Billy Dampier, Jr. v. United States Bankruptcy Court for the District of Colorado

FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
NOT FOR PUBLICATION *
April 11, 2017
UNITED STATES BANKRUPTCY APPELLATE PANEL
Blaine F. Bates
OF THE TENTH CIRCUIT Clerk
_________________________________
IN RE BILLY RUSSELL DAMPIER, JR., BAP No. CO-16-020
Debtor.
__________________________________
MEDICAL LIEN MANAGEMENT, INC. Bankr. No. 14-24526
and CREDIT INVESTMENTS, INC., Adv. No. 15-01028
Chapter 7
Plaintiffs – Appellees,
v.
OPINION
BILLY RUSSELL DAMPIER, JR.,
Defendant – Appellant.
_________________________________
Appeal from the United States Bankruptcy Court
for the District of Colorado
_________________________________
Before KARLIN, Chief Judge, JACOBVITZ, and MOSIER, Bankruptcy Judges.
_________________________________
MOSIER, Bankruptcy Judge.
_________________________________
As part of a state criminal sentence for theft, Billy Russell Dampier, Jr. was ordered
to pay restitution to the State of Colorado. The Bankruptcy Court declared Dampier’s
*
This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, and issue
preclusion. 10th Cir. BAP L.R. 8026-6.
criminal restitution debt to be nondischargeable pursuant to 11 U.S.C. § 523(a)(7). 1
Dampier contends that the Bankruptcy Court committed legal error because the plain
meaning of § 523(a)(7) does not bar discharge of his restitution debt. We find Dampier’s
restitution debt is excepted from discharge under § 523(a)(7). On that basis, we affirm.
I. FACTUAL AND PROCEDURAL HISTORY
Dampier stole money from his employers, Credit Investments, Inc. and Medical
Lien Management, Inc. (Appellees) and was formally charged with theft and forgery. 2
Dampier pleaded guilty to criminal theft under Colorado law. As part of his criminal
sentence, the state criminal court ordered Dampier to pay restitution (Restitution Order) for
Credit Investments in the amount of $108,343.11 and for Medical Lien Management in the
amount of $88,348.58.
After he was sentenced, Dampier filed his chapter 7 petition and the Appellees filed
their complaint 3 objecting to the discharge of Dampier’s debts pursuant to § 523(a)(2)(A),
(a)(4), (a)(6), and (a)(7). Appellees subsequently amended the complaint. 4 Dampier
answered the amended complaint 5 denying the allegations relating to § 523(a)(2)(A),
1
All future references to “Code,” “Section,” and “§” are to the Bankruptcy Code,
Title 11 of the United States Code, unless otherwise indicated.
2
Complaint at 5, in Appellant’s App. at 14.
3
Appellant’s App. at 10.
4
Appellant’s App. at 40.
5
Appellant’s App. at 52.
2
(a)(4), and (a)(6). 6 With respect to the § 523(a)(7) claims, Dampier admitted that he was
charged with and had pleaded guilty to criminal theft and that he was ordered to pay
restitution totaling $196,691, 7 but he denied the Restitution Order was a nondischargeable
fine, penalty, or forfeiture payable to and for the benefit of a governmental unit within the
meaning of § 523(a)(7). 8
The Appellees moved for summary judgment on their § 523(a)(6) and (a)(7)
claims. 9 The Bankruptcy Court found the restitution debt was excepted from discharge
under § 523(a)(7) and entered an order granting partial summary judgment (Summary
Judgment Order). 10 In light of this finding, the Bankruptcy Court concluded that it was not
necessary to address the Appellees’ remaining § 523(a)(6) argument, and also noted that
the Appellees’ claims under § 523(a)(2)(A) and (a)(4) were “similarly duplicative.” 11 At
the Bankruptcy Court’s request, the Appellees filed a motion to dismiss their
§ 523(a)(2)(A), (a)(4), and (a)(6) claims, 12 and the Bankruptcy Court entered an order
6
Answer to Amended Complaint at 2, in Appellant’s App. at 53.
7
Id. in Appellant’s App. at 53.
8
Id. in Appellant’s App. at 53.
9
Motion for Partial Summary Judgment on the Fourth and Fifth Claims for Relief in
Amended Complaint Pursuant to Fed. R. Civ. P. 56 in Appellant’s App. at 60; Supplement
to Motion for Partial Summary Judgment on the Fourth and Fifth Claims for Relief in
Amended Complaint Pursuant to Fed. R. Civ. P. 56 in Appellant’s App. at 76; Amended
Motion for Partial Summary Judgment on the Fourth and Fifth Claims for Relief in
Amended Complaint Pursuant to Fed. R. Civ. P. 56 in Appellant’s App. at 82.
10
Appellant’s App. at 251.
11
Summary Judgment Order at 3, in Appellant’s App. at 253.
12
Motion to Dismiss Counts I, II, III, and IV in Appellant’s App. at 254.
3
dismissing the § 523(a)(2)(A), (a)(4), and (a)(6) claims (Dismissal Order) “without
prejudice.” 13 Dampier timely appealed the Summary Judgment Order and the Dismissal
Order. 14
II. JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction to hear appeals of final orders. 15 “An order granting
summary judgment disposing of [a] plaintiff’s claims against [a] defendant is a final order
for purposes of appeal.” 16 Although the Summary Judgment Order was a partial summary
judgment, it disposed of the Appellees’ § 523(a)(7) claims and required the dismissal of
the remaining causes of action. The Summary Judgment Order and the Dismissal Order are
final and appealable. We review an order granting summary judgment de novo. 17
III. DISCUSSION
A. The Appellees’ § 523(a)(7) Claim.
The relevant portion of § 523(a)(7) provides that a discharge in bankruptcy does not
discharge an individual debtor from any debt “to the extent such debt is for a fine, penalty,
13
Appellant’s App. at 261.
14
Notice of Appeal and Statement of Election in Appellant’s App. at 262.
15
28 U.S.C. § 158(a)(1), (b)(1), and (c)(1).
16
Expert S. Tulsa, LLC v. Cornerstone Creek Partners, LLC (In re Expert S. Tulsa,
LLC), 534 B.R. 400, 407 (10th Cir. BAP 2015) (citing Tanner v. Barber (In re Barber),
326 B.R. 463, 466 (10th Cir. BAP 2005)), aff’d, 842 F.3d 1293 (10th Cir. 2016).
17
Russell v. Tadlock (In re Tadlock), 338 B.R. 436, 438 (10th Cir. BAP 2006).
4
or forfeiture payable to and for the benefit of a governmental unit, and is not compensation
for actual pecuniary loss . . . .” 18
1. The Applicable Law.
The Supreme Court addressed § 523(a)(7) in Kelly v. Robinson. 19 In Kelly, the
debtor was convicted of larceny and the sentencing judge ordered the debtor to make
restitution as a condition of probation. The debtor subsequently filed for bankruptcy under
chapter 7. The Supreme Court held “that § 523(a)(7) preserves from discharge any
condition a state criminal court imposes as part of a criminal sentence,” 20 and determined
that restitution obligations, imposed as conditions of probation, are nondischargeable in
proceedings under chapter 7 of the Code. Kelly’s holding reaches beyond its facts, 21 but
the Supreme Court clearly explained the basis for its decision. It noted that its
interpretation of the Code “must reflect . . . a deep conviction that federal bankruptcy
courts should not invalidate the results of state criminal proceedings. The right to
formulate and enforce penal sanctions is an important aspect of the sovereignty retained by
the States.” 22
“Section 523(a)(7) protects traditional criminal fines; it codifies the judicially
created exception to discharge for fines.” 23 The Kelly Court observed that restitution
18
§ 523(a)(7).
19
479 U.S. 36 (1986).
20
Id. at 50.
21
Troff v. Utah (In re Troff), 488 F.3d 1237, 1240 (10th Cir. 2007).
22
Kelly, 479 U.S. at 47.
5
differs from traditional fines in two major ways: restitution (1) is forwarded to the victim,
and (2) may be calculated based on the harm the defendant has caused. 24 But the Supreme
Court concluded that these two differences make no difference under § 523(a)(7)—
section 523(a)(7) does not allow the “discharge of a criminal judgment that takes the form
of restitution.” 25 The Court elaborated:
The criminal justice system is not operated primarily for the benefit of
victims, but for the benefit of society as a whole. Thus, it is concerned not
only with punishing the offender, but also with rehabilitating him. Although
restitution does resemble a judgment “for the benefit of” the victim, the
context in which it is imposed undermines that conclusion. The victim has no
control over the amount of restitution awarded or over the decision to award
restitution. Moreover, the decision to impose restitution generally does not
turn on the victim’s injury, but on the penal goals of the State . . . . 26
Unlike obligations that arise out of contractual, statutory or common law duties,
restitution is “rooted in the traditional responsibility of a state to protect its citizens
. . . and to rehabilitate an offender.” 27 Although restitution orders may result in
compensation to victims, they are not assessed for that purpose; they are assessed
because of the penal and rehabilitative interests of the state. 28 And those interests are
what “place restitution orders within the meaning of § 523(a)(7).” 29
23
Id. at 51.
24
Id. at 51-52.
25
Id. at 52.
26
Id.
27
Id. (citation and internal quotation marks omitted).
28
Id. at 53.
29
Id.
6
The United States Court of Appeals for the Tenth Circuit addressed § 523(a)(7) in
Troff v. Utah (In re Troff). 30 In Troff, the debtor pleaded guilty to arson, and the sentencing
judge ordered the debtor to make restitution as a condition of probation. After the debtor
completed his probation, his restitution obligation was converted to a civil judgment made
payable to the victim. The debtor subsequently filed for bankruptcy under chapter 7. The
Tenth Circuit determined that it was bound by Kelly and held that a criminal restitution
obligation that was imposed as part of the Utah state criminal sentence was
nondischargeable under § 523(a)(7). 31 The Kelly Court’s method of statutory interpretation
emphasized the policy considerations behind § 523(a)(7). Although the Tenth Circuit noted
that a “strict plain meaning reading” of § 523(a)(7) might have strengthened Troff’s
argument, 32 it concluded that “the Kelly Court’s reasoning made clear that it would apply
the rule to any obligation imposed as part of a criminal sentence.” 33 The Tenth Circuit also
observed that it was not free to disregard Kelly because it “‘considers itself bound by
Supreme Court dicta almost as by the Court’s outright holdings. . . .’ Thus, Kelly—dicta
and all—applies.” 34
30
488 F.3d 1237 (10th Cir. 2007).
31
Id. at 1243.
32
Id. at 1239. Troff’s argument was that his restitution payments, which were made to
the state but eventually forwarded to the victim, were not “payable to and for the benefit of
a governmental unit.” Accordingly, the restitution debt did not come within the plain
meaning of § 523(a)(7) and was dischargeable. Id.
33
Id. at 1240 (emphasis added).
34
Id. at 1241 (quoting Gaylor v. United States, 74 F.3d 214, 217 (10th Cir. 1996)).
7
Under the pertinent Utah law, restitution “is not merely ‘compensation for [a
victim’s] actual pecuniary loss’ under § 523(a)(7); rather, it serves the goals of the state’s
criminal justice system.” 35 The Tenth Circuit noted that:
[c]ourt-ordered restitution . . . takes into account not only the amount
necessary to make a victim whole, but also the financial burden on the
defendant, his ability to pay on an installment basis, and “the rehabilitative
effect on the defendant of the payment of restitution and the method of
payment.” 36
Following Kelly, the Tenth Circuit stated that the focus of court-ordered restitution is “on
the State’s interests in rehabilitation and punishment, rather than the victim’s desire for
compensation.” 37 The fact that Troff’s restitution obligation was converted to a civil
judgment payable to the victim made no difference.
2. Application of Controlling Law.
Here, the Bankruptcy Court concluded that it was bound by Kelly and Troff and
found Dampier’s “payment obligation under the Restitution Order to be nondischargeable
under § 523(a)(7), as a matter of law.” 38 Dampier argues that Kelly and Troff are not
binding because Colorado’s restitution laws are different. He contends that under a strict
plain meaning reading of the statute, the Restitution Order is expressly excluded from
§ 523(a)(7). But “the Supreme Court’s decision in Kelly makes clear that we must look
35
Id.
36
Id. (citing Utah Code Ann. § 76-3-201(8)(c) (1999)).
37
Id. (quoting Kelly v. Robinson, 479 U.S. 36, 53 (1986)).
38
Summary Judgment Order at 2-3, in Appellant’s App. at 252-53.
8
beyond such a reading to federalism concerns and to the history of this statute.” 39 The
Kelly Court concluded that any restitution obligation imposed as part of a state criminal
sentence confers a benefit on the government and is not assessed for the benefit of the
victim. 40 And like the Troff Court, we are bound by the Supreme Court’s holdings and
dicta and are not free to disregard Kelly. 41 A state’s penal and rehabilitative interests in
criminal proceedings “are sufficient to place restitution orders within the meaning of
§ 523(a)(7).” 42
Dampier attempts to distinguish his case by characterizing the Restitution Order as
being “payable to, and wholly under the control of, a non-governmental entity.” 43
Dampier’s characterization is wrong; the Restitution Order is not wholly under the control
of a non-governmental entity. Criminal restitution orders may only be obtained by the
government, and victims have no control over the amount of restitution awarded or the
decision to impose restitution. The judgment creditor is the State of Colorado, 44 and the
Colorado State Judicial Department is responsible for collection of the restitution orders. 45
Among other things, the Judicial Department has the responsibility to conduct an initial
39
Troff, 488 F.3d at 1239.
40
Kelly, 479 U.S. at 53.
41
Troff, 488 F.3d at 1241 (quoting Gaylor v. United States, 74 F.3d 214, 217 (10th
Cir. 1996)).
42
Kelly, 479 U.S. at 53.
43
Appellant’s Br. at 26.
44
Appellant’s App. at 119-127.
45
Colo. Rev. Stat. §§ 16-18.5-104.
9
collections investigation, establish payment schedules, file transcripts of restitution orders
with various agencies to create liens, and monitor payment of restitution orders. 46
Under Colorado law, restitution is defined as compensation for actual
pecuniary loss 47 and is “a final civil judgment in favor of the state and any
victim.” 48 But the fact that a restitution order may be enforced by victims or may
result in compensation to victims does not change the fundamental nature and
purpose of the restitution. As the Supreme Court explained, the context in which
restitution is imposed undermines the conclusion that restitution is for the benefit of
the victim. The criminal justice system is operated for the benefit of society as a
whole and is concerned not only with punishing the offender, but also with
rehabilitating him. Restitution is “rooted in [this] traditional responsibility of a state
to protect its citizens . . . and to rehabilitate an offender.” 49
Restitution orders are a statutorily created penalty created under the Colorado
Criminal Code. 50 The State of Colorado has declared that restitution “is a mechanism for
46
Id.47
Colo. Rev. Stat. § 18-1.3-602(3)(a). Restitution “means any pecuniary loss suffered
by a victim and includes but is not limited to all out-of-pocket expenses, interest, loss of
use of money, anticipated future expenses, rewards paid by victims . . . , and other losses
or injuries proximately caused by an offender’s conduct and that can be reasonably
calculated and recompensed in money.” Id.48
Colo. Rev. Stat. § 18-1.3-603(4)(a)(I) (emphasis added).
49
Kelly v. Robinson, 479 U.S. 36, 52 (1986) (citation and internal quotation marks
omitted).
50
See Colo. Rev. Stat. § 18-1.3-601.
10
the rehabilitation of offenders” and “will aid the offender in reintegration as a productive
member of society.” 51 The state court clearly weighed these considerations in sentencing
Dampier, as it sought to impose “the appropriate sentence, given [the] individual, given
these circumstances.” 52 Furthermore, the criminal sentence included two years of work-
release and ten years of probation, which was conditioned on payment of the court-ordered
restitution and gave Dampier the opportunity to prove his stated “desire to pay back
restitution and to make good on what he has done wrong.” 53
The Restitution Order here is a penalty, payable to the State of Colorado, not for its
actual pecuniary loss, but to benefit the State in its effort to protect its citizens and to
rehabilitate Mr. Dampier. Although the Appellees may ultimately receive the restitution
payments through their own collection efforts, that fact makes no difference. The
Restitution Order focused on punishment and rehabilitation and is clearly within the
meaning of § 523(a)(7), and Dampier’s “attempt to discharge the debt is squarely within
the cross-hairs of the Supreme Court’s decision in Kelly.” 54 The Bankruptcy Court
appropriately considered and applied the holdings in Kelly and Troff, and concluded it was
bound by those decisions. We agree.
51
Colo. Rev. Stat. § 18-1.3-601(1)(c), (2).
52
Exhibit 13, Summary Judgment Motion at 52, in Appellant’s App. at 196.
53
Id. at 53-54, in Appellant’s App. at 197-98. We also note the Tenth Circuit’s
recognition that holding a restitution obligation to the victim is dischargeable would
“disrupt two decades of Congressional reliance on the notion that the [Kelly] holding
applied whether the crime’s victim was the government or a private individual.” Troff v.
Utah (In re Troff), 488 F.3d 1237, 1242 (10th Cir. 2007).
54
Troff, 488 F.3d at 1241.
11
B. The Appeal of the Dismissal Order is Moot.
Dampier also argues that the Bankruptcy Court erred in dismissing the remaining
causes of action “without prejudice” and that, if the Court reverses, the Appellees are
precluded from refiling any of the dismissed claims. 55 Any dispute over the Dismissal
Order has been rendered moot by this Court’s affirmance of the Summary Judgment Order.
Accordingly, we decline to address this issue on appeal.
C. Appellees’ Motion for Attorney’s Fees.
The Appellees seek an award of attorney’s fees under Fed. R. Bankr. P. 8020. 56
Rule 8020 allows the Court to “award just damages and . . . costs” to an appellee if the
Court finds that the appeal is frivolous. Although Rule 8020 does not establish a standard
for frivolity, this Court has held that an appeal is frivolous “if the result is obvious or the
arguments are wholly without merit.” 57 We deny Appellees’ motion for two reasons. First,
we do not find Appellant’s argument that the Colorado statute defining restitution as
compensation for actual pecuniary loss is different from the statutes at issue in Kelly and
Troff to be frivolous. Second, Appellant’s argument that the Court should not deviate from
the plain language of § 523(a)(7) is not wholly without merit. Judge Tymkovich’s
concurring opinion in Troff took issue with the Supreme Court’s decision in Kelly, which
55
Appellant’s Br. at 58.
56
Motion for Attorney’s Fees Pursuant to Fed. R. Bankr. P. 8020, BAP ECF No. 26.
57
Williamson v. Murray (In re Murray), 506 B.R. 129, 141 (10th Cir. BAP 2014)
(quoting Joseph v. Lindsey (In re Lindsey), 229 B.R. 797, 802 (10th Cir. BAP 1999)).
“Some of the factors that courts have considered in analyzing the frivolity of an appeal
include an appellant’s bad faith, [and] whether the argument presented on appeal is
meritless in toto or only partially frivolous . . . .” Id.12
“discount[ed] the statutory text for policy considerations.” 58 Judge Tymkovich argued that
“subject to the vagaries of stare decisis, the Supreme Court could and should correct its
error by . . . narrowing the holding of Kelly to the statutory text.” 59 Accordingly, the
Appellees’ request for attorney’s fees is DENIED.
IV. CONCLUSION
The Bankruptcy Court did not err in granting summary judgment in favor of the
Appellees on their § 523(a)(7) claim. Accordingly, the Bankruptcy Court’s decision is
AFFIRMED.
58
Troff, 488 F.3d at 1243 (Tymkovich, J., concurring).
59
Id. at 1243-44 (Tymkovich, J., concurring).
13