Dobrek v. Phelan

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Precedential or Non-Precedential: Precedential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

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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. § 727.2

company 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

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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

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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).

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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,

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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.

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