In re Searcy

• Decision Date: 12 January 2011
• Docket Number: Bankruptcy No. 09–00248–TLM.,Adversary No. 09–06082–TLM.
• Citation: 64 Collier Bankr.Cas.2d 1695,448 B.R. 19
• Parties: In re Barryngton Eugene SEARCY, Debtor.Ada County Prosecuting Attorney's Office, Plaintiff,v.Barryngton Eugene Searcy, Defendant.
• Court: U.S. Bankruptcy Court — District of Idaho

448 B.R. 19

64 Collier Bankr.Cas.2d 1695

In re Barryngton Eugene SEARCY, Debtor.Ada County Prosecuting Attorney's Office, Plaintiff,

v.Barryngton Eugene Searcy, Defendant.

Bankruptcy No. 09–00248–TLM.

Adversary No. 09–06082–TLM.

United States Bankruptcy Court, D. Idaho.

Jan. 12, 2011.

Heather M. McCarthy, Ada County Prosecutor's Office, Boise, ID, for Plaintiff.Barryngton Eugene Searcy, Boise, ID, pro se.

MEMORANDUM OF DECISION

TERRY L. MYERS, Chief Judge.

Before the Court is an adversary proceeding in which the Ada County Prosecutor's Office (“Ada County”) seeks to except from discharge under § 523(a)(7) and (a)(17) costs and attorney's fees awarded against Barryngton Searcy (“Debtor”).¹ This Memorandum of Decision disposes of the matter and constitutes the Court's findings of fact and conclusions of law. Fed. R. Bankr.P. 7052.

FACTS

Debtor is currently serving a fixed life sentence at the Idaho Department of Corrections. While in prison, Debtor filed a June 14, 2006, civil complaint in the Ada County District Court for the State of Idaho against, among others, Ada County and several of its employees (“Ada County Defendants”). Debtor's complaint, as amended, alleged negligence and intentional infliction of emotional distress, and sought a declaratory judgment stating that the named defendants had violated Debtor's rights.

On March 17, 2007, the state court dismissed two of Debtor's claims pursuant to Idaho R. Civ. P. 12(b)(6) and Idaho Code § 31–3220A(14), finding that they were frivolous and failed to state a claim upon which relief could be granted. See Ex. 100.² On April 5, 2007, the state court granted summary judgment to the Ada County Defendants on the remaining claims, finding those claims to be frivolous as well. Shortly thereafter, the Ada County Defendants requested, and the state court awarded them, attorney's fees under Idaho Code § 31–3220A(16) in the amount of $7,944. See Ex. 103.

Debtor appealed the district court's dismissal and summary judgment orders. In August 2008, the Idaho Court of Appeals affirmed the district court orders and concluded that the district court had properly awarded attorney's fees under Idaho Code § 31–3220A(16). See Ex. 104. Finding Debtor's appeal to be frivolous, the court granted Ada County costs and attorney's fees on appeal pursuant to Idaho Code § 12–121 and § 31–3220A(16). See id. Ada County was awarded costs of $228.00 and attorney's fees of $5,000.00, for a total award of $5,228.00. See Ex. 105.

On February 5, 2009, Debtor filed a voluntary petition for chapter 7 relief, with the required schedules. Ex. 106. In his schedules, Debtor disclosed total assets of $1,201.76 and listed Ada County's two judgments against him as “secured claims.” Id. at 9 and 23. He also represented he had no income other than $0.17 in monthly interest accruing on a bank account which contained $303.58. Id. at 15 and 31. Debtor was granted a discharge on May 12, 2009. Doc. No. 15.³

On October 8, 2009, Ada County filed this adversary proceeding seeking to except from Debtor's discharge its state court and appellate court judgments under § 523(a)(7) and § 523(a)(17). Adv. Doc. No. 1. Debtor answered and asserted three counterclaims against Ada County. Adv. Doc. No. 11. Approximately two weeks before trial, Debtor withdrew his counterclaims. Adv. Doc. No. 35.

DISCUSSION & DISPOSITION

The facts material to the matters before the Court are not in dispute. Rather, the parties differ on the legal issues presented by the undisputed facts—that is, whether costs and attorney's fees awarded under Idaho Code § 31–3220A ⁴ are excepted from discharge under § 523(a)(7) or (17). Ada County contends that they are. Debtor disagrees.

A. Section 523(a)(7)

Ada County first seeks to except its awards from discharge under § 523(a)(7). That section provides, in relevant part, that an individual debtor may not discharge a debt “to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” Section 523(a)(7) creates an exception to discharge for both criminal and civil penalties. Pennsylvania Dep't of Pub. Welfare v. Davenport, 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990); see also United States Dep't of Housing & Urban Dev. v. Cost Control Mktg. & Sales Mgmt. of Virginia, Inc., 64 F.3d 920 (4th Cir.1995) (finding a civil judgment for disgorgement of profits under the Interstate Land Sales Full Disclosure Act nondischargeable); United States v. WRW Corp., 986 F.2d 138 (6th Cir.1993) (concluding civil penalties imposed for violations of safety standards under the Federal Mine Safety and Health Act were excepted from discharge); Forney v. Hoseley (In re Hoseley), 96.1 I.B.C.R. 37 (Bankr.D.Idaho 1996) (holding that portion of civil judgment awarded under the Idaho Workman's Compensation Act was nondischargeable).

Here, Debtor does not dispute that the awards for costs and fees are payable to and for the benefit of a governmental unit ( i.e., Ada County). Instead, he contends that the awards do not qualify as fines or penalties that are “not compensation for actual pecuniary loss.”

While the decisions analyzing § 523(a)(7) are legion, the seminal case is Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986). In Kelly, the Supreme Court was tasked with determining whether a debt stemming from a state criminal restitution order was excepted from discharge by § 523(a)(7). Id. at 38, 107 S.Ct. 353. The Court explained that on its face § 523(a)(7) creates “a broad exception for all penal sanctions, whether they be denominated fines, penalties, or forfeitures,” provided those sanctions are payable “to and for the benefit of a governmental unit,” and “not compensation for actual pecuniary loss.” Id. at 51, 107 S.Ct. 353. Recognizing what it described as a longstanding fundamental policy against federal interference with state criminal prosecutions, the Court determined that restitution orders imposed in state criminal proceedings are excepted from discharge under § 523(a)(7). Id. at 47–51, 107 S.Ct. 353. In so doing, it concluded that such orders are assessed not for compensation of the victim, but instead to effectuate the State's interests in rehabilitation and punishment, even where restitution is forwarded to the victim, and may be calculated by reference to the amount of harm the offender caused. Id. at 51–53, 107 S.Ct. 353. Ultimately, the Court held that “523(a)(7) preserves from discharge any condition a state criminal court imposes as part of a criminal sentence.” Id. at 50, 107 S.Ct. 353.

Relying on Kelly, courts have found other obligations related to criminal proceedings nondischargeable under § 523(a)(7). See, e.g., Thompson v. Virginia (In re Thompson), 16 F.3d 576 (4th Cir.1994) (concluding that assessment of prosecution costs under state law as part of a criminal sentence was nondischargeable); Warfel v. City of Saratoga (In re Warfel), 268 B.R. 205 (9th Cir.BAP2001) (holding civil restitution judgment that was originally imposed as part of a criminal sentence nondischargeable); Huntley v. Vessey (In re Vessey), 03.1 I.B.C.R. 62 (Bankr.D.Idaho 2003) (finding criminal restitution judgment calculated by reference to harm caused by the debtor, and payable to private individuals, nondischargeable).

Courts have also extended the reasoning of Kelly to find, for example, that costs imposed in state bar disciplinary proceedings are nondischargeable under § 523(a)(7). See, e.g., New Hampshire Supreme Court Prof'l Conduct Comm. v. Richmond (In re Richmond), 351 B.R. 6 (Bankr.D.N.H.2006); Attorney Grievance Comm'n v. Smith (In re Smith), 317 B.R. 302, 312 (Bankr.D.Md.2004); Supreme Court of Ohio v. Bertche (In re Bertsche), 261 B.R. 436 (Bankr.S.D.Ohio 2000); In re Williams, 158 B.R. 488 (Bankr.D.Idaho 1993). These cases have largely analogized the costs imposed on disciplined attorneys in such proceedings to the costs of criminal litigation imposed on convicted criminals, noting that such proceedings, like criminal prosecutions, seek to “protect the public” by deterring similar misconduct by other attorneys and by rehabilitating the offending attorney. See Richmond, 351 B.R. at 12; see also Williams, 158 B.R. at 491.

Recently, the Ninth Circuit, in State Bar of California v. Findley (In re Findley), 593 F.3d 1048 (9th Cir.2010), addressed the nondischargeability of attorney discipline costs under § 523(a)(7). In Findley, the court was asked to determine whether certain amendments to the California Business and Professions Code were sufficient to render attorney disciplinary costs imposed under that statute nondischargeable, given the court's decision that such costs imposed under a previous version of the statute were not excepted from discharge by § 523(a)(7). Id. at 1050–51 (citing State Bar of California v. Taggart (In re Taggart), 249 F.3d 987, 989 (9th Cir.2001)).

In Taggart, the court had identified three reasons for its conclusion that an award for attorney disciplinary costs under the California statute was not a “fine, penalty, or forfeiture,” but rather “compensation for actual pecuniary loss.” ⁵ First, the court determined that the language of the statute—which imposed costs for “actual expenses” and “reasonable costs,” and provided for a hardship exemption—supported the impression that the California legislature did not intend the cost awards under that statute to be a punishment. 249 F.3d at 992. Second, the court observed that it was “highly unlikely” that attorney disciplinary costs were intended to punish given the similarities between those costs and costs awarded to prevailing parties in civil litigation, which were imposed even where the losing party's claims or defenses have merit. Id. at 992–93 & n. 6. And finally, the court concluded that the existence of a separate statutory provision authorizing discretionary “monetary sanctions” for attorney...