In re Troff
| Decision Date | 15 August 2005 |
| Docket Number | District Case No. 2:05-CV-382 BSJ.,Bankruptcy No. 03-21840.,Adversary No. 04-02491. |
| Citation | 329 B.R. 85 |
| Parties | In re Jason Derek TROFF, Debtor. State of Utah, Camille Anthony, in her official capacity as Executive Director of the Utah Department of Administrative Services, and Gwen Anderson, in her official capacity as Director of the Office of State Debt Collection, Appellants, v. Jason Derek Troff, Appellee. |
| Court | U.S. Bankruptcy Court — District of Utah |
Daniel R. Boone, Salt Lake City, UT, for Debtor.
R. Mont McDowell, McDowell & Gillman, Salt Lake City, UT, Appellee.
This matter comes before the court on the State of Utah's appeal from the bankruptcy court Order Granting Debtor's Motion for Partial Summary Judgment and Denying Defendants' Motion for Summary Judgment, entered on March 8, 2005 (dkt no. 34) in Troff v. State of Utah (In re Jason Derek Troff), Bankruptcy Case No. 03-21840/Adv. Proc. No. 04-02491 (Bankr.D.Utah). The defendants in the adversary proceeding filed a notice of appeal from that order on March 17, 2005, and elected to proceed on appeal before the district court pursuant to Fed. R. Bankr.P. 8001(e). (See Notice of Appeal, filed March 17, 2005 (dkt. no. 38); Notice of Appellants' Election to Have Bankruptcy Appeal Heard in the United States District Court, filed March 17, 2005 (dkt. no. 39) (Troff v. State of Utah (In re Jason Derek Troff), Bankruptcy Case No. 03-21840/Adv. Proc. No. 04-02491).) The appeal was docketed by this court on April 26, 2005, and the matter was fully briefed by the parties. Argument on the appeal was heard on June 6, 2005. Kevin V. Olsen appeared on behalf of the State Appellant/Plaintiffs; Michael F. Thompson appeared for and in behalf of the Appellee/Defendant Jason Derek Troff.
In August 1997, Jason Derek Troff ("Troff") was convicted of arson in the Third Judicial District Court, State of Utah. That court sentenced Troff to a term of one to fifteen years of imprisonment, which was suspended, and imposed a term of 36 months' probation under state supervision. As part of his sentence, Troff was ordered by the Third District Court to pay restitution in the amount of $239,969.00. Following proceedings on alleged probation violations, Troff's state-supervised probation was reinstated for 36 months on October 30, 2000, expressly conditioned upon, among other things, his payment of restitution "at a rate to be determined by Adult Probation and Parole." Troff's restitution payments were made to the Third District Court, which then forwarded the funds to the designated victim of Troff's offense of conviction.
Approximately one year later, Troff's term of probation was terminated upon the recommendation of the Utah Division of Adult Probation and Parole, and pursuant to that recommendation, the Third District Court converted the restitution order into a civil judgment and transferred the responsibility for collecting the restitution portion of the criminal sentence to the Office of State Debt Collection ("OSDC"). While on probation, Troff had paid $7,949 on his restitution obligation, leaving a balance owing in October 2001 of $232,020.
Troff continued to make restitution payments to the Third District Court of $100-$200 per month until March of 2003. Troff filed a Chapter 7 bankruptcy petition on February 4, 2003, and was granted a discharge on May 15, 2003. Subsequently, the OSDC continued in its efforts to collect restitution. Troff stopped making payments and notified the State through his attorney that the restitution obligation had been discharged.
On February 18, 2004, Troff reopened his bankruptcy case and commenced an adversary proceeding against the State of Utah asking the bankruptcy court to: (1) determine that his restitution order had been discharged, and (2) find the State in contempt for trying to collect on the restitution obligation after the "debt" had been discharged.
The State filed a motion for summary judgment and argued that criminal restitution orders are not dischargeable under 11 U.S.C. § 523(a)(7) as construed by the United States Supreme Court in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986). Troff filed a cross-motion for partial summary judgment, asserting that this case is distinguishable from Kelly since (1) all of Troff's restitution payments "have been forwarded by the State to the victim, who is a third-party, non-governmental entity"; (2) when Troff's probation was terminated, the restitution order was "converted to a civil judgment" and was no longer a criminal sanction; and (3) restitution in Utah "`is not a "punishment" but a civil penalty whose purpose is entirely remedial, i.e., to compensate victims for harm caused by the defendant.'" (Memorandum in Support of Plaintiff's Motion for Partial Summary Judgment and Memorandum in Opposition to Defendants' Motion for Summary Judgment, filed January 14, 2005) (dkt. no. 22) (In re Jason Derek Troff, Adv. Proc. No. 04-02491), at 8-9 (quoting Monson v. Carver, 928 P.2d 1017, 1027 (Utah 1996)), (Appellee's Appendix, filed May 27, 2005 (dkt. no. 8, at 14-15).)
The matter came before the bankruptcy court for hearing on March 4, 2005.
On March 8, 2005, the bankruptcy court entered its order granting Troff's Motion for Partial Summary Judgment. (See Order Granting Debtor's Motion for Partial Summary Judgment and Denying Defendants' Motion for Summary Judgment, dated March 8, 2005 (dkt. no. 34) (In re Jason Derek Troff, Adv. Proc. No. 04-02491) ("Bankr.Ct.Order"); Appellee's Appendix, filed May 27, 2005 (dkt. no. 8), at 1-6.) The bankruptcy court adopted Troff's view that his restitution obligation was discharged, but concluded that the issue of whether or not the restitution was converted to a civil judgment is irrelevant to its analysis of the law; the court assumed "that at all times, the restitution judgment remained criminal in nature." (See Bankr.Ct. Order at 2, Findings of Fact ¶ 5.) The bankruptcy court held that Troff's restitution was not "payable to and for the benefit of a governmental unit" within the meaning of 11 U.S.C. § 523(a)(7) because it is ultimately received by a third-party victim who is not a governmental unit. (Id. at 4 ().) Accepting Troff's assertion that criminal restitution in Utah is defined "as being compensatory in nature and not as punishment," the bankruptcy court also concluded that Troff's restitution obligation represented "compensation for actual pecuniary loss," and thus "is not excepted from discharge under the third element of § 523(a)(7)." (Id. at 5.)1 Finally, the bankruptcy court ruled that because this is an issue of first impression in this Circuit, the State had not knowingly violated the automatic stay, and denied an award of damages for the alleged violation. (Id. at 6.)
On this appeal, the State of Utah contends that (1) 11 U.S.C. § 523(a)(7) is the appropriate section to govern the dischargeability of criminal restitution orders; (2) the bankruptcy court should have construed § 523(a)(7) in light of Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986); (3) consistent with Kelly, Troff's restitution obligation is "payable to and for the benefit of a governmental unit" within the meaning of § 523(a)(7); and (4) the restitution obligation is not "compensation for actual pecuniary loss" within the meaning of that section. (See Appellant's Brief, filed May 12, 2005 (dkt. no. 5), passim; Appellant's Reply Brief, filed May 31, 2005 (dkt. no. 10), passim.) Troff responded that the bankruptcy court correctly concluded that his restitution order is not excepted from discharge under 11 U.S.C. § 523(a)(7) because his restitution is not "payable ... for the benefit of a governmental unit" and because it is "compensation for actual pecuniary loss" within the meaning of that section. (See Appellee's Brief, filed May 27, 2005 (dkt. no. 9), at 4, 7.)
Having heard and considered the arguments advanced by counsel, and having reviewed the briefs and record in this case as well as the pertinent authorities, this Court hereby reverses the bankruptcy court's order and holds that pursuant to 11 U.S.C. § 523(a)(7) as construed in light of Kelly, Troff's restitution obligation imposed as part of his state court criminal sentence is excepted from discharge in his Chapter 7 bankruptcy proceeding.
The district court may affirm, modify or reverse a bankruptcy judge's judgment, order, or decree, or may remand with instructions for further proceedings. Fed. R. Bankr.P. 8013. The district court exercises de novo review over the bankruptcy court's legal conclusions. SLC Ltd. v. Bradford Group West, Inc., 999 F.2d 464 (10th Cir.1993). The interpretation and application of the Bankruptcy Code and Rules raise a question of law which is subject to de novo review by this court. See In re Gledhill, 76 F.3d 1070, 1077 (10th Cir.1996) ( ); In re Chase & Sanborn Corp., 904 F.2d 588, 593 (11th Cir.1990).
This appeal raises a question of statutory construction.
In pertinent part, 11 U.S.C. § 523(a)(7) reads:
A discharge under section 727, 1141, 1228(b) or 1328(b) does not discharge an individual debtor from any debt —
* * * * * *
(7) 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.
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