Jellinek v. Forlander (In re Jellinek)

Decision Date12 October 2022
Docket NumberBANKRUPTCY NO. 22-01836-MM7,ADVERSARY NO. 22-90038
Parties IN RE L. Robert JELLINEK, Debtor. L. Robert Jellinek, Plaintiff(s) v. William "Tom" Forlander and Advance Products & Systems, LLC, Defendant(s)
CourtU.S. Bankruptcy Court — Southern District of California

Gregory Weston, The Weston Firm, PC, San Diego, CA, for Plaintiffs.

APPROVED AS TO FORM: Martin A. Eliopulos, Esq., Higgs, Fletcher & Mack LLP, Attorneys for Defendants Advanced Products & Systems, Inc. and William "Tom" Forlander

ORDER ON
Motion for Summary Judgment and Motion to Dismiss

Margaret M. Mann, United States Bankruptcy Judge The court orders as set forth on the continuation pages attached and numbered 2 through 10 with exhibits, if any, for a total of 10 pages. Motion/Application Docket Entry No. 3/9.

Debtor L. Robert Jellinek ("Jellinek") filed a Chapter 7 bankruptcy petition on July 13, 2022. He then filed a Complaint to Determine Dischargeability of Debt and for Declaratory Relief against creditors William "Tom" Forlander and Advance Products & Systems, LLC ("APS") (collectively "Forlander"). Adv. Docket, Doc 1. The Complaint alleges one cause of action and seeks a determination of dischargeability under § 523(a)(7) of a debt for $590,865.40 which Jellinek owes to Forlander pursuant to an Order for Victim Restitution.

Jellinek filed a Motion for Summary Judgment on August 3, 2022, seeking a ruling that the exceptions to discharge set forth in Bankruptcy Code sections 523(a)(7) and (a)(13) do not apply to the Order of Victim Restitution. Adv. Docket, Doc. 3.

On August 19, 2022, Forlander filed a Statement of Conditional Opposition to Jellinek's Motion for Summary Judgment. Adv. Docket, Doc. 6.

On August 26, 2022, Forlander filed a Motion to Dismiss the Adversary Complaint under Fed. R. Bank, P, Rule 12(b)(6). Adv. Docket, Doc 9.

On September 1, 2022, the Bankruptcy Court issued a minute order consolidating the hearing on the two motions. Adv. Docket, Doc. 12.

On October 3, 2022, the Bankruptcy Court issued a Tentative Ruling to grant Jellinek's Motion for Summary Judgment and to deny Forlander's Motion to Dismiss. Adv. Docket, Doc. 15.

The Bankruptcy Court held oral argument on October 6, 2022.

Following argument, the Court adopted its Tentative Ruling.

Based on the Jellinek Adversary Complaint, the Jellinek Motion for Summary Judgment, Forlander's Opposition to the Motion for Summary Judgment and the additional briefing by the parties, Forlander's Motion to Dismiss the Adversary Complaint and the additional briefing by the parties, the papers and pleadings on file in the Jellinek Chapter 7 bankruptcy case and the Jellinek Adversary Proceeding, the Tentative Ruling and good cause appearing therefore, The Bankruptcy Court hereby rules as follows:

1. The Bankruptcy Court's Tentative Ruling, a true and copy of which is attached to this Order as Exhibit "A", is hereby confirmed as the final order of the Bankruptcy Court and hereby incorporated herein by reference in its entirety;
2. With respect to the Jellinek Motion for Summary Judgment, the Bankruptcy Court hereby:
a. GRANTS Jellinek's Motion for Summary Judgment; and
b. DENIES Forlander's Motion to Dismiss; and
3. Accordingly, the Bankruptcy Court hereby enters Summary Judgment holding that the exceptions to discharge set forth in Bankruptcy Code sections 523(a)(7) and (a)(13) do not apply to the Order of Victim Restitution.

IT IS SO ORDERED.

EXHIBIT A

TENTATIVE RULING

ISSUED BY JUDGE MARGARET M. MANN

Bankruptcy Case Name L. Robert Jellinek
Motions: PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANTS' MOTION TO DISMISS

L. Robert Jellinek ("Jellinek") filed a Chapter 7 bankruptcy petition on July 13, 2022. He then filed a Complaint to Determine Dischargeability of Debt and for Declaratory Relief against William "Tom" Forlander and Advance Products & Systems, LLC ("APS") (collectively "Forlander" or "Defendants"). Doc 1. The Complaint seeks a determination of dischargeability under § 523(a)(7) of a debt for $590,865.40 which Jellinek owes to Forlander pursuant to an Order for Victim Restitution ("OVR") entered in San Diego Superior Court on February 6, 2018.

Jellinek filed a Motion for Summary Judgment ("MSJ") on August 3, 2022, Doc. 3 which Forlander conditionally opposed. Doc 6. On August 26, 2022, Forlander then filed a Motion to Dismiss ("MTD") under Rule 12(b)(6). Doc 9.

The court issued a tentative ruling scheduling Jellinek's MSJ and Forlander's MTD for hearing at the same time. Doc 11. Both parties agree the facts are undisputed that Forlander holds an unpaid OVR which does not arise under Title 18 of the United States Code so that dischargeability under § 523(a) 13) is inapplicable. Also, it is undisputed that no basis for denial of discharge under § 727 was alleged in the complaint. But the parties reach opposite conclusions as to whether the OVR is dischargeable or not under § 523(a)(7).

The court agrees with Jellinek's position and will grant him summary judgment.

I. Background

The undisputed facts are as follows.

On May 12, 2017, Jellinek was convicted of criminal perjury in People of the State of California v. Robert Jellinek, Case No. SCN357327 (the "Criminal Case") relating to a declaration filed in a civil employment action he filed against Forlander. Doc 1, 9. On December 13, 2017, Hon. Richard S. Whitney issued a Pronouncement of Judgment against Jellinek in the criminal action sentencing him to probation which ended on June 4, 2020. Doc 3-1, Ex 2. On February 6, 2018, San Diego Superior Court entered the OVR in favor of Defendants. Doc 3-1, Exhibit 3. It states, "On May 12, 2017, defendant Robert Jellinek was convicted of a crime which entitles the victim to restitution." Id. The OVR required Jellinek to pay restitution to Defendants of $590,865.40 consisting of attorney's fees and costs they incurred in the prior civil employment action. Id. At the bottom of the OVR reads a "Notice to Victims" indicating the order is enforceable as if it were a civil judgment, citing Cal Penal Code § 1214. Id.

On July 27, 2018, Jellinek appeared for a Debtor's Exam brought in the Criminal Case but before Hon. Robert P. Dahlquist, a San Diego Superior Court civil judge. Doc 3-1 Exhibit 5. Forlander's attorneys conducted the Debtor's Exam.

Jellinek's chapter 7 filing followed approximately four years later.

§ 523(7) Generally

Bankruptcy Code § 523(a)(7) provides that a debt is non-dischargeable "to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental entity." In Kelly v. Robinson, 479 U.S. 36, 51, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), the Supreme Court held that § 523(a)(7) requires proof of three elements: the debt must (1) be a fine, penalty, or forfeiture; (2) be payable to and for the benefit of a governmental unit; and (3) not constitute compensation for actual pecuniary costs. Kelly, id., involved a restitution order requiring a debtor to reimburse a governmental entity for overpayment of welfare benefits as a condition to probation. The Court found this debt was not dischargeable under § 523(a)(7) because it was payable to a governmental entity and was also not compensatory because "the overriding purpose of criminal restitution is to benefit society by rehabilitating offenders."

The breadth of the Court's language regarding the compensatory element of the three-part test caused general confusion in the lower courts about the dischargeability of restitution orders to ensue. Fortunately, in this Circuit, clarity has been provided by two recently published decisions where the debt is payable to a private entity.1 Kassas v. State Bar of Cal. (In re Kassas), 49 F.4th 1158, 1163–64 (9th Cir. 2022), and Albert-Sheridan v. State Bar of Cal. (In re Albert-Sheridan), 960 F.3d 1188, 1193 (9th Cir. 2020) ; cert. den. ––– U.S. ––––, 141 S.Ct. 1090, 208 L.Ed.2d 542, 2021 U.S. LEXIS 126 (Jan. 11, 2021). This court is bound by precedent of the Ninth Circuit and may not overrule a decision of the United States Court of Appeals for the Ninth Circuit. Albert-Sheridan, id. at 1192-93. Adhering to these holdings renders no disrespect to Kelly since its facts involved payment owed to the welfare agency itself and not a private party. Kelly, 479 U.S. at 39, 107 S.Ct. 353.

§ 523(a)(7) Elements

The first element is whether the debt owed to Forlander is "a fine, penalty, or forfeiture".

Jellinek argues that restitution is not penal, focusing on the criminal vs. civil nature of the proceeding. He argues the OVR was ordered in a subsequent civil proceeding and that the amount proven was before a different judge than the one who presided over the criminal case, had no jury and there was no criminal due process, that is, Jellinek was not permitted to invoke his Fifth Amendment protection against self-incrimination at his debtor exam. Weston Decl. Ex. 5 at 6, 8, and 13.

Controlling law does not support Jellinek's reasoning. A criminal restitution order is a "fine" for purposes of § 523(a)(7). Kelly, id. at 51-52, 107 S.Ct. 353. Jellinek's restitution obligation, the OVR, arose in, and was ordered in conjunction with, the Criminal Case. Warfel v. City of Saratoga (In re Warfel), 268 B.R. 205, 210 (9th Cir. BAP 2001) (citing Kelly, holding a state court criminal restitution order is a fine for purposes of § 523(a)(7) ). In Warfel, the Ninth Circuit BAP focused on the structure of the California Penal Code and the legislative purpose of a civil judgment for restitution. As in Warfel, the OVR here was entered as a condition of probation in a criminal sentence, authorized under California Penal Code § 1214.2 which provides in relevant part:

(a)...if a defendant is ordered to pay a fine as a condition of probation, the order to pay a fine may be enforced during the term of probation in the same manner as is provided for the enforcement of money judgments.
(b)... an order to pay a fine as a condition of probation may also be enforced as follows:
...

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