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In re Milan

United States Bankruptcy Appellate Panel of the Eighth Circuit

September 22, 2016

In re: Jacob Jerome Milan; Ashley Kaye Milan Debtors
v.
Jacob Jerome Milan Defendant-Appellee County of Dakota Plaintiff- Appellant Ashley Kaye Milan Defendant

          Submitted: August 12, 2016

         Appeal from United States Bankruptcy Court for the District of Minnesota - St. Paul

          Before SCHERMER, NAIL and SHODEEN, Bankruptcy Judges.

          SHODEEN, Bankruptcy Judge.

         County of Dakota appeals the bankruptcy court's[1] order and judgment discharging the debt owed to it by Jacob Milan for costs incurred related to his incarceration. We have jurisdiction of this appeal from entry of the bankruptcy court's final order pursuant to 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.

         BACKGROUND

         The Dakota County Jail is operated by the Dakota County Sheriff's Office ("DCSO"). Room and board costs for each prisoner in its custody exceed $100 per day. The DCSO imposes a fixed rate for a portion of these costs against criminally convicted inmates ("Incarceration Costs"), commonly referred to as "pay to stay" that is expressly authorized under Minnesota law.[2] The current rate of $25 per day was proposed by the DCSO and approved by the Dakota County Board.

         Over the course of several years Milan was incarcerated in the Dakota County Jail for a cumulative 179 days following various criminal convictions. In 2014, Milan filed a Chapter 7 bankruptcy petition which included his Incarceration Costs as a non-priority unsecured debt. Dakota County filed an adversary proceeding seeking to have its debt in the amount of $3, 504.77 excepted from discharge pursuant to 11 U.S.C. § 523(a)(7).

         Cross motions for summary judgment were filed by the parties. Dakota County's motion for summary judgment was denied and summary judgment was granted in favor of Milan based upon the bankruptcy court's determination that the Incarceration Costs did not meet the statutory requirements to be excepted from discharge under the statute.

         STANDARD OF REVIEW

         This appeal arises from entry of an order and judgment on cross motions for summary judgment involving an issue of statutory interpretation, which are both subject to de novo review. See Behlmann v. Century Sur. Co., 794 F.3d 960, 962 (8th Cir. 2015); Roubideaux v. N.D. Dep't of Corr. and Rehab., 570 F.3d 966, 972 (8th Cir. 2009).

         DISCUSSION

         The bankruptcy code precludes discharge of a debt for a fine, penalty or forfeiture owing to a governmental unit[3] unless it is pecuniary in nature. See 11 U.S.C. § 523(a)(7); Kelly v. Robinson, 479 U.S. 36 (1986). Whether a debt is dischargeable based upon these factors is easily determined when the words "fine, penalty, or forfeiture" appear as the basis for the debt or when the obligation arises in the context of a criminal proceeding or is contained in a court order. Id. at 50-53. Because the Incarceration Costs are not identified as a fine or penalty, were not ordered by the state criminal court, and were not a condition of Milan's sentence, the procedural and substantive characteristics of the debt must be examined to determine whether the discharge exception under § 523(a)(7) applies.

         1. Fine, Penalty or Forfeiture

         We agree with Dakota County that 11 U.S.C. § 523(a)(7) does not require a court order to impose a debt with the characteristics of a fine or penalty. See Lopez v. First Judicial Dist. of Pa. (In re Lopez), 579 F.App'x. 100, 103 (3d Cir. 2014) (citing In re Gi Nam, 273 F.3d 281, 287 (3d Cir. 2001)). To be excepted from discharge such a debt must be penal in nature, and must serve some punitive or rehabilitative governmental aim which may be shown directly through statutory or regulatory language that indicates an intent to punish a debtor. Neb. ex rel. Linder v. Strong (In re Strong), 305 B.R. 292, 296 (B.A.P. 8th Cir.); In re Miller, 511 B.R. 621, 631 (Bankr. W.D. Mo. ...


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