State Court May Order Criminal Restitution Relating to Discharged Debt

Posted by NCBRC - October 2, 2019

The Pennsylvania Supreme Court held that its criminal law permits an order of restitution even though it relates to a debt that was discharged in chapter 7 bankruptcy. Commonwealth v. Petrick, No. 47 MAP 2018 (Pa. Sept. 26, 2019).

The issue came before the Court from the state superior court where the Appellant argued that his sentence for restitution was illegal because the underlying debt had been discharged in bankruptcy. The Court “granted allocatur . . . to address the effect a discharge of a civil debt by a federal bankruptcy court has on the authority of a state trial court to order mandatory restitution as part of a sentence in a criminal case involving the same obligation.”

The Appellant was a contractor who accepted $4,950 to do renovations on the home of a woman and her adult son. After beginning the work, he failed to complete it, at first promising to come back with more workers at a later date, then promising to repay the money he had been paid. He did neither. He then filed for chapter 7 bankruptcy listing the woman and her son as creditors. While the bankruptcy was pending, criminal charges were brought against the Appellant relating to the renovations case. The state court found the Appellant guilty of theft by deception and sentenced him to a prison term. The court further ordered $6,700.00 in restitution. He was granted discharge in his bankruptcy case and, one year later, denied a retrial in his criminal case.

Section 523(a)(7) provides that a “fine, penalty, or forfeiture payable to and the for the benefit of a governmental unit, and . . . not compensation of actual pecuniary loss” is excepted from discharge. The question, therefore, was whether the order of restitution in this case was for the benefit of the government or was intended to compensate the victims for their loss.

In Kelly v. Robinson, 479 U.S. 36 (1986), the Supreme Court held that an order of restitution that is intended for rehabilitative purposes rather than to compensate the victim, does not revive a discharged debt but is a separate and distinct obligation. Relying on that case, the court in Commonwealth v. Shotwell, 717 A.2d 1039 (Pa. Super. 1998), held that an order of restitution in a criminal case, where the order comes after the defendant has had the debt discharged in bankruptcy, is a distinct obligation designed to benefit the state rather than the creditor and is therefore separate from the discharged debt.

Here, the Appellant pointed out that, after the decision in Shotwell, the Pennsylvania criminal statute had been amended to make restitution mandatory and no longer tied to the defendant’s ability to pay. The Appellant argued that the statute, which now provides that the court “shall order the defendant to compensate the victim” is no longer designed for rehabilitative purposes but is explicitly intended to benefit the victim and, for that reason, the analysis in Shotwell is no longer applicable. The Appellant distinguished Kelly on the bases that Kelly involved a bankruptcy petition filed after the restitution order had issued and restitution was tied to the defendant’s ability to pay rather than to the monetary loss of the victim. The Appellant argued that when the state legislature amended the criminal restitution statute to make restitution mandatory and tied to the amount of the victim’s loss rather than the defendant’s ability to pay, it made a previously rehabilitative statute compensatory.

Amici in support of the Appellant, including NCBRC and the NCLC, urged application of a five-part test for determining whether a criminal restitution order constitutes a revival of a discharged debt. The test would have the court look at:

“(1) whether the statute, rule, or judgment imposing the restitution obligation is compensatory or rehabilitative in nature, (2) whether the proceeding resulting in the imposition of the restitution obligation was initiated at the request of private creditors of the debtor, (3) whether the prosecutor’s office conducted an independent investigation into the criminal charges, (4) whether the proceeding resulting in the imposition of the restitution obligation was commenced after the debtor received a discharge in bankruptcy, and (5) whether the beneficiaries of the restitution obligation had notice of the debtor’s bankruptcy proceeding and an opportunity to assert their claims in the bankruptcy court and object to the discharge of their claims.”

The court rejected this test noting that Pennsylvania caselaw, such as Commonwealth v. Brown, 981 A.2d 893, 895–96 (Pa. 2009), had made clear that the amended restitution law was intended for rehabilitation purposes with victim compensation being only a secondary consideration. Because restitution was deemed separate from the discharged debt, the court reasoned that the timing of the restitution order in relation to the bankruptcy discharge, as well as the level of participation the victim had in the criminal proceeding, were irrelevant.

In sum, the court held that “the Legislature did not alter the rehabilitative, enforcement, deterrent and other purposes for restitution orders in criminal sentencing by making such orders mandatory. The Legislature allowed for consideration of a defendant’s ability to pay by a court when considering a defendant’s compliance with the order. Because the mandatory restitution order serves criminal justice goals, restitution orders remain distinct from civil debt liability with respect to discharge in bankruptcy.”

The court affirmed the restitution order.

Petrick Sup Ct Pa Sept 2019


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