County of Dakota v. Jacob Milan ( 2016 )

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 16-6012
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In re: Jacob Jerome Milan; Ashley Kaye Milan
lllllllllllllllllllllDebtors
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County of Dakota
lllllllllllllllllllll Plaintiff - Appellant
v.
Jacob Jerome Milan
lllllllllllllllllllll Defendant - Appellee
Ashley Kaye Milan
lllllllllllllllllllll Defendant
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Appeal from United States Bankruptcy Court
for the District of Minnesota - St. Paul
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Submitted: August 12, 2016
Filed: September 22, 2016
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Before SCHERMER, NAIL and SHODEEN, Bankruptcy Judges.
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SHODEEN, Bankruptcy Judge.
County of Dakota appeals the bankruptcy court’s 1 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.
2
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 unit 3 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.
3
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
4
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.
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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).
5