Court Opinion

ID: 2757173
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:38.173503+00
Date Added: 2024-06-11T10:31:56.500043
License: Public Domain

FILED
                                                               JAN 09 2012
 1                         ORDERED PUBLISHED
                                                          SUSAN M SPRAUL, CLERK
 2                                                          U.S. BKCY. APP. PANEL
                                                            O F TH E N IN TH C IR C U IT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )      BAP No.     ID-11-1060-DJuMk
                                   )
 7   BARRYNGTON EUGENE SEARCY,     )
                                   )      Bk. No.     09-00248-TLM
 8                  Debtor.        )
     ______________________________)
 9                                 )      Adv. No.    09-06082-TLM
     BARRYNGTON EUGENE SEARCY,     )
10                                 )
                    Appellant,     )
11                                 )
     v.                            )      O P I N I O N
12                                 )
     ADA COUNTY PROSECUTING        )
13   ATTORNEY’S OFFICE,            )
                                   )
14                  Appellee.      )
     ______________________________)
15
16                      Submitted without oral argument
                              on November 17, 2011
17
                            Filed - January 9, 2012
18
               Appeal from the United States Bankruptcy Court
19                        for the District of Idaho
20      Honorable Terry L. Myers, Chief Bankruptcy Judge, Presiding
21
22   Appearances:     Barryngton Eugene Searcy, appellant pro se, on
                      brief
23                    Heather M. McCarthy, Deputy Prosecuting Attorney
                      on brief for Appellee Ada County Prosecuting
24                    Attorney’s Office
25
26   Before:   DUNN, JURY, and MARKELL, Bankruptcy Judges.
27
28
 1   DUNN, Bankruptcy Judge:
 2
 3        The appellant Barryngton Eugene Searcy (“Mr. Searcy”)
 4   appeals the bankruptcy court’s Memorandum of Decision
 5   (“Memorandum Decision”) and Order determining that attorney’s
 6   fees and costs in the total amount of $13,172.00, awarded by the
 7   Idaho state District Court and Court of Appeals against Mr.
 8   Searcy and in favor of the appellee Ada County Prosecuting
 9   Attorney’s Office (“Ada County”), are excepted from Mr. Searcy’s
10   discharge in bankruptcy under 11 U.S.C. §§ 523(a)(7) and (17).1
11   We AFFIRM.
12                             Factual Background
13        The essential facts in this appeal are not in dispute.    The
14   following factual narrative is derived from the statement of
15   facts set forth by the bankruptcy court in the Memorandum
16   Decision, supplemented from the Excerpts of Record filed by Ada
17   County and the bankruptcy court’s electronic docket for adversary
18   proceeding no. 09-06082-TLM.2
19        Mr. Searcy is a prisoner serving a fixed life sentence in
20   the custody of the Idaho Department of Corrections.   On June 14,
21
22
          1
            Unless otherwise indicated, all chapter and section
23   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
24   all “Rule” references are to the Federal Rules of Bankruptcy
     Procedure, Rules 1001-9037.
25
          2
            We may take judicial notice of the bankruptcy court’s
26   electronic docket and the documents filed therein. See O’Rourke
27   v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955,
     957-58 (9th Cir. 1989); Atwood v. Chase Manhattan Mortg. Co. (In
28   re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                       -2-
 1   2006, while incarcerated, Mr. Searcy filed a civil complaint in
 2   the Ada County District Court (“District Court”) against, among
 3   others, Ada County and several of its employees (collectively,
 4   the “Ada County Defendants”).   Mr. Searcy’s complaint, as
 5   amended, alleged claims for negligence and intentional infliction
 6   of emotional distress and sought a declaratory judgment that the
 7   Ada County Defendants had violated his rights.
 8        On March 17, 2007, the District Court dismissed two of Mr.
 9   Searcy’s claims pursuant to Idaho R. Civ. P. 12(b)(6) and Idaho
10   Code § 31-3220A(14), concluding that they were frivolous and
11   failed to state a claim upon which relief could be granted.     On
12   April 5, 2007, the District Court granted summary judgment in
13   favor of the Ada County Defendants on Mr. Searcy’s remaining
14   claims, finding those claims frivolous as well.   The Ada County
15   Defendants requested, and the District Court awarded them,
16   attorney’s fees under Idaho Code § 31-3220A(16) in the amount of
17   $7,944.
18        Mr. Searcy appealed the District Court’s dismissal and
19   summary judgment orders.   In August 2008, the Idaho Court of
20   Appeals (“Court of Appeals”) affirmed the District Court’s orders
21   and concluded that the District Court’s award of attorney’s fees
22   to the Ada County Defendants was proper under Idaho Code § 31-
23   3220A(16).    Moreover, the Court of Appeals also determined that
24   Mr. Searcy’s appeal was frivolous and met the criteria for an
25   award of attorney’s fees under both Idaho Code §§ 31-3220A(16)
26   and 12-121.   The Court of Appeals awarded the Ada County
27   Defendants attorney’s fees of $5,000 and costs of $228, for a
28   total award of $5,228.

                                      -3-
 1        On February 5, 2009, Mr. Searcy filed a petition for relief
 2   under chapter 7.    Mr. Searcy disclosed the two awards of
 3   attorney’s fees and costs in his schedules as claims.    Mr. Searcy
 4   received his discharge on May 12, 2009.
 5        On October 8, 2009, Ada County filed an adversary proceeding
 6   complaint (“Complaint”) seeking to except from Mr. Searcy’s
 7   discharge the awards of attorney’s fees and costs by the District
 8   Court and the Court of Appeals in Ada County’s favor under
 9   §§ 523(a)(7) and (17).    Mr. Searcy filed an answer to the
10   Complaint and asserted three counterclaims against Ada County.
11   Approximately two weeks before the trial, Mr. Searcy withdrew his
12   counterclaims.
13        The Complaint was tried on October 27, 2010.    Mr. Searcy
14   stipulated to the amounts of the District Court’s judgment for
15   attorney’s fees and the Court of Appeals’ order awarding
16   attorney’s fees and costs, as well as to the admission as
17   evidence of the District Court’s judgment and the Court of
18   Appeals’ order.
19        After hearing argument, the bankruptcy court took the matter
20   under advisement.    On January 12, 2011, the bankruptcy court
21   issued its Memorandum Decision concluding that the attorney’s
22   fees and costs awarded to Ada County by the District Court and
23   the Court of Appeals against Mr. Searcy were excepted from his
24   discharge under §§ 523(a)(7) and (17).    The bankruptcy court
25   entered its Order excepting Ada County’s claims against Mr.
26   Searcy in the amount of $13,172 from discharge on January 24,
27   2011.   Mr. Searcy timely appealed.
28

                                      -4-
 1                               Jurisdiction
 2        The bankruptcy court had jurisdiction under 28 U.S.C.
 3   §§ 1334 and 157(b)(1) and (b)(2)(I).      We have jurisdiction under
 4   28 U.S.C. § 158.
 5                                   Issue
 6        Did the bankruptcy court err in concluding that Ada County’s
 7   claims for attorney’s fees and costs were excepted from Mr.
 8   Searcy’s discharge?
 9                            Standard of Review
10        We review a bankruptcy court’s legal conclusions, including
11   its interpretation of the Bankruptcy Code and state laws, de
12   novo.    Roberts v. Erhard (In re Roberts), 331 B.R. 876, 880 (9th
13   Cir. BAP 2005), aff’d, 241 F. App’x 420 (9th Cir. 2007); B-Real,
14   LLC v. Chaussee (In re Chaussee), 399 B.R. 225, 229 (9th Cir. BAP
15   2008).
16                                Discussion
17   A.   Exceptions to Discharge Generally and § 523(a)(7) in
          Particular
18
19        Section 523(a)(7) provides an exception to discharge for a
20   debt “to the extent such debt is for a fine, penalty, or
21   forfeiture payable to and for the benefit of a governmental unit,
22   and is not compensation for actual pecuniary loss, . . . .”
23   There are three requirements for a debt to be excepted from
24   discharge under § 523(a)(7): 1) the debt must be for a fine,
25   penalty or forfeiture; 2) the debt must be payable to or for the
26   benefit of a governmental unit; and 3) the debt cannot constitute
27   compensation for actual pecuniary loss.
28        While Mr. Searcy does not dispute that Ada County is a

                                      -5-
 1   governmental unit for purposes of the § 523(a)(7) exception to
 2   discharge, he argues that his debt to the county is not a “fine,
 3   penalty or forfeiture,” and he further argues that the awards of
 4   attorney’s fees and costs to Ada County do in fact constitute
 5   “compensation for actual pecuniary loss.”       We deal with each of
 6   these arguments in turn.
 7        1.   Awards of Attorney’s Fees and Costs under Idaho Code
               § 31-3220A(16) are Penalties
 8
 9        We agree with Mr. Searcy that the statutory exceptions to
10   discharge generally are to be construed strictly in favor of the
11   debtor and against those seeking to except debts from the
12   debtor’s discharge.    See, e.g., Snoke v. Riso (In re Riso), 978
13   F.2d 1151, 1154 (9th Cir. 1992).       In interpreting statutes, if
14   the language is clear on its face, that generally ends the
15   matter.
16             The starting point in discerning congressional
          intent is the existing statutory text, see Hughes
17        Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999) . .
          . . It is well established that “when the statute’s
18        language is plain, the sole function of the court–at
          least where the disposition required by the text is not
19        absurd–is to enforce it according to its terms.”
20   Lamie v. United States Trustee, 540 U.S. 526, 534 (2004)
21   (citations omitted).
22        However, where statutory language is ambiguous, courts need
23   to look beyond the specific language of the subject statute to
24   the context in which that language is used and to relevant
25   legislative history, if it exists.       “[W]hether a statute is
26   ambiguous is determined by reference to the language itself, the
27   specific context in which that language is used, and the broader
28   context of the statute as a whole.”       Hough v. Fry (In re Hough),

                                      -6-
 1   239 B.R. 412, 414 (9th Cir. BAP 1999) (quoting         Robinson v. Shell
 2   Oil Co., 519 U.S. 337, 341 (1997)).
 3         Interpretation of § 523(a)(7) has a history in chapter 7
 4   cases.   In Kelly v. Robinson, 479 U.S. 36 (1986), the Supreme
 5   Court confronted the issue of whether a debtor could discharge a
 6   restitution debt to the Connecticut Office of Adult Probation,
 7   imposed as a condition of probation in her criminal sentence for
 8   wrongful receipt of welfare benefits, in a chapter 7 bankruptcy.
 9   In Kelly, while reiterating that the “starting point in every
10   case involving construction of a statute is the language itself”
11   (quoting Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756
12   (1975) (Powell, J., concurring)), the Supreme Court went on to
13   state, “[b]ut the text is only the starting point.”         479 U.S. at
14   43.   The court went on to cite the specific language of
15   § 523(a)(7) but further stated that, “[t]his language is subject
16   to interpretation.”   Id. at 50.     The Supreme Court concluded that
17   § 523(a)(7) “creates a broad exception for all penal sanctions,
18   whether they be denominated fines, penalties, or forfeitures.”
19   Id. at 51 (emphasis added).   The Supreme Court ultimately held in
20   Kelly that the debtor’s restitution debt, imposed as a condition
21   of her criminal probation, was not discharged in her chapter 7
22   case, in spite of the fact that the word “restitution” does not
23   appear in § 523(a)(7).
24         In this appeal, the question is whether the § 523(a)(7)
25   exception to discharge covers awards of attorney’s fees and costs
26   under Idaho Code § 31-3220A(16).         Although the question of
27   whether a debt is a “fine, penalty or forfeiture” for purposes of
28   § 523(a)(7) is a question of federal law, we look to state law to

                                        -7-
 1   determine whether the subject debt is such an obligation.   See,
 2   e.g., Hickman v. Texas (In re Hickman), 260 F.3d 400, 405 (5th
 3   Cir. 2001); Colorado v. Jensen (In re Jensen), 395 B.R. 472, 481
 4   (Bankr. D. Colo. 2008).
 5        Idaho Code § 31-3220A(16) provides:
 6        The court shall award reasonable costs and attorney’s
          fees to the defendant or respondent if the court finds
 7        that:
          (a) Any allegation in the prisoner’s affidavit is
 8        false;
          (b) The action or any part of the action is frivolous
 9        or malicious; or
          (c) The action or any part of the action is dismissed
10        for failure to state a claim upon which relief can be
          granted.
11
12        As noted in the statement of Factual Background above, the
13   District Court dismissed two of Mr. Searcy’s claims as frivolous
14   and for failure to state a claim upon which relief could be
15   granted and granted summary judgment on Mr. Searcy’s remaining
16   claims, finding them to be frivolous as well.   The Court of
17   Appeals affirmed, finding Mr. Searcy’s appeal to be frivolous.
18   Mr. Searcy does not contest those determinations.   Accordingly,
19   the awards of attorney’s fees and costs under Idaho Code § 31-
20   3220A(16) by the District Court and the Court of Appeals
21   concerned in this appeal are supported by findings under Idaho
22   Code § 31-3220A(16)(b) and (c).
23        By its terms, awards of attorney’s fees and costs against
24   prisoners under Idaho Code § 31-3220A(16) are mandated based on a
25   prisoner’s filing a false affidavit, taking frivolous or
26   malicious actions, or filing unwarranted claims in civil
27   litigation.   The “Statement of Purpose” for Idaho Senate Bill
28   1394 (“SB 1394"), the legislation adopting Idaho Code § 31-3220A,

                                       -8-
 1   states:
 2        The purpose of this legislation is to place prison and
          jail inmates on an equal footing with other civil law
 3        litigants concerning claims against the state and
          counties. Under current law, there are no
 4        disincentives for the filing of frivolous claims by
          inmates. While preserving the right of inmates to file
 5        meritorious claims, this legislation imposes financial
          costs and consequences upon inmates who file frivolous
 6        claims and subject the Idaho taxpayers to literally
          millions of dollars in defense costs. (Emphasis
 7        added.)
 8        It is true, as argued by Mr. Searcy and as noted by the
 9   bankruptcy court, that the terms “fine,” “penalty” and
10   “forfeiture” are not found in Idaho Code § 31-3220A(16).      Rather,
11   the terms used in the statute’s “Statement of Purpose” are
12   “disincentives,” “financial costs” and “consequences.”      The
13   synonyms for “disincentive” noted in Collins Thesaurus are
14   “discouragement, deterrent, impediment, damper, dissuasion,
15   determent.”   Collins Thesaurus of the English Language (Harper
16   Collins Publishers 2d ed. 2002).      However, we agree with the
17   bankruptcy court that use or nonuse of the terms “fine, penalty
18   or forfeiture” is not dispositive.      See Kelly v. Robinson, 479
19   U.S. at 51; Forney v. Hoseley (In re Hoseley), 96.1 I.B.C.R. 37,
20   39 (Bankr. D. Idaho 1996).
21        The language of Idaho Code § 31-3220A(16) and its
22   legislative history consistently indicate that the primary
23   purpose of the Idaho statute concerned in this appeal is to deter
24   prisoners from filing frivolous civil litigation, implemented by
25   imposing attorney’s fees and costs as a penalty for prisoners’
26   actions in filing and pursuing such litigation.      In other words,
27   Idaho Code § 31-3220A(16) imposes a “penalty” on prisoners for
28   filing frivolous lawsuits.   See Madison v. Craven, 105 P.3d 705,

                                     -9-
 1   708-09 (Idaho Ct. App. 2005) (“Section 31-3220A requires inmates
 2   to make decisions concerning the merits of their case and
 3   discourages them from filing frivolous lawsuits.     Discouraging
 4   frivolous prisoner litigation and assuring prisoner financial
 5   accountability are legitimate concerns of the state and the
 6   classification is based on the state’s goal of reducing frivolous
 7   litigation.”).
 8        We conclude that Idaho Code § 31-3220A(16) imposes a
 9   “penalty” for purposes of our analysis under § 523(a)(7) as a
10   matter of law, and we agree with the bankruptcy court in so
11   determining.
12        2.   Awards of Attorney’s Fees and Costs under Idaho Code
               § 31-3220A(16) are not Dischargeable as “Compensation
13             for Actual Pecuniary Loss”
14        Mr. Searcy further argues that awards under Idaho Code § 31-
15   3220A(16) do not qualify for exception from his discharge because
16   they “serve to compensate ‘the defendant or respondent’ for their
17   legal expenses incurred during the course of a frivolous civil
18   litigation.    The statute is compensatory, rather than penal, in
19   both nature and function.”   Appellant’s Opening Brief at 7.    We
20   agree with Mr. Searcy that in effect, if Ada County were to
21   collect any amount of the District Court or Court of Appeals
22   awards of attorney’s fees and costs against him, it would be
23   reimbursed for actual expenses.     Awards of attorney’s fees and
24   costs generally are based on actual out-of-pocket costs.     Indeed,
25   a “Fiscal Note” in the legislative history of SB 1394 states,
26   among other things, that,
27        Requiring non-indigent prisoners to pay normal filing
          fees and costs would increase court revenues.
28        Subjecting prisoner assets to execution would increase

                                       -10-
 1         cost recovery by the state and local governments.
 2         However, we disagree with Mr. Searcy that cost reimbursement
 3   is the essence or primary function of § 31-3220A(16), and that
 4   distinction is important.
 5         Returning to the Supreme Court’s decision in Kelly v.
 6   Robinson, the court recognized the differences between the
 7   restitution condition to probation considered in that case and
 8   traditional fines and penalties.         “Unlike traditional fines,
 9   restitution is forwarded to the victim, and may be calculated by
10   reference to the amount of harm the offender has caused.”         Kelly
11   v. Robinson, 479 U.S. at 51-52.     However, the Supreme Court
12   concluded that the compensatory aspect of restitution was
13   incidental to the primary purposes served by the restitution
14   remedy in the criminal justice context.
15         The criminal justice system is not operated primarily
           for the benefit of victims, but for the benefit of
16         society as a whole. Thus, it is concerned not only
           with punishing the offender, but also with
17         rehabilitating him. Although restitution does resemble
           a judgment “for the benefit of” the victim, the context
18         in which it is imposed undermines that conclusion. The
           victim has no control over the amount of restitution
19         awarded or over the decision to award restitution.
           Moreover, the decision to impose restitution generally
20         does not turn on the victim’s injury, but on the penal
           goals of the State and the situation of the defendant.
21
22   Id. at 52.   Accordingly, the Supreme Court determined that the
23   compensatory aspects of the criminal restitution remedy did not
24   remove it from the § 523(a)(7) exception to discharge.         Id. at
25   53.
26         The Ninth Circuit has considered this issue in State Bar of
27   California v. Taggart (In re Taggart), 249 F.3d 987 (9th Cir.
28   2001), and State Bar of California v. Findley (In re Findley),

                                       -11-
 1   593 F.3d 1048 (9th Cir. 2010).
 2        The Taggart decision turned on the Ninth Circuit’s
 3   interpretation of two statutes under the then-current version of
 4   the California Business and Professions Code (“BPC”).     BPC
 5   § 6086.10 characterized attorney’s fees imposed for reimbursement
 6   of expenses in attorney disciplinary proceedings as “costs.”
 7   Taggart, 249 F.3d at 992.   However, BPC § 6086.13 authorized the
 8   California Supreme Court to award additional “monetary sanctions”
 9   in such proceedings.   Id. at 991-92.    The Ninth Circuit held that
10   the structure of the BPC along with its legislative history
11   indicated that “costs” were not fines or penalties.     Id. at 994.
12   The Ninth Circuit noted specifically that all indications were
13   that California did not consider the assessment of costs in the
14   subject context as penal in nature.     Id.   Accordingly, the costs
15   of the chapter 7 debtor’s attorney disciplinary proceeding were
16   not excepted from his discharge under § 523(a)(7).     Id.
17        In response to the Taggart decision, the California
18   legislature amended BPC § 6086.10 to add a new subsection (e)
19   that states:
20        In addition to other monetary sanctions as may be
          ordered by the Supreme Court pursuant to Section
21        6086.13, costs imposed pursuant to this section are
          penalties, payable to and for the benefit of the State
22        Bar of California, a public corporation created
          pursuant to Article VI of the California Constitution,
23        to promote rehabilitation and to protect the public.
          This subdivision is declaratory of existing law.
24
25        When the Taggart analysis was next considered by the Ninth
26   Circuit in Findley, the court determined that the Taggart
27   decision had been undermined for several reasons:     First, the
28   addition of subsection (e) to the statute clarified the

                                      -12-
 1   legislative intent “‘to promote rehabilitation and to protect the
 2   public,’ rather than to provide compensation.”     In re Findley,
 3   593 F.3d at 1052-53.   Second, the distinction between “costs” and
 4   “sanctions” was eliminated by the California legislature’s
 5   designating attorney disciplinary costs as “penalties” imposed
 6   “[i]n addition to other monetary sanctions.”     Id. at 1053 (citing
 7   Taggart, 249 F.3d at 991-93).    Finally, the draftsman of the
 8   amended version of BPC § 6086.10, stated in a declaration
 9   submitted for the record that:
10         Section 6086.10(e) was added to the California [BPC] to
           expressly clarify and re-state the intent of the
11         California Legislature that disciplinary costs are
           monetary sanctions and are a part of the punishment
12         imposed on California lawyers for professional
           misconduct by making him or her pay for part of the
13         costs of the proceeding.
14   593 F.3d at 1053 (emphasis added).      The Ninth Circuit recognized
15   that even as revised, BPC 6086.10 retained provisions indicating
16   a compensatory purpose.   “Section 6086.10 costs continue to
17   reimburse the State Bar for ‘actual expenses’ and ‘reasonable
18   costs’ and depend on state expenditures for their imposition.”
19   Id.   Nevertheless, the Ninth Circuit determined that the
20   overriding penal and rehabilitative functions of the amended
21   version of BPC § 6086.10 precluded discharge in bankruptcy of
22   costs imposed under BPC § 6086.10 pursuant to § 523(a)(7).     Id.
23   at 1054.
24         Consistent with the Ninth Circuit’s rationale in Findley, a
25   number of other courts have concluded that even where a debt is
26   intended to help defray government expenses, including attorney’s
27   fees, it may not be dischargeable if the primary purpose for its
28   imposition is penal.   See, e.g., United States Dept. of Hous. &

                                      -13-
 1   Urban Dev. v. Cost Control Mktg. & Sales Mgmt. of Va., Inc., 64
 2   F.3d 920, 928 (4th Cir. 1995); Thompson v. Commonwealth of
 3   Virginia (In re Thompson), 16 F.3d 576, 580-81 (4th Cir. 1994);
 4   In re Zarzynski, 771 F.2d 304, 306 (7th Cir. 1985); In re Jensen,
 5   395 B.R. at 487-88.
 6        As noted above, by its terms and consistent with its stated
 7   purpose to discourage the filing of frivolous litigation by Idaho
 8   prison inmates, Idaho Code § 31-3220A(16) imposes a financial
 9   penalty to deter such litigation.      We conclude that its primary
10   purpose is punitive, and any reimbursement of costs and
11   attorney’s fees to Idaho governmental entities is merely
12   incidental to its primary purpose.     Accordingly, we agree with
13   the bankruptcy court that “the elements of Idaho Code § 31-
14   3220A(16) suggestive of compensatory purposes do not override its
15   penal intent.”   We conclude that the bankruptcy court did not err
16   in determining that Mr. Searcy’s debt to Ada County was excepted
17   from his discharge under § 523(a)(7).
18   B.   § 523(a)(17)
19        Mr. Searcy further appeals the bankruptcy court’s
20   determination that his debt to Ada County was excepted from his
21   discharge under § 523(a)(17).   However, since we have concluded
22   that it is appropriate to affirm the bankruptcy court’s decision
23   to except Mr. Searcy’s debt to Ada County from his discharge
24   based on § 523(a)(7), we do not need to reach the § 523(a)(17)
25   issues, and we decline to do so.
26
27                               Conclusion
28        For the foregoing reasons, we AFFIRM.

                                     -14-