In re Ryan

• Decision Date: 03 June 2008
• Docket Number: BAP No. ID-07-1316-DMkMo.,Adversary No. 07-07002.,Bankruptcy No. 03-21393.
• Citation: 389 B.R. 710
• Parties: In re Joseph Elliott RYAN, Debtor. Joseph Elliott Ryan, Appellant, v. United States of America, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

389 B.R. 710

In re Joseph Elliott RYAN, Debtor Joseph Elliott Ryan, Appellant, v. United States of America, Appellee.

BAP No. ID-07-1316-DMkMo.

Bankruptcy No. 03-21393.

Adversary No. 07-07002.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued by Telephone Conference and Submitted on February 21, 2008.

Filed June 3, 2008.

Cameron Phillips, Couer d'Alene, ID, for Appellant.

Warren Derbidge, Boise, ID, for Appellee.

Before DUNN, MARKELL, and MONTALI, Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge.

Joseph Elliott Ryan ("Ryan") was convicted of a felony in federal court. After serving a prison sentence and paying a criminal fine, he filed for bankruptcy under chapter 7.¹ Shortly after receiving his chapter 7 discharge, Ryan filed for chapter 13 relief, seeking to discharge costs of prosecution awarded in his criminal judgment. The bankruptcy court held that costs of prosecution are "criminal fines" under § 1328(a)(3) and thus are excepted from discharge.

For the reasons stated below, we REVERSE.

I. FACTS

On July 13, 1995, Ryan was convicted of possession of an unregistered firearm under 26 U.S.C. § 5861(d) in the United States District Court for the District of Alaska. Ryan was sentenced to fifty-seven months in prison followed by three years of supervised release. In addition, Ryan was ordered to pay a fine of $7,500, restitution in the amount of $750,000, costs of prosecution in the amount of $83,420, and a special assessment of $50.00. Ryan served his sentence. He also paid the $7,500 fine. The district court, following an appellate mandate, ultimately eliminated the restitution obligation.

On April 25, 2003, Ryan filed a petition for bankruptcy relief under chapter 7 in the District of Idaho. He received his chapter 7 discharge on August 11, 2003. Shortly thereafter, Ryan filed a case under chapter 13, listing as his only obligation the amount of unpaid costs of prosecution owed to the United States ("Government").

Before completing payments under his chapter 13 plan, Ryan filed an adversary complaint seeking to determine whether his obligation to the Government would be dischargeable under § 1328(a)(3). The bankruptcy court dismissed the complaint as premature.

Ryan completed payments under the plan, and an "Order of Discharge" was entered on October 5, 2006. The chapter 13 trustee's final report reflected that the Government received $2,774.89 from payments made by Ryan under his plan, but a balance of $77,088.34 on the Government's costs of prosecution claim remained unpaid. Ryan then renewed his request for determination of dischargeability. The bankruptcy court held that the unpaid portion of the Government's claim for costs of prosecution was excepted from discharge by§ 1328(a)(3). Ryan appealed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 157(a) and (b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUE

Is an obligation for the costs of prosecution imposed as part of a sentence in a federal criminal case excepted from the debtor's discharge under § 1328(a)(3)?

IV. STANDARDS OF REVIEW

"We review issues of statutory construction and conclusions of law, including interpretation of provisions of the Bankruptcy Code, de novo." Mendez v. Salven (In re Mendez), 367 B.R. 109, 113 (9th Cir. BAP 2007).

V. DISCUSSION

Section 1328(a)(3) provides an exception to discharge in chapter 13 for "restitution, or a criminal fine." It states, in pertinent part:

[A]s soon as practicable after the completion by the debtor of all payments under the plan, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title except any debt ...

(3) for restitution, or a criminal fine, included in a sentence on the debtor's conviction of a crime [.] (emphasis added).

Here, the obligation to pay costs of prosecution was imposed as part of the judgment in Ryan's criminal case. See 28 U.S.C. § 1918(b).² The essential question, then, is whether these costs of prosecution constitute a "criminal fine."

Statutory interpretation begins with a review of the particular language used by Congress in the relevant version of the law.

The starting point in discerning congressional intent is the existing statutory text, see Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999), and not the predecessor statutes. It is well established that "when the statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms."

Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (citations omitted).

Where statutory language is ambiguous, courts may look beyond the specific statute itself to the context in which it is used and to relevant legislative history, if it exists. "Our duty, in matters of statutory construction, is to give effect to the intent of Congress." A-Z Int'l v. Phillips, 323 F.3d 1141, 1146 (9th Cir.2003) (citations omitted).

[W]hether a statute is ambiguous is determined by reference to the language itself, the specific context, in which that language is used, and the broader context the statute as a whole.

Hough v. Fry (In re Hough), 239 B.R. 412, 414 (9th Cir. BAP 1999) (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997)). However, in the absence of ambiguity, it is not the role of the courts to remake statutory language to fit the court's conception of what Congress may have meant to achieve through its statutory enactments.

[I]n our constitutional system the commitment to the separation of powers is too fundamental for us to preempt congressional action by judicially decreeing what accords with "common sense and the public weal." Our Constitution vests such responsibilities in the political branches.

TVA v. Hill, 437 U.S. 153, 195, 98 S.Ct. 2279, 57 L.Ed.2d 117 (1978).

A. Opposing policy goals

The term "criminal fine" is not defined in § 1328 or anywhere else in the Bankruptcy Code. However, its use in § 1328(a)(3) implicates two important policies embedded in the Bankruptcy Code. First, in light of the objective to provide a fresh start for debtors overburdened by debts that they cannot pay, exceptions to discharge are interpreted strictly against objecting creditors and in favor of debtors. See, e.g., Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154 (9th Cir.1992); First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 1342 (9th Cir.1986); Devers v. Bank of Sheridan, Montana (In re Devers), 759 F.2d 751, 754 (9th Cir.1985). In chapter 13, this principle is particularly important because Congress adopted the liberal "superdischarge" provisions of § 1328 as an incentive to debtors to commit to a plan to pay their creditors all of their disposable income over a period of years rather than simply discharging their debts in a chapter 7 liquidation.³

Accordingly, Congress secured a broader discharge for debtors under Chapter 13 than Chapter 7 by extending to Chapter 13 proceedings some, but not all, of § 523(a)'s exceptions to discharge. See 5 Collier on Bankruptcy ¶ 1328.01[1][c] (15th ed. 1986) ("[T]he dischargeability of debts in chapter 13 that are not dischargeable in chapter 7 represents a policy judgment that [it] is preferable for debtors to attempt to pay such debts to the best of their abilities over three years rather than for those debtors to have those debts hanging over their heads indefinitely, perhaps for the rest of their lives") (footnote omitted).

Pa. Dep't of Pub. Welfare v. Davenport, 495 U.S. 552, 563, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990).

A second, countervailing policy consideration is a historic deference, both in the Bankruptcy Code and in the administration of prior bankruptcy law, to excepting criminal sanctions from discharge in bankruptcy. Application of this policy is consistent with a general recognition that, "[t]he principal purpose of the Bankruptcy Code is to grant a `fresh start' to the `honest but unfortunate debtor.'" Marrama v. Citizens Bank of Mass., ___ U.S. ___, 127 S.Ct. 1105, 1107, 166 L.Ed.2d 956 (2007) (emphasis added).

These policies have been considered by the Supreme Court in two decisions related to the issue before us in this appeal, Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), and Pa Dep't of Pub. Welfare v. Davenport, 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990).

B. Kelly and its progeny

In the Kelly case, the issue was whether a debtor could discharge a financial restitution obligation, imposed as a condition of probation in her Connecticut criminal sentence for wrongful receipt of welfare benefits, in a chapter 7 bankruptcy. Although notified of the debtor's bankruptcy filing, Connecticut authorities did not file a proof of claim or object to the debtor's discharge, as their position was that the debtor's bankruptcy filing would not affect the conditions of her probation. The debtor ultimately filed an adversary proceeding in bankruptcy court seeking a declaratory judgment that her criminal restitution obligation was discharged. The bankruptcy court denied the relief requested. The district court affirmed, but the Second Circuit reversed. The Second Circuit held that the restitution obligation was a "debt" for purposes of the Bankruptcy Code and was not excepted from the debtor's discharge under § 523(a)(7) because under Connecticut law, restitution was assessed "for the loss or damage caused [by the crime]." Kelly, 479 U.S. at 43, 107 S.Ct. 353.⁴

The Supreme Court reversed. As described by this Panel in Findley v. State Bar of California (In re Findley), 387 B.R. 260 (9th Cir. BAP 2008), in Kelly, the Supreme Court

placed a two-part gloss on § 523(a)(7) that it justified by what it described as a longstanding "fundamental policy against federal interference with state...