Amicus Curiae Brief — Heart of Dixie Nissan, Inc. v. Reynolds

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_

~———

No. 91-1520

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1991

IN RE: CAR RENOVATORS, INC.

HEART OF DIXIE NISSAN, INC.,

d/b/a DIXIE NISSAN,

Petitioner,

Vv.

THOMAS E. REYNOLDS, Trustee of

the Bankruptcy Estate of

Car Renovators, Inc.,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF AMICUS CURIAE OF THE STATE OF ALABAMA

IN SUPPORT OF THE PETITIONER

JAMES H. EVANS

Attorney General of the

State of Alabama

MARGARET SCHOLTEN CHILDERS

(Counsel of Record)

Assistant Attorney General

Office of the Attorney

General

11 South Union Street

Montgomery, Alabama 36130

(205) 242-7300

ee ee ee

TABLE OF CONTENTS

PAGE

SODSO GE AMUROTICIOS. . 6. cccccccccccece Si

Interest of Amicus Curiae............. 1

Statement of the Case................. 2

Summary of the Argument............... 8

ES 6054546 046-566444050 bd okew ec kk

I. THE COURT OF APPEALS DECIDED

THE FEDERAL QUESTION IN THIS

CASE IN A WAY THAT CONFLICTS

WITH THIS COURT’S INTERPRE-

TATION OF SIMILAR STATUTORY

LANGUAGE IN KELLY V.

ROBINSON, 479 U.S.36 (1986).. 11

II. THIS CASE PRESENTS AN

IMPORTANT QUESTION OF

FEDERAL LAW WHICH HAS NOT

BEEN BUT SHOULD BE DECIDED

BE ZMIS COURT. cc cece ccccccceedl

Re ae ee re |

TABLE OF AUTHORITIES

CASES: PAGE(S)

X pa ber, 427 So.2d 1330

(Ala. 1983). *ee@eee#ees#ssee#ee#ee#eee#ee#ee#ee#e#8e#e#e#é 25

Fenner v. Boykin,

273 G.8. B60 tO0O0) i eda xtarieccn

In re Button, 8 B.R. 692

(Bankr. W.D. N.Y. (1961) wcceccscsea 28

In re Chase, 43 B.R. 739

(Bankr. D. Mad. 29S4) cc vrccccescece 30

In re D.A.C. Meats, Inc., 8 B.R. 230

(Ranke. 6.0. Bide BOGAl vaxdesvnn 9

ANNETTE ome

In re Dervos, 37 B.R. 731

(Bankr. N.D. T11. 1984) ..cccsccese 28

In re Fussell,

928 F.2d 712 (5th Cir. 1991).... 28

In re Nelson, 91 B.R. 904

(Bankr. W.D. Cale 1968) .cccceess 32

In re Pelligrino, 42 B.R. 129 |

(Bankr. D. Conn. 1984).......... 28 |

Irvin v. State, 44 Ala. App. 101,

203 36.26 263 tiOGT) ccecdacvsrcease 39

Kelly v. Robinson,

479 U.S. 36 (1986)........-.. passin

Kressler v. State, 462 So.2d 785

(Ala.Crim.App. 1984),

cert. denied (Ala. 1985)......... 25

TABLE. OF AUTHORITIES (CONT’D)

PAGE(S)

Lewis v. Diethorn,

893 F.2d 648 (3rd Cir. 1990)..... 30

Ss WwW a e

,» 220 &.Ct.

aS ear 28,29

s ce v on,

560 So.2d 755 (Ala. 1990)........ 19,20

Ray v. State, 484 So.2d 524

(Ala.Crim.App. 1985),

cert. denied (Ala. 1986)......... 25

Russel] _v. State, 533 So.2d 725

(Ala.Crim.App.1988),

cert. denied (Ala. 1988) .....cece- 18

Rizzo v. Goode,

Re CDOTS) ccc sn careces 16

Santobello v. New York,

404 U.S. 257 (1971) .cccccccccvees 20

Steeley v. City of Gadsden,

533 So.2d 671

(Ala.Crim.App. 1988),

cert. denied (Ala. 1988)......... 19,25

Steeley v. State, 533 So.2d 665

(Ala.Crim.App. 1988), cert.

See EMRMg BOOB) ca ccccecsvseces 19

Tolbert v. State, 294 Ala. 738,

321 SO.2G 227 (1975) .ccccccvcces 19

iii

TABLE OF AUTHORITIES (CONT’D)

e ;

830 F.2d 36 (5th Cir. 1987)....

Willis v. State, 480 So.2d 56

(Ala.Crim.App. 1985),

cert. denied (Ala. 1985).......

Younger v. Harris,

401 Uses 37 (1971) -cccccccvsecce

STATUTES:

So . SUI sou uh inde

ta ee) eee ere

eA ee ts et ere a ee

£2 O.8.6. BEAT) (9). 0c cccnnes aioe

SE a a so oko an esa nie eeok

Pub. L. 101-647, 104 Stat. 496.......

ALA. CODE §12-17-224 (1986)..........

ALA. CODE §12-17-224 (a)

(1986 & Supp. 1991)............

ALA. CODE §12-17-224(a) (2)b.

(1986 & Supp. 1991)......... ee

ALA. CODE §12-17-224(a) (2)c.

(1986 & Supp. 1991). ccccveseses

PAGE (S)

oe WITT

28,32

16

SEE AAC OR Gk PON 0

iv

Tianninistietaiamniaaiiniia teaiaiaimaiaaiaaiiitital

TABLE OF AUTHORITIES (CONT’D)

ALA. CODE §12-17-224(a) (2)e.1. (ii)

(1986 & Supp. 1991)......

ALA.

ALA.

ALA.

ALA.

ALA.

ALA.

ARIZ.

CAL.

CODE §13A-5-7(a)(1) (1982)......

CODE §13A-5-12(a)(1) (1982).....

CODE §13A-9-13.1(a) (1982 &

Supp. BAD 64662 66600856 e eo Oe RO

CODE §13A-9-13.1(b) (2)

(1982 & Supp. 1991).....

CODE §13A-9-13.1(c)

(1982 & Supp. 1991)......

CODE §13A-9-13.2(2)

(1982 & Supp. 1991)......

REV. STAT. ANN.

|. Dee AD rs

PENAL CODE §1001.60,

et seg.

(Supp. 1992)....

IND. CODE §33-14-1-7

(1985 & Supp. 1991)......

OKLA. STAT. tit. 22, §111,

et seg.

7) err

W.VA. CODE §61-3-39,

et seg.

SSOES cc cvewedues

PAGE(S)

17

17

31

ae

31

31

TABLE OF AUTHORITIES (CONT’D)

PAGE(S)

OTHER AUTHORITIES:

§13A-9-13.1 through 13A-9-13.3

COMMONTAFY. ccccccccccscccccccces 18

22 C.J.S. Criminal Law §§373-374

(19B9) wcccccccevescscsccsesecses 25

vi

INTEREST OF AMICUS CURIAE

The Amicus State has a vital

interest in preserving the integrity of its

statutes involving the crime of negoti-

ating a worthless negotiable instrument.

It also has a vital interest in avoiding

the unwarranted interference in the conduct

and administration of its criminal justice

system which is occasioned by the decision

of the court of appeals. The State has a

compelling interest in ensuring the orderly

administration of its criminal statutes and

in preserving the integrity of the results

of its criminal prosecutions. It also has

an interest in avoiding the expense and

inconvenience of pursuing an increased

number of prosecutions through to judgment,

which is a likely result of the Eleventh

Circuit’s decision in this case.

The Attorney General of the State of

Alabama is the chief law officer of the

State of Alabama, and he is ultimately

responsible for the prosecution of the

State’s criminal laws. He is charged with

representing and defending the interests of

the State and its political subdivisions

and officials.

STATEMENT OF THE CASE

On December 21 and 22, 1988, James

H. Gann, the President of Car Renovators,

Inc., purchased sume car parts and supplies

from Dixie Nissan on behalf of Car Renova-

tors, Inc. Gann gave two checks drawn on

Car Renovators’ bank account to Dixie

Nissan at that time as payment. These two

checks later were returned to Dixie Nissan

for insufficient funds in Car Renovators’

account.

"A person commits the crime of

negotiating a worthless negotiable

instrument if he negotiates or delivers a

negotiable instrument for a thing of value

and with the intent, knowledge or expecta-

tion that it will not be honored by the

drawee." ALA. CODE §13A-9-13.1(a) (1982 &

Supp. 1991). As in many other states,

Alabama law provides that certain

circumstances, including failure to pay

within ten days of written notice that

payment was refused, constitutes prima

facie evidence that the maker or drawer

intended, knew or expected that the

instrument would not be honored. ALA. CODE

§13A-9-13.1(b)(2) (1982 & Supp. 1991). The

form of the notice given must be substan-

tially that specified in ALA. CODE

§13A-9-13.2(2) (1982 & Supp. 1991), which

includes notice that if payment is not

made, the holder may assume that the

instrument was delivered with intent to

defraud and may turn the incident over to

the proper authorities for prosecution.

After the two Car Renovators checks

were returned for insufficient funds, Dixie

Nissan mailed to Gann the foregoing

described notice. Gann did not respond.

Dixie Nissan then reported the incident to

the District Attorney for the Bessemer

Division of Alabama’s 10th Judicial Circuit

(commonly referred to as the Bessemer

Division of Jefferson County).

Each district attorney in Alabama is

statutorily authorized to establish a

division in his or her office for the

purpose of processing complaints of nego-

tiating a worthless negotiable instrument.

After following the requirements of

- §13A-9-13.1 and §13A-9-13.2, a holder of a

worthless negotiable instrument may present

a complaint to this division. The

complaint is then evaluated, under the

direction of the district attorney, to

determine whether the complaint is

appropriate for prosecution. There are

eee .....0S

several statutory guidelines to determine

whether a complaint has been appropriately

filed. ALA. CODE §12-17-224(a) (1986 &

Supp. 1991).

If a complaint is approved, a

warrant may be issued by an appropriate

warrant magistrate. Either after issuance

of a warrant or upon approval of the

complaint, the district attorney’s office

sends a written notice to the individual

charged with violating §13A-9-13.1 that a

warrant has been issued for his arrest or

that a complaint has been received. The

notice informs the individual that he may

be eligible for deferred prosecution by

voluntarily surrendering himself. ALA.

CODE §12-17-224(a)(2)b. (1986 & Supp. 1951).

If the accused individual voluntari-

ly surrenders himself, the district

attorney is authorized to defer prosecution

upon payment of restitution and fees. It

is in the discretion of the district

lO

attorney whether to continue prosecution

through to judgment or whether to defer

prosecution pursuant to a restituticn

agreement. ALA. CODE §12-17-224(a) (2)c.

(1986 & Supp. 1991). Restitution is

statutorily defined as the face amount

of the instrument plus any amounts the

victim may have been required to pay to a

bank as a result of having attempted to

process the instrument. ALA. CODE

§12-17-224(a) (2)e.1.(ii) (1986 & Supp.

1991).

The district attorney for the

Bessemer division of Jefferson County has

established a division in his office

pursuant to the foregoing statute. Dixie

Nissan’s complaints against Gann were

approved for prosecution. Two warrants for

Gann’s arrest for violating §13A-9-13.1

then were issued by a warrant magistrate.

The district attorney’s office then sent |

the statutory notice under §12-17-224 to

Gann.

On February 13, 1989, Gann wrote a

check on the account of Car Renovators and

used this check to purchase a cashier’s

check. He then gave the cashier’s check to

the district attorney. The amount of the

check equaled the statutorily authorized

| restitution and fees for deferred prosecu-

tion. Prosecution of Gann was deferred.

The district attorney’s office subsequently

gave the restitution amount to Dixie Nissan.

On March 3, 1989, Car Renovators,

Inc., filed a bankruptcy petition. Dixie

Nissan had no notice of the bankruptcy

proceeding until April, 1990, when it

received the adversary complaint to recover

the restitution monies it had received on

the ground that these monies constituted an

avoidable séeterence.

The course of the judicial proceed-

ings below are fully set forth in the

Statement of the Case in the Petition For

Writ of Certiorari.

SUMMARY OF THE ARGUMENT

The court below decided that the

restitution payment made in this case by

the Debtor’s president after criminal

prosecution had been commenced against hin,

which was made pursuant to a statutorily

authorized exercise of discretion by the

district attorney over the proper disposi-

tion of such prosecutions, constituted an

avoidable preference under the Bankruptcy

Code which is recoverable from the victim

to whom the restitution payment was trans-

ferred by the district attorney. This

decision conflicts with this Court’s

decision in Kelly v. Robinson, 479 U.S. 36

(1986), that restitution payments are to

and for the benefit of the state and not

compensation to the victim/creditor. It is

based upon a too narrow reading of this

.

epee

Court’s opinion in Kelly, and also upon a

serious understatement of the scope of

proper federalism concerns.

The Eleventh Circuit’s opinion also

is based in part upon the erroneous conclu-

sion that there was no criminal prosecution

in this case. A criminal prosecution was

commenced in this case. Continued prosecu-

tion was deferred upon payment of restitu-

tion and fees, pursuant to a statutorily

authorized exercise of ciscretion by the

prosecutor. The Eleventh Circuit’s

decision undermines the integrity of the

result of this criminal prosecution, and it

is likely to interfere with the exercise of

prosecutorial discretion concerning the

appropriate disposition of future prosecu-

tions. It will lead to an increased number

of prosecutions having to be pursued

through to judgment, which will benefit no

one.

The transfer in this case was

neither "to or for the benefit of a

creditor" nor "for or on account of an

antecedent debt." Thus, it did not consti-

tute an avoidable preference. A contrary

interpretation would lead to the anomalous

result that restitution payments could be

compelled in a criminal prosecution during

a bankruptcy proceeding under a statutory

exception to the automatic stay yet be

avoided as a preference.

The federal question in this case,

whether restitution payments that are made

in the disposition of a criminal proceeding

constitute an avoidable preference under

the Bankruptcy Code, is an important

question which should be decided by this

Court. Probably every state in the union

has a worthless check statute. Several

other statutorily authorized the deferral

of adjudication and/or prosecution in

10

conjunction with the payment of restitu-

tion, and others do this informally. At

least two federal courts have indicated

that restitution payments are not preferen-

tial transfers, contrary to the opinion of

the Eleventh Circuit in this case.

ARGUMENT

I. THE COURT OF APPEALS DECIDED THE

FEDERAL QUESTION IN THIS CASE IN A

WAY THAT CONFLICTS WITH THIS COURT’S

INTERPRETATION OF SIMILAR STATUTORY

LANGUAGE IN KELLY V. ROBINSON,

479 U.S. 36 (1986).

In Kelly v. Robinson, 479 U.S. 36

(1986), this Court decided that restitution

orders imposed in state criminal proceed-

ings are not dischargeable in a Chapter 7

bankruptcy proceeding. This decision was

based upon this Court’s interpretation of

the language in 11 U.S.C. §523(a)(7), which

protects from discharge any debt which is

"for a fine, penalty, or forfeiture payable

to and for the benefit of a governmental

11

unit, and is not compensation for actual

pecuniary loss." This Court concluded that

restitution orders imposed in state

criminal proceedings operate "for the

benefit of" the state, and that they are

not assessed "for...compensation" of the

victim. Kelly, 479 U.S. at 53.

In order to constitute an avoidable

preference, there must be a transfer of an

interest of the debtor in property, and

this transfer must be "to or for the

benefit of a creditor" and "for or on

account of an antecedent debt owed by the

debtor before such transfer was made."

11 U.S.C. §547(b)(1) and (2). This

language is the obverse of the language in

the dischargeability section that was

examined in Kelly.

A debt is not dischargeable if it is

for a fine, penalty or forfeiture payable

to and for the benefit of a governmental

unit which is not compensation for actual

12

pecuniary loss. A payment is an avoidable

preference only if it is to or for the

benefit of a creditor and for or on account

of an antecedent debt. This Court already

has decided that restitution obligations

imposed in state criminal proceedings are

not for the compensation of the victim, but

rather are for the benefit of the state.

Since restitution payments are not for the

compensation of the victim/creditor, such

payments do not constitute an avoidable

preferential transfer by the very terms of

the statute defining such transfers.

The Eleventh Circuit decided that

the payment in this case had to be

considered a preferential transfer because

the payment was not made pursuant to a

court order based upon a criminal convic-

tion. The Eleventh Circuit’s decision was

reached, in part, upon a too narrow reading

of this Court’s opinion in Kelly. Some of

the language in Kelly does pertain to the

13

deference due to criminal judgments, but

the facts in Kelly involved such a judg-

ment. It is much too simplistic to con-

clude on the basis of this language that

only restitution payments made pursuant to

a state court criminal judgment are pay-

ments for the benefit of the state, and

that any other restitution payments are

preferential transfers.

In the first place, this Court

repeatedly emphasized in Kelly that the

language in the Bankruptcy Code must be

considered not only in light of the history

of deference to criminal judgments but also

"in light of the interests of the States in

unfettered administration of their criminal

justice systems." Kelly, 479 U.S. at

43-44. Interpretation of the Bankruptcy

Code

also must reflect...a deep

conviction that federal

bankruptcy courts should not

invalidate the results of state

criminal proceedings. The

14

right to formulate and enforce

penal sanctions is an important

aspect of the sovereignty

retained by the States. This

Court has emphasized repeatedly

"the fundamental policy against

federal interference with state

criminal prosecutions."

Kelly, 479 U.S. at 47 (quoting Younger v.

Harris, 401 U.S. 37, 46 (1971)).

"There is an overriding consid-

eration that equitable princi-

ples govern the exercise of

bankruptcy jurisdiction." ...

This Court has recognized that

the States’ interest in admin-

istering their criminal justice

systems free from federal

interference is one of the most

powerful considerations that

should influence a court

considering equitable types of

relief... This reflection of

our federalism also must

influence our interpretation of

the Bankruptcy Code in this

case.

Kelly, 479 U.S. at 49 (footnote omitted)

(quoting Bank of Marin v. England, 385 U.S.

99, 103 (1966)).

The Eleventh Circuit’s decision also

reflects a serious understatement of the

true scope of federalism concerns. That

15

Court’s opinion that federalism concerns

arise only in the context of an ongoing

criminal prosecution or with the potential

interference with an actual state criminal

judgment is simply wrong. As this Court

stated in Younger v. Harris, 401 U.S. 37,

44 (1971), “Our Federalism" is a concept

that represents a system with sensitivity

to the legitimate interests of both state

and national governments, in which the

national government always endeavors to

protect federal interests in a way that

does not unduly interfere with the legiti-

mate activities of the states, and a belief

in according a proper respect for state

functions and institutions. See also

Fenner v. Boykin, 271 U.S. 240 (1926)

(ordinarily a federal court will not enjoin

state officers from instituting criminal

prosecutions); Rizzo v. Goode, 423 U.S.

362, 378-380 (1976) (recognizing that the

principles of federalism have not been

16

limited to criminal proceedings, much less

to ongoing ones); and Kelly, 479 U.S. at 49

n.1l. |

The Eleventh Circuit’s view that

there are no legitimate federalism concerns

in this case is also due in part to its

erroneous conclusion that there was no

criminal prosecution in this case. The

court’s opinion also reflects a lack of

understanding and/or respect for the State,

its statutes, and the legitimate role of a

prosecutor in resolving criminal prosecu-

tions short of judgment.

The crime involved in this case is a

Class A misdemeanor. ALA. CODE

§13A-9-13.1(c) (1982 & Supp. 1991). Upon

conviction, a defendant is subject to

incarceration for up to one year anda

substantial fine. ALA. CODE

§§13A-5-7(a)(1) and 13A-5-12(a)(1) (1982).

These laws reflect a legislative

determination that a criminal sanction is

17

necessary to punish the intentional

negotiation of a worthless negotiable

instrument in order tc promote and maintain

public confidence in negotiable instruments

and to help preserve the integrity of

commercial paper. §§13A-9-13.1 through

13A-9-13.3 Commentary. Statutes such as

this are "drafted as a means of

supplementing the ordinary laws of theft

and false pretenses in the context of bad

checks." Willis v. State, 480 So.2d 56, 58

(Ala.Crim.App.1985) (quoting Model Penal

Code, §224.5 Comment (1980)), cert. denied

(Ala. 1985). By prosecuting criminal

actions against offenders, the State is

protecting the integrity of commercial

transactions within the state.

The crime of negotiating a worthless

negotiable instrument is considered a crime

of moral turpitude in Alabama, with several

attendant consequences. Russell v. State,

533 So.2d 725, 728 (Ala.Crim.App. 1988),

18

cert. denied (Ala. 1988); and Irvin v.

State, 44 Ala. App. 101, 203 So.2d 283,

287-288 (1967). Neither this law nor other

Alabama criminal laws are designed to

enforce the payment of a debt or to adjudi-

cate civil disputes, and they may not be

used to enforce a civil debt. Tolbert v.

State, 294 Ala. 738, 321 So.2d 227, 232-233

(1975); Steeley v. State, 533 So.2da 665,

669-670 (Ala.Crim.App. 1988), cert. denied

(Ala. 1988); and Professional Check Service

vy. Dutton, 560 So.2d 755, 758 (Ala. 1990).

Prosecution for this crime is

commenced by the issuance of a warrant of

arrest. Steeley v. City of Gadsden, 533

So.2d 671, 678-679 and 684 (Ala.Crim.App.

1988), Cert. denied (Ala. 1988). See also

Professional Check Service, 560 So.2d at

757. Whether to initiate such a

prosecution is a matter within the

discretion of the district attorney, and a

complainant may not compel prosecution.

19

Professional Check Service, 560 So.2d at

758. The district attorney in this case

determined that criminal prosecution upon

Dixie Nissan’s complaints was appropriate,

and criminal prosecutions consequently were

commenced against James H. Gann.

Section 12-17-224 expresses the

state legisiature’s determination that

there are cases in which disposition of

such a prosecution upon a minimum of

payment of complete restitution and fees

adequately protects the societal interests

at stake, and that the prosecutor should be

allowed the discretion to determine when

this is appropriate. This Court has

formerly recognized that the disposition of

criminal charges by agreement between the

prosecutor and the accused is not only

acceptable, but actually an "essential

component of the administration of

justice." b Vv. Ww , 404 U.S.

257, 260-261 (1971).

20

In Kelly, this Court rejected the

Eleventh Circuit’s expressed belief in the

instant case that a restitution payment is

compensatory to the victim simply because

it may be calculated based upon the

monetary amount of harm the offender has

caused. As this Court stated,

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 restitu-

tion generally does not turn on

the victim’s injury, but on the

penal goals of the State'‘and

the situation of the defendant.

"(Tj)he obligation is rooted

in the traditional responsibi-

lity 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."

21

Kelly, 479 U.S. at 51-52 (quoting In re

Pelligrino, 42 B.R. 129, 133 (Bankr. D.

Conn. 1984)).

Prosecution of a criminal case is

not aimed at obtaining a pecuniary benefit

for the victim. It is designed to punish

criminal offenders and deter future

criminal conduct. Restitution is one of

the methods of punishment and rehabilita-

tion employed by the State. The fact that

it results in the payment of a debt does

not mean that it is payment of a debt.

There is no reason to suppose that the

prosecutor in this case did anything but

act on a bona fide conclusion that the

public interest would be served by

accepting restitution and fees in disposi-

tion of this case.} After all, one of

ltt should perhaps be observed that

the burden is on the trustee to prove the

avoidability of a transfer under §547(b).

11 U.S.C. §547(g).

22

the purposes of restitution is to rehabil-

itate and deter future violations, and

requiring full restitution peculiarly

brings home to the offender that he has

harmed a particular person as well as

society in the abstract, and that he must

accept full responsibility for his

actions.

The victim has no control over what

restitution, if any, he will receive as a

result of a "worthless check" prosecution

in Alabama. If the prosecutor decides that

the case is one that is appropriate for

deferred prosecution, the amount of

restitution is set by the statute, and the

time and manner of payment is negotiated

between the defendant and the prosecutor.

The victim has no control over the

prosecutor’s decision whether to prosecute,

nor over his decision whether to agree to

defer prosecution as opposed to continuing

the prosecution to adjudication (in which

23

event the victim may or may not receive

some or fyll restitution).

The district attorney’s agreement in

this case reflected a decision by the State

that its penal interests would best be

served by requiring Gann to make full

restitution to his victim. If commencement

of bankruptcy proceedings and the threat of

avoidance had been apparent possibilities,

the State likely would have chosen a

different option to serve its penal

interests. The retroactive vacation of the

restitution payment in Gann’s criminal

prosecution significantly compromises the

State’s penal decision in this case and

will discourage the use of this lesser

penological option in the future.

Vacating the restitution payment in

this case and other cases allows criminal

offenders to use the bankruptcy laws as a

haven from the consequences of criminal

acts, contrary to the stated Congressional

24

intent. See in re Button, 8 B.R. 692

(Bankr. W.D. N.Y. 1981). Whether the State

would be able to Successfully prosecute an

offender after a restitution payment is

avoided is highly problematical. See

Steeley v. City of Gadsden, 533 So.2da at

678-682 (regarding the possibility of a

Speedy trial problem); see also Ex parte

Yarber, 437 So.2d 1330 (Ala. 1983); Kresler

Vv. €, 462 So.2d 785 (Ala.Crim.App.

1984), cert. denied (Ala. 1985); Ray v.

State, 484 So.2da 524, 526 (Ala.Crim.App.

1985), cert. denied (Ala. 1986); and 22

C.J.S. Criminal Law §§373-374 (1989)

(regarding the complex problem of the

enforceability of plea bargains and similar

agreements).

Vacating a criminal restitution

payment compromises the decision made by

the prosecutor and the integrity of the

result of the prosecution. An individual

should not be allowed to aveid adjudication

25

i ll

and the potential consequences thereof by

agreeing to make restitution, and then

avoid his penal obligation by filing for

bankruptcy. Individuals should not be

permitted to use the bankruptcy law as a

shield against a penal obligation merely

because that obligation happens also to

involve a monetary obligation. As the

District Court stated in this case,

avoidance in this case is intrusive and

disruptive and results in the federal

remission of the results of a state °

criminal prosecution.

In the future, lest the defendant

avoid the penological effect of such a

disposition by filing for bankruptcy,

»yrosecutors probably will not be willing to

use the less restrictive punishment option

available under §12-17-224. This results

in the loss of a viable and flexible

alternative to trial. It also will result

in the expense of increased numbers of

26

cases having to be adjudicated, and in the

placing of an additional weight on an

already overburdened court systen.

This result also is contrary to the

intended effect of a bankruptcy proceeding,

i.e., to provide a fresh start for a

debtor. The Eleventh Circuit decision

discourages the use of a lesser penal

Sanction in favor of a criminal conviction

with all of its attendant consequences.

As this Court recognized in Kelly,

the text of a statute is only the starting

point in interpreting statutory language,

and the provisions of the whole law and its

object and policy should be considered in

expounding a statute. Kelly, 479 U.S. at

43. The longstanding policy against undue

federal interference in state criminal

proceedings has been expressly incorporated

am 213 8.8.8, §362(b) (1), under which "the

commencement or continuation of a criminal

action or proceeding against the debtor" is

27

excepted from the automatic stay. Several

courts have held that this provision

permits the enforcement of criminal

restitution obligations during a bankruptcy

proceeding. See In re Dervos, 37 B.R. 731

(Bankr. N.D. I11l. 1984); United States v.

Caddell, 830 F.2d 36, 39 (5th Cir. 1987); |

and In re Pelligrino, 42 B.R. 129, 135

(Bankr. D. Conn. 1984).

In Caddell, the Fifth Circuit

expressly rejected the contention that such

a payment is preferential. In fact, it

felt that this argument was "squarely

precluded" by this Court’s opinion in

Kelly. Caddell, 830 F.2d at 39. See also

In re Fussell, 928 F.2d 712, 717 (5th Cir.

1991).

In Pennsylvania Welfare Department

—_ 110 S.Ct. 2126, 2132 (1990),

this Court indicated that §362(b)(1) does

not necessarily exempt governmental efforts

to collect a restitution obligation from a

28

debtor from the automatic stay. However,

this Court’s interpretation of

Congressional intent in Davenport has been

contradicted by Congress its.wlf, which

quickly amended the Bankruptcy Code in the

wake of the decision in Davenport,

Pub.L.10i1-647, T.XXxI §3103, 104 Stat. 496

(codified as amended at 11 U.S.c.

§1328(a)(3) (Supp. 1991)).

The State respectfully submits that

enforcement of a criminal restitution

obligation or the payment of restitution

under a prosecution deferral statute such

as Alabama’s is permitted by §362(b) (1)

during a bankruptcy proceeding, and that it

is completely anomalous to hold that such a

payment constitutes an avoidable preference.

In Kelly, this Court focused on the

state’s purpose and intent in imposing

restitution obligations in determining that

such obligations were for the benefit of

the state and not the victim. Even if the

29

focus is shifted to the defendant’s

purpose, however, it is apparent that the

restitution agreement and payment in this

case does not constitute a preferential

transfer under the terms of the Bankruptcy

Code. Gann obviously made the payment not

on account of the antecedent debt (the

obligation of Car Renovators to pay for the

supplies and parts purchased), but rather

to avoid continuation of the criminal

prosecution against himself and the

attendant possibility of conviction and

even incarceration. The payment was not

even by or on behalf of the debtor

corporation. See In re D.A.C. Meats, Inc.,

8 B.R. 230, 232-233 (Bankr. S.D. N.Y.

1981); Lewis v. Diethorn, 893 F.2d 648, 650

(3rd Cir. 1990); and In re Chase, 43 B.R.

739, 745 (Bankr. D. Md. 1984).

30

Il. THIS CASE PRESENTS AN IMPORTANT

QUESTION OF FEDERAL LAW WHICH HAS

NOT BEEN BUT SHOULD BE DECIDED BY

THIS COURT.

Probably every state in the union

has a worthless check statute. Several

have statutorily authorized the deferral of

adjudication and/or of prosecution in

conjunction with the payment of

restitution. ? Others reach the same

result without specific statutory

authorization.

Diversionary programs of this type

exist at both the state and federal

levels. They are beneficial to first time

and young offenders to prevent the cloud of

a criminal record from affecting the

individual’s life. They also benefit the

government by providing an appropriate

2See, e.g., IND. CODE §33-14-1-7

(1985 & Supp. 1991); OKLA. STAT. tit. 22,

§111, et seq. (1991); ARIZ. REV. STAT. ANN.

§13-1810 (1989); CAL. PENAL CODE §1001.60,

et seq. (Supp. 1992); and W.VA. CODE

§61-3-39, et seq. (1989).

31

a

disposition of certain criminal prosecutions

while also reducing clogging of the court

system and avoiding the expense of

prosecuting through to adjudication.

The issue in this case is related to

the issue that this Court decided in Kelly v.

Robinson, 479 U.S. 36 (1986). At least two

federal courts have reached decisions

contrary to that of the Eleventh Circuit in

this case. See In re Nelson, 91 B.R. 904

(Bankr. N.D. Cal. 1988); and United States v.

Caddell, 830 F.2d 36, 39 (5th Cir. 1987).

On the basis of the foregoing and in

light of the consequences of the Eleventh

Circuit’s opinion discussed earlier in this

brief, the State submits that this case

presents an important question of federal law

which has not been but should be decided by

this Court.

32

CONCLUSION

For the reasons stated by Petitioner

and for the reasons stated herein, the

petition for writ of certiorari to the

United States Court of Appeals for the

Eleventh Circuit should be granted and the

decision below should be reversed by this

Honorable Court.

Respectfully submitted,

JAMES H. EVANS

Attorney General of the

State of Alabama

MARGARET SCHOLTEN CHILDERS

(Counsel of Record)

Assistant Attorney General

Office of the Attorney General

11 South Union Street

Montgomery, Alabama 36130

(205) 242-7300

0410H

33

:

APPENDIX*

“The verbatim text of other U.S. Code

and Alabama Code provisions referred to

herein are contained in the Appendix to

the Petition For Writ Of Certiorari.

Nl

ol

.

7

. oa 5 —————

ALA. CODE 1975

§13A-5-7. SENTENCES OF IMPRISONMENT FOR

MISDEMEANORS AND VIOLATIONS.

(a) Sentences for misdemeanors shall

be a definite term of imprisonment

in the county jail or to hard labor

for the county, within the following

limitations:

(1) For a Class A misdemeanor,

not more than one year.

(2) For a Class B misdemeanor,

not more than six months.

(3) For a Class c misdemeanor,

not more than six months.

(b) Sentences for violations shall

be for a definite term of imprison-

ment in the county jail, not to

exceed 30 days. (Acts 1977, No. 607,

pP.812, § 1230; Acts 1978, No. 770 p.

1110.)

ALA. CODE 1975

§ 13A-5-12. FINES FOR MISDEMEANORS AND

VIOLATIONS

(a) A sentence to pay a fine for

a misdemeanor shall be for a

definite amount, fixed by the court,

within the following limitations:

(1)

(2)

(3)

(4)

For a Class A misdemeanor,

not more than than

$2,000.00;

For a Class B misdemeanor,

not more than $1,000.00;

For a Class C misdemeanor,

not more than $500.00; or

Any amount not exceeding

double the pecuniary gain

to the defendant or loss

to the victim caused by

the commission of the

offense.

(b) A sentence to pay a fine for a

violation shall be for a definite

amount, fixed by the court, not to

exceed $200.00, or any amount not

exceeding double the pecuniary gain

to the defendant or loss to the

victim caused by the commission of

the offense.

(c) As used in this section,

"gain" means the amount of money or

the value of property derived from

the commission of the crime, less

the amount or money or the value of

property returned to the victim of

the crime or seized or surrendered

to lawful authority prior to the

time sentence is imposed. "Value"

shall be determined by the standards

established in subdivision 14 of

section 13A-8-1.

(d) The court may conduct a

hearing upon the issue of

defendant’s gain or the victim’s

loss from the crime according to

procedures established by rule of

court. (Acts 1977, No. 607, p. 812

§ 1245; Act 1979, No. 79-471, p.

862, § 1.)

UNITED STATES CODE

TITLE 11

Section 362. Automatic Stay

(b) The filing of a petition under

section 301, 302, or 303 of this

title (11 uScS §§ 301, 302, 303], or

Of an application under section

5(a) (3) of the Securities Investor

Protection Act of 1970 (15 U.S.c.

78eee (a) (3)) et USCS §78eee(a) (3) ],

does not Operate as a Stay -

(1) under subsection (a) of this

section, of the commencement

or continuation of a criminal

action or proceeding against

the debtor;