In re Penny, C-B-311

• Decision Date: 14 June 1976
• Docket Number: 312.,No. C-B-311,C-B-311
• Citation: 414 F. Supp. 1113
• Parties: In re Mark T. PENNY and Mary F. Penny, Bankrupts, and Joe S. Major, III, Trustee.
• Court: U.S. District Court — Western District of North Carolina

414 F. Supp. 1113

In re Mark T. PENNY and Mary F. Penny, Bankrupts and Joe S. Major, III, Trustee.

No. C-B-311, 312.

United States District Court, W. D. North Carolina, Charlotte Division.

June 14, 1976.

Michael P. Carr, Charlotte, N.C., for petitioner.

John M. Bahner, Jr., Albemarle, N.C., for State of North Carolina.

INJUNCTION

McMILLAN, District Judge.

The bankrupt, Mark T. Penny, has filed a motion to stay criminal proceedings currently pending against him in Stanly County, North Carolina. He alleges that he is entitled to a stay pursuant to Rule 401 of the Bankruptcy Rules because the criminal prosecution is, in effect, nothing more than a device to collect a two-year old check given for a dischargeable debt. He is entitled to relief.

28 U.S.C. § 2283 prohibits this court from enjoining state court proceedings unless the injunction is expressly authorized by Act of Congress, necessary in aid of this court's jurisdiction, or to protect or effectuate its judgments. If Rule 401, and 11 U.S.C. §§ 29(a), 32(f)(2), and 35(c)(4), upon which the rule is based, provide authority for a stay, the requirements of § 2283 are met. Furthermore, regardless of Rule 401, if the criminal proceedings will frustrate the jurisdiction of the bankruptcy court, the requirements are likewise met.

Rule 401 provides for the stay of any action founded on a dischargeable debt. The facts which follow show clearly that the criminal action was founded on a dischargeable debt.

On November 19, 1973, Penny and a man named Bobby Barbee gave an unsecured note to the First National Bank of Albemarle, North Carolina, for $12,011.00. On the same day, Penny gave a check to Barbee for $11,000.00, to secure Barbee in the event of default on the note.

In February, 1974, and again in March, 1974, Barbee presented the check to the bank for payment, and it was dishonored for want of sufficient funds. Barbee did nothing.

On March 6, 1975, Penny filed a voluntary petition in bankruptcy. Subsequently, the bank called upon Barbee to honor the note. He apparently did, and took an assignment of the bank's rights under the note.

On November 17, 1975, Barbee swore out a criminal warrant against Penny on a bad check charge based on the check above-described. Penny was tried, pleaded not guilty, and was convicted of the bad check charge on January 20, 1976.

Several facts in particular indicate that this action was a subversion of the criminal laws to collect on a debt:

1. Penny was sentenced to six months imprisonment, to be suspended on payment of $11,000.00 to the Clerk of Court for the use and benefit of Barbee.

2. Penny was prosecuted in criminal court by John Bahner, a lawyer privately retained by Barbee.

3. Although given notice of the hearing on Penny's motion to stay the proceedings, neither the District Attorney for Stanly County nor any representative of the North Carolina Attorney General's office chose to appear.

4. Instead, the State was once again represented by Mr. Bahner, who was hired by Barbee....