Why Arent Bail Bond Forfeitures Forfeitures

Journal Issue

Dec/Jan 2001

Column Name

Journal HTML Content

"[A] word...means just what I choose it to mean—neither more nor less."<a href="#1" name="1a">1</a>

Protecting the people from debtors charged with criminal offenses has long convinced
courts of the need to except debts imposed in criminal cases from discharge despite
the ambiguous wording of the law. As the judge stated in <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Moore, 111 F.
145, 148-149 (W.D. Ky. 1901)</a>:

<blockquote>
It may suffice to say that nothing but a ruling from a higher court would
convince me that Congress, by any provision of the bankrupt act, intended to
permit the discharge...of any judgment rendered by a state or federal court
imposing a fine in the enforcement of criminal laws... The provisions of the
bankrupt act [do not deal with] punishment inflicted pro bono publico for crimes
committed."
</blockquote>

The Supreme Court echoed that view in <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Robinson, 479 U.S. 36,
47 (1986)</a>:

<blockquote>
Our interpretation of the Code also must reflect the basis for this judicial
exception, a deep conviction that federal bankruptcy courts should not invalidate
the results of state criminal proceedings. The right to formulate and enforce
penal sanctions is an important aspect of the sovereignty retained by the states.
This court has emphasized repeatedly "the fundamental policy against federal
interference with state criminal prosecutions." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Harris, 401 U.S.
37, 46, 91 S.Ct. 746, 751, 27 L.Ed.2d 669
(1971)</a>.
</blockquote>

Not only was the mere possibility that a state might be forced to defend its
criminal judgments offensive to a proper federal-state relationship, but the court also
emphasized that the Code must protect criminal monetary judgments that would not
otherwise fall under §523. (Negligent homicide, for instance, would not involve
the conscious wrongdoing needed to trigger §523(a)(6), but a criminal fine would
still be non-dischargeable.) In short, it held, "fine, penalty and
forfeiture...preserves from discharge any condition a state criminal court imposes as
part of a criminal sentence." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S. at 50</a>.

Yet, in spite of the court's strongly expressed concerns, a new problem has
arisen. Two circuit courts and a district court have held that forfeitures of bonds
posted by third parties are not "forfeitures" under §523(a)(7). <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Collins,
173 F.3d 924 (4th Cir. 1999)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Hickman, 260 F.3d 400
(5th Cir. 2001)</a>; <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Gi Nam, 254 B.R. 834 (E.D. Pa.
2000)</a>.<a href="#2" name="2a">2</a>

Those courts concede that "in common parlance, and consistently throughout history,
the label 'forfeiture' has been affixed to a bail bond debt" and that meaning of the
term is "evidenced by the dictionary definition of forfeiture as well as the term's
use in state and federal statutes." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; 260 F.3d at 402</a>. They have
refused to stop there, however. They note that decisions have limited the breadth of
§523(a)(7) by reading the language in Kelly (which held that the section as
applied to all "penal sanctions") to mean that only penal sanctions are covered.

The problem with that approach, though, is that Kelly was describing why
§523(a)(7) should be expanded beyond its literal meaning. Nothing therein suggests
that the court meant to limit the section to less than a literal meaning in criminal
cases. The Fifth Circuit conceded that the statement from Kelly could not be relied
on to read bail bond forfeitures out of §523(a)(7). Instead, the court seized
on Kelly's description of §523(a)(7) as "ambiguous" to justify employing tools
of statutory construction to discover what it really means. However, unlike the
Supreme Court, which looked to the concerns of the criminal system in analyzing its
impact, the Fifth Circuit only looked to the Code for the relevant policy goals.

Initially, it cited the canon noscitur a sociis ("a word is known by the company
it keeps") to show that it must limit the meaning of "forfeitures" to be consistent
with the meaning of "fines" and "penalties." This, however, proved to be less than
helpful in its quest. A "penalty" is, to be sure, defined as a punishment for a
wrong but it is also defined as "money which the obligor of a bond undertakes to pay
in the event of his omitting to perform or carry out the terms imposed on him by
the...bond" and "excessive liquidated damages that a contract...imposes on a
[breaching] party." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… F.2d at 403</a>. Those latter aspects could, or course,
easily fit a bail bond forfeiture. The definition of a "fine," though, was limited
solely to amounts imposed as punishment, and the court triumphantly concluded that since
the definitions of fines and penalties were based at least in part on debtor
misconduct, this "implies that Congress intended to limit the section's application to
forfeitures imposed upon a wrongdoing debtor." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… F.3d at 404</a>. (That
implication is less than clear though, since at best, the decisions on this topic
appear to be evenly split.)

Even if the definitions did support the court's position, the problem with its
analysis is that there are other equally applicable canons, such as the one that
states that every word in a statute should be given its own meaning and that
redundancy should not be presumed. Since only "penal" forfeitures qualify, who needs
that term at all? How is a penal forfeiture any different than a simple penalty?
And if it isn't, then why use a third term at all? The inclusion of that added
language can equally imply that Congress meant to include more debts than covered by
fines and penalties.

The Fifth Circuit further argued that since "the majority" of discharge exceptions
relate to wrongdoing by the debtor, it should be assumed that this section must be
so limited as well and cited the Supreme Court as holding that "the basic purpose"
of bankruptcy was to give the debtor a fresh start. If so, this too dictated that
exceptions should be construed as narrowly as possible.

There are several problems with those arguments as well. First, many discharge
exceptions, such as those for taxes, student loans and domestic support, do not
involve any wrongdoing in the incurral of the debts. Second, the Supreme Court
quotation is not from a case dealing with forfeiture issues (or even the criminal
justice system); it is discussing the far less policy-laden topic of what should be
deemed to be property of the estate. And, finally, the citation is somewhat suspect
in that it is in a case that did not even receive full argument and misquotes the
prior Supreme Court case that it purports to cite to. (That earlier case had said
the fresh start was merely "one" of the primary goals of the Code. Another,
surely, is ensuring that other societal goals are not undermined by an overly broad
fresh start. See <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Garner, 498 U.S. 279, 286-287
(1991)</a>.)

The Fifth Circuit then reviewed the Texas law. It held first that the state law
label for the debt was irrelevant, but that so too was the fact that the debt was
based on a contract (a fact that the Fourth Circuit, on the other hand, had found
quite significant in Collins). The court noted that this debt differed from a typical
contract debt in that the amount at issue bore no relation to any actual loss suffered
by the states, so that under contract law it would be an "impermissible penalty or
forfeiture clause (emphasis added)." In addition, unlike other contracts, bail "is
an integral and essential tool in the administration of the states' criminal justice
system." <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… F.3d at 406</a>.

Then, even though it initially rejected the significance of the contractual nature
of the debt, the court made an about-face and held that the contractual nature of
a surety's debt was a basis for discharging it. Unlike restitution, which was meant
to protect citizens by punishing or rehabilitating the debtor, this contractual debt,
the court held, was just another form of damages that are normally dischargeable. The
court dismissed the state's policy concerns about the effect of its holding on
administration of its criminal justice system in a single paragraph. While the state's
position was "not wholly unpersuasive" and the court had agreed that bail bonds were
an "integral and essential tool," the court held that the state was reading Kelly too
broadly. While bankruptcy should be allowed to disrupt the states' penal, rehabilitative
and deterrent goals by releasing a criminal from his debts,"such a concern does not
exist with respect to a surety's debt for forfeiture of a bond."

That dismissive view of the state's concerns seems inadequate.<a href="#3" name="3a">3</a> It is difficult
to see how a state can achieve any "penal, rehabilitative and deterrent goals" if it
cannot ensure the presence of a criminal suspect to whom those goals will be applied
upon conviction. Bail is designed to allow suspects freedom pending trial, in light
of their presumed innocence, while ensuring that they will appear at trial.
Considering the dire results of a conviction, many criminals would undoubtedly disappear
if they could while on bail. The reasons why they do not are presumably two-fold;
if the bond is posted by a relative as in the Gi Nam case, the criminal is
presumed to want to avoid inflicting a crushing financial burden on his family. On
the other hand, if the bond is put up by an agency, as in Collins and Hickman,

that agency is expected to keep track of the suspect and to bring him back, by force
if necessary, if he does not appear voluntarily. The agency's knowledge that it will
be responsible for the full amount of the bond if it fails to ensure the suspect's
presence is an incentive for it to perform its monitoring and retrieval duties zealously
(cf. the '80s television show, "The Fall Guy").

Under either scenario, all parties know that a severe financial penalty will be
visited upon the debtor if the suspect does not appear. If the certainty of that
result vanishes, the efficacy of the system must suffer. The district court in Gi
Nam viewed it as significant that the bond did not literally require the debtor to
produce his son so he had not actually violated its terms or been proven to have done
anything wrong when the son absconded. But the system does not rely on having
relatives force the suspect into court; rather, it is intended to make the suspect
face the financial consequences his family will face, regardless of their own
culpability. That coercive effect is greatly diminished if 90 percent of the debt
can be discharged. The district court in Gi Nam thought the loss of the original
$100,000, and the adverse effects on the father's credit in the future,<a href="#4" name="4a">4</a> were
sufficient incentives to keep the son from fleeing and the father from helping him do
so. Yet, the fact is that the state court (correctly, it seems) thought $1
million was needed to make the debtor appear, not just $100,000. Discharging
90 percent of that amount makes bankruptcy courts, not criminal courts, the arbiters
of what is needed to ensure defendant's presence.

These decisions pose a myriad of other practical problems. For instance, if states
cannot fully enforce bail bonds, they will need to either greatly increase the face
value of the bonds or force debtors to post the full amount up front. Either
reaction will result in more people being held in jail awaiting trial, a situation
that benefits neither the state nor defendants. In addition, limiting §523(a)(7)
only to debts that have some flavor of moral wrongdoing causes other problems as well.
What of laws that forfeit assets even where one owner has done no wrong? In <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…
v. Michigan,</a><a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; 516 U.S. 442 (1996)</a>, the Supreme Court upheld the
forfeiture of the family car—which was used by the husband to cruise a red-light
district, even though the wife was innocent. Does bankruptcy override that law? And
how does the insistence on moral guilt square with the statement in Kelly that criminal
fines for negligent homicide are excepted, even though the debtor did not act willfully
or maliciously? Is every state penalty now up for review to see if there has been
enough "wrongdoing" to qualify? (The Fifth Circuit explicitly said its reasoning
applied to penalties and forfeitures.) If a nursing home owner is penalized because
staff skipped work on inspection day, is the penalty dischargeable if a bankruptcy
court thinks the operator wasn't to blame because staffing ratios were violated? If
the corporate veil is pierced and a penalty imposed on an individual for corporate
wrongdoing, is that debt now dischargeable? <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…. v. WRW Corp., 936 F.2d
138, 144 (6th Cir. 1993)</a>, says it is not, but is that still true?
Where is the line?

Judge Learned Hand said it best in <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Caponigri, 193 F.291
(S.D.N.Y. 1912)</a>:

<blockquote>
The recovery on a recognizance for bail is essentially the recovery of a
penalty, and is a forfeiture... [The bond] had...no relationship to a loss
suffered by the United States or anything given by it; for it is perverted to
regard the failure to try the defendant as being valued by the United States at
so much money, or his temporary freedom from arrest as being exchanged for the
sum of his recognizance...
</blockquote>

The states agree, so why not let the statute just mean what it says?

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> The quote is by Humpty Dumpty as reported in Through the Looking Glass. The remainder of the views herein are those of the author,
and should not be taken as those of the National Association of Attorneys General, any individual attorney general or staff. <a href="#1a">Return to article</a>

<a name="2">2</a> Two cases involved a bail bond agency; the last involved the suspect's father. <a href="#2a">Return to article</a>

<a name="3">3</a> Perhaps the most telling proof of the court's lack of real concern over these issues is its final footnote, which conceded that those
goals would only "arguably" be undermined if the suspect was the party posting the bond. That a court could find it debatable that bail owed
by an absconding criminal defendant should be non-dischargeable speaks volumes. The district court was not much more impressed by the city's
policy in Gi Nam. It held that the city could not rely on policy arguments to alter the meaning of the Code—even though the city was
asking for only a literal reading of the Code—yet the court had earlier relied on policy concerns to justify narrowing the Code to exclude
matters that it explicitly covered. The contrast in approach is startling. <a href="#3a">Return to article</a>

<a name="4">4</a> It is difficult to imagine many fathers struggling to decide between a bad credit report and the possibility that a son will be imprisoned
for life or executed, but perhaps some do exist. <a href="#4a">Return to article</a>

Journal Authors

Karen Cordry

Journal Date

Saturday, December 1, 2001 - 12:00

Bankruptcy Rule

2001