Dobrek v. Phelan , 419 F.3d 259 ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
8-17-2005
Dobrek v. Phelan
Precedential or Non-Precedential: Precedential
Docket No. 04-3391
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-3391
THOMAS L. DOBREK,
Appellant
v.
DONALD F. PHELAN, INDIVIDUALLY FOR
DAMAGES AND IN HIS OFFICIAL CAPACITY
AS CLERK OF THE SUPERIOR COURT OF THE
STATE OF NEW JERSEY FOR PROSPECTIVE RELIEF
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 04-cv-00313)
District Judge: Honorable Jerome B. Simandle
Argued March 31, 2005
Before: ALITO, SMITH, and FISHER, Circuit Judges.
(Filed August 17, 2005)
Joseph M. Pinto (Argued)
Joseph F. Polino, P.C.
720 East Main Street, Suite 1C
Moorestown, NJ 08057
Attorney for Appellant
Tracy E. Richardson (Argued)
Office of Attorney General of New Jersey
Division of Law
25 Market Street
Trenton, NJ 08625
Attorney for Appellee
OPINION OF THE COURT
FISHER, Circuit Judge.
This case presents the issue of whether the debts of a
commercial bail bondsman are excepted from discharge, i.e., non-
dischargeable, in a Chapter 7 bankruptcy proceeding under 11 U.S.C.
§ 523(a)(7). Though this precise issue is one of first impression in
the Circuit, in In re Gi Nam, 273 F.3d 281 (3d Cir. 2001), we
considered the related issue of whether the bail bond debts of an
individual family member acting as a surety are excepted from
discharge under § 523(a)(7). Relying on the plain meaning of the
statute, the purpose and context of Pennsylvania’s bail forfeiture
laws, and public policy considerations, we determined in Gi Nam that
such bail bond debts are non-dischargeable. Because we are
persuaded by the reasoning of Gi Nam and the soundness of its
2
expanded application to commercial bondsmen in New Jersey, we
will affirm the judgment of the District Court.
I. FACTS
New Jersey courts permit individuals and companies to post
bail bonds for criminal defendants in return for a fee. See Capital
Bonding Corp. v. N.J. Supreme Court, 127 F. Supp. 2d 582, 584
(D.N.J. 2001) (explaining this system). Once the bondsman posts
bail for an accused, it becomes the bondsman’s responsibility to
produce the defendant for required court proceedings. See id. If the
defendant fails to appear, then the bail posted is “forfeited,” and the
bondsman becomes responsible for the amount of bail or for ensuring
that the fugitive defendant is captured and brought to court. Id. The
bondsman’s obligation to satisfy bail in this circumstance may be
underwritten by insurance companies licensed to do business in New
Jersey. Id.Appellant Thomas Dobrek (“Dobrek”) is an insurance
representative licensed to write bail bonds in New Jersey. Prior to
filing a Chapter 7 bankruptcy petition in the United States Bankruptcy
Court for the District of New Jersey, Dobrek was, at different times,
an authorized agent of various commercial surety companies. In
connection with this work, Dobrek was listed on the New Jersey Bail
Registry (“Bail Registry”), a list of insurance producers and limited
insurance representatives licensed to write bail bonds in New Jersey.
See Capital Bonding Corp., 127 F. Supp. 2d at 584. Individuals who
are not listed on the Bail Registry cannot engage in the business of
writing bonds in that state.1
1
In New Jersey, surety bonds for purposes of bail may be
accepted only from licensed insurance producers and limited
insurance representatives who are registered by the insurance
3
As an agent who executed bail bonds on behalf of surety
companies, Dobrek, like all other such agents in New Jersey, was
responsible for the contractual default of these companies in the event
that a defendant failed to appear in court, at least to the extent of
being precluded from writing additional bonds until the bail forfeiture
judgments were satisfied. In re Preclusion of Brice, 841 A.2d 927,
929 (N.J. Super. Ct. App. Div. 2004). In other words, in instances
where defendants failed to appear, judgment was entered against both
the commercial sureties and Dobrek, as the signer of the bail bond.
See id. As a result, Dobrek was jointly bound to pay to the court any
amount of money specified in a court order setting bail where a
defendant failed to appear at any required court proceedings. See id.Dobrek filed his Chapter 7 bankruptcy petition on October 29,
2002. On January 25, 2003, he received a discharge from the
Bankruptcy Court, relieving him of all debts which arose before that
date pursuant to 11 U.S.C. § 727.2company for which they are authorized to write bail with the Clerk of
the Superior Court. N.J. R. 1:13-3(d) (“No surety bond for purposes
of bail shall be accepted by any court unless the insurer has first filed
with the Clerk of the Superior Court a Bail Program Registration
Form in the form prescribed by Appendix XXI to these rules.”).
2
Section 727 of the Bankruptcy Code provides in pertinent
part:
Except as provided in section 523 of this title, a
discharge under subsection (a) of this section
discharges the debtor from all debts that arose before
the date of the order for relief under this chapter, and
any liability on a claim that is determined under
section 502 of this title as if such claim had arisen
4
New Jersey Court Rule 1:13-3(e)(2) requires the removal of
any bail agents, agencies, guarantors, and other persons or entities
authorized to administer or manage an insurer’s bail bond business
from the Bail Registry for failure to satisfy a judgment. N.J. R.
1:13-3(e)(2).3 Consequently, on January 29, 2003, Dobrek’s name
before the commencement of the case, whether or not
a proof of claim based on any such debt or liability is
filed under section 501 of this title, and whether or not
a claim based on any such debt or liability is allowed
under section 502 of this title.
11 U.S.C. § 727(b) (2004). Thus, a discharge pursuant to § 727 does
not discharge debts within the scope of § 523(a)(7).
3
New Jersey Court Rule 1:13-3(e)(2) provides:
If a registered insurer fails to satisfy a judgment
entered pursuant to R. 3:26-6(c) or R. 7:4-5(c), the
Clerk of the Superior Court shall forthwith send the
insurer a notice informing it that if it fails to satisfy
the judgment within fifteen days of the notice, it shall
be removed from the Bail Registry until satisfaction is
made. Further, the insurer’s bail agents and agencies,
guarantors, and other persons or entities authorized to
administer or manage its bail bond business in this
State will have no further authority to act for it. Their
names, as acting for the insurer, will be removed from
the Bail Registry. In addition, the bail agent or
agency, guarantor, or other person or entity authorized
by the insurer to administer or manage its bail bond
business in this State who acted in such capacity with
respect to the forfeited bond will be precluded, by
5
was removed from the Bail Registry due to accumulated bail
forfeitures resulting from bails in which Dobrek had been the
producer for corporate sureties. As a result, Dobrek could not
continue to write bail bonds in New Jersey.
On January 27, 2004, Dobrek commenced this action in the
United States District Court for the District of New Jersey. The
Defendant in the matter, Donald Phelan (“Phelan”), is the Clerk of the
Superior Court for the State of New Jersey and is responsible for
maintaining the Bail Registry. The crux of Dobrek’s Complaint is
that he was wrongfully removed from the Bail Registry because his
bail bond debts were discharged in bankruptcy pursuant to 11 U.S.C.
§ 727. Dobrek’s Complaint specifically alleges that Phelan
(i) willfully or otherwise violated the discharge injunction pursuant
to 11 U.S.C. § 524(a) and the protections against discriminatory
treatment of debtors afforded under 11 U.S.C. § 525(a) by refusing to
reinstate Dobrek’s name to the Bail Registry and attempting to force
him to pay discharged debts; (ii) violated 42 U.S.C. § 1983 by
depriving Dobrek of his rights, privileges, and immunities secured by
the Constitution and Federal statutes of the United States, specifically
the Supremacy Clause and the Bankruptcy Clause of the United
States Constitution and 11 U.S.C. § 524(a) and 11 U.S.C. § 525(a);
and (iii) intentionally or negligently inflicted emotional distress upon
Dobrek.
On May 14, 2004, Phelan filed a Motion to Dismiss. Dobrek
responded to that motion and filed a Cross Motion for Partial
Summary Judgment on June 10, 2004. On August 4, 2004, the
removal from the Bail Registry, from so acting for any
other insurer until the judgment has been satisfied.
N.J. R. 1:13-3(e)(2).
6
District Court found that Dobrek’s bail bond debts were not
discharged pursuant to § 523(a)(7), and accordingly, granted Phelan’s
Motion to Dismiss and denied Dobrek’s Cross Motion for Partial
Summary Judgment. Dobrek filed a timely notice of appeal on
August 16, 2004. Before this Court, Dobrek alleges that the District
Court erred in its determination that these debts were excepted from
discharge in bankruptcy pursuant to § 523(a)(7). More generally, he
argues that the indebtedness of an individual bail bondsman on a
defaulted bail bond written as an agent for a corporate surety is
dischargeable under Chapter 7 of the Bankruptcy Code.
II. STANDARD OF REVIEW
This Court exercises plenary review over the District Court’s
grant of a motion to dismiss for failure to state a claim pursuant to
Fed. R. Civ. P. 12(b)(6). Alston v. Parker, 363 F.3d 229, 232-33 (3d
Cir. 2004) (citing Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996)).
The Court must take all factual allegations and reasonable inferences
as true and view them in the light most favorable to the Plaintiff.
Mariana v. Fisher, 338 F.3d 189, 195 (3d Cir. 2003), cert. denied,
540 U.S. 1179 (2004). Thus, the Court should affirm the District
Court’s dismissal only if it appears that the Plaintiff could prove no
set of facts that would entitle him to relief. Alston, 363 F.3d at 232-
33 (citing Nami, 82 F.3d at 65). Furthermore, this appeal presents
questions of law which this Court reviews de novo. United States v.
Hendricks, 395 F.3d 173, 176 (3d Cir. 2005).
III. DISCUSSION
The starting point of any statutory analysis is the language of
the statute. Pa. Dep’t of Pub. Welfare v. Davenport, 495 U.S. 552,
557-58 (1990). Under § 523(a)(7), a discharge in bankruptcy does
not discharge a debtor from debt “to the extent such debt is for a fine,
7
penalty, or forfeiture payable to and for the benefit of a governmental
unit, and is not compensation for actual pecuniary loss, other than a
tax penalty . . . .” 11 U.S.C. § 523(a)(7) (2004). Thus, in order for
debts to be non-dischargeable in bankruptcy under § 523(a)(7), they
must satisfy the three requirements of that section. Because the
parties do not dispute that the bail bond debts are “payable to and for
the benefit of a governmental unit” and not “compensation for actual
pecuniary loss, other than a tax penalty,” we address ourselves solely
to the question of whether the debt at issue is a “fine, penalty, or
forfeiture” within the meaning of § 523(a)(7).
When interpreting statutes or regulations, the first step is to
determine whether the language at issue has a plain and unambiguous
meaning. Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002)
(citing Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997)). The
inquiry ends if the statutory language is unambiguous and the
statutory scheme is coherent and consistent. Id. (citing Robinson, 519
U.S. at 340). The plain meaning of “forfeiture” as used in § 523(a)(7)
is unambiguous. As we noted in Gi Nam, a “‘forfeiture’ is defined in
Black’s Law Dictionary as ‘a divestiture of specific property without
compensation; . . . [a] deprivation or destruction of a right in
consequence of the nonperformance of some obligation or
condition.’” 273 F.3d at 286 (citing BLACK’S LAW DICTIONARY
650 (6th ed. 1990)). Consistent with our analysis in Gi Nam,
Dobrek’s judgments arose from the various defendants’
nonperformance of their obligations to appear in court and Dobrek’s
and the commercial sureties’ breach of duty to produce those
defendants. Cf. id. at 286. As such, the plain meaning of “forfeiture”
appears to encompass the judgments against Dobrek.
Nonetheless, in the event the words and provisions are
“ambiguous -- that is, whether they are reasonably susceptible of
different interpretations,” Nat’l R.R. Passenger Corp. v. Atchison
8
Topeka & Santa Fe Ry. Co., 470 U.S. 451, 473 n.27 (1985) – we look
next at the surrounding words and provisions and also to the words
in context. Whitman v. Am. Trucking Ass’n., 531 U.S. 457, 466
(2001) (“Words that can have more than one meaning are given
content, however, by their surroundings.”). Considering “forfeiture”
in the context of § 523(a)(7), that section excepts from discharge any
debts to the extent they are for a “fine, penalty, or forfeiture.” A
“fine” or “penalty” are both means of inflicting monetary sanctions,
traditionally by the government, against a debtor for some particular
action or inaction. Thus, defining “forfeiture” to encompass
Dobrek’s bail bond debts would be consistent and conform with these
terms. Cf. Gi Nam, 273 F.3d at 286 (noting that the judgments
“against [the family surety] arose from [the defendant’s]
nonperformance of his obligation to appear in court and [the family
surety’s] breach of his duty to produce [the defendant] for trial”).
Construing “forfeiture” in this way is also consistent with our
prior determination in Gi Nam. In Gi Nam, we faced a similar
question involving the bail bond debts of a non-appearing defendant’s
father, who acted as a bail bond surety for his son. Id. at 283. In that
case, the defendant was charged with several crimes, including
murder, robbery, and burglary. Id. Bail was set at $1 million,
conditioned on a ten percent cash payment by the surety to assume
legal responsibility for paying the full amount of bail to the
Commonwealth of Pennsylvania. Id. The defendant’s father agreed
to serve as surety for the bail, and accordingly, when the defendant
failed to appear in court for a pre-trial status listing in his criminal
case, the court ordered the bail bond forfeited and entered judgment
against the defendant’s father. Id. at 283-84. Subsequently, the
defendant’s father petitioned for Chapter 7 bankruptcy and listed the
City of Philadelphia as the creditor on a claim arising from the bail
bond security. Id. at 284. The City filed a Complaint in Adversary
alleging that although the defendant’s father listed the bail bond
9
judgment as an “‘unsecured non-priority claim,’” the debt was not in
fact dischargeable pursuant to § 523(a)(7). Id. at 284-85. The
bankruptcy judge disagreed, found the debt dischargeable under
§ 523(a)(7), and granted the bankruptcy petitioner’s motion to
dismiss. Id. at 285. The decision was later affirmed by the District
Court. Id. at 285. On appeal, we reversed, holding that § 523(a)(7)
excepts from discharge in a Chapter 7 bankruptcy a bail bond
forfeiture judgment entered against a family surety for failure to
produce the defendant for trial. Id. at 294.
In Gi Nam, we first considered the plain meaning of
§ 523(a)(7) and in particular, the term “forfeiture.” Id. at 286-88. As
noted, supra, we looked to the dictionary definitions of “forfeiture”
and concluded that a plain text reading of § 523(a)(7) encompassed
the judgment against the defendant’s father, which arose from the
defendant’s nonperformance of his obligation to appear in court and
the father’s breach of his duty to produce the defendant for trial. Id.
Second, we considered the state law context of bail bond debts and
determined that these debts were characterized as forfeitures under
Pennsylvania law. Id. at 288-89. We also reviewed the legislative
history of § 523(a)(7), which we found strongly suggests that
Congress intended the sort of forfeiture entered against the
defendant’s father to come within the exception from dischargeability
set forth in that section. Id. at 289.
Finally, we discussed the public policy considerations at issue
with respect to discharging these debts. Id. at 292-94. Initially, we
noted our concern with “socioeconomic fairness” vis-a-vis the
average accused felon who is unlikely to have an economically
advantaged family, versus an accused felon whose family can afford
to post bail resulting in the accused’s release. Id. at 293. We
reasoned that this disparity in treatment, though inadvertent, could
open the door to accusations of differential treatment between
10
wealthy and poor accused criminals. Id. We also considered the
possibility that finding bail bond forfeitures dischargeable here would
encourage the use of federal bankruptcy laws to evade the financial
consequences of noncompliance with a bail bond agreement. Id.
Additionally, we discussed the implications of discharging these
debts under federal bankruptcy laws with respect to principles of
comity and federalism. Id. In this regard, we noted that federal
bankruptcy courts should not invalidate the results of state criminal
proceedings by erasing these debts through discharge in bankruptcy.
Id. Finally, we considered the “perverse incentives” created by
allowing family surety obligations to be dischargeable in bankruptcy,
namely that a defendant’s incentive to appear for trial would be
diminished because he knows that his family would evade financial
responsibility, and that a family surety would not be deterred from
assisting the defendant in his flight. Id. at 293-94.
Nonetheless, in dicta in Gi Nam, we addressed and rejected
the applicability of some of these policy considerations to commercial
bondsmen (although clearly stating we were not addressing the
question of professional sureties). 273 F.3d at 294 n.9. Indeed, there
we suggested that the bail bond debts of a commercial bondsman may
be dischargeable in bankruptcy. Id. “But in any event, this Court is
bound by holdings, not language.” Alexander v. Sandoval, 532 U.S.
275, 282 (2001). As such, in spite of our earlier disavowal of the
applicability of Gi Nam’s reasoning to commercial bondsmen, upon
further reflection, we conclude that many of the policy concerns of Gi
Nam apply with equal force to commercial bondsmen. In particular,
allowing commercial bondsmen to discharge bail bond debts in
bankruptcy could encourage the use of federal bankruptcy laws to
evade the financial consequences of noncompliance with a bail bond
agreement. Indeed, while bail forfeitures are “an anticipated cost of
doing business,” a bail bondsman would certainly prefer to avoid
these debts. Id. at 294 n.9. Should a commercial bondsman be
11
allowed to discharge these debts in bankruptcy, bankruptcy could
become an attractive option over satisfying one’s financial obligations
to the state. Additionally, should the bail bond debts of a commercial
bondsman be dischargeable in bankruptcy, the state’s criminal
proceedings may effectively be invalidated, triggering comity and
federalism concerns. The non-appearing or fugitive defendant would
be out of the state’s custody and the professional bondsman would no
longer have any incentive to produce him in court.
A review of New Jersey’s statutory treatment of these bail
bond judgments also suggests that these debts are considered
“forfeitures” under state law. Indeed, “[a]lthough the label that state
law affixes to a certain type of debt cannot of itself be determinative
of the debt’s character for purposes of the federal dischargeability
provisions, such state-law designations are at least helpful to courts
in determining the generic nature of such debts . . ..” Gi Nam, 273
F.3d at 288. Rule 3:26-6 of the New Jersey Rules of Court provides,
in part:
Upon breach of a condition of a recognizance, the
court on its own motion shall order forfeiture of the
bail, and the finance division manager shall forthwith
send notice of the forfeiture, by ordinary mail, to
county counsel, the defendant, and any surety or
insurer, bail agent or agency whose names appear on
the bail recognizance. . . . The notice shall direct that
judgment will be entered as to any outstanding bail
absent a written objection seeking to set aside the
forfeiture, which must be filed within 75 days of the
date of the notice. The notice shall also advise the
insurer that if it fails to satisfy a judgment entered
pursuant to paragraph (c), and until satisfaction is
made, it shall be removed from the Bail Registry . . . .
12
In addition the bail agent or agency, guarantor or other
person or entity authorized by the insurer to
administer or manage its bail bond business in this
State who acted in such capacity with respect to the
forfeited bond will be precluded, by removal from the
Bail Registry, from so acting for any other insurer
until the judgment has been satisfied.
The terms “forfeiture” or “forfeited bond” are employed several times
throughout this rule and refer expressly to the same type of bail bond
debts in question in Gi Nam. Although the state law designations are
not “determinative” in this analysis, they are, as the Gi Nam Court
stated, at least helpful in deciding the generic nature of these debts.
See Gi Nam, 273 F.3d at 288 (examining Pennsylvania law).
Accordingly, the state law context of Dobrek’s debts reinforces our
conclusion that they are “forfeitures” within the meaning of
§ 523(a)(7).
We also find this approach to be consistent with Kelly v.
Robinson, 479 U.S. 36 (1986), where the Supreme Court decided the
somewhat analogous issue of whether restitution obligations imposed
as conditions of probation in state criminal proceedings are
dischargeable under § 523(a)(7). In Kelly, the Supreme Court held
that restitution obligations are not subject to discharge under
§ 523(a)(7). Id. at 53. In so holding, the Court opined:
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.’ Section
13
523(a)(7) protects traditional criminal fines; it codifies
the judicially created exception to discharge for fines.
Id. at 51. Upon determining that § 523(a)(7) “protects traditional
criminal fines,” the Court then considered whether restitution is
encompassed within this category. Id. at 51-53. While the Court
conceded that restitution resembles a judgment ‘for the benefit’ of the
victim, as opposed to ‘for the benefit of a governmental unit’ as
required by § 523(a)(7)’s language, it nonetheless determined that
because criminal proceedings focus on the state’s interest in
rehabilitation and punishment rather than the victim’s desire for
compensation, restitution orders imposed in such proceedings operate
“for the benefit” of the state. Id. at 52. Thus, the Court concluded
that these obligations, also a means of inflicting monetary sanctions
against a debtor for some particular action or inaction, are non-
dischargeable. Id. at 53.
We recognize that other Circuits to have considered the nature
of a commercial bondsman’s bail forfeiture debts have concluded that
these obligations are dischargeable in bankruptcy. See In re Hickman,
260 F.3d 400, 405 (5th Cir. 2001); In re Collins, 173 F.3d 924, 932
(4th Cir. 1999). These Circuits interpreted § 523(a)(7) as
contemplating only those fines or obligations imposed because of
misconduct or wrongdoing by the debtor, consistent with their
interpretation of the Supreme Court’s Kelly v. Robinson decision. See
In re Hickman, 260 F.3d at 405 (finding bail bond debts by
commercial surety not encompassed by § 523(a)(7) because their
“true nature” is contractual, not penal); In re Collins, 173 F.3d at 932(finding bail bond debts by commercial surety not encompassed by
§ 523(a)(7) because debts more akin to “triggering liquidated
damages” for breach of contract than triggering a penal sanction). We
have not adopted this alternative reading of Kelly, however. Indeed,
in Gi Nam, we expressly rejected this interpretation, noting, “We do
14
not interpret Kelly to imply that the ‘fine, penalty or forfeiture’ prong
of § 523(a)(7) is restricted in scope to except from dischargeability
only obligations of a penal nature.” 273 F.3d at 287. We further
distinguished Kelly on the basis that the Supreme Court only
addressed the penal nature of restitution obligations because the plain
language of § 523(a)(7) fails to address restitution expressly. Id.
Accordingly, because forfeitures are expressly addressed in
§ 523(a)(7), the Gi Nam court did not need to examine their “nature,”
whether penal or contractual. Id. Relying on the plain meaning of the
statute, whether bail bond debts are of a criminal nature is irrelevant
to the question of whether they are discharged.
IV. CONCLUSION
Because we read the text of § 523(a)(7) to encompass the type
of bail bond debts at issue here, and because we are persuaded by the
reasoning in Gi Nam, we hold that § 523(a)(7) excepts from discharge
bail bond forfeitures entered against a commercial bail bondsman.
For the foregoing reasons, we will affirm the judgment of the District
Court.
15