IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-10604
In the Matter of: STEVEN M. HICKMAN; GINA L. HICKMAN,
Debtors
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STEVEN M. HICKMAN; GINA L. HICKMAN,
Appellees,
versus
STATE OF TEXAS,
Appellant.
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Appeal from the United States District Court
for the Northern District of Texas
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July 26, 2001
Before HILL*, JOLLY and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
The State of Texas appeals the district court’s determination
that the debt owed to it by Gina and Steven Hickman (“the
Hickmans”) arising from bail bond forfeitures was dischargeable.
The State argues that because the default of a bail bond is
colloquially referred to as a “forfeiture,” a judgment against a
bail bond surety should be nondischargeable under the plain
*
Circuit Judge of the Eleventh Circuit, sitting by
designation.
language of § 523(a)(7). Section 523(a)(7) excepts from discharge
certain debts for fines, penalties or forfeitures. The Hickmans
argue, in response, that a debt incurred by a surety under a bail
bond contract with the State is not the nature of forfeiture
Congress intended to render nondischargeable under § 523(a)(7).
For nearly ten years, Gina Lynn Hickman (“Hickman”) owned and
operated a bail bonding business in Tarrant County, Texas. She
served as a surety on criminal bail bonds; when a criminal
defendant failed to appear in court, a judgment for the amount of
the bond was entered against her. The Tarrant County Bail Bond
Board issued and renewed Hickman’s bail bond license for two year
terms from June 1989 to August 1997 based on a sworn financial
statement attesting that her net worth satisfied statutory
requirements. Under Tx. Occ. § 1704.203, a bail bond license
holder can execute bail bonds in an aggregate amount up to ten
times the value of the property held as security. Because Hickman
pledged property valued at $116,800 as collateral, she was entitled
to write in excess of $1 million in criminal bail bonds.
On June 24, 1999, Gina Hickman and her husband filed for
bankruptcy, seeking to discharge all debt from the bail bond
business. At the time, Texas’ bond forfeiture judgments against
her totaled more than $50,000. The State of Texas filed a
complaint to determine dischargeability of the Hickmans’ bond
forfeiture debt. Without a hearing, the bankruptcy court ruled the
bond forfeiture debts were nondischargeable under § 523(a)(7). The
2
district court reversed, finding that the Hickmans’ bail bond
forfeitures were not the type of penal forfeiture contemplated by
§ 523(a)(7). The State filed a timely appeal with this Court.
In reviewing the bankruptcy court’s order, we apply the same
standards of review as did the district court: the bankruptcy
court’s findings of fact are analyzed for clear error, and its
conclusions of law are reviewed de novo. In re Mercer, 246 F.3d
391, 402 (5th Cir. 2001) (en banc). As a question of law, we
review de novo the bankruptcy court’s interpretation of the term
“forfeiture” as used in § 523(a)(7). Construing forfeiture in
light of the accompanying terms in § 523(a)(7), § 523(a) as a
whole, and the basic policy and object of the Bankruptcy Code, we
hold that § 523(a)(7) excludes from discharge only those
forfeitures imposed because of misconduct or wrongdoing by the
debtor. Hickman’s debt arising from her failure to fulfill her
contractual obligation to the State as a surety on a criminal bail
bond is not the sort of punitive or penal forfeiture rendered
nondischargeable by § 523(a)(7).
Discussion
Section 523(a)(7) of the Bankruptcy Code excepts from
discharge any debt
to the extent that 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.
3
11 U.S.C. § 523(a)(7). Hickman’s bail bond judgment is payable to
the State of Texas, for the benefit of the State of Texas, and is
not compensation for actual pecuniary loss. The statute’s
applicability to Hickman’s bond forfeiture debt thus turns on the
meaning of the phrase “fine, penalty or forfeiture” within the
context of § 523(a)(7).
In answering any statutory question, we begin with the
language of the statute itself. United States v. Ron Pair
Enterprises, 489 U.S. 235, 241, 109 S.Ct. 1026, 1030 (1989);
Kellogg v. United States, 54 F.3d 1194, 1200 (5th Cir. 1995). The
term forfeiture is:
A comprehensive term which means a divestiture of specific
property without compensation; it imposes a loss by taking
away of some preexisting valid right without compensation. A
deprivation or destruction of some obligation or condition.
Loss of some right or property as a penalty for some illegal
act. Loss of property or money because of breach of a legal
obligation (e.g. default in payment).
BLACK’S LAW DICTIONARY 650 (6th ed. 1990) (citations omitted) (emphasis
added). A forfeiture of a bond occurs upon the “failure to perform
the condition upon which obligor was to be excused from the penalty
in the bond. With respect to a bail bond, occurs when the accused
fails to appear for trial.” Id. (citation omitted). Relying on
this definition, at least one court has concluded that “Debtor’s
obligation on the forfeited bail bond appears to fall squarely
within the parameters of § 523(a)(7).” United States v. Zamora,
238 B.R. 842, 843-44 (D. Ariz. 1999).
4
As a product of history, the term “forfeiture” in the bail
bond context has become associated with the contractual damages
owed to the State by an obligor – the defendant or his surety – on
a bond. Historically, a defendant or his surety was required to
post the full amount of the bond in order to secure release.
However, the bonding system has evolved to allow the defendant or
a professional bondsmen to enter into a contractual agreement with
the State to guarantee the defendant’s presence in court. Under
this agreement, the State does not require payment of the entire
amount of the bond in order to secure release. Rather, the State
requires a contractual promise to pay the amount of the bond by the
defendant or his surety if the defendant fails to comply with the
conditions of the bond. Upon default, the State merely seeks a
money judgment as damages for breach of contract against the
obligor under the bond. We cannot ignore that in common parlance,
and consistently throughout history, the label “forfeiture” has
been affixed to a bail bond debt. This common usage is evidenced
by the dictionary definition of forfeiture as well as the term’s
use in state and federal statutes1 and caselaw. We, therefore,
consider whether Congress intended § 523(a)(7) to apply to bail
bond forfeiture debts by a surety.
1
See Tx. Occ. § 1704.204(a) (“A license holder shall pay a
final judgment on a forfeiture of a bail bond . . . .”); Federal
Rule of Criminal Procedure 46(e)(1) (“If there is breach of
condition of bond, the district court shall declare a forfeiture of
the bail.”).
5
A majority of courts have read forfeiture within § 523(a)(7)
not to include the contractual damages incurred by a professional
bondsmen as a result of the defendant’s failure to appear. In re
Collins, 173 F.3d 924, 931 (4th Cir. 1999); In re Damore, 195 B.R.
40 (Bankr. E.D. Pa. 1996); In re Midkiff, 86 B.R. 239 (Bankr. D.
Colo. 1988); In re Paige, 1988 WL 62500 (Bankr. D. Colo. 1988).
These courts principally rely on the Supreme Court’s analysis of §
523(a)(7) in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353 (1986).
In Kelly, the Supreme Court held that restitution paid as a
condition of probation was nondischargeable under § 523(a)(7). Id.
at 52. Although not specifically listed in § 523(a)(7), the Court
held that because § 523(a)(7) “creates a broad exception for all
penal sanctions, whether they be denominated fines, penalties, or
forfeitures,” restitution payments were included within its scope.
Kelly, 479 U.S. at 51. Relying on Kelly and its own precedent, the
Fourth Circuit concluded that “[t]he nondischargeable ‘fine,
penalty or forfeiture’ under § 523(a)(7) is an obligation that is
essentially penal in nature.” In re Collins, 173 F.3d at 931.
To the extent that “[t]he word ‘penal’ is inherently a much
broader term than ‘criminal’ since it pertains to any punishment or
penalty and relates to acts which are not necessarily delineated as
criminal,” we ultimately agree with the Fourth Circuit’s
conclusion. BLACK’S LAW DICTIONARY 1132 (6th ed. 1990). However, in
light of the question presented in Kelly – whether, although not
6
listed, restitution was excepted from discharge under § 523(a)(7)
– the Supreme Court’s construction of § 523(a)(7) does not itself
prevent the section’s application to bail bond judgments against a
surety. In focusing on whether § 523(a)(7) created a broad
exception for all penal sanctions, thus including restitution, the
Court did not decide § 523(a)(7)’s applicability to civil, non-
penal debts. Thus, while the Court’s analysis and approach in
Kelly are instructive, its holding does not compel the result that
debts incurred in the capacity of a surety on a bail bond are
dischargeable.
In Kelly, the Court found the language of § 523(a)(7)
ambiguous. Kelly, 479 U.S. at 48 n.9; see also id. at 50 (finding
the language of § 523(a)(7) “is subject to interpretation”). The
Court then admonished that “[i]n expounding a statute, we must not
be guided by a single sentence or member of a sentence, but look to
the provisions of the whole law, and to its object and policy.”
Kelly v. Robinson, 479 U.S. 36, 43, 107 S.Ct. 353, 357-58 (1986)
(citations omitted). Thus, in discerning Congress’ intent we must
consider (1) the terms accompanying forfeiture in § 523(a)(7); (2)
§ 523(a) as a whole; and (3) the policies underlying the Bankruptcy
Code and its exceptions to discharge.
Under the familiar canon of statutory construction noscitur a
sociis, “a word is known by the company it keeps.” Gustafson v.
Alloyd Co., Inc., 513 U.S. 561, 575, 115 S.Ct. 1061, 1069 (1995).
7
This canon is “often wisely applied where a word is capable of many
meanings in order to avoid the giving of unintended breadth to the
Acts of Congress.” Jarecki v. G.D. Searle & Co., 367 U.S. 303,
307, 81 S.Ct. 1579, 1582, 6 L.Ed.2d 859 (1961). The intended
breadth of forfeiture within § 523(a)(7) must be interpreted,
therefore, in light of its accompanying terms “penalty” and “fine.”
A penalty is “[a]n elastic term with many different shades of
meaning; it involves idea of punishment, corporeal or pecuniary, or
civil or criminal, although its meaning is generally confined to
pecuniary punishment.” BLACK’S LAW DICTIONARY 1133 (6th ed. 1990).
Central to the definition of penalty is the “idea of punishment” –
“[p]unishment imposed on a wrongdoer, esp. in the form of
imprisonment or fine. Though usu. for crimes, penalties are also
sometimes imposed for civil wrongs.” BLACK’S LAW DICTIONARY 1153 (7th
ed. 1999). The term penalty, however, may also include “[t]he sum
of money which the obligor of a bond undertakes to pay in the event
of his omitting to perform or carry out the terms imposed upon him
by the conditions of the bond,” BLACK’S LAW DICTIONARY 1133 (6th ed.
1990), or “[e]xcessive liquidated damages that a contract purports
to impose on a party that breaches.”2 BLACK’S LAW DICTIONARY 1153 (7th
ed. 1999). Although focusing on punishment for criminal and civil
wrongs, the definition of penalty, like forfeiture, could be read
2
To the extent that the State argues alternatively that the
Hickmans’ debt is a penalty, our analysis limiting the potentially
broad scope of forfeitures excluded from discharge under §
523(a)(7) applies with equal force to their penalty argument.
8
expansively to include the Hickmans’ debt. A fine, on the other
hand, relates solely to “[a] pecuniary punishment or civil penalty
payable to the treasury.”3 BLACK’S LAW DICTIONARY 647 (7th ed. 1999).
The definitions of penalty and fine reflect the traditional
understanding of the these terms as punitive or penal sanctions
imposed for some form of wrongdoing. Their inclusion in §
523(a)(7) implies that Congress intended to limit the section’s
application to forfeitures imposed upon a wrongdoing debtor.
This construction of forfeiture also accords with Congress’
statutory scheme in § 523(a) as a whole. The exceptions to
discharge in § 523(a) advance a miscellany of social policies.
Notably, the majority of these exceptions relate to a form of
wrongdoing by the debtor. See In re Cross, 666 F.2d 873, 880 (5th
Cir. 1982) (“The exceptions to discharge found in [§ 523(a)] were
designed to prevent the bankrupt from avoiding through bankruptcy
the consequences of certain wrongful acts . . .”). Interpreting §
523(a)(7) against the backdrop of § 523(a) further suggests
Congress’ intent to limit the scope of the phrase “fine, penalty or
forfeiture” to debts imposed as punishment for wrongdoing by the
debtor.
Finally, “[t]he most important consideration limiting the
breadth of the definition of [forfeiture] lies in the basic purpose
3
A fine is “[a] pecuniary punishment or penalty imposed by
lawful tribunal upon person convicted of crime or misdemeanor.”
BLACK’S LAW DICTIONARY 632 (6th ed. 1990).
9
of the Bankruptcy Act to give the debtor a ‘new opportunity in life
and a clear field for future effort, unhampered by the pressure and
discouragement of pre-existing debt. The various provisions of the
Bankruptcy Act were adopted in the light of that view and are to be
construed when reasonably possible in harmony with it so as to
effectuate the general purpose and policy of the act.’” Lines v.
Frederick, 400 U.S. 19, 19, 91 S.Ct. 113, 113-14 (1970) (citing
Local Loan Co. v. Hunt, 292 U.S. 234, 244-45, 54 S.Ct. 695, 699
(1934)). Consistent with the Code’s basic purpose of “reliev[ing]
the honest debtor from the weight of oppressive indebtedness and
permit[ting] him to start afresh,” Williams v. U.S. Fidelty &
Guar. Co., 236 U.S. 549, 554-55, 35 S.Ct. 289 (1915); Hardie v.
Swafford Bros. Dry Goods Co., 165 F. 588, 590-91 (5th Cir. 1908),
exceptions to discharge are to be construed narrowly. Gleason v.
Thaw, 236 U.S. 558, 562, 35 S.Ct. 287, 289 (1915); In re Case, 937
F.2d 1014, 1024 (5th Cir. 1991). However, such construction should
not permit the bankruptcy courts to become “a haven for
wrongdoers.” In re Davis, 194 F.3d 570, 573 (5th Cir. 1999). Our
precedent has construed the exceptions in § 523(a) and its
predecessor using these competing policies as guideposts.
Section 17a, 11 U.S.C. § 35a, of the Bankruptcy Act was the
predecessor to the modern Code’s § 523(a). Section 17a(4) excepted
from discharge debts “created by fraud, embezzlement,
misappropriation, or defalcation while acting . . . in any
10
fiduciary capacity.” 11 U.S.C. § 35a(4). This Court, relying on
Supreme Court precedent, construed the term “fiduciary” narrowly in
order to effectuate the Act’s purpose of providing a fresh start.
In re Angelle, 610 F.2d 1335, 1339 (5th Cir. 1980) (citing Chapman
v. Forsyth, 2 U.S. (How.) 202, 207 (1844)). Despite the presence
of the word “any” in the statute, we rejected the district court’s
reliance on the broad definition of fiduciary quoted from Black’s
Law Dictionary. Id. at 1338. Instead, we concluded that
“[c]onsistent with the principle that exceptions to discharge are
to be narrowly construed, the concept of fiduciary under §
523(a)(4) is narrower than it is under the general common law.” In
re Tran, 151 F.3d 339, 342 (5th Cir. 1998) (citing In re Angelle,
610 F.2d at 1339).
More recently this Court was asked to interpret the term
“motor vehicle” in § 523(a)(9) to include motorboats.4 In re
Greenway, 71 F.3d 1177, 1180 (5th Cir. 1996). The creditor argued
that parsing the term “motor vehicle” to its component parts
permitted such a construction. Citing our duty to construe
exceptions narrowly in favor of the debtor, we refused to interpret
the term “motor vehicle” so expansively. In re Greenway, 71 F.3d
4
Section 523(a)(9) makes nondischargeable any debt:
for death or personal injury caused by the debtor’s operation
of a motor vehicle if such operation was unlawful because the
debtor was intoxicated from using alcohol, a drug, or another
substance.
11
at 1180 n.8. Guided by this same principle, we limited the scope
of the term “willful and malicious injury” under § 523(a)(6) to
“conduct designed to cause deliberate or intentional injury” and
not merely intentional conduct that resulted in injury. In re
Quezada, 718 F.2d 121, 123 (5th Cir. 1983); see also In re Walker,
48 F.3d 1161, 1164-65 (11th Cir. 1995) (“Mindful of our obligation
to construe strictly exceptions to discharge to give effect to the
fresh start policy of the Bankruptcy Code, we hold that section
523(a)(6) requires a deliberate or intentional injury.” (citation
omitted)).
Consistent with our precedent, the accompanying terms in §
523(a)(7), Congress’ statutory scheme in § 523(a) as a whole, and
the basic object and policy of the Bankruptcy Code, we construe
narrowly the term forfeiture to apply solely to forfeitures imposed
because of misconduct or wrongdoing by the debtor.5 See In re Gi
Nam, 254 B.R. 834, 843 (E.D.Pa. 2000). This construction provides
relief to the honest debtor, while preventing the wrongdoer from
avoiding the imposition of a forfeiture through invocation of
federal bankruptcy law.
Our inquiry thus turns to whether the Hickmans’ debt arising
5
The little legislative history that exists supports this
construction. See S. Rep. No. 95-989 at 79, reprinted in 1978
U.S.C.C.A.N. 5787, 5865 (stating that § 523(a)(7) is meant to apply
to tax assessments that are “penal in nature”); S. Rep. No. 95-989
at 97, reprinted in 1978 U.S.C.C.A.N. 5787, 5883 (describing
similar language in § 726(a)(4) as relating to “punitive
penalties”).
12
from a bail bond forfeiture under Texas law falls within Congress’
intended scope. Whether the bail bond debt of a surety is a
forfeiture under § 523(a)(7) is a question of federal law. See
Angelle, 610 F.2d at 1341 (stating that the scope of the concept
“fiduciary” under § 523(a) is a question of federal law). But we
look to state law to determine whether the debt at issue possesses
the attributes of a forfeiture. Id.
Judgements entered in Texas state court against a surety upon
the principal’s failure to appear order the bail bond “forfeited.”
Reyes v. State, 31 S.W.3d 343, 345 (Tex. App.–Corpus Christi 2000).
The State relies on this label to argue that the Hickmans’ debt is
a forfeiture subject to § 523(a)(7)’s exception to discharge. We
cannot agree that merely because a bail bond judgment is generally
referred to as a forfeiture, it automatically falls within the
bounds of § 523(a)(7). It is important to examine the true nature
of the debt incurred rather than the label attached to it by the
State. See In re Long, 774 F.2d 875, 878-79 (8th Cir. 1985) (“It
is the substance of a transaction, rather than the labels assigned
by the parties, which determines whether there is a fiduciary
relationship for bankruptcy purposes.”) (citing Davis v. Aetna
Acceptance Co., 293 U.S. 328, 333, 55 S.Ct. 151, 153, 79 L.Ed. 393
(1934)). Otherwise, the State could except from discharge all
manner of debts simply by labeling them a fine, penalty or
forfeiture.
13
Texas courts have recognized that “[b]ail bonds are contracts
between the surety and the State” and that “[t]he contract consists
of a promise by the surety that the principal will appear before
the court in exchange for a promise by the State that it will
release the principal.” Reyes v. State, 31 S.W.3d at 345; Morin v.
State, 770 S.W.2d 599, 599 (Tex. App.–Houston 1989). The Hickmans
argue that Texas courts’ recognition of a bail bond as a contract
renders any damages therefrom dischargeable. This argument suffers
from the same deficiency as the State’s argument on the label
“forfeiture.” A bail bond contract is sui generis. While treated
as a contract under state law in many respects, a bail bond is
certainly distinguishable from the typical contract. First, the
forfeiture of the bonded amount bears no relation to the actual
loss suffered by the State – thus, under general rules of contract
the provision would be struck down as an impermissible penalty or
forfeiture clause. See Restatement (Second) of Contracts § 356;
Uniform Commercial Code § 2-718. Second, the bail bond is an
integral and essential tool in the administration of the State’s
criminal justice system.
Still, under the present structure of the Texas bail bond
system the role of the surety is essentially contractual. When
considering § 523(a)(7)’s application to restitution payments, the
Supreme Court noted that “[u]nlike an obligation which arises out
of a contractual, statutory or common law duty, here the obligation
14
is rooted in the traditional responsibility of a state to protect
its citizens by enforcing its criminal statutes and to rehabilitate
an offender by imposing a criminal sanction intended for that
purpose.” Kelly, 479 U.S. at 52. Contrary to the obligation in
Kelly, Hickman’s bail bond judgments are not a penal sanction
rooted in the traditional responsibility of the state to protect
its citizens, but rather arise from a contractual duty. In this
regard, the damages are the type of contract damages typically
discharged in bankruptcy. Thus, Hickman’s debt arising from the
forfeiture of the bail bond is not the sort of punitive or penal
forfeiture Congress intended to render nondischargeable.
Finally, we address the State of Texas’ contention that our
holding will undermine the effective administration of its criminal
justice system. Along these lines, the State argues that Kelly’s
true relevance in this case is its statement that “[t]his Court has
recognized that the States’ interest in administering their
criminal justice systems free from federal interference is one of
the most powerful of the considerations that should influence a
court considering equitable types of relief.” Kelly, 479 U.S. at
49. The State’s position is not wholly unpersuasive. Indeed,
several courts have been persuaded by this reasoning in
interpreting other sections of the Code. See In re Scott, 106 B.R.
698, 701 (Bankr. S.D. Ala. 1989) (interpreting § 362(b)(4) in light
of concerns over the effect on the functioning of the State’s bail
15
system); In re Bean, 66 B.R. 454, 456-57 (Bankr. S.D. Colo. 1986)
(same), aff’d Bean v. Colorado, 72 B.R. 503 (D. Colo. 1987). But
the State reads too broadly the Court’s admonition in Kelly. The
Court in Kelly held that § 523(a)(7) excepts from discharge any
condition a state criminal court imposes as part of a criminal
sentence. Id. at 50. The Court’s statements in Kelly were
directed at restrictions on a State’s ability to advance the penal,
rehabilitative, and deterrent goals of its criminal justice system.
Kelly, 479 U.S. at 360. These goals would be defeated if the
bankruptcy court relieved a criminal of a fine, penalty or
forfeiture imposed by a state court. Such a concern does not exist
with respect to a surety’s debt for forfeiture of a bond.6
Conclusion
We hold that § 523(a)(7) excludes only those forfeitures
imposed because of misconduct or wrongdoing by the debtor. This
construction balances the equitable concerns underlying the
Bankruptcy Code by providing the honest, but unfortunate debtor
with a fresh start, while not permitting the bankruptcy courts to
serve as a haven for wrongdoers. Hickman’s debt arising from her
contractual obligation on a bail bond does not represent the type
of punitive or penal forfeiture rendered nondischargeable by §
6
Arguably the State’s penal, rehabilitative, and deterrent
goals would be undermined if the debtor were the criminal
defendant, but we do not address that question today.
16
523(a)(7). Accordingly, we AFFIRM the judgment of the district
court.
17