People v. Goebel

Decision Date01 July 1987
Citation238 Cal.Rptr. 242,195 Cal.App.3d 418
CourtCalifornia Court of Appeals Court of Appeals
PartiesThe PEOPLE, Plaintiff and Respondent, v. Dale Randall GOEBEL, Defendant and Appellant. H001703, H002270.

John P. Hannon, II, Carmel, for defendant and appellant.

John K. Van de Kamp, Atty. Gen., Ronald E. Niver, Deputy Atty. Gen., Morris Beatus, Deputy Atty. Gen., San Francisco, for plaintiff and respondent.

CAPACCIOLI, Associate Justice.

Defendant Dale Randall Goebel was convicted, following a court trial, of two counts of violating Penal Code section 484b (failure to apply and diversion of construction funds) in connection with two construction projects. 1 Section 484b states: "Any person who receives money for the purpose of obtaining or paying for services, labor, materials or equipment and willfully fails to apply such money for such purpose by either willfully failing to complete the improvements for which funds were provided or willfully failing to pay for services, labor, materials or equipment provided incident to such construction, and wrongfully diverts the funds to a use other than that for which the funds were received, shall be guilty of a public offense and shall be punishable by a fine not exceeding ten thousand dollars ($10,000), or by imprisonment in the state prison, or in the county jail not exceeding one year, or by both such fine and such imprisonment if the amount diverted is in excess of one thousand dollars ($1,000). If the amount diverted is less than one thousand dollars ($1,000), the person shall be guilty of a misdemeanor."

A., I-V **

VI

Supremacy Clause

Defendant contends that this criminal prosecution must be dismissed because section 484b, as applied to a bankruptcy debtor who has received a discharge such as he, conflicts with the Bankruptcy Code (11 U.S.C.) and, therefore, violates the Supremacy Clause of the United States Constitution. 6 Specifically, defendant asserts that section 484b conflicts with the exemption provisions of section 522 of the Bankruptcy Code, the preference provisions of section 547 of that code, and the "fresh start" policy basic to a discharge under chapter 7 of that code.

Deciding whether a state statute conflicts with federal law and is consequently invalid under the Supremacy Clause is essentially a two-step process. (Perez v. Campbell (1971) 402 U.S. 637, 644, 91 S.Ct. 1704, 1708, 29 L.Ed.2d 233, 239.) We must first ascertain the construction of the state and federal statutes and then determine the constitutional question whether they are in conflict. (Ibid.) A state statute impermissibly conflicts with federal law if it stands as an obstacle to the accomplishment and execution of the full Congressional purposes and objectives of the federal enactment. (Id. at p. 649, 91 S.Ct. at p. 1711, 29 L.Ed.2d at p. 242.) It does not matter whether the state legislature intended to hinder federal law. (Id. at pp. 651-652, 91 S.Ct. at pp. 1712-1713, 29 L.Ed.2d [195 Cal.App.3d 422] at pp. 243-244; see Grimes v. Hoschler (1974) 12 Cal.3d 305, 308-313, 115 Cal.Rptr. 625, 525 P.2d 65.)

Chapter 7 of the Bankruptcy Code provides a type of bankruptcy relief which involves the collection, liquidation, and distribution of an individual debtor's property and the discharge of his debts. 7 (11 U.S.C § 701 et seq.) Commencement of a voluntary bankruptcy case creates an estate comprised of "... all legal or equitable interests of the debtor in property as of the commencement of the case" with exceptions not relevant here and other specified interests. (11 U.S.C. § 541.) The debtor is under a duty to surrender all property of the estate to the bankruptcy trustee. (11 U.S.C. § 521, subd. (4).) It is the trustee's duty in a chapter 7 case to administer the bankruptcy estate, collect the estate's property, and reduce that property to money. (11 U.S.C. § 704.)

A discharge under chapter 7 relieves the debtor of all legal responsibility for the discharged debts. (11 U.S.C. §§ 524, 727.) Unless an exception regarding a particular debt is established, a discharge under section 727 "... discharges the debtor from all debts that arose before the date of the order for relief ... and any liability on a claim that is determined under section 502 of this title as if such claim had arisen before the commencement of the case...." 8 (11 U.S.C. § 727, subd. (b); see 11 U.S.C. § 523.)

One of the primary purposes of the Bankruptcy Code, which is continued from the former Bankruptcy Act, is to give the honest individual debtor a fresh start unhampered by the pressure and discouragement of preexisting debt. (See Sen.Rept. No. 95-989, pp. 6-7, 98 [5 U.S.Code Cong. & Admin.News (1978, 95th Cong., 2d sess.) pp. 5787, 5792-5793, 5884]; H.Rept. No. 95-595, pp. 125-126, 128, 175-176, 384 [5 U.S.Code Cong. & Admin.News (1978, 95th Cong., 2d sess.) pp. 6086-6087, 6089, 6136-6137, 6340]; Perez v. Campbell, supra, 402 U.S. at pp. 648, 660, 91 S.Ct. at pp. 1710, 1716; Local Loan Co. v. Hunt (1934) 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230; Williams v. United States Fidelity & Guaranty Co. (1915) 236 U.S. 549, 554-555, 35 S.Ct. 289, 290-291, 59 L.Ed. 713; 11 U.S.C. §§ 522, 524, 727.) A second major purpose of the Bankruptcy Code, which is also carried forward from earlier law, is the equitable distribution of the debtor's assets among creditors. (See H.Rept. No. 95-595, pp. 177-178, 186 [5 U.S.Code Cong. & Admin.News (1978, 95th Cong., 2d sess.) pp. 6138-6139, 6147]; Kuehner v. Irving Trust Co. (1937) 299 U.S. 445, 451-452, 57 S.Ct. 298, 301-302, 81 L.Ed. 340; Louisville Bank v. Radford (1934) 295 U.S. 555, 587-588, 55 S.Ct. 854, 862-863, 79 L.Ed. 1593; Palmer v. Radio Corporation of America (5th Cir.1971) 453 F.2d 1133, 1140-1141.)

To facilitate a "fresh start," a debtor is entitled to exempt specified property from the estate. (See 11 U.S.C. § 522; H.Rept. No. 95-595, p. 126 [5 U.S.Code Cong. & Admin.News (1978, 95th Cong., 2d sess.) p. 6087].) At the time defendant filed for bankruptcy under chapter 7, it was possible for a debtor to exempt from the estate $7,900 worth of any property under certain circumstances. (See 11 U.S.C. former § 522, subd. (d)(1) and (d)(5), Pub.L. 95-598.) 9 To achieve equitable distribution, a trustee may set aside specified prepetition preferential transfers of property which would, if not set aside, enable a creditor to receive more than he would have otherwise under the Bankruptcy Code. (11 U.S.C. §§ 547, 550; H.Rept. No. 95-595, p. 177-178 [5 U.S.Code Cong. & Admin.News (1978, 95th Cong., 2d sess.) pp. 6138-6139]; see 11 U.S.C. 101, subd. (48).) The trustee may generally recover the property or its value for the benefit of the estate. (11 U.S.C. § 550.) Other provisions empower the trustee to recover property for benefit of the estate on other grounds. (See 11 U.S.C. §§ 510, subd. (c)(2), 542, 543, 544, 545, 547, 548, 549, 550, 551, 553, 724.) The property of the estate is distributed in payment of claims according to established rules of distribution. (11 U.S.C. § 726.)

Defendant argues that section 484b as applied to a bankruptcy debtor (1) precludes him from exercising his right to claim an exemption of construction money received for the purpose of obtaining or paying for services, labor, materials or equipment and (2) may force him to make improper preferential transfers in contravention of the policy against creditor favoritism underlying section 547 of that code. We disagree.

Section 484b does not make failure to apply money received criminal unless such failure is coupled with wrongful diversion. (See People v. Butcher (1986) 185 Cal.App.3d 929, 939-940, 229 Cal.Rptr. 910, but cf. People v. Worrell (1980) 107 Cal.App.3d 50, 55-56, 165 Cal.Rptr. 459.) Thus, receipt of money provided for the purpose of obtaining or paying for services, labor, materials or equipment is not enough to violate the law and "[t]he crime is not complete until there is a use of funds for another purpose, if ever." (People v. Worrell, supra, 107 Cal.App.3d at p. 56, 165 Cal.Rptr. 459.)

Mindful of the cardinal rule of statutory construction requiring courts to interpret ambiguous statutes to avoid constitutional invalidity (Carlos v. Superior Court (1983) 35 Cal.3d 131, 147-148, 197 Cal.Rptr. 79, 672 P.2d 862), we conclude that a debtor has not wrongfully diverted money received within the meaning of section 484b if that debtor simply surrenders that money to a trustee as part of the estate or properly exempts that money from the estate. However, the crime is a fait accompli where, for example, a debtor willfully fails to apply construction funds and instead spends it on "... a use other than that for which the funds were received" and the funds are later recovered for the benefit of the estate. 10 Under this construction, section 484b does not force a debtor to forgo a proper exemption of the money or make preferential transfers to avoid criminal penalty.

Defendant also challenges section 484b on the ground that it is antithetical to the "fresh start" concept. We perceive no conflict. Nothing in the Bankruptcy Code indicates that a discharge was intended to insulate a debtor from the consequences of his prepetition criminal behavior.

The recent U.S. Supreme Court opinion of Kelly v. Robinson (1986) 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216, is instructive. In that case, the Court faced the different, but relevant, question whether a criminal restitution order entered as a condition of probation prior to the filing of a bankruptcy petition was a dischargeable debt. The court determined such order could not be discharged. (Id. at p. ----, 107 S.Ct. at pp. 362-363; see also People v. Calhoun (1983) 145 Cal.App.3d 568, 570-572, 193 Cal.Rptr. 394; People v. Washburn (1979) 97 Cal.App.3d 621, 622-626, 158 Cal.Rptr. 822.)

The focus of the court's inquiry was section 523(a)(7) of the Bankruptcy Code...

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    • California Court of Appeals Court of Appeals
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