Thompson, In re

• Decision Date: 01 February 1994
• Docket Number: No. 93-1146,93-1146
• Citation: 16 F.3d 576
• Parties: In re Joseph A. THOMPSON, Debtor. Joseph A. THOMPSON, Plaintiff-Appellee, v. COMMONWEALTH of Virginia, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 576

16 F.3d 576

62 USLW 2530

In re Joseph A. THOMPSON, Debtor Joseph A. THOMPSON, Plaintiff-Appellee, v. COMMONWEALTH of Virginia, Defendant-Appellant.

No. 93-1146.

United States Court of Appeals Fourth Circuit.

Argued Oct. 27, 1993.

Decided Feb. 1, 1994.

ARGUED: John Minh Tran, Assistant Commonwealth's Attorney, Alexandria, Virginia, for Appellant. Nils George Peterson, Jr., Arlington, Virginia, for Appellee. ON BRIEF: John E. Kloch, Commonwealth's Attorney, Alexandria, Virginia, for Appellant.

Before MURNAGHAN, Circuit Judge, CHAPMAN, Senior Circuit Judge, and YOUNG, Senior United States District Judge for the District of Maryland, sitting by designation.

OPINION

MURNAGHAN, Circuit Judge:

On September 22, 1988, the Debtor, Joseph A. Thompson, was convicted of a felony in the Circuit Court for the City of Alexandria. The Circuit Court sentenced the Debtor to confinement in the state penitentiary for a period of five years and further ordered the Debtor to pay the costs of prosecution. On December 13, 1991, the Debtor filed a voluntary petition pursuant to Chapter 7 of the Bankruptcy Code. The debtor was granted a discharge from his debts on March 25, 1992.

Subsequent to receiving his discharge, the Debtor filed a motion to reopen his estate to add unpaid court costs arising from his 1988 state criminal conviction as a debt to be discharged. On the ground that such a debt was non-dischargeable under the Bankruptcy Code, the Bankruptcy Court refused to reopen the case.

On December 28, 1992 the United States District Court for the Eastern District of Virginia, Alexandria Division, reversed the decision of the Bankruptcy Court. The District Court issued a written memorandum wherein it held that the Debtor's court costs were dischargeable in bankruptcy, and that it was an abuse of discretion for the Bankruptcy Court not to permit the Debtor to reopen his case. The District Court issued an Order remanding the case to the Bankruptcy Court for proceedings consistent with its rulings.

The case never returned to Bankruptcy Court, but instead was appealed to the Fourth Circuit. The Commonwealth of Virginia seeks a reversal of the District Court's ruling, and a holding that costs arising out of a criminal conviction are not dischargeable in bankruptcy. ¹

The facts of this case are undisputed. Subsequent to receiving his discharge in Bankruptcy, the Debtor had realized that he remained liable for the unpaid court costs arising from his criminal conviction in 1988 and filed a motion to reopen his estate to include such court costs as a debt to be discharged. The Bankruptcy Court denied the Debtor's motion to reopen his case, on the ground that court costs are not dischargeable in bankruptcy. The District Court reversed and remanded, holding that such costs were dischargeable and that the Bankruptcy Court's decision not to reopen the case was an abuse of discretion.

DISCUSSION

11 U.S.C. Sec. 523(a)(7) provides that a discharge under section 727 does not discharge a debtor from any debt to the extent that debt:

(1) is for a fine, penalty or forfeiture;

(2) payable to and for the benefit of a governmental unit; and

(3) is not compensation for actual pecuniary loss.

The parties agree, as they must, that before a debt is considered nondischargeable under this section, the debt must meet all of the three requirements under Sec. 523(a)(7) enumerated above. The parties disagree, however, as to the applicability of Section 523(a)(7) to court costs arising from a criminal conviction.

The debt that is the subject of the instant appeal is payable to the Commonwealth of Virginia, a government unit under the Bankruptcy Code. 11 U.S.C. Sec. 101(27). Pursuant to the laws of Virginia, the Clerk of the Circuit Court, upon the conviction of a criminal defendant, dockets a claim against the defendant for the costs of prosecution. Va.Code.Ann. Secs. 19.2-336, 340 (Michie 1990). Collection of the costs of prosecution can also be accomplished through the set-off of any tax refunds due the defendant from the Department of Taxation. Va.Code Ann. Sec. 58.1-525 (Michie 1991).

Thompson contends that, since Virginia's statutory and decisional law repeatedly has defined assessed costs as non-penal, the costs do not meet the federal Bankruptcy Code's definition of nondischargeable debts. In other words, Thompson asserts that since the costs are not penalties for the purposes of Virginia Commonwealth law, they cannot constitute a claim that is "for a fine, penalty, or forfeiture" under Sec. 523 of the Bankruptcy Code. Moreover, since the costs are assigned to the convicted defendant to re-pay the Commonwealth for the costs of its prosecution, the debt composed of the costs is "compensation for actual pecuniary loss" of the Commonwealth, and for that reason also may not be considered non-dischargeable in bankruptcy.

In Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), the Supreme Court considered whether an order to pay restitution arising out of a criminal proceeding created a dischargeable debt. The Court concluded that restitution paid as a condition of probation was not dischargeable under Section 523(a)(7).

The Court grounded its decision in Kelly on its view of the relationship between state criminal and federal bankruptcy law. As the Court stated, "Our interpretation of the Code ... must reflect the basis for this judicial exception, a deep conviction that federal bankruptcy courts should not invalidate the results of state criminal proceedings." Id. at 47, 107 S.Ct. at 360. The Supreme Court continued, observing that "[t]he right to formulate and enforce penal sanction is an important aspect of the sovereignty retained by the States.... This Court has emphasized repeatedly 'the fundamental policy against federal interference with state criminal prosecutions.' " Id. (citing Younger v. Harris, 401 U.S. 37, 46, 91 S.Ct. 746, 751, 27 L.Ed.2d 669 (1971)) (emphasis added).

The Supreme Court's analysis led it to conclude that "[Section] 523(a)(7) preserves from discharge any condition that a state court imposes as a part of a criminal sentence." Id. at 50, 91 S.Ct. at 753.

On its face, [523(a)(7) ] creates a broad exception for all penal sanctions, whether they be denominated fines, penalties, or forfeitures. Congress included two qualifying phrases; the fines must be both "to and for the benefit of a governmental unit," and "not compensation for actual pecuniary loss."

Id. at 51, 91 S.Ct. at 754.

The Commonwealth concedes that there is a line of Virginia cases defining as non-penal court costs arising from criminal conviction. In addition, Virginia Code Section 14.1-177 provides in pertinent part, "The laws of costs shall not be interpreted as penal laws[.]" Va.Code.Ann. Sec. 14.1-177 (Michie 1993). The statutory scheme of costs in Virginia has been in existence for more than a century, and Virginia courts uniformly have accepted the meaning of the statute as literal. The font of this interpretation is the seminal case of Anglea v. Commonwealth, 51 Va. (10 Gratt.) 696 (1853), where the Virginia Supreme Court stated:

It is demanded of him for a good and sufficient consideration, and constitutes an item of debt from him to the commonwealth. Payment of costs is no part of the sentence of the court, and constitutes no part of the penalty or punishment prescribed for the offense. Indeed our statute expressly declares that the laws of costs shall not be interpreted as penal laws.... The right to enforce payment of them is a mere incident to the conviction, and thereby vested in the commonwealth for the sole purpose of replacing in the treasury the amount which the defendant himself has caused to be withdrawn from it.

Id. at 701. ² In various contexts, the Anglea decision has been reaffirmed by Virginia cases. Wicks v. Charlottesville, 215 Va. 274, 208 S.E.2d 752 (1974); Kincaid v. Commonwealth, 200 Va. 341, 105 S.E.2d 846 (1958); Commonwealth v. McCue's Executor, 109 Va. 302, 63 S.E. 1066 (1909). ³ By way of example, in Williams v. Commonwealth, 5 Va.App. 514, 365 S.E.2d 340 (1988), the Virginia Court of Appeals considered the issue of whether defense counsel, in final argument to the jury, could address the potential liability for costs if the defendant were convicted. The Virginia trial court ruled defense counsel could refer to the potential fine but could not speak about the costs to be assessed if the jury convicted the defendant. The Williams Court held:

The defendant's liability for court costs is irrelevant in the jury's determination of the defendant's guilt and punishment, and, therefore, should not be addressed or alluded to in final argument. "Payment of costs is no part of the sentence of the court and constitutes no part of the penalty or punishment prescribed for the offense."

Id. at 521, 365 S.E.2d 340 (citing Anglea ).

Taken at face value, the Virginia statute and subsequent case law strongly suggest that not only are the assessed costs not "penal," but they also serve as "compensation for actual pecuniary loss." The dilemma therefore, is that Virginia state courts, largely acting in fields outside the bankruptcy context, have created, for Commonwealth of Virginia purposes, a definition of the assessed costs, which, if extended to federal bankruptcy, would allow a convicted criminal to discharge his court costs by declaring bankruptcy. Such a result seems at odds with the Supreme Court's Kelly decision, in which it "h[eld] that Sec. 523(a)(7) preserves from discharge any condition a state criminal court imposes as part of a criminal sentence." Kelly, 479 U.S. at 50, 107 S.Ct. at 361. ⁴

While it is true that Virginia cases have held that for certain Commonwealth purposes the costs assessed are not part of the sentence, it is also plainly the case that the costs are only paid by those defendants who are convicted of the crime charged. The "debt" is not incurred absent conviction. As...