UNITED STATES CO URT O F APPEALS
TENTH CIRCUIT
In re: JASON DEREK TROFF,
Debtor, _________________________
JASON DEREK TROFF, No. 05-4244 Plaintiff-Appellant,
v.
STA TE O F UTA H, RICH ARD ELLIS, in his official capacity as Executive Director of the Utah Department of Administrative Services; and DAVID JO HNSON III, in his official capacity as Interim Director of the Office of State Debt Collection,
Defendants-Appellees.
OR DER ON REHEARING
Before H E N RY , M cW IL LIA M S, TYM KOVICH, Circuit Judges.
Jason Derek Troff has filed a petition for panel rehearing, in part, to clarify
factual statements in In Re Troff, 479 F.3d 1213 (10th Cir. 2007), concerning the
amount of damage his arson caused. Specifically, M r. Troff observes that the
record does not support the $800,000 figure, and he asks that we omit it. Upon consideration, the court grants the petition for rehearing for the
limited purpose of excluding the $800,000 figure. The petition is denied in all
other respects. An amended opinion is attached to this order.
Entered for the Court,
Robert Henry Circuit Judge
2 F I L E D United States Court of Appeals Tenth Circuit PUBLISH March 15, 2007 UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT
Debtor. ________________________ No. 05-4244 JASON DEREK TROFF,
Plaintiff-Appellant,
STA TE O F UTA H, RICH ARD ELLIS, in his official capacity as Executive Director of the Utah Department of Administrative Services; and DAVID JO HNSON III, in his official capacity as Interim Director of the Office of State Debt Collection,
Appeal from the United States District Court for the District of Utah (D.C. No. 2:05-cv-382 BSJ)
M ichael F. Thomson, Durham Jones & Pinegar, Salt Lake City, Utah, for Plaintiff-A ppellant.
Nancy L. Kemp (M ark L. Shurtleff with her on the brief), Utah Assistant Attorney General, Salt Lake City, Utah, Attorneys for Defendants-Appellees.
Before H ENRY, M cW ILLIAM S, and TYM KOVICH, Circuit Judges. H ENRY, Circuit Judge.
This appeal raises the question of w hether 11 U.S.C. § 523(a)(7) permits a
debtor in a Chapter 7 bankruptcy proceeding to discharge a restitution obligation
imposed as part of a state criminal sentence and payable to a private individual.
Exercising jurisdiction pursuant to 28 U.S.C. § 158(a) and (d), we affirm the
district court and hold that the debt is not dischargeable.
I. Background
In August of 1997, Jason Troff pleaded guilty to arson for setting fire to a
M cDonald’s in Salt Lake City, Utah. The Utah Third District Court stayed a
prison sentence of fifteen years, placed M r. Troff on 36 months’ probation, and
ordered him to pay $239,696 of restitution at a rate of $100 per month as a
condition of his probation. Throughout his probation, M r. Troff made the
monthly payments to the state, and the state forwarded the funds to the victim. In
October of 2000, probation violations prompted the court to extend his probation
an additional 36 months. As with his initial sentence, payment of restitution
remained an express condition of M r. Troff’s probation.
Upon completion of probation, M r. Troff’s restitution obligation was
converted to a civil judgment. He continued making restitution payments until
M arch of 2003. In M ay of that year, M r. Troff filed for bankruptcy under Chapter
7, and the bankruptcy court discharged his restitution obligation. At the time he
2 filed for bankruptcy, M r. Troff had paid only about $8,000 of his $239,696 debt.
Utah appealed the bankruptcy court’s decision, and the district court held that the
restitution obligation was not dischargeable.
II. Standard of Review
The sole issue on appeal is whether § 523(a)(7) permits the discharge of a
restitution obligation imposed as part of a criminal sentence. “In reviewing a
bankruptcy court decision under 28 U.S.C. § 158(a) and (d), the district court and
the court of appeals apply the same standards of review that govern appellate
review in other cases.” In re Hodes, 402 F.3d 1005, 1008 (10th Cir. 2005).
Because this case requires us to determine the meaning of 11 U.S.C. § 523(a)(7),
we review the district court’s decision de novo. United States v. RX Depot, Inc.,
438 F.3d 1052, 1054 (10th Cir. 2006) (“W e review questions of statutory
interpretations de novo.”).
III. Applicable Law
W e begin our analysis with an examination of 11 U.S.C. § 523(a)(7). For
reasons set forth in greater detail below, our analysis does not end with the text.
Next, we discuss Kelly v. Robinson, a Supreme Court case holding that restitution
obligations imposed as part of a criminal sentence are nondischargeable. 479
U.S. 36, 53 (1986). Finally, we examine U tah’s sentencing scheme and M r.
Troff’s sentence in light of Kelly. W e conclude that the same federalism concerns
that gave rise to the Supreme Court’s decision in Kelly are present in this case,
3 and they compel us to conclude that, pursuant to § 527(a)(7), M r. Troff’s
restitution obligation may not be discharged.
A. The Bankruptcy Code
Section 523(a)(7) states in the pertinent part:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt– (7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss . . . .
M r. Troff contends that the plain meaning of this text requires discharge
because the restitution in this case is not “payable to and for the benefit of a
governmental unit” because, although M r. Troff made his monthly payments to
the state, the state forwarded them to the victim. W ere we to apply a strict plain
meaning reading of this statute’s text to the instant case, M r. Troff’s argument
would be stronger. However, the Supreme Court’s decision in Kelly makes clear
that we must look beyond such a reading to federalism concerns and to the history
of this statute.
B. Kelly v. Robinson
In Kelly, the Supreme Court addressed a question almost identical to the
one here. M s. Robinson was convicted of larceny after she wrongfully accepted
nearly $10,000 in welfare benefits from the State of Connecticut. 479 U.S. at 38.
The sentencing judge ordered M s. Robinson to make restitution to the state as a
4 condition of probation. M s. Robinson subsequently filed for bankruptcy under
Chapter 7, and the bankruptcy court discharged her court-imposed restitution
obligation. The Supreme Court held that restitution obligations imposed as part
of a criminal sentence were not dischargeable under § 523(a)(7) because
principles of federalism do not permit a bankruptcy court to interfere with a state
criminal sentence. Id. at 53.
The first aspect of Kelly that bears on our decision in this case is the
Supreme Court’s method of statutory interpretation. The Court emphasized that
in the context of the Bankruptcy Code, “the text is only the starting point[],” and
that courts “must consider the language of . . . 523 in light of the history of
bankruptcy court deference to criminal judgments and in light of the interests of
the States in unfettered administration of their criminal justice systems.” Id. at
43. Because federal courts had interpreted bankruptcy laws to avoid conflict with
state criminal sentencing since the inception of bankruptcy, the Court reasoned
that “[i]f Congress had intended, by § 523(a)(7) or by any other provision, to
discharge state criminal sentences, we can be certain that there would have been
hearings, testimony, and debate concerning consequences so wasteful, so inimical
to purposes previously deemed important, and so likely to arouse public outrage.”
Id. at 51 (internal quotation marks omitted).
The Kelly Court noted that its decision rested on the same “‘fundamental
policy against federal interference with state criminal prosecutions’” that was at
5 the core of the Court’s holding in Younger v. Harris. Id. at 47 (quoting Younger
v. Harris, 401 U.S. 37, 46 (1971)). In Younger, the Court concluded that federal
courts could enjoin state criminal prosecutions in only extraordinarily rare
circumstances. 401 U.S. at 53-54. W riting for the Younger Court, Justice Black
explained that state control over criminal justice was a lynchpin in the unique
balance of interests he described as “Our Federalism.” Id. at 44.
[Federalism] represent[s] a system in which there is sensitivity to the legitimate interests of both State and National Governments, and in which the National Government, anxious though it may be to vindicate and protect federal rights and federal interests, always endeavors to do so in ways that will not unduly interfere with the legitimate activities of the States.
Id.
To avoid conflict with state criminal justice systems, the Kelly Court
broadly interpreted § 523(a)(7)’s requirement that in order to be non-
dischargeable, a “fine, penalty, or forfeiture” must be “payable to and for the
benefit of a governmental unit and [] not compensation for actual pecuniary loss.”
Kelly, 478 U.S. at 52. The Court explained that although restitution often focuses
on money owed to a non-governmental victim,
[t]he criminal justice system is not operated primarily for the benefit of victims, but for the benefit of society as a whole. . . . Although restitution does resemble a judgment for the benefit of the victim, the context in which it is imposed undermines that conclusion. . . . Unlike an obligation which arises out of a contractual, statutory, or common law duty, here the obligation is rooted in the traditional responsibility of a state to protect its citizens by enforcing its criminal statutes and to rehabilitate an offender . . . .
6 Id. (internal quotation marks omitted). Hence, the Court concluded that any
restitution obligation imposed as part of a state criminal sentence confers a
benefit on a governmental unit. Id. at 53.
IV. Discussion
A. Applicability of Kelly v. Robinson
M r. Troff contends that we ought to confine Kelly to its facts and disregard
much of the opinion as dicta. He maintains that, if read narrowly, Kelly does not
apply here because in M s. Robinson’s case, Connecticut retained M s. Robinson’s
restitution payments. Thus, M r. Troff maintains that the Supreme Court’s broad
interpretation of “for the benefit of a governmental unit” is not applicable in this
case because the payments here are forw arded to the victim.
M r. Troff’s observation that Kelly’s holding reaches beyond its facts is
correct. Yet, the Kelly Court’s reasoning made clear that it would apply the rule
to any obligation imposed as part of a criminal sentence. See Id. at 53 (holding
that “[b]ecause criminal proceedings focus on the State’s interest in rehabilitation
and punishment, rather than the victim’s desire for compensation, we conclude
that restitution orders imposed in such proceedings are ‘for the benefit of’ the
State.”). Furthermore, even if we disagreed with the breadth of Kelly’s holding or
its rationale, we are not free to blaze our ow n trail because “this court considers
itself bound by Supreme Court dicta almost as by the Court’s outright holdings. . .
.” Gaylor v. United States, 74 F.3d 214, 217 (10th Cir. 1996). Thus, Kelly–dicta
7 and all–applies.
B. Restitution Under Utah Criminal Law
Criminal law is axiomatically public law. W hen imposed as part of a
criminal sentence, restitution ensures that offenders pay their debt, not only to
their victims, but also to society. Restitution imposed as part of a criminal
sentence under Utah law is not merely “compensation for [a victim’s] actual
pecuniary loss” under § 523(a)(7); rather, it serves the goals of the state’s
criminal justice system. The Utah code distinguishes between two types of
restitution, complete and court-ordered. Utah Code Ann. § 76-3-201(4)(c) (1999).
Complete restitution is a calculation of the amount necessary to compensate a
victim for all pecuniary losses. Utah Code Ann. § 76-3-201(4)(c)(i) (1999).
Court-ordered restitution–the amount the defendant will be required to pay as part
of his criminal sentence–takes into account not only the amount necessary to
make a victim whole, but also the financial burden on the defendant, his ability to
pay on an installment basis, and “the rehabilitative effect on the defendant of the
payment of restitution and the method of payment.” Utah Code Ann. § 76-3-
201(8)(c) (1999) (current version at Utah C ode A nn. § 77-38a-302(5)(c) (2004))
(emphasis supplied). “[L]ike the Connecticut statute examined in Kelly, this Utah
statute . . . ‘provides for a flexible remedy tailored to the defendant’s situation.’”
Aplt’s App. at 114 (M emorandum Opinion and Order, filed Aug 15, 2006)
(quoting Kelly, 479 U.S. at 53). “Because [Utah’s] criminal proceedings focus on
8 the State’s interests in rehabilitation and punishment, rather than the victim’s
desire for compensation, . . . orders imposed in such proceedings operate ‘for the
benefit of’ the State.” Kelly, 479 U.S. at 53.
C. M r. Troff’s Criminal Sentence
It is uncontroverted that the court-imposed restitution obligation in this
case was part of M r. Troff’s criminal sentence and a condition of his probation.
The Utah state court mandated that M r. Troff comply with seventeen conditions if
he w as to remain out of prison and on probation, one of w hich required that M r.
Troff “[p]ay restitution in the amount of $239,969.” Aplt’s App. at 72 (State of
Utah Protected Progress/Violation Report, filed Oct. 6 2001). W hen the court
extended M r. Troff’s probation in October of 2000, it reiterated that M r. Troff
was to “continue paying restitution.” A plt’s A pp. at 87 (Salt Lake County
Sentencing Report, dated Oct. 30, 2000). 1 Because the court-imposed restitution
obligation was part of M r. Troff’s criminal sentence, M r. Troff’s attempt to
discharge the debt is squarely within the cross-hairs of the Supreme Court’s
decision in Kelly.
1 M r. Troff also maintains that the restitution obligation should be dischargeable because it was converted to a civil judgment after M r. Troff finished serving his probation. Although this conversion may alter the consequences for M r. Troff’s non-payment, it does not change the fact that the court-imposed restitution was part of his criminal sentence.
9 D. Decisions in Other Circuits
Not all courts confronting § 523(a)(7) have looked to legislative history in
construing the term “for the benefit of a governmental unit.” 11 U.S.C. §
523(a)(7). However, the two cases that M r. Troff attempts to apply are clearly
distinguishable from this case. In order to conclude that M r. Troff’s restitution
obligation was dischargeable, the Bankruptcy Court applied In re Tow ers, a
Seventh Circuit decision. 162 F.3d 952 (7th Cir. 1998). In Towers, an Illinois
court found that M r. Towers had violated the Illinois Consumer Fraud and
Deceptive Business Practices Act. Id. at 953. The court assessed a civil penalty
of $50,000 and ordered M r. Towers to pay $210,000 in restitution to the
individuals he had deceived. Id. The Seventh Circuit concluded that the
$210,000 of restitution owed to the individuals was dischargeable because the
funds were not “payable to and for the benefit of a governmental unit” under the
meaning of § 523(a)(7). Id. at 955. Judge Easterbrook, writing for the court,
emphasized that finding otherwise would “torture[] the language of § 523(a)(7).”
Id. at 956.
In In re Rashid, the Third Circuit held that M r. Rashid’s restitution
obligation, imposed as part of a federal criminal sentence before Congress
amended the Bankruptcy Code to extend Kelly to federal criminal proceedings in
1994, was dischargeable under the plain language of § 523(a)(7). 210 F.3d 201,
208 (3rd Cir. 2000). As in Towers, the court held that funds payable to private
10 victims were not “payable to and for the benefit of a governmental unit” under the
meaning of § 523(a)(7). Id. at 207.
Although the Seventh and Third Circuits confined their reading of §
523(a)(7) to the text’s plain meaning, it is important to note that Towers and
Rashid did not require their respective courts to face the federalism concerns that
we confront here and that were paramount to the holding in Kelly because neither
case dealt with a state criminal sentence. In Towers, the fine the bankruptcy court
discharged was a civil matter not issued as part of a criminal sentence pursuant to
the criminal title of the Illinois Code. 162 F.3d at 945. Rashid dealt with a
federal sentence imposed before Congress amended the bankruptcy code to make
such obligations non-dischargeable. 210 F.3d at 204. Because Rashid and Towers
dealt with restitution orders outside the ambit of state criminal sentences, they
were free to disregard the legislative history that animated Kelly and focus on §
523(a)(7)’s text.
E. State and Congressional Reliance on Kelly
Holding that M r. Troff’s restitution obligation is dischargeable w ould
undermine Kelly and disrupt two decades of Congressional reliance on the notion
that the holding applied whether the crime’s victim was the government or a
private individual. Congress has extended the rule of Kelly to federal criminal
restitution orders. Rashid, 210 F.3d at 204. In fact, the Supreme Court’s failure
to expand Kelly met with immediate disapproval in Congress. In Pennsylvania
11 Department of Public Welfare v. Davenport, the Court held that restitution
obligations imposed as part of criminal sentences were dischargeable in Chapter
13 proceedings. 495 U.S. 552, 562 (1990). In the same year the decision was
handed down, Congress overruled Davenport and adopted Kelly’s interpretation
of § 523(a)(7) in enacting the Criminal Victims Protection Act of 1990, Pub. L.
No. 101-581, § 3, 104 Stat. 2865 (enacted Nov. 15, 1990) (codified as 11 U.S.C. §
1328(a)(3)) (excepting from discharge any debt “for restitution, or a criminal
fine, included in a sentence on the debtor’s conviction of a crime”).
Finally, curtailing Kelly would upset the well-settled expectations of state
legislatures and sentencing courts. Utah’s mandatory restitution provisions
reflect the legislature’s judgment that restitution is an important part of any
criminal sentence not only because it forces the criminal to pay for the harm he
caused but because of its rehabilitative effects as w ell. Permitting offenders to
discharge their court-imposed obligations merely because they were no longer on
probation would subvert Utah’s sentencing scheme and allow bankruptcy courts
to “hamper the flexibility of state criminal judges in choosing the combination of
imprisonment, fines, and restitution most likely to further the rehabilitative and
deterrent goals of state criminal justice systems.” Kelly, 479 U.S. at 49 (internal
quotation marks omitted). Had the state criminal court wished to have M r.
Troff’s payments terminate at the conclusion of his probation, it could have
sentenced him accordingly.
12 V. Conclusion
For the foregoing reasons, we A FFIRM the district court and hold that M r.
Troff’s restitution obligation was not dischargeable under § 523(a)(7).
13 05-4244, Troff v. State of Utah
T YM K O VIC H, J., concurring.
I fully concur in Judge Henry’s disposition. I write separately because this
case raises a stark reality I wish to highlight: W hat happens when the Supreme
Court ignores the plain meaning of a statute?
The statute at issue here is not ambiguous or unclear. It prohibits discharge
of debts that (1) arise from a fine, penalty, or forfeiture, (2) are payable to a
governmental unit, and (3) are not compensation for actual victim loss. 11 U.S.C.
§ 523(a)(7). In this case, Troff’s debt fails the second and third elements, and,
one would think, that would be the end of the story.
But the Supreme Court in Kelly v. Robinson, 479 U.S. 36 (1986), tells us
that we should discount the statutory text for policy considerations. The Kelly
Court could easily have ruled as a textual matter in favor of the government in
that case since (1) the recipient of restitution was a governmental agency, not a
private person, and (2) the losses were linked to the state’s welfare program, not
to specific victims. Instead of leaving well enough alone, however, the Court
departed from ordinary textual analysis and followed the lure of policy maker.
Thus, we get odd language from Kelly such as “the text is only the starting point,”
followed by language endorsing a policy assessment— we need figure out what is
“for the benefit of society as a whole.”
I agree with the bankruptcy court below that the Supreme Court overreached in Kelly. I probably would also agree with the Supreme Court that
the better national policy is for state criminal restitution orders to be non-
dischargeable in bankruptcy. But that is not what Congress said in § 523. It is
the Court’s interpretation of the statute that commands that the debtor lose here,
not the language Congress chose to use in the statute. As tempting as it would be
to ignore the Supreme Court’s interpretation of the text in favor of the actual text,
that is not our role at the circuit court level.
In the end, Kelly is a textbook example of the Court ignoring the plain
meaning of a statute to further competing policy goals w ith very good arguments
on each side. It is not altogether clear the Court made the best choice. It appears
nonetheless that Congress over the years has acquiesced in that interpretation, so
perhaps this is a case of “no harm, no foul.” Even so, subject to the vagaries of
stare decisis, the Supreme Court could and should correct its error by taking this
case and narrowing the holding of Kelly to the statutory text.