The obligation of a police officer to repay salary after being convicted of a crime is a nondischargeable debt, according to Bankruptcy Judge Kathryn C. Ferguson and District Judge Michael A. Shipp of Trenton, N.J.
Affirming Judge Ferguson’s decision, the September 28 opinion by Judge Shipp holds that the obligation to repay salary was not compensation for pecuniary loss. Rather, it was penal and thus nondischargeable, even though measured by the former officer’s salary.
The decision was based on Supreme Court authority that has been criticized recently for departing from the language of Section 523(a)(7).
Salary Paid During Suspension After Arrest
A Newark police officer was arrested and charged with several crimes related to theft and disclosure of data taken from the department’s computers. The city suspended the officer without pay.
In a grievance hearing, the arbitrator ruled for the officer and gave the department the option of reinstating the officer pending resolution of the criminal case or suspending him with pay. The city elected suspension with pay.
Eventually, the officer pled guilty to computer theft. He was sentenced to two years of probation. During suspension, he had been paid $360,000 in salary.
A New Jersey statute provides that a police officer found guilty of a crime must reimburse the city for salary paid during suspension.
To avoid repaying his salary, the officer filed bankruptcy, but the city sued for a declaration that the obligation to repay $360,000 was nondischargeable under Section 523(a)(7). The section provides that a debt is nondischargeable “to the extent such debt is a fine, 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.”
On cross motions for summary judgment, Judge Ferguson ruled in favor of the city and held that the debt was not discharged. The officer appealed.
The Issues on Appeal
The appeal raised two issues: (1) Was the repayment obligation a fine, penalty, or forfeiture; and (2) was the obligation in compensation for pecuniary loss?
On the first question, Judge Shipp said that “forfeiture” means the divestiture of property without compensation. For him, the obligation to repay salary was forfeiture, “quite clearly.”
The second question was more complex, because the obligation was measured by the salary that the officer had received while suspended and thus seems like compensation for pecuniary loss.
Judge Shipp quoted Judge Ferguson, who had held that repaying salary is not dispositive if the primary purpose of the obligation was penal. For that principle, he cited the Supreme Court for holding that an obligation to repay wrongfully paid welfare benefits was nondischargeable because the primary purpose was rehabilitative and penal, not compensatory. Kelly v. Robinson, 479 U.S. 36 (1986).
Judge Shipp said that the police officer was not an honest debtor suffering from “financial overextension.” Allowing him to retain the salary he was paid after arrest, he said, would produce an “absurd result.”
Judge Shipp affirmed Judge Ferguson and held that the obligation was nondischargeable because “the primary purpose of the Debt is clearly penal.”
Criticism of Kelly
The Ninth Circuit has been in the forefront in criticizing Kelly for substituting the Supreme Court’s sensibilities for the language of the statute.
In June, Circuit Judge Patrick J. Bumatay said that Kelly was based on the Supreme Court’s “deep conviction” rather than the statutory language. “Like other relics of the 1980s, such as big hair, jam shorts, and acid-wash jeans,” he said that “Kelly’s atextual interpretative method should not come back into fashion.” Albert-Sheridan v. State Bar of California (In re Albert-Sheridan), 960 F.3d 1188, 1195 (9th Cir. June 10, 2020). For ABI’s report, click here.
Four years earlier, the Ninth Circuit indirectly said that the Supreme Court should revisit and overrule Kelly. Circuit Judge John B. Owens said that Kelly was “untether[ed] [from] the statutory language.” Scheer v. State Bar of California (In re Scheer), 819 F.3d 1206, 1219 (9th Cir. April 14, 2016). For ABI’s report, click here.
The obligation of a police officer to repay salary after being convicted of a crime is a nondischargeable debt, according to Bankruptcy Judge Kathryn C. Ferguson and District Judge Michael A. Shipp of Trenton, N.J.
Affirming Judge Ferguson’s decision, the September 28 opinion by Judge Shipp holds that the obligation to repay salary was not compensation for pecuniary loss. Rather, it was penal and thus nondischargeable, even though measured by the former officer’s salary.
The decision was based on Supreme Court authority that has been criticized recently for departing from the language of Section 523(a)(7).
Salary Paid During Suspension After Arrest
A Newark police officer was arrested and charged with several crimes related to theft and disclosure of data taken from the department’s computers. The city suspended the officer without pay.
In a grievance hearing, the arbitrator ruled for the officer and gave the department the option of reinstating the officer pending resolution of the criminal case or suspending him with pay. The city elected suspension with pay.