Court Opinion

ID: 8968370
Source: CourtListenerOpinion
Date Created: 2022-11-27 10:21:04.908025+00
Date Added: 2024-06-11T17:10:23.235443
License: Public Domain

HUTCHINSON, Circuit Judge,
dissenting.
The majority today holds that criminal restitution orders are “debts” within the meaning of § 101(4) of the Bankruptcy Code and that they are dischargeable under Chapter 13 of the Code. If the only basis for leaving criminal restitution orders undisturbed in bankruptcy were their non-dis-chargeability, I would agree with the majority that the textual differences between the Chapter 7 and 13 discharge sections would logically make these orders dis-chargeable in Chapter 13 proceedings. My disagreement with the majority lies in the threshold determination of whether such orders are debts. I am not persuaded by the majority’s analysis on this point in the face of the strong dicta in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), where the Supreme Court expressed “serious doubts whether Congress intended to make criminal penalties ‘debts’ within the meaning of § 101(4)” of the Code. Id., at 50, 107 S.Ct. at 361. I believe that the concerns which prompted the Supreme Court’s reservations require a conclusion that restitution obligations imposed as part of criminal sentences are not debts and therefore are not subject to discharge in bankruptcy. Accordingly, I respectfully dissent.1
In Kelly, the Supreme Court held that § 523(a)(7) of the Code preserves criminal restitution orders from discharge in Chapter 7 proceedings. Although it declined to decide whether such orders are debts under the Code, the Kelly Court voiced grave doubts as to whether they are debts before even turning to the construction of § 523(a)(7). In doing so, it strongly suggested that the longstanding judicially created exception to bankruptcy court jurisdiction over criminal restitution orders was not altered by the Bankruptcy Code of 1978. This suggestion is strengthened by the Supreme Court’s related observation that while “debt” is broadly drafted, “nothing in the legislative history of these sections compels the conclusion that Congress intended to change the state of the law with respect to criminal judgments.” Id. at 50 n. 12,107 S.Ct. at 361 n. 12.
The Kelly Court considered two factors in construing § 523(a)(7). They also underlie its comments on the debt issue. It first observed that the Code must be interpreted “in light of the history of bankruptcy court deference to criminal judgments.” Id. at *25044,107 S.Ct. at 358. While the most natural construction of the predecessor statute, the Bankruptcy Act of 1898, would have allowed the discharge of criminal penalties, “most courts refused to allow a discharge in bankruptcy to affect the judgment of a state criminal court.” Id. at 45, 107 S.Ct. at 358. These courts reasoned that the bankruptcy laws affected only civil liabilities and not punishment for the violation of criminal laws, a rationale which was specifically applied to restitution orders imposed as part of criminal sentences. Id. at 45-46 & n. 6,107 S.Ct. at 359 & n. 6. “Thus, Congress enacted the Code in 1978 against the background of an established judicial exception to discharge for criminal sentences, including restitution orders, an exception created in the face of a statute drafted with considerable care and specificity.” Id. at 46, 107 S.Ct. at 359.
The Supreme Court then noted that “interpretation of the Code also 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. If criminal restitution orders were dischargeable, judgments imposed by state criminal judges would be subject to remission. The prospect of this, the Kelly Court reasoned, would impinge on the ability of state court judges to fashion the most appropriate sentences for violations of state criminal laws. Id. Observing that Congress would not lightly limit the options available to state court criminal judges, id. at 49, 107 S.Ct. at 360-61, the Kelly Court concluded that “the States’ interest in administering their criminal justice systems free from federal interference is one of the most powerful of the considerations that should influence a court considering equitable types of relief.” Id. at 49, 107 S.Ct. at 361.2
It was “[i]n light of the established state of the law — that bankruptcy courts could not discharge criminal judgments” that the Supreme Court said, “we have serious doubts whether Congress intended to make criminal penalties ‘debts’ within the meaning of § 101(4).” Id. at 50, 107 S.Ct. at 361. Despite this statement and the longstanding policy against granting bankruptcy courts jurisdiction over criminal restitution orders, the majority finds that Congress must have meant to include them within the definition of “debt.” It finds persuasive the dissent in Kelly which reasoned that unless such orders are debts there would be no need to except them from discharge under § 523(a)(7). Majority Opinion, supra at 427; Kelly, 479 U.S. at 58, 107 S.Ct. at 365 (Marshall, J., dissenting).
Just as the majority concedes that most courts have concluded that criminal restitution orders are not “debts” under the Code, Majority Opinion, supra at 424, I would, absent Kelly and the historical context to which the Supreme Court referred, have to concede logical force to the argument that if they are not debts, there is no need to deny them discharge under § 523(a)(7). The Kelly Court, however, was surely aware of this argument. Its grave doubts as to whether criminal penalties are debts in the face of the dissent’s reasoning indicates to me that restitution orders imposed as part of criminal sentences are not debts, despite the language of § 523(a)(7).
The Supreme Court has not yet decided whether criminal restitution orders are included in the term “debt.” However, it has distinguished them from other obligations, saying “ ‘[u]nlike an obligation which arises out of a contractual, statutory or common law duty, [a criminal restitution order] is rooted in the traditional responsibility of a state to protect its citizens by enforcing its criminal statutes and to rehabilitate an offender by imposing a criminal sanction intended for that purpose.’ ” Id. at 52, 107 S.Ct. at 362 (quoting In re Pellegrino, 42 B.R. 129, 133 (Conn.1984)).
The interpretation advocated by the debt ors, and accepted by the majority, would *251intrude on the states’ ability to choose the most efficacious means of furthering their penal interests. The interpretation is “in clear conflict with state ... laws of great importance.” United States v. Ron Pair Enterprises, Inc., — U.S.-,-, 109 S.Ct. 1026, 1083, 103 L.Ed.2d 290 (1989). We are not referred to any specific legislative history which demonstrates that Congress intended to include criminal restitution orders within the meaning of “debt.”3 In the absence of such specific legislative history, I believe the dicta in Kelly apply. “If Congress had intended, by § 523(a)(7) or by any other provision, to discharge state criminal sentences, ‘we can be certain that there would have been hearings, testimony, and debate concerning consequences so wasteful, so inimical to purposes previously deemed important, and so likely to arouse public outrage.’ ” Kelly, 479 U.S. at 51, 107 S.Ct. at 361-62 (quoting TVA v. Hill, 437 U.S. 153, 209, 98 S.Ct. 2279, 2309, 57 L.Ed.2d 117 (1978) (Powell, J., dissenting)); see also id. at 47, 107 S.Ct. at 359 (“if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific”) (quoting Midlantic Nat’l Bank v. New Jersey Dep’t of Environmental Protection, 474 U.S. 494, 501, 106 S.Ct. 755, 760, 88 L.Ed.2d 859 (1986)).4
The judicially created exception “re-flectes] policy considerations of great longevity and importance.” Ron Pair Enterprises, Inc., — U.S. at-, 109 S.Ct. at 1032. The majority opinion notes that the literal terms of the Code may support the discharge of criminal judgments, but that was also true under the Bankruptcy Act of 1898. The Supreme Court has indicated to me that the policy considerations and history transcend the logic of a textual analysis. Accordingly, given this history, the complexity of the Code, the opinion of the Supreme Court in Kelly and the absence of legislative history evincing Congress’s desire to alter pre-Code practice, I cannot conclude that Congress intended such a far reaching intrusion on the states’ administration of their criminal justice systems as *252the majority’s result entails.5
I would affirm the order of the district court holding that the Davenports’ criminal restitution obligation was not affected by the discharge.

. I agree with the Court that only the Davenports’ appeal is ripe for disposition. See Majority Opinion, supra at 423.

. The inclusion of restitution orders in the term "debt" would also seem to affect sentencing in United States District Courts.

. The majority concludes that the statutory term "debt” is plain and unambiguous. I believe the dicta in Kelly imply otherwise. Accordingly, I believe this is “an appropriate case” to consider the absence of legislative history. See Ron Pair Enterprises, Inc., — U.S. at-, 109 S.Ct. at 1032 (where the statutory language is open to interpretation and the proposed interpretation conflicts with important state laws, "a court must determine whether Congress has expressed an intent to change the interpretation of a judicially created concept in enacting the Code" (emphasis added)); cf. id., at-, 109 S.Ct. at 1037 (O’Connor, J., dissenting) (even where language of the Code is not open to interpretation, a court will look to legislative history before concluding that established pre-Code practice has been changed; “[t]he rule ... is that bankruptcy statutes will not be deemed to have changed pre-Code law unless there is some indication that Congress thought that it was effecting such a change.").

. The majority disposes of the impact its decision will have on the states’ administration of their criminal justice systems by stating that "where Congress has enacted legislation which arguably affects state criminal proceedings, it is not the function of this court to cure any perceived ‘defects’ in that legislation.” Majority Opinion, supra at 428 (emphasis added). I think it is beyond argument that today’s decision will affect the sentencing discretion of state court judges. See Kelly, 479 U.S. at 49, 107 S.Ct. at 360 (prospect of federal remission of judgments in some cases "would hamper the flexibility of state criminal judges in choosing the combination of imprisonment, fines, and restitution most likely to further the rehabilitative and deterrent goals of state criminal justice systems” (emphasis added)).
The difference between our approaches is also highlighted by the point at which these federalism concerns enter our respective analyses. The majority concludes that criminal restitution orders are debts and only addresses the impact on state criminal proceedings in discussing dis-chargeability. In contrast, I would consider this impact both in determining whether criminal restitution orders are debts and whether they are dischargeable. The same is true of our respective treatment of the judicial exception to discharge of criminal penalties. Although this exception rests in part on the theory that orders imposed as part of a criminal sentence do not create a debtor-creditor relationship, see id. at 45-46 & n. 6, 107 S.Ct. at 358-59 & n. 6, the majority addresses it only after concluding that Congress intended to make such orders debts. By considering federalism concerns at each step, my approach is more likely to avoid construing the Code in a manner which impinges on the states’ important interest in the unfettered administration of their criminal justice systems.

. The majority finds support for its construction of "debt” in the fact that the discharge provisions of Chapter 13 are much broader than those of Chapter 7. It reasons that if criminal restitution orders are not debts, restitution payments may deplete a debtor’s resources before distribution to other creditors. This, it is said, would make other creditors less likely to confirm a Chapter 13 plan and would therefore be "contrary to Congress’ objective of expanding the availability of the Chapter 13 option.” Majority Opinion, supra at 427.
Only debts are subject to discharge. The fact that Chapter 13 contains a very broad discharge for obligations which are debts does not necessarily mean that criminal restitution orders should be considered debts. The question is not whether Congress intended to broaden the availability of the Chapter 13 remedy, but how great it intended this expansion to be. I believe the Supreme Court teaches us that if Congress had intended to remove the power to finally define the extent to which a person convicted of crime should make restitution from the criminal courts and place it in the bankruptcy courts — by relegating his criminal restitution orders to the same status as his other obligations — it would have spoken more clearly.