In re Pulley
| Decision Date | 25 June 2003 |
| Docket Number | Bankruptcy No. 97-23436 RG.,Adversary No. 00-3666. |
| Citation | 295 B.R. 28 |
| Parties | In re Barbara Jean PULLEY, Debtor. Barbara Jean Pulley, Plaintiff, v. Diane Legreide, individually and in her capacity as Director of the Division of Motor Vehicles, and Peter C. Harvey, individually and in his capacity as Acting Attorney General of New Jersey, and the State of New Jersey, Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Peter C. Harvey, Acting Attorney General of New Jersey, Carol Johnston, Deputy Attorney General of New Jersey, Trenton, NJ.
Neil J. Fogarty, Esq., Northeast New Jersey Legal Services, Inc., Jersey City, NJ.
Plaintiff-debtor moves for summary judgment in this adversary proceeding, seeking a determination that motor vehicle "surcharges" levied against her by the New Jersey Division of Motor Vehicles ("DMV") pursuant to N.J.S.A. 17:29A-35, are dischargeable debts in her Chapter 7 bankruptcy case. Defendant New Jersey,1 waiving any right to sovereign immunity, cross-moves for a summary judgment declaring the challenged surcharges to be an exception to discharge pursuant to 11 U.S.C. § 523(a)(7).2
This is a matter within this court's jurisdiction, and is a core proceeding.3 For the purposes of this opinion, the key inquiries center on whether the surcharges at issue are "payable ... for the benefit of a governmental unit," and whether the "Market Transition Facility" ("MTF"), successor to the "New Jersey Automobile Full Insurance Underwriting Association" ("JUA"), is such a governmental unit. See 11 U.S.C. § 523(a)(7); N.J.S.A. 17:30E-4; and N.J.S.A. 17:33B-11. Certain related issues have been decided in this district in a number of Chapter 7 cases with varying results.4 Similar issues have been decided in Chapter 13 cases.5
Summary judgment is appropriate in this case. Basic facts are not in dispute certifications and documents have been submitted as the immediate record; New Jersey statutory and case law are to be surveyed in deciding what are basically questions of law; and, the many prior related decisions in this district provide ample legal and factual background. Triable issues are thus obviated. See Fed.R.Civ.P. 56 and Fed. R. Bankr.P. 7056.
Mrs. Pulley, a resident of Jersey City, was involved in an automobile accident on July 15, 1991. Shortly before, by order of June 21, 1991 of the Jersey City Municipal Court, Mrs. Pulley's driver's license had been suspended based upon unpaid parking violations. At the scene of the accident, Mrs. Pulley was cited for driving without liability insurance.
She was convicted in Jersey City Municipal Court on September 17, 1991 of driving without liability insurance and driving while her license was suspended.6 DMV sent plaintiff surcharge bills on September 1, 1992, on September 1, 1993 and on September 1, 1994.7 The State yet again suspended Mrs. Pulley's license both on December 27, 1992 and on October 17, 1993 for failing to pay these surcharges. Loss of driving privileges is a consequence of default in payment of DMV surcharges. N.J.S.A. 17:29A-35(b)(2) ().
Plaintiff filed a petition in bankruptcy under Chapter 7 on March 24, 1997. Her petition showed no income for 1994 through 1996, and only $515 per month from Social Security ("SSI") thereafter. Listed unsecured debts totaled over $31,000, including a debt to "NJ MVS Auto Ins Sur & Coll" for DMV surcharges in the amount of $1,000, which she divided as $900 priority unsecured and $100 general unsecured (the latter apparently representing an earlier applicable ten-percent DMV administrative fee).8 An order discharging the plaintiff from all dischargeable debts was entered on July 7, 1997. The bankruptcy case was closed on April 2, 1998.
On December 17, 1997, the State sent Mrs. Pulley a form letter which acknowledged her July 7, 1997 discharge but demanded payment of the surcharge debt, in the claimed amount of $1,429.24. The letter declared:
The protection of the stay provisions ended with the court's entry of a discharge order. You are now required to resume payment of your surcharge assessment. A bankruptcy court ruling in 1995 determined that surcharges are non-dischargeable civil penalties.
The "bankruptcy court ruling in 1995" presumably refers to In re Kent.
On February 25, 2000, the Municipal Court of Jersey City rescinded its June 21, 1991 suspension of plaintiff's driver's license. After the rescission of this suspension and debtor's attorney's demand of DMV for reinstatement of driving privileges the State appears to have allowed Mrs. Pulley to apply for a permit as a precursor to applying for a driver's license.
On August 8, 2000, debtor moved to reopen her bankruptcy case to initiate this adversary proceeding to determine the dischargeability of the DMV surcharges. The case was reopened by order entered on September 29, 2000, and debtor filed her complaint on that same day. The complaint has implicated the origins, legislative development, and range of applications of the DMV surcharges.
In a nutshell, insurers in the automobile insurance market (as well as insurance companies in many other markets) have historically relied on the "surcharge" technique to adjust, after the fact of coverage, premium charges based upon actual and particular experience with insureds or a host of other factors. Surcharges on automobile insurance premiums became commonplace (and their nonuniformity in New Jersey a source of grave concern to the Legislature), as the market tightened in the early 1980s. As premium prices skyrocketed, the open market in New Jersey for automobile coverage — at affordable rates — continued to collapse.9
The Legislature acted twice in 1982 to remedy the burgeoning problem. First, through the Automobile Insurance Reform Act of 1982, N.J.S.A. 17:29A-33 et seq., a more equitable and uniform Merit Rating Plan was established equalizing allowed surcharges. At the same time, the DMV surcharges here at issue were established (and carved out of the private marketplace's surcharging purview10). A second 1982 enactment, the New Jersey Automobile Full Insurance Availability Act, N.J.S.A. 17:30E-1 et seq., created JUA, an insurer of last resort organized to provide affordable automobile liability coverage. DMV surcharges were intended to fund, in part, JUA's operation. JUA membership included all insurers who would sell automobile coverage in New Jersey. Participation in this joint underwriting association was mandatory. Operating to assure market availability for New Jersey consumers, JUA issued policies in its own name.11 However, it failed (miserably and expensively), and by 1990 was hopelessly insolvent. The 1990 Fair Automobile Insurance Reform Act, N.J.S.A. 17:33B-1 et seq., was to replace JUA with a transitional membership entity, MTF (again, a joint insurance underwriting association which was a policy issuer). By 1994, MTF had added $1.3 billion in losses to the $3 billion of JUA losses. Enter, the 1994 Good Driver Protection Act, N.J.S.A. 34:1B-21.1 et seq. That act reintroduced the high-risk pool concept for consumers otherwise excluded from the automobile insurance marketplace. It provided for tightened State controls over the insolvent MTF, and for finally burying JUA. Funding was cobbled together to close down both JUA and MTF in a manner that would settle litigation.12 That litigation was spawned when the member-insurers attributed losses for which they would be responsible in MTF to the Commissioner of Insurance. Detailed history of the JUA-MTF era is readily available.13
In the relevant period beginning before the 1982 legislation and running through today, the evolution of surcharging in New Jersey by automobile insurers and DMV can be traced as follows:
• New Jersey adopted compulsory automobile liability insurance in the New Jersey Automobile Reparation Reform Act effective January 1, 1973. N.J.S.A. 39:6A-1 et seq.
• Compulsory automobile insurance before the 1982 Reform Act featured the Assigned Risk Plan, "often the only available insurance for statistically categorized `high risk' drivers," or "residual market insureds," who were frequently charged "abnormally high rates." Bigham, 119 N.J. at 652, 575 A.2d 868.
• Through 1982, drivers in the voluntary and residual markets were subject to premium surcharges levied by each insurer. The State did not levy "surcharges" for motor vehicle infractions, but rather imposed criminal penalties, in the form of fines, points, license suspension, revocation, and imprisonment. In re Marcucci, 256 B.R. at 689. Insurers surcharged, for example, the drunk driver as compensation for the added risk of insuring that driver. Id. These and other surcharges in both the voluntary and residual market (for violating an array of motor vehicle laws) were ad hoc, based on company-set rating, "driver classification or geographical location," so that two drivers charged with the same violation in different New Jersey locales might be assessed different surcharges. Bigham, 119 N.J. at 652, 575 A.2d 868.
• The 1982 Reform Act replaced the Assigned Risk Plan with JUA. Premium rates in JUA were to be comparable to those in the voluntary market. N.J.S.A. 17:29A33; Senate Labor, Industry and Professions Committee Statement, Assembly, 1696-L.1983, c. 65 (N.J.1983) ("Committee Statement"). A key component of the 1982 reforms was its Merit Rating Plan ("MRP").
• Through the MRP, the Legislature replicated the private market by culling out certain DMV violations to create "surcharges" to fund, in part, JUA. N.J.S.A. 17:29-35b. These specific surcharges, after 1982, were removed from the private...
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