Opinion ID: 901991
Heading Depth: 1
Heading Rank: 4

Heading: Criminal restitution orders survive bankruptcy proceedings

Text: [¶ 13.] In Kelly, the United States Supreme Court reviewed the issue of whether a criminal restitution order was dischargeable under Chapter 7 bankruptcy proceedings. 479 U.S. at 38, 107 S.Ct. at 355, 93 L.Ed.2d 216. A Connecticut state court convicted the defendant, Robinson, of larceny in the second degree for the wrongful receipt of $9,932.95 in welfare benefits from the Connecticut Department of Income Maintenance (Department). It then sentenced Robinson to a prison term of no less than one year and no more than three years. The state court suspended execution of the sentence and placed Robinson on five years probation. Id. at 38-39, 107 S.Ct. at 355, 93 L.Ed.2d 216. As a condition of her probation, the state court ordered Robinson to make monthly $100.00 restitution payments to the Connecticut Office of Adult Probation. Id. at 39, 107 S.Ct. at 355, 93 L.Ed.2d 216. After the restitution order was entered, Robinson filed a voluntary Chapter 7 bankruptcy petition. Robinson listed the restitution order as a debt in her petition. Department and the Office of Adult Probation were both notified as creditors, but did not file objections to the discharge. The bankruptcy court granted Robinson a discharge of her debts. At the time of the discharge order, Robinson had paid $450.00 in restitution and then ceased payments taking the position that the bankruptcy order discharged the restitution order. The bankruptcy court took the opposite position, which was adopted by the district court when it imposed Robinson's criminal sentence. Id. at 40, 107 S.Ct. at 356, 93 L.Ed.2d 216. The court of appeals reversed. Id. at 42, 107 S.Ct. at 357, 93 L.Ed.2d 216. The State appealed and the United States Supreme Court reversed. Id. at 43, 107 S.Ct. at 357, 93 L.Ed.2d 216. [¶ 14.] In rendering its decision, the Supreme Court noted that the criminal justice system is not operated primarily for the benefit of victims, but for the benefit of society as a whole. Id. at 52, 107 S.Ct. at 362, 93 L.Ed.2d 216. Thus, a restitution order seeks to punish as well as rehabilitate the offender. When a restitution order is imposed, such that the victim has no control over whether restitution is paid or how much is paid, the order operates for the benefit of the State and not for the pecuniary benefit of the victim. Id. at 53, 107 S.Ct. at 363, 93 L.Ed.2d 216. In contrast, [a] bankruptcy proceeding is civil in nature and is intended to relieve an honest and unfortunate debtor of his debts and to permit him to begin his financial life anew. Id. at 46, 107 S.Ct. at 359, 93 L.Ed.2d 216 (quoting State v. Mosesson, 78 Misc.2d 217, 218, 356 N.Y.S.2d 483, 484 (1974)). [¶ 15.] The Kelly rule preserves from discharge any condition a state criminal court imposes as part of a criminal sentence. Id. at 50, 107 S.Ct. at 361, 93 L.Ed.2d 216. Penal sanctions, whether designated as fines, penalties, or forfeitures, are exempted from discharge under 11 U.S.C. § 523(a)(7) when made payable to and for the benefit of a governmental unit, and are not compensation for actual pecuniary loss. Id. at 51, 107 S.Ct. at 362, 93 L.Ed.2d 216. A criminal restitution order in which payments are forwarded to a victim and are calculated by the sentencing court with reference to the amount of harm the offender has caused satisfies the three-element rule. Id. at 53, 107 S.Ct. at 362-63, 93 L.Ed.2d 216. [¶ 16.] In South Dakota, a circuit court's authority to enter an order of restitution is found at SDCL 23A-28-3, which provides in relevant part: If the sentencing court orders the defendant to the county jail, suspended imposition of sentence, suspended sentence, or probation, the court may require as a condition that the defendant, in cooperation with the court services officer assigned to the defendant, promptly prepare a plan of restitution, including the name and address of each victim, a specific amount of restitution to each victim, and a schedule of restitution payments. SDCL 23A-28-3 further provides that a restitution order becomes a condition of parole once a defendant is released from the penitentiary. Id. [¶ 17.] With regard to the first element of the Kelly test, the circuit court entered an order for a suspended imposition of sentence with the condition that Ochs pay restitution in an amount to be determined by Ochs and the court services officer assigned to the case. The restitution order for $30,711.36 became a condition of Ochs' probation while the suspended imposition of sentence remained in effect. Once Ochs violated the restitution order by discontinuing monthly payments, the circuit court revoked the suspended imposition of sentence and probation. The order revoking the suspended imposition of sentence stated that all of the terms and conditions in the March 13, 2003 order remained in full force and effect[.] Those conditions included the full satisfaction of the restitution order. [¶ 18.] Ochs' argument that the only criminal penalty imposed by the circuit court was the prison sentence is unsupported by the record and the law. Ochs remained subject to the possibility of a prison term in addition to the restitution order. The restitution order also remained part of the penalty imposed after Ochs served ninety days in the penitentiary. Ochs has never contested the amount of the restitution order, or sought to have the restitution order or its terms altered per the provisions of SDCL 23A-28-3. Therefore, the first element of the Kelly test is satisfied. The restitution order imposed by the circuit court represented a part of the criminal penalty ordered against Ochs. [¶ 19.] The second element of the Kelly test requires the restitution order be payable to and for a governmental unit. 479 U.S. at 51, 107 S.Ct. at 362, 93 L.Ed.2d 216. In the instant case, the restitution order required Ochs to make payments to the Brown County Clerk of Courts. In turn, the Clerk of Courts forwarded restitution payments to the three victims injured by Ochs' crimes. The forwarding of payments by the Clerk of Courts to the victims did not make the restitution payable to UBC and the other victims. See id. at 53, 107 S.Ct. at 362-63, 93 L.Ed.2d 216. [¶ 20.] As to the third and final element in the Kelly test, we must determine whether the restitution represented compensation to UBC for actual pecuniary loss. Under SDCL 23A-28-5, the court services officer may take into account the following factors in determining the amount of restitution a defendant must pay: the physical and mental health and condition of the defendant, the defendant's age, the defendant's education, the defendant's employment circumstances, the defendant's potential for employment and vocational training, the defendant's family circumstances, the defendant's financial condition, the number of victims, the pecuniary damages of each victim, what plan of restitution will most effectively aid the rehabilitation of the defendant, and each victim, and such other factors as may be appropriate. The pecuniary damage suffered by each victim is but one factor to be considered in developing a restitution plan. Id. Furthermore, the amount of restitution that can be ordered is limited by the violator's reasonable ability to pay rather than solely by the pecuniary damages incurred by the victims of the crime. SDCL 23A-28-1. The sentencing court's use of the pecuniary loss to the three victims of the crimes in determining the amount to be paid by Ochs did not cause the restitution order to become payable for the benefit of UBC rather than for the benefit of the governmental unit. Therefore, the original restitution order satisfied the three-part Kelly test and was not discharged in Ochs' bankruptcy proceedings.