Feyijinmi v. Central Collection Unit

The Fourth Circuit Court of Appeals (the Circuit Court) recently ruled that a probation before judgment qualifies as a conviction and that a sentence includes probation granted before judgment, such that restitution debt based on the probation is excepted from discharge under 11 U.S.C. § 1328(a)(3).  Feyijinmi v. Central Collection Unit, ___ F. 4th ___, 2024 WL 3209930 (4th Cir. June 28, 2024).  To view the opinion, click here.

Facts

Dedre Feyijinmi (the debtor) was found guilty in Maryland state court of welfare fraud and sentenced to three years’ imprisonment.  As allowed under state law, the court deferred the entry of conviction and placed her on three years’ supervised probation.  The court also ordered $14,487.00 in restitution, which was recorded and indexed as a civil judgment.  The debtor paid $890.00 before the court discharged her from probation, at which time the court transferred her outstanding balance to the Central Collections Unit.  The Maryland court subsequently expunged the debtor’s criminal records, but the restitution obligation survived.  The court converted it to a civil matter and ordered garnishment of her wages.

A year later the debtor filed a chapter 13 bankruptcy, scheduling the Central Collection Unit as a creditor.  The state filed a proof of claim, then an amended claim for about $7300.00, describing the debt as “court ordered fees.”  The debtor did not object to the amended claim and the court confirmed her chapter 13 plan   She completed her plan, paying about $800.00 to the state.  The court entered her discharge with an admonishment in the order that some debts, including those for restitution, might not be discharged.  After entry of the discharge, the state threatened to continue collection efforts against the debtor, asserting that the debt was not discharged because it was based on a criminal conviction.  The debtor reopened her case and filed an adversary, asking for a declaration that the debt was discharged.

The bankruptcy court held the restitution debt was nondischargeable under § 1328(a)(3), concluding that the term “conviction” includes any determination of guilt and a “sentence” includes probation granted before judgment.  The district court affirmed and the debtor appealed to the Circuit Court, which affirmed in this published opinion.

Reasoning

Section 1328(a)(3) excepts from the discharge granted upon completion of a chapter 13 plan any debt “for restitution, or a criminal fine, included in a sentence on the debtor’s conviction.”  The Circuit Court recognized that for the debtor to prevail, either she wasn’t convicted or the restitution wasn’t part of a sentence.  It concluded that she lost as a matter of law on both points.

To determine whether a probation-before-judgment disposition was a conviction under the bankruptcy statute, federal law applies.  The Circuit Court noted that neither the Bankruptcy Code itself nor other circuit cases defined “conviction.”  Therefore, it looked to Supreme Court decisions for guidance.  In Dickerson v. New Banner Inst., Inc., 460 U.S. 103, 111-12 (1983), the Court considered whether an expunged state probation-before-judgment disposition after a guilty plea constituted a conviction under federal gun control laws.  The Court said it was, because a defendant cannot be placed on probation unless the court deems him guilty of a crime.  Moreover, in other statutes where entry of a formal judgment was needed for a “conviction,” Congress had specifically provided that condition in the criminal statutes.  Since no such condition was imposed here, the guilty finding was sufficient for a conviction.  Also in Dickerson, the Court held that a state’s expungement of the deferred judgment didn’t nullify the conviction.  Several courts have applied similar reasoning to determine such disposition is a conviction, including the Eighth Circuit BAP in a § 1328(a)(3) case, Wilson v Cumis Ins Soc’y (In re Wilson), 252 B.R. 739, 742 (8th Cir. BAP 2000).  Because the debtor here was placed on probation following a guilty verdict, the probation-before-judgment was a conviction.

The term “sentence” is also not defined in the statute.  Here, the Circuit Court looked to its own precedent in Bernstein v. United States, 254 F. 967, 968 (4th Cir. 1918) to conclude that “sentence” means the consequences resulting from a determination of guilt.  As a result, the Circuit Court held that the restitution was included in a sentence upon the debtor’s conviction, qualifying for exception from discharge under § 1328(a)(3).

The debtor also asserted that because the proof of claim described the debt as “court ordered fees” the state waived its right to nondischargeability of the debt.  The Circuit Court rejected this argument because the description of the debt in the proof of claim clearly demonstrated it was a criminal restitution award.  Moreover, the filing of a proof of claim was not necessary for the determination of nondischargeability.  Such filing allowed the state to participate in the chapter 13 and receive funds under the plan, but the state had no duty to file it at all.

Author’s Comments

By relying on Supreme Court precedent and common sense, the Circuit Court reached the correct conclusion.  The opinion noted that prior to the enactment of the Criminal Victims Protection Act of 1990, Pub. L. No. 101-581, 104 Stat. 2864, § 1328 granted a broad discharge with limited exceptions.  The subsection (a)(3) exception was added by this Act, with the legislative history reflecting that Congress intended to prevent bankruptcy proceedings from invalidating restitution ordered in state proceedings.  Thus, this decision is also consistent with strong Congressional policy.

 [The Commercial Financial Newsletter is written by an ad hoc group of the California Lawyers Association (CLA) Business Law Section.  This article was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, CD CA, ret.), a member of the ad hoc group.  The opinions contained herein are strictly those of the author.].