Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-16-06012/USCOURTS-ca8-16-06012-0/pdf.json

Parties Involved:
County of Dakota
Appellant
Ashley Kaye Milan
Not Party
Jacob Jerome Milan
Appellee

Document Text:

United States Bankruptcy Appellate Panel

For the Eighth Circuit

___________________________

No. 16-6012

___________________________

In re: Jacob Jerome Milan; Ashley Kaye Milan

lllllllllllllllllllllDebtors 

------------------------------ 

County of Dakota

lllllllllllllllllllll Plaintiff - Appellant

v.

Jacob Jerome Milan

lllllllllllllllllllll Defendant - Appellee

Ashley Kaye Milan

lllllllllllllllllllll Defendant

____________

Appeal from United States Bankruptcy Court 

for the District of Minnesota - St. Paul

____________

Submitted: August 12, 2016

Filed: September 22, 2016

____________ 

Before SCHERMER, NAIL and SHODEEN, Bankruptcy Judges.

____________

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2

SHODEEN, Bankruptcy Judge.

County of Dakota appeals the bankruptcy court’s1 order and judgment 

discharging the debt owed to it by Jacob Milan for costs incurred related to his 

incarceration. We have jurisdiction of this appeal from entry of the bankruptcy 

court’s final order pursuant to 28 U.S.C. § 158(b). For the reasons set forth below, 

we affirm. 

BACKGROUND

The Dakota County Jail is operated by the Dakota County Sheriff’s Office 

(“DCSO”). Room and board costs for each prisoner in its custody exceed $100 per 

day. The DCSO imposes a fixed rate for a portion of these costs against criminally 

convicted inmates (“Incarceration Costs”), commonly referred to as “pay to stay” 

that is expressly authorized under Minnesota law.2

 The current rate of $25 per day 

was proposed by the DCSO and approved by the Dakota County Board. 

Over the course of several years Milan was incarcerated in the Dakota County 

Jail for a cumulative 179 days following various criminal convictions. In 2014, 

Milan filed a Chapter 7 bankruptcy petition which included his Incarceration Costs 

as a non-priority unsecured debt. Dakota County filed an adversary proceeding 

seeking to have its debt in the amount of $3,504.77 excepted from discharge 

pursuant to 11 U.S.C. § 523(a)(7).

Cross motions for summary judgment were filed by the parties. Dakota 

County’s motion for summary judgment was denied and summary judgment was 

granted in favor of Milan based upon the bankruptcy court’s determination that the 

Incarceration Costs did not meet the statutory requirements to be excepted from 

discharge under the statute. 

 

1 The Honorable Katherine A. Constantine, United States Bankruptcy Judge for the 

District of Minnesota.

2 Minnesota Statutes Section 641.12, subdivision 3.

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STANDARD OF REVIEW

This appeal arises from entry of an order and judgment on cross motions for 

summary judgment involving an issue of statutory interpretation, which are both 

subject to de novo review. See Behlmann v. Century Sur. Co., 794 F.3d 960, 962 

(8th Cir. 2015); Roubideaux v. N.D. Dep’t of Corr. and Rehab., 570 F.3d 966, 972 

(8th Cir. 2009). 

DISCUSSION

The bankruptcy code precludes discharge of a debt for a fine, penalty or 

forfeiture owing to a governmental unit3 unless it is pecuniary in nature. See 11 

U.S.C. § 523(a)(7); Kelly v. Robinson, 479 U.S. 36 (1986). Whether a debt is 

dischargeable based upon these factors is easily determined when the words “fine, 

penalty, or forfeiture” appear as the basis for the debt or when the obligation arises 

in the context of a criminal proceeding or is contained in a court order. Id. at 50-53. 

Because the Incarceration Costs are not identified as a fine or penalty, were not 

ordered by the state criminal court, and were not a condition of Milan’s sentence,

the procedural and substantive characteristics of the debt must be examined to 

determine whether the discharge exception under § 523(a)(7) applies. 

1. Fine, Penalty or Forfeiture

We agree with Dakota County that 11 U.S.C. § 523(a)(7) does not require a 

court order to impose a debt with the characteristics of a fine or penalty. See Lopez 

v. First Judicial Dist. of Pa. (In re Lopez), 579 F. App’x. 100, 103 (3d Cir. 2014) 

(citing In re Gi Nam, 273 F.3d 281, 287 (3d Cir. 2001)). To be excepted from 

discharge such a debt must be penal in nature, and must serve some punitive or 

rehabilitative governmental aim which may be shown directly through statutory or 

regulatory language that indicates an intent to punish a debtor. Neb. ex rel. Linder 

v. Strong (In re Strong), 305 B.R. 292, 296 (B.A.P. 8th Cir.); In re Miller, 511 B.R. 

621, 631 (Bankr. W.D. Mo. 2014). The fact that the Minnesota statute authorizing 

 

3 The statutory requirement that the debt be owed to a governmental unit is not at 

issue in this case.

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the Incarceration Costs is part of the state’s administrative code, not the criminal 

code, is not dispositive of this issue. 

Debts arising outside the criminal process have been determined to be penal 

when they are imposed as a direct result of punishment for wrongdoing. See Tenn. 

v. Hollis (In re Hollis), 810 F.2d 106, 108 (6th Cir. 1987) (costs ordered as condition

of probation are not dischargeable); Gallagher v. City of Chicago (In re Gallagher),

71 B.R. 138, 139-40 (Bankr. N.D. Ill. 1987) (city imposed traffic citations constitute 

a fine or penalty). Cases arising under other sections of the Bankruptcy Code 

provide further guidance on what types of obligations constitute a fine or penalty. 

See In re Miller, 511 B.R. 621 (Bankr. W.D. Mo. 2014) (finding violation of a 

discharge injunction for collection of intervention fees imposed by a corrections 

department were not part of any punishment for wrongdoing and were not 

substantively penal in nature); In re Reimann, 436 B.R. 564 (Bankr. E.D. Wis. 2010) 

(action for violation of stay denied where debt arose from medical services which 

resulted from a major offense under inmate disciplinary rules); State of Wis. v. Cole, 

(Bankr. W.D. Wis. 1999) (disciplinary proceeding finding prisoner was involved in 

a battery and resulting debt arising from the conduct was non-dischargeable under 

523(a)(8)). An entity outside of the criminal process may administer or impose an 

obligation that constitutes a fine or penalty under the bankruptcy code so long as it 

has a direct correlation to wrongful conduct and a resulting punishment. 

Dakota County contends that but for Milan’s conviction, he would not have 

been sentenced and incurred the daily fixed fee which provides a sufficient basis 

related to his punishment. This argument is not persuasive. Under the statute, 

whether to impose the Incarceration Costs, and in what amount, are left to the 

discretion of the correction agency; and these charges may be waived if it would 

constitute an undue hardship on an inmate or the inmate’s immediate family. Minn. 

Stat. § 641.12(3)(b). These provisions are inconsistent with the concept of a fine or 

penalty imposed as a punishment for criminal conduct. 

2. Pecuniary Nature

Under 11 U.S.C. § 523(a)(7) the debt cannot be imposed as compensation for

actual pecuniary loss. Kelly, 479 U.S. at 51. The parties concede that determination 

of this issue is closely tied to the determination of whether the Incarceration Costs 

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constitute a fine or penalty. In re Miller, 511 B.R at 631 (finding no cases in which 

a debt was determined to be both penal and compensatory, or both non-penal and 

non-compensatory). 

Kelly and its progeny make clear that a compensatory element does not render 

an otherwise penal debt dischargeable. Rather, courts considering whether a debt is 

compensation for actual pecuniary loss may look to the extent that a debt creates a 

typical creditor-debtor relationship or represents an expenditure in furtherance of a 

public governmental duty. See In re Zarzynksi, 771 F.2d 304, 306 (7th Cir. 1985). 

According to the DCSO’s own pay-to-stay policy statement, the purpose of 

the Incarceration Costs is to allow Dakota County to “RECOUP A PORTION” of 

the costs of housing prisoners.

4

 Once imposed, failure to pay the Incarceration Costs 

triggers collection under Minnesota’s revenue recapture program. In spite of any 

arguments that could be advanced that the pay to stay program is not a traditional 

debtor-creditor relationship or that the costs of incarcerating convicted individuals 

are an expenditure for a governmental duty, the clear intent for the Incarceration 

Costs is pecuniary in nature. 

CONCLUSION

Upon our de novo review we conclude that the bankruptcy court committed 

no error in its determination that the Incarceration Costs are subject to discharge 

under 11 U.S.C. § 523(a)(7). Accordingly, the decision of the bankruptcy court is 

affirmed. 

______________________________

4 Dakota County, Minn,, Sheriff’s Office Corr. Facility Policy and Procedure ch.

6.9.1.0 (2007) (Pg. 104 of 132, Doc. 10-1) (emphasis original). 

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