "is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). See also Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir.1988) (). It is the burden of the moving party to show the legal insufficiency of the claims asserted. Aetna Casualty and Surety Company v. Deitrich, 803 F.Supp. 1032, 1034 (M.D.Pa.1992) (citing Johnsrud v. Carter, 620 F.2d 29, 33 (3d Cir.1980)). In considering Debtor's Motion, I apply this standard of review.
In seeking to have the Judgment declared nondischargeable, the City relies solely upon 11 U.S.C. § 523(a)(7). This provision states, in pertinent part:
A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt . . . to the extent such debt is for a fine, penalty, or forfeiture payable to or for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.
11 U.S.C. § 523(a)(7). The City contends that since a default under a bail bond is colloquially referred to as a "forfeiture," that under a literal reading of the statute, the Judgment fits within the category of debts excepted from discharge since the Judgment arose from a forfeiture, payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss. However, it is unclear that the "forfeiture" is intended to cover the type of situation at hand.5 The terms "fine" and "penalty," as they are generally understood, suggest a debt arising out of a punishment. Viewed in the same light, the term "forfeiture" in § 523(a)(7) could be construed to refer solely to forfeitures imposed as punishment. Debtor advocates this construction of § 523(a)(7).
He asserts that § 523(a)(7) only applies to penal sanctions, whether they are labeled fines, penalties or forfeitures. Since he was not the defendant in the criminal proceeding in which the bail bond was issued and his obligation on the bail bond was contractual in nature, he reasons that the Judgment is not a penal sanction and does not fit within the scope of § 523(a)(7). As support this argument, Debtor cites Commonwealth of Virginia v. Collins (In re Collins), 173 F.3d 924 (4th Cir.1999); County of Berks v. Damore (In re Damore), 195 B.R. 40 (Bankr.E.D.Pa.1996); Pioneer General Insurance Company v. Midkiff (In re Midkiff), 86 B.R. 239 (Bankr.D.Colo.1988); and Pioneer General Insurance Company v. Paige (In re Paige), 1988 WL 62500 (Bankr.D.Colo. 1988). The courts in these cases held that a debt owed to the government by a surety on a forfeited bail bond, as opposed to a debt owed to the government by a criminal defendant on a bail bond for his failure to appear in court, is not included within the scope of § 523(a)(7) because such an obligation is not penal in nature. In so holding, these courts relied upon statements which the Supreme Court made in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), regarding § 523(a)(7).
In Kelly, the Supreme Court addressed the issue of whether § 523(a)(7) excepts from discharge restitution obligations imposed as conditions of probation in criminal proceedings. For guidance in interpreting § 523(a)(7), the Supreme Court looked not only to the language of the statute but also to the provision's object and policy which it concluded were revealed through "the history of bankruptcy court deference to criminal judgments" and "the interests of the States in the unfettered administration of their criminal justice system." Id. at 43-44, 107 S.Ct. 353.
The Supreme Court explained that even though the provisions of the Bankruptcy Act of 1898 (the "1898 Act"), which predated the Bankruptcy Code, offered substantial support for the view that the Act discharged criminal penalties, courts refused to interpret the Act in that way and refused to allow a discharge in bankruptcy to affect judgments of state criminal courts, including restitution obligations. The Supreme Court opined that the reason for this judicially created exception for criminal sentences was the "deep conviction that federal bankruptcy courts should not invalidate the results of state criminal proceedings." Id. at 47, 107 S.Ct. 353. On this point, the Supreme Court further stated: "This Court has recognized that the States' interest in administering their criminal justice systems free from federal interference is one of the most powerful of the considerations that should influence a court considering equitable types of relief." Id. at 49, 107 S.Ct. 353.
The Supreme Court reasoned that since Congress enacted ¶ 523(a)(7) of the Bankruptcy Code against the backdrop of this judicially created exception to discharge for criminal sentences and failed to express any intent to deviate from the exception, Congress intended the provision to preserve from discharge any condition which a state criminal court imposes as part of a criminal sentence. Elaborating on § 523(a)(7), the Supreme Court stated:
On its face, section 523(a)(7) creates a broad exception for all penal sanctions, whether they be denominated fines, penalties, or forfeitures. . . . Section 523(a)(7) protects traditional criminal fines; it codifies the judicially created exception to discharge for fines.
Id. at 51, 107 S.Ct. 353. Based on this analysis, the Supreme Court concluded that restitution obligations imposed as conditions of probation in criminal proceedings are nondischargeable under § 523(a)(7).
In the Fourth Circuit case cited by Debtor, namely Collins, supra, the debtor was a professional bail bondsman who owed approximately $37,000 to the Commonwealth of Virginia for forfeited bail bonds. 173 F.3d at 926. In concluding that bail bond obligations for...
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