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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1992
- **Citation:** 504 U.S. 913

## Text

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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;

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0381%3A2. Public record. Not legal advice.