United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT May 22, 2007
_______________________ Charles R. Fulbruge III
Clerk
No. 05-20501
_______________________
IN THE MATTER OF: GERALDINE H. SOILEAU
Debtor.
-------------------------
STATE OF TEXAS,
Appellant,
versus
GERALDINE H. SOILEAU,
Appellee.
On Appeal from the United States District Court
for the Southern District of Texas
Before JONES, Chief Judge, and WIENER and PRADO, Circuit Judges.
Wiener, Circuit Judge:
The State of Texas (“the State”) appeals the decisions of the
bankruptcy and district courts denying the State’s motion to
dismiss the petition of Geraldine Soileau (“Soileau”) for Chapter
7 bankruptcy protection. The State’s challenge is grounded
exclusively in Eleventh Amendment sovereign immunity, and the
bankruptcy court and district court ruled on that ground alone. As
the Supreme Court’s decisions in Central Virginia Community College
v. Katz1 and Tennessee Student Assistance Corp. v. Hood2 establish
that the discharge of a debt like Soileau’s is not barred by such
immunity, the bankruptcy court had jurisdiction. We therefore
affirm the denial of the State’s dismissal motion.
I. Facts and Proceedings
The facts pertinent to this case are undisputed. As a
licensed bail bondsman, Soileau served as surety on bail bonds for
numerous criminal defendants in Texas. Over time, fifty-five of
these defendants absconded while out on bail. The State sued
Soileau as those defendants’ surety and obtained state court money-
judgments against her. In April 2004, Soileau filed a petition
under Chapter 7 of the Bankruptcy Code, in which she sought to
discharge a total of $650,897.71 in such judgments.
Two weeks later, the State moved to dismiss on sovereign
immunity grounds, claiming that its refusal to consent to being
made a party to the bankruptcy proceedings deprived the bankruptcy
court of jurisdiction over it. Shortly thereafter, the bankruptcy
court denied the State’s motion, relying on both Hood and on our
pre-Hood and pre-Katz decision in Hickman v. State of Texas (In re
Hickman).3 The State appealed to the district court, but it
1
546 U.S. 356 (2006).
2
541 U.S. 440 (2004).
3
260 F.3d 400 (5th Cir. 2001). As we shall more fully
demonstrate below, the bankruptcy court’s refusal to deny
discharge of Soileau’s judgment debts owed to the State was
compelled by Hood alone; consideration of our earlier decision in
2
affirmed. The State then timely filed a notice of appeal to this
court.
II. ANALYSIS
A. Standard of Review
In reviewing cases originating in bankruptcy, we “perform the
same function, as did the district court: Fact findings of the
bankruptcy court are reviewed under a clearly erroneous standard
and issues of law are reviewed de novo.”4
B. Eleventh Amendment Sovereign Immunity: Hood and Katz
The only issue presented by this appeal is whether, on grounds
of Eleventh Amendment sovereign immunity, the State may avoid
discharge of Soileau’s forfeiture judgments incurred as surety on
bail bonds issued to the State in conformity with its statutory
scheme.5 Under the Eleventh Amendment, the jurisdiction of the
federal courts “shall not be construed to extend to any suit in law
Hickman was wholly unnecessary. Not only do Katz and Hood leave
no doubt that sovereign immunity does not bar the discharge
involved in this case, Hickman is inapposite, as the State here
acknowledges, because it was neither based nor decided on a claim
of sovereign immunity by Texas. Hickman was argued and decided
exclusively on a statutory interpretation of the Bankruptcy Code.
In contrast, the only legal theory asserted by the State today is
Eleventh Amendment sovereign immunity, albeit the State noted in
passing its continuing disagreement with Hickman.
4
Nationwide Mut. Ins. Co. v. Berryman Prods. (In re
Berryman), 159 F.3d 941, 943 (5th Cir. 1998).
5
As we discuss more fully below, the State did not
argue, either before us or to the lower courts, that Soileau’s
debt should be nondischargeable by virtue of § 523(a)(7) of the
Bankruptcy Code.
3
or equity, commenced or prosecuted against one of the United States
by Citizens of another State, or by Citizens or Subjects of any
Foreign State.”6 As interpreted, however, the Eleventh Amendment
is not limited to its text; the Supreme Court has “repeatedly held
that an unconsenting State also is immune from suits by its own
citizens.”7 Despite this general prohibition of suits against a
non-consenting or non-waiving state, “[s]tates, nonetheless, may
still be bound by some judicial actions without their consent.”8
Hood and Katz, both recent Supreme Court cases addressing sovereign
immunity in the bankruptcy context, provide two such examples; and
their holdings inform our analysis of the State’s claim today.
In Hood, the debtor had signed promissory notes for
educational loans guaranteed by the Tennessee Student Assistance
Corporation (“TSAC”), a governmental corporation created by the
State to administer student loans. Early in 1999, Hood filed a
Chapter 7 bankruptcy petition and was granted a general discharge
that did not cover her student loans. Later that year, Hood
reopened her petition, filing an adversary proceeding against,
inter alia, TSAC, seeking a determination by the bankruptcy court
that her student loans were dischargeable. TSAC sought dismissal
6
U.S. CONST. amend. XI.
7
Hood, 541 U.S. at 446 (collecting cases).
8
Id.
4
on sovereign immunity grounds.9
The bankruptcy court concluded that Hood’s debt to the state
was dischargeable, rejecting TSAC’s contention that the court
lacked jurisdiction because of sovereign immunity. A Bankruptcy
Appellate Panel (“BAP”) affirmed, as did the Sixth Circuit Court of
Appeals thereafter.10 The Supreme Court granted certiorari to
determine whether the Bankruptcy Clause of the Constitution11
“grants Congress the authority to abrogate state sovereign immunity
from private suits.”12
The Hood Court affirmed the BAP and the Court of Appeals, but
did so without reaching the broader question whether 11 U.S.C. §
106(a)13 is a valid abrogation of sovereign immunity. The Court
held more narrowly that “a proceeding initiated by a debtor to
determine the dischargeability of a student loan debt is not a suit
against the State for purposes of the Eleventh Amendment.”14 As the
9
Id. at 443-45.
10
Id. at 445.
11
The Bankruptcy Clause states that Congress shall have
the power “[t]o establish . . . uniform Laws on the subject of
Bankruptcies throughout the United States.” U.S. CONST. art. 1, §
8, cl. 4.
12
Hood, 541 U.S. at 443.
13
Section 106(a) provides, in part, “[n]otwithstanding an
assertion of sovereign immunity, sovereign immunity is abrogated
as to a governmental unity . . . with respect to” delineated
sections of the Bankruptcy Code. 11 U.S.C. § 106(a).
14
Hood, 541 U.S. at 443.
5
Court explained, “[t]he discharge of a debt by a bankruptcy court
is . . . an in rem proceeding,” as the bankruptcy court is
concerned with the estate of the debtor.15 The Court in Hood
concluded that, “[a]t least when the bankruptcy court’s
jurisdiction over the res is unquestioned, our cases indicate that
the exercise of its in rem jurisdiction to discharge a debt does
not infringe state sovereignty.”16
The Supreme Court went on in Hood to reject another of TSAC’s
contentions, i.e., that because the proceedings to challenge the
dischargeability of a student loan debt were inherently
adversarial,17 the discharge of the student loan debt was an
infringement on state sovereignty. In rejecting this argument, the
Court ruled that, despite the adversarial nature of the proceeding,
“the bankruptcy court’s jurisdiction is premised on the res, not
the on the persona . . . . A debtor does not seek monetary damages
or any affirmative relief from a State by seeking to discharge a
debt; nor does he subject an unwilling State to a coercive judicial
15
Id. at 447 (The bankruptcy court’s “jurisdiction is
premised on the debtor and his estate, and not on his
creditors.”).
16
Id. at 448 (citation omitted).
17
Under 11 U.S.C. § 523(a)(8), student loan debts
guaranteed by the government are presumed to be nondischargeable.
To obtain a discharge of these debts, the debtor must therefore
demonstrate that excepting the debt from the discharge order
would impose “undue hardship.” 11 U.S.C. § 523(a)(8).
6
process. He seeks only a discharge of his debts.”18 Accordingly,
the Court held that, for purposes of the Eleventh Amendment, the
undue-hardship determination under § 523(a)(8) of the Bankruptcy
Code is not a suit against the state.19
In Katz, decided two years after Hood and two years after
Soileau filed her Chapter 7 petition, the Court assayed to answer
the question left open in Hood, viz, “whether Congress’ attempt to
abrogate the states sovereign immunity in 11 U.S.C. § 106(a) is
valid.”20 Katz involved a proceeding initiated by a bankruptcy
trustee under Sections 547(b) and 550(a) of the Bankruptcy Code to
set aside the debtor’s pre-petition preferential transfers of funds
to state agencies.21 The State contended that sovereign immunity
18
Hood, 541 U.S. at 450.
19
Id. at 451.
20
Katz, 546 U.S. 356, 126 S. Ct. 990, 995 (2006).
21
Section 547(b) of the Bankruptcy Code states:
Except as provided in subsections (c) and (i) of this
section, the trustee may avoid any transfer of an
interest of the debtor in property--
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by
the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made--
(A) on or within 90 days before the date of the
filing of the petition; or
(B) between ninety days and one year before the
date of the filing of the petition, if such
creditor at the time of such transfer was an
insider; and
(5) that enables such creditor to receive more than
such creditor would receive if--
7
barred the proceedings to avoid and recover the preferential
transfers.22 The Court concluded that the transfer did not offend
state sovereign immunity, holding that, “[i]n ratifying the
Bankruptcy Clause [of the United States Constitution], the States
acquiesced in a subordination of whatever sovereign immunity they
might otherwise have asserted in proceedings necessary to
effectuate the in rem jurisdiction of the bankruptcy courts.”23
Discussing the transfer involved in Katz, the Court held that
“[i]nsofar as orders ancillary to the bankruptcy courts’ in rem
jurisdiction, like orders directing turnover of preferential
(A) the case were a case under chapter 7 of this
title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt
to the extent provided by the provisions of
this title.
11 U.S.C. § 547(b).
Under Section 550(a) of the Bankruptcy Code,
[e]xcept as otherwise provided in this section, to the
extent that a transfer is avoided under[, inter alia,]
section . . . 547 . . . of this title, the trustee may
recover, for the benefit of the estate, the property
transferred, or, if the court so orders, the value of
such property, from--
(1) the initial transferee of such transfer or the
entity for whose benefit such transfer was made;
or
(2) any immediate or mediate transferee of such
initial transferee.
11 U.S.C. § 550(a).
22
Katz, 126 S. Ct. at 994-95.
23
Id. at 1005.
8
transfers, implicate States’ sovereign immunity from suit, the
States agreed in the plan of the Convention not to assert that
immunity.”24
C. Application of Hood and Katz
Applying Hood and Katz to the instant case, we conclude that
the State here has no claim to sovereign immunity. Whatever
uncertainty there may be as to the outer limits of the holdings of
Katz and Hood, at the very least they together establish beyond
cavil that an in rem bankruptcy proceeding brought merely to obtain
the discharge a debt or debts by determining the rights of various
creditors in a debtor’s estate —— such as is brought here —— in no
way infringes the sovereignty of a state as a creditor.25
There can be no serious question that the proceeding at issue
here is purely in rem: The bankruptcy court’s exercise of
jurisdiction is focused only on Soileau’s estate. Katz describes
three crucial facets of the exercise of in rem jurisdiction that
prevent it from interfering with state sovereign immunity: (1)
exercise of jurisdiction over the estate of the debtor, (2)
equitable distribution of the estate’s property among creditors,
24
Id. at 1002.
25
Katz, 126 S. Ct. at 1000 (“In ratifying the Bankruptcy
Clause, the States acquiesced in a subordination of whatever
sovereign immunity they might otherwise have asserted in
proceedings necessary to effectuate the in rem jurisdiction of
the bankruptcy courts.”); Hood, 541 U.S. at 448 (“At least when
the bankruptcy court’s jurisdiction over the res is unquestioned,
our cases indicate that the exercise of its in rem jurisdiction
to discharge a debt does not infringe state sovereignty.”).
9
and (3) discharge.26 In this case, the State challenges the in rem
discharge of a debt, a specie of imposition on the states’
sovereignty undeniably countenanced by Katz and Hood.
To the extent that Hood implies in a footnote that there could
possibly be some exercise of in rem jurisdiction that conceivably
might offend the sovereignty of the state,27 “such concerns are not
present here.”28 Indeed, Soileau’s is even a stronger case for
rejection of the State’s sovereign immunity defense than was Hood’s
or Katz’s. Hood, after all, addressed an adversarial proceeding
involving a state, and Katz addressed an order for the avoidance of
preferential transfers to a state to allow the trustee to recoup
those transfers from the state’s treasury —— each proceeding
26
Id. at 996 (“Critical features of every bankruptcy
proceeding are the exercise of exclusive jurisdiction over all of
the debtor’s property, the equitable distribution of that
property among the debtor’s creditors, and the ultimate discharge
that gives the debtor a ‘fresh start’ by releasing him, her, or
it from further liability for old debts.”).
27
Hood’s footnote 5 states:
This is not to say, “a bankruptcy court’s in rem
jurisdiction overrides sovereign immunity,” as Justice
Thomas characterizes our opinion, but rather that the
court’s exercise of its jurisdiction to discharge a
student loan debt is not an affront to the sovereignty
of the State. Nor do we hold that every exercise of a
bankruptcy court’s in rem jurisdiction will not offend
the sovereignty of the State. No such concerns are
present here, and we do not address them.
Hood, 541 U.S. at 451 n.5 (quoting United States v. Nordic
Village, Inc., 503 U.S. 30, 38 (1992)).
28
Id.
10
carrying with it some of the trappings traditionally associated
with a suit against a state. Soileau’s, in contrast, carries none:
She is neither seeking the return of any funds already in the
State’s possession nor bringing an adversarial proceeding against
the State. She asks nothing more than that the bankruptcy court
exercise its in rem jurisdiction over her bankruptcy estate by
adjudicating the rights of the State as a creditor. As such an
exercise of in rem jurisdiction is indisputably contemplated by
Katz,29 the State’s sovereign immunity claim must fail.
D. Hood’s Footnote Five and Hickman
That should be the end of this appeal, disposing of the case
as it does on the sole issue raised by the State, viz., sovereign
immunity. But our co-panelist (“the Concurrer”) has opted to make
a collateral attack on our six-year old precedent in Hickman v.
Texas’s30 construction of § 523(a)(7) of the Bankruptcy Code. In
the special concurrence, the concurrer writes that, although “Hood
and Katz may dispose of any Eleventh Amendment sovereign immunity
claim that Texas could31 raise here, . . . those cases do not
29
Katz, 126 S. Ct. at 1004 (“The ineluctable conclusion,
then, is that States agreed in the plan of the Convention not to
assert any sovereign immunity defense they might have had in
proceedings brought pursuant to ‘Laws on the subject of
Bankruptcies.’”) (emphasis added).
30
260 F.3d 400, 406 (5th Cir. 2001).
31
The Concurrer’s use of “could” here is misleading, as
it suggests that it is merely theoretical that the State might
raise this claim when the State has raised a sovereign immunity
claim. In contrast, it has not challenged the dischargeability
11
resolve whether the Bankruptcy Code in fact authorizes the
discharge of Soileau’s defaulted bail bonds.” The Concurrer urges
that, because our prior precedent in Hickman requires us to find
that Soileau’s judgment debt was contractual in nature, we are
“bound to apply Hickman and reject the State’s nondischargeability
claim.” The gravamen of the Concurrer’s writing is that Hickman
was wrongly decided, so we should now rehear Soileau’s case en banc
to abrogate the 2001 rule in Hickman. We respectfully disagree
with that proposal. Here’s why.
In Hickman, as here, a bail bondsman filed for bankruptcy,
seeking to discharge all debt from her bail bond business. The
State filed a complaint to determine whether her debts to it were
dischargeable. Significantly, Texas did not claim Eleventh
Amendment sovereign immunity in Hickman as it does here against
Soileau, arguing in Hickman only that, because the debt was a
forfeiture, it was nondischargeable under the Bankruptcy Code,
specifically 11 U.S.C. § 523(a)(7). This provision of the
Bankruptcy Code specifies, in relevant part, that the debt of an
individual debtor is nondischargeable to “the extent such debt is
for a fine, penalty, or forfeiture payable to and for the benefit
of a governmental unit.” The Hickman bankruptcy court agreed with
the State, but the district court reversed, holding that bail bond
forfeitures were not the type of penal forfeiture contemplated by
of the debt under § 523(a)(7), implicitly acknowledging that our
precedent in Hickman forecloses such a claim.
12
§ 523(a)(7).32 Neither opinion turned on sovereign immunity or on
§ 106(a) of the Bankruptcy Code. Neither, as we shall show, did
the Hickman opinion turn on the contractual nature of the debtor’s
bail bond obligation to the State, as the Concurrer represents it.
On appeal, we held that:
[Bankruptcy Code section] 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).33
In so holding, we expressly rejected the argument advanced by Texas
that finding bail bond forfeiture debts dischargeable would
undermine the effective administration of its criminal justice
system.34
With due respect to the position advocated in the special
concurrence, this case is not the appropriate vehicle for a
reexamination of Hickman’s holding, as the State has not advanced
what the Concurrer refers to as a “nondischargeability claim.”
Rather, the only legal theory asserted by the State both today and
before the lower courts is Eleventh Amendment sovereign immunity.
In its brief to us, for example, the State clarified that its
“[m]otion in the present case claims sovereign immunity. The State
32
In re Hickman, 260 F.3d at 401.
33
Id.
34
Id. at 406.
13
does not even raise an issue concerning the dischargeability of
Soileau’s criminal bail bond forfeiture judgments.”35 Likewise, at
oral argument, the State observed that “this case is not concerned
directly with the issue of whether the Fifth Circuit’s decision
[regarding the dischargeability of bail bond judgments in Hickman]
is accurate.”
Although both the State and the lower courts did address
Hickman, they did so only in the context of determining whether,
under Hood’s footnote five, discharge in the instant case would
offend the State’s sovereign immunity, not whether the debt was
dischargeable vel non. Indeed, the State criticized the lower
courts in its brief to us, asserting that they had “fail[ed] to
distinguish and apply the State’s claim of sovereign immunity from
the question of dischargeability of debt with both courts relying
on the In re Hickman case, which . . . did not even involve a
sovereign immunity issue.”36 The special concurrence similarly
conflates the State’s sovereign immunity argument with this so-
called “nondischargeability claim” —— a claim not advanced to us or
35
(Emphasis added).
36
In its reply, the State does suggest that “the Fifth
Circuit, in light of [the Third Circuit’s holding in Dobrek v.
Phelan, 419 F.3d 259 (3d Cir. 2005)], may wish to reconsider its
position in Hickman . . . on the dischargeability of criminal
bond forfeiture judgments.” Nevertheless, Texas does not
expressly challenge the dischargeability of Soileau’s debts under
§ 523(a)(7) in the face of our binding precedent in Hickman;
rather, it concludes by requesting that “the decisions of the
bankruptcy court and the district court be reversed allowing the
State to claim sovereign immunity in the bankruptcy court.”
14
to the lower courts. As the issue of dischargeability was never
raised,37 we limit our holding to the issue before us —— whether
discharge of Soileau’s debt impermissibly infringes on the State’s
sovereign immunity.
Even assuming arguendo, however, that there is in fact a
“statutory question raised here,” as the Concurrer suggests,
Hickman’s holding that § 523(a)(7) only excludes from discharge
those debts incurred by wrongdoing or misconduct —— and that
judgments against the sureties on bail bonds (as distinguished from
“forfeitures” by the defaulting principals), such as the one at
issue here are dischargeable —— should not be revisited. Although
no effort to rehear Hickman was mounted before its mandate issued
in 2001, the Concurrer now seeks to use the instant appeal to
challenge Hickman en banc by contending “[t]hat Soileau owes a
forfeiture debt to a governmental entity should be dispositive”
that the debt is nondischargeable. Contrary to the Concurrer’s
position, however, Hickman’s interpretation of § 523(a)(7) is
consistent with the established definitions of that section’s
exclusive trio of fines, penalties, and forfeitures.
From the standpoint of statutory construction, “forfeiture” in
§ 523(a)(7) must be understood in light of its relationship to the
other nouns in that section’s exclusive list, i.e., “fine” and
37
See Robinson v. Guarantee Trust Life Ins. Co., 389 F.3d
475, 481 n. 3 (5th Cir. 2004) (“Failure adequately to brief an
issue on appeal constitutes waiver of that argument.”).
15
“penalty.” According to Black’s Law Dictionary, a forfeiture is:
(1) “[t]he divestiture of property without compensation,” (2)
“[t]he loss of a right, privilege, or property because of a crime,
breach of obligation, or neglect of duty,” (3) “[s]omething (esp.
money or property) lost or confiscated by this process; a penalty”,
(4) “A destruction or deprivation of some estate or right because
of the failure to perform some obligation or condition contained in
the contract.”38 The American Heritage Dictionary defines a
forfeiture as “the act of surrendering something as a forfeit,”39
then defines forfeit as “something surrendered as punishment for a
crime, offense, error, or breach of contract.”40 Although these
definitions alone might leave open the possibility that the type of
judgment debt at issue here should be considered a forfeiture for
purposes of § 523(a)(7), Congress’s synonymizing use of
“forfeiture” with “penalty” and “fine” supports Hickman’s more
narrow interpretation of this section as applicable only to takings
grounded in wrongful acts and effectuating a punishment therefor.41
In Hickman, we explained:
A penalty is “[a]n elastic term with many different
38
Black’s Law Dictionary 677 (8th ed. 2004).
39
American Heritage Dictionary 515 (ed. William Morris,
1976).
40
Id.
41
As we recognized in Hickman, “a word is known by the
company it keeps.” In re Hickman, 260 F.3d at 403 (quoting
Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 575 (1995)).
16
shades of meaning; it involves [the] 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.” 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 expansively to
include the [bail bondsman’s] debt. A fine, on the other
hand, relates solely to “[a] pecuniary punishment or
civil penalty payable to the treasury.” Black's Law
42
Dictionary 647 (7th ed. 1999).
The Hickman court summarized, “[t]he 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.”43
Mindful of “the principle that exceptions to discharge are to
be narrowly construed,”44 we agree with Hickman’s interpretation of
42
Id. at 403-04.
43
Id. at 404.
44
Id. at 404 (quoting In re Tran, 151 F.3d 339, 342 (5th
Cir. 1998)); see also In re Walker, 48 F.3d 1161, 1164-65 (11th
Cir. 1995) (noting “obligation to construe strictly exceptions to
discharge to give effect to the fresh start policy of the
17
§ 523(a)(7) as excepting from discharge only those debts incurred
as a result of misconduct or wrongdoing. Indeed, this holding is
consistent with the purpose of the Bankruptcy Code and,
specifically, with § 523(a).45 We cannot overemphasize here the
importance of the distinction between the absconding criminal
defendants as principals and the bail bondsmen as sureties: The
former would properly be denied discharge on their own cash or
property bonds as “forfeitures” in the § 523(a)(7) sense, but the
latter are not forfeiting wrongdoers; they are ordinary judgment
debtors who are not guilty of any wrongful conduct that should
prohibit discharge in bankruptcy.
The Concurrer maintains that “Hickman’s conclusion that
‘[b]ail bond judgments are not penal sanctions . . . but rather
arise from a contractual duty,’ is . . . at odds with over a
century of Texas precedent” characterizing bail bond judgments as
criminal in nature. Whatever the merits of this argument, it fails
Bankruptcy Code”).
45
Lines v. Frederick, 400 U.S. 18, 19 (1970) (per curiam)
(“The most important consideration limiting the breadth of the
definition of ‘property’ lies in the basic purpose 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.’”)
(quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244-45 (1934)
(citations omitted)); 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 ...”).
18
to render the debts at issue nondischargeable, as determination of
the dischargeability of judgment debts like Soileau’s does not turn
on whether that debt was contractual, statutory, or criminal in
nature. Rather, it turns on whether the debt was incurred as a
result of the bail bondsman’s wrongful acts. A bail bondsman’s
judgment debt to the state, arising as it does solely from a
criminal defendant’s wrongful act of absconding, is not the result
of any act of misconduct or wrongdoing by the bail bondsman. As
the Fourth Circuit observed in In re Collins,
‘[i]t cannot be said that [the bail bondsman] was being
punished by virtue of incurring these [bail bond]
obligations. [He] committed no criminal or penal act
which gave rise to such debts. These bail bond
forfeiture obligations, as to [him], arose from a purely
financial and contractual arrangement.’46
This is so whether the proceedings to recover the judgment debt are
labeled criminal or contractual. Thus, Soileau’s judgment debts
are properly dischargeable —— even though, we repeat, that question
is not presented here.
Allowing Soileau’s debts to the State to be discharged,
insists the Concurrer, would impermissibly “invalidate the results
of state criminal proceedings,” as the Supreme Court has instructed
the federal courts may not do.47 We do not question the degree of
importance of the bail bond surety in the broad scheme of Texas’s
46
In re Collins, 173 F.3d 924, 932 (4th Cir. 1999)
(quoting In re Paige, No. 86 B 8072 C, 1988 WL 62500, *4 (Bankr.
D. Colo. Apr. 15, 1988)).
47
Kelly v. Robinson, 479 U.S. 36, 47 (1986).
19
criminal justice system. We disagree, however, that the discharge
of the bail bondsman’s debt “invalidate[s] the results of state
criminal proceedings.” Bail bonds in state criminal proceedings,
after all, are designed primarily to make criminal defendants
either (1) appear or (2) pay a forfeiture —— only secondarily to
make bail bondsmen pay. The State’s (and the Concurrer’s) parade
of horribles that today’s holding will produce in relation to the
administration of its criminal justice system is at best entirely
speculative hyperbole; in fact, it is belied by the apparent
continued functioning of the Texas criminal justice system in the
years since Hickman.
This simply is not a situation, as likewise hyperbolized by
the Concurrer in today’s special concurrence, wherein the
bankruptcy court is accused of using “its in rem jurisdiction to
ride roughshod over this traditional bastion of state sovereignty.”
Rather, to a much lesser degree than in either Katz or Hood, the
bankruptcy court here is discharging a debt by determining the
rights of the State as a creditor, a quintessential exercise of its
in rem jurisdiction that indisputably is permitted under Hood and
Katz. It matters not under those Supreme Court cases whether the
State’s judgments against Soileau arose from contracts or
forfeitures or torts or strict liability.
III. Conclusion
The State has sought to avoid discharge of judgments that were
20
rendered in state court against Soileau as the statutory surety on
bail bonds that she wrote under Texas’s scheme for the release of
criminal defendants pending future appearances. Having earlier
failed, in Hickman, to avoid this precise kind of discharge on non-
constitutional grounds of statutory interpretation of the
Bankruptcy Code, Texas has here taken a second bite at that apple
but on an entirely different tack, basing its affirmative efforts
to avoid discharge solely on the constitutional ground of Eleventh
Amendment sovereign immunity. Yet the Supreme Court, in Hood and
Katz, has left no doubt that the several states remain immutably
bound by their long-standing waivers of sovereign immunity under
the Bankruptcy Clause of the United States Constitution, at least
as to non-adversary in rem discharge proceedings in bankruptcy,
like this one. Accordingly, the judgment of the bankruptcy court,
and the district court’s affirmance of it, are
AFFIRMED.
21
EDITH H. JONES, Chief Judge, specially concurring:
I concur in the judgment only. With due respect to the
majority, Hood and Katz may dispose of any Eleventh Amendment
sovereign immunity claim that Texas could raise here,1 but those
cases do not resolve whether the Bankruptcy Code in fact authorizes
the discharge of Soileau’s defaulted bail bonds. Currently, this
court’s precedent equates default on bail bonds with any other
contractual obligation and holds such debts dischargeable. Hickman
v. Texas (In re Hickman), 260 F.3d 400, 406 (5th Cir. 2001). The
State has consistently argued, however, and I agree that Hickman
was wrongly decided. While this panel is bound to apply Hickman
and reject the State’s nondischargeability claim, I urge the court
1
The majority’s conclusion is probably correct;
nevertheless, the scope of Tennessee Student Assistance Corp. v.
Hood, 541 U.S. 440, 124 S. Ct. 1905 (2004), is not unlimited.
The Supreme Court specifically noted that it was not holding that
every “exercise of a bankruptcy court’s in rem jurisdiction will
not offend the sovereignty of the State.” Id. at 451 n.5, 124 S.
Ct. at 1913. Although the Court’s broader decision in Central
Virginia Community College v. Katz, 546 U.S. 356, 126 S. Ct. 990
(2006), made clear that even actions ancillary to a bankruptcy
court’s exercise of its in rem jurisdiction will not “in the
usual case” offend state sovereignty, the Court did not permit
bankruptcy courts always to exercise their jurisdiction without
regard to state sovereignty. Id. at __, 126 S. Ct. at 1000.
Contractual debts owed to the State are now fair game for
bankruptcy resolution, but Katz and Hood recognize that there are
still areas of traditional state sovereignty into which the
bankruptcy courts cannot tread. See also, State of Texas v.
Walker, 142 F.3d 813 (5th Cir. 1998). Thus, it could be argued
that the mere fact that this case concerns an in rem proceeding
in bankruptcy does not end this court’s analysis if the
bankruptcy court’s exercise of in rem jurisdiction offends
traditional state sovereignty over its criminal justice system.
22
to rehear this case en banc and overturn Hickman.
Standing alone, the Bankruptcy Code appears to render
Soileau’s debt for bond forfeitures nondischargeable.
Section 523(a)(7) of the Code states that a debt is
nondischargeable “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, other than
a tax penalty.” 11 U.S.C. § 523(a)(7) (emphasis added). The panel
in Hickman interpreted this language to mean that only “punitive or
penal forfeiture[s]” were nondischargeable, and that bail bond
forfeitures, which it erroneously interpreted as contractual in
nature, were not covered by § 523(a)(7). Id. at 406.
A better approach to § 523(a)(7) was taken by a Third
Circuit panel (including now-Justice Alito) that held commercial
bail bond forfeitures nondischargeable within the plain meaning of
§ 523(a)(7). Dobrek v. Phelan, 419 F.3d 259 (3d Cir. 2005). As
Dobrek correctly points out, regardless whether bail bonds are
contractual in nature, there is no basis for Hickman’s holding that
§ 523(a)(7) “is restricted in scope to exempt from dischargeability
only obligations of a [purely] penal nature,” as “forfeitures” are
included in § 523(a)(7) without respect to their nature. Dobrek,
419 F.3d at 267 (quoting City of Philadelphia v. Nam (In re Nam),
273 F.3d 281, 287 (3d. Cir. 2001)). That Soileau owes a forfeiture
debt to a governmental entity should be dispositive here.
Moreover, state criminal proceedings are not the “usual
23
case” in bankruptcy, and the Supreme Court has refused to allow
bankruptcy jurisdiction to interfere with this traditional realm of
state authority. In Kelly v. Robinson, 479 U.S. 36, 107 S. Ct. 353
(1986), the Supreme Court noted its “deep conviction that federal
bankruptcy courts should not invalidate the results of state
criminal proceedings. The right to formulate and enforce penal
sanctions is an important aspect of the sovereignty retained by the
States.” Id. at 47, 107 S. Ct. at 360. Neither Hood nor Katz
conflicts with Kelly, whose authoritativeness we inferior courts
must recognize. Thus, the question whether bail bond forfeitures
in Texas are criminal matters is critical to determining the scope
of § 523 (a)(7). In this regard, Hickman seriously misinterpreted
Texas law when it held that bail bonds are essentially contractual,
not penal, obligations.
As early as 1854, in Gay v. State, 20 Tex. 504 (Tex.
1854), the Texas Supreme Court classified bail bond forfeitures as
criminal matters. Again, in Jeter v. State, 86 Tex. 555 (Tex.
1894), the Texas court concluded that a proceeding for the
forfeiture of bail bonds is “a criminal case within the
Constitution and laws of the State.” 86 Tex. at 557 (citing Gay).
As seminal criminal law precedents, Gay and Jeter have been
repeatedly reaffirmed in recent years. See, e.g., Ex Parte Burr,
185 S.W.3d 451, 452-53 (Tex. Crim. App. 2006); Bailout Bonding Co.
v. State, 797 S.W.2d 275, 277 (Tex. App. 1990); State v. Sellers,
790 S.W.2d 316, 321 (Tex. Crim. App. 1990); State ex rel. Vance v.
24
Routt, 571 S.W.2d 903, 906 (Tex. Crim. App. 1978)(“[There is] no
doubt that a bond forfeiture proceeding is ‘criminal in nature.’”).
Hickman’s conclusion that “[b]ail bond judgments are not
penal sanctions . . . but rather arise from a contractual duty,” is
thus at odds with over a century of Texas precedent. Hickman,
260 F.3d at 406. The panel in Hickman relied almost exclusively
upon Reyes v. State, 31 S.W.3d 343 (Tex. App. 2000), a state
appeals court decision which held that “[b]ail bonds are contracts
between the surety and the State.” Id. at 345. Based on Reyes,
Hickman reasoned that the State’s classification of bail bonds as
forfeitures (i.e., criminal in nature) was a mere “label,” masking
their contractual nature. Hickman, 260 F.3d at 405. Such reliance
on Reyes was in error. First, the conclusion in Reyes that bail
bonds are contractual in nature must be put in context. Reyes
concerned a bondsman whose client had absconded; the bondsman
wished to be released from liability to the State. The Reyes court
held only that the Texas Code of Criminal Procedure would not allow
the bondsman to be released from his obligation to the State absent
a showing that the bonded defendant failed to appear in court due
to “an uncontrollable circumstance that arose from no fault on his
[the defendant’s] part”; it did not purport to overrule nearly one
hundred fifty years of state precedent. Reyes, 31 S.W.3d at
346-47. Further, if Reyes did in fact re-examine the nature of
bail bonds in Texas, it did so without a single mention of Gay,
Jeter, or their progeny.
25
Bailout Bonding, another Texas Court of Appeals case,
provides a more complete assessment of the State’s practices.
There, the court noted that although “the surety’s liability on the
appearance bond would appear to be contractual,” in actuality, the
“judgment on a bond is not in the nature of a violation of
contract.” Bailout Bonding, 797 S.W.2d at 277. Bailout Bonding
relied upon General Bonding & Casualty Insurance Co. v. State,
165 S.W. 615 (Tex. Crim. App. 1913), which held that though “the
action [on the forfeiture of an appearance bond] is not directly to
punish the offender . . . it partakes of punishment for an offense
against the state, and is not in the nature of a violation of a
contract.” Id. at 617. In Texas, notwithstanding that the Texas
Code of Criminal Procedure Article 22.10 applies certain civil
court rules to bail bond proceedings, forfeiture judgments have
always been regarded as “penal judgment[s], that is, a judgment in
the nature of a fine.” Bailout Bonding, 797 S.W.2d at 277; see
also Magless v. State, 18 S.W.2d 669, 670 (Tex. Crim. App.
1929)(“It is plain, we think, that the sum recoverable for non-
compliance with the conditions of a bail bond is a penalty.”). In
sum, even if the initial relationship between a surety and the
State has elements of contract according to Reyes, a forfeiture
judgment does not, and is instead a criminal matter.
Finally, assuming arguendo that bail bonds are contracts,
even the Hickman panel conceded that a “bail bond contract is sui
generis,” and “is certainly distinguishable from the typical
26
contract.” Hickman, 260 F.3d at 406. Hickman correctly noted that
a bail bond is an “integral and essential tool in the
administration of the State’s criminal justice system.” Id.
Regardless whether the forfeiture judgment is against a criminal
defendant or his sureties, “[a criminal] case is too closely
connected with the judgment on the bail bond to be separable from
it.” Jeter, 86 Tex. at 558. A bail bond proceeding concerns “an
instrument to coerce the accused to take his trial; a power
incident to every criminal court”, and not a mere civil contract.
Id.
The fear expressed in Kelly, that the bankruptcy courts
would “invalidate the results of state criminal proceedings by
erasing debts” is made reality if Soileau is granted a discharge
from her debts to the State. Dobrek, 419 F.3d at 265. If bail
bondsmen can obtain discharge in bankruptcy of forfeited bond
debts, they plainly have less incentive to supervise and assure the
appearance of their clients at trial.
Hood and Katz stand for the proposition that a state may
be treated as an ordinary creditor in bankruptcy as to its “usual”
contractual debts, but they do not answer the statutory question
raised here. Informed by Kelly, I would hold that a bankruptcy
court may not utilize its in rem jurisdiction to ride roughshod
over this traditional bastion of state sovereignty, and I hope that
our court will take this case en banc to reconsider Hickman and
preserve the integrity and self-sufficiency of the State’s criminal
27
procedures.
28
Texas v. Soileau (In Re Soileau)
Court: Court of Appeals for the Fifth Circuit
Date filed: 2007-05-22
Citations: 488 F.3d 302
Copy CitationsCombined Opinion