United States Court of Appeals
For the First Circuit
No. 00-1127
SHELDON WHITEHOUSE, Attorney General,
STATE OF RHODE ISLAND, and
JAN REITSMA, Director of the Rhode Island
Department of Environmental Management,
Plaintiffs, Appellants,
v.
DAVID LAROCHE, ET AL.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge]
Before
Torruella, Circuit Judge,
Campbell and Cyr, Senior Circuit Judges,
Terence J. Tierney, Assistant Attorney General, with whom
Gary Powers, Deputy Chief Legal Counsel, Department of
Environmental Management, was on brief for appellants.
Barry J. Kusinitz for appellee David LaRoche.
January 17, 2002
CYR, Senior Circuit Judge. This appeal by the Rhode
Island Attorney General and the Director of the Rhode Island
Department of Environmental Management challenges various
rulings which prompted the district court to hold that appellee
David LaRoche's obligations to the State of Rhode Island, for
its costs in remediating water contamination on property owned
by LaRoche and for related civil penalties, were expunged by the
chapter 7 discharge subsequently obtained by LaRoche. We vacate
and remand, with directions that judgment enter for appellants.
I
BACKGROUND
In 1988, appellants joined in citizen lawsuits brought
against LaRoche in the United States District Court for the
District of Rhode Island, claiming violations of the Clean Water
Act ("CWA"), 33 U.S.C. § 1251 et seq., and the Rhode Island
Water Pollution Control Act ("RIWPCA"), R.I. Gen. Laws § 46-12-1
et seq. (the "CWA/RIWPCA action"). Ultimately, the district
court entered partial summary judgment for appellants, after
determining that LaRoche had known, prior to purchasing the
property, that its faulty septic system was polluting an
adjacent river. See Friends of Sakonnet v. Dutra, 738 F. Supp.
623 (D.R.I. 1990). The amount of the remedial damages award
against LaRoche remained unresolved.
3
Creditors instituted involuntary chapter 11
reorganization proceedings against LaRoche in January 1991; the
order for relief was entered in February 1991, see In re
LaRoche, 969 F.2d 1299, 1300 (1st Cir. 1992), and the chapter 11
trustee was appointed on June 4, 1991.
Meanwhile, the parties had negotiated a settlement of
all the remedial issues in the CWA/RIWPCA action pending before
the federal district court. Whereupon the district court
entered a consent decree, which stated, inter alia: "The
intention of the parties is to resolve any pending disputes
arising out of this matter. The only responsibilities and
obligations that will survive are those set forth in this
Stipulation."
In due course, a special master was appointed to
marshal a settlement fund from the State and the former owners
of the LaRoche property for the purpose of acquiring an adjacent
tract of land upon which to construct a new waste water
collection and treatment facility. Any excess acreage, over and
above that required for the new facility, was to be sold to
cover related project costs.
LaRoche agreed to reimburse the State for any
"shortfall amount," defined as the difference between ninety
percent of the cost of the new waste water collection and
4
treatment facility and the net proceeds from the sale of any
excess acreage. In addition, LaRoche promised to "affirm his
obligation to pay the [shortfall amount], to the extent then
unpaid, as a debt not discharged in any bankruptcy proceeding in
which he is the bankrupt whether now pending or hereafter
filed."1 Finally, LaRoche pledged to "procure an order of the
United States Bankruptcy Court for the District of Rhode Island
in [his involuntary bankruptcy proceeding] affirming his
obligation to pay the [shortfall amount] and to perform his
other obligations hereunder."
All parties agreed to proceed "expeditiously" and "in
good faith" with their respective obligations under the consent
decree, which further provided as follows:
LaRoche hereby agrees to the imposition of a
civil penalty under the Rhode Island Water
Pollution Control Act and regulations issued
thereunder equal to the [shortfall amount].
DEM and the Attorney General agree that the
1
By negative inference, from Federal Rule of Bankruptcy
Procedure 4008 ("A motion by the debtor for approval of a
reaffirmation agreement shall be filed before or at the
hearing."), only the chapter 7 debtor may request bankruptcy
court approval of a reaffirmation agreement. See BankBoston v.
Claflin (In re Claflin), 249 B.R. 840, 843 (B.A.P. 1st Cir.
2000); In re Carlos, 215 B.R. 52, 61 (Bankr. C.D. Cal. 1997); In
re Newsome, 3 B.R. 626, 629 (Bankr. D. W. Va. 1980) ("[T]o
permit creditors to make applications for reaffirmations would
contravene the intent of Congress and permit in many instances
the very acts the Congress sought to condemn."); 4 Lawrence P.
King, Collier on Bankruptcy ¶ 524.04, at 524-30 (citing Fed. R.
Bankr. P. 4008).
5
imposition of such civil penalty will be
stayed for so long as LaRoche complies with
his obligations under Section II.3.C of this
Stipulation [viz., to seek reaffirmation of
his obligation to pay this debt in his
involuntary bankruptcy case] and/or for so
long as any order procured from the
Bankruptcy Court under Section II.3.D [ viz.,
an order approving LaRoche's reaffirmation
of his prepetition debt] remains in effect.
LaRoche specifically agrees that the civil
penalty imposed hereunder constitutes a debt
for a fine, penalty or forfeiture payable to
and for the benefit of a governmental unit,
is not compensation for actual pecuniary
loss and is specifically non-dischargeable
under 11 U.S.C. [§] 523(a)(7).
(Emphasis added.) The district court explicitly retained
"continuing jurisdiction over this Stipulation and the
performance of the parties hereto."
Although LaRoche was granted a chapter 7 discharge, see
11 U.S.C. § 727,2 on March 3, 1995, it was more than two years
later, on April 10, 1997, before he finally submitted a motion
to reaffirm the "shortfall amount" indebtedness.
Following a hearing which appellants elected not to
attend, the bankruptcy court rejected the motion to reaffirm
submitted by LaRoche.3 At the same time, the bankruptcy court
2The chapter 11 proceeding was converted to chapter 7 on
August 1, 1994.
3Although the basis for the denial by the bankruptcy court
is not disclosed in the record on appeal, the parties are in
agreement that the ruling was grounded in the United States
Trustee's objection that the motion to reaffirm was untimely.
6
expressed concern that its rejection of the motion to reaffirm
might obstruct the State's efforts to recover the "shortfall
amount." Accordingly, the bankruptcy court directed that its
order — rejecting LaRoche's motion to reaffirm the "shortfall
amount" indebtedness — be served upon all parties to the
CWA/RIWPCA consent decree and "[t]hat all entities who oppose
the entry of this Order shall have ten (10) days from the entry
of this Order within which to file a motion under Fed. R. Bankr.
P. 9023 to alter and amend this Order."
Appellants elected not to submit a Rule 9023 motion,
opting instead for a motion before the district court (which had
retained jurisdiction over the CWA/RIWPCA consent decree)
seeking a judicial declaration that LaRoche had breached the
reaffirmation agreement, thereby rendering himself liable for
the alternative civil penalty in a sum equal to the "shortfall
amount," estimated at more than one million dollars. LaRoche
responded that (i) the consent decree was void and unenforceable
due to appellants' failure to comply with the prerequisites to
reaffirmation, see Bankruptcy Code § 524(c), 11 U.S.C. § 524(c),
and (ii) consequently, the general discharge he was granted
See Fed. R. Bankr. P. 4008 (stating that hearing on application
to reaffirm prepetition debt is to be held within 30 days of
order granting or denying general discharge). For present
purposes, we accept their characterization.
7
relieved him of all liabilities, including those asserted by
appellants.
For their part, appellants argued that the consent
decree itself expressly defined the civil penalty imposed upon
LaRoche as a fine payable to and for the benefit of a
governmental unit, rather than as compensation for actual
pecuniary loss. Accordingly, appellants contended, the civil
penalty imposed against LaRoche was rendered nondischargeable as
a matter of law. See id. § 523(a)(7).
In due course, the district court determined that the
characterization which the consent decree ascribed to the
LaRoche indebtedness for the civil penalty in the shortfall
amount — viz., a nondischargeable "civil penalty" — was not
conclusive. Consequently, the district court opined, in order
to safeguard their rights it was incumbent upon appellants not
only to have submitted a proof of claim, but also to have
commenced an adversary proceeding to obtain a bankruptcy court
ruling that the LaRoche indebtedness for the shortfall amount
was a nondischargeable civil penalty. Failing that, the
district court reasoned, the general discharge in bankruptcy
granted LaRoche in the bankruptcy court presumptively discharged
the civil penalty in the "shortfall amount" as contemplated by
the CWA/RIWPCA consent decree.
8
II
DISCUSSION
Appellants contend that the explicit language employed
in the CWA/RIWPCA consent decree — triggering a contingent
"civil penalty" if and whenever LaRoche were to default on his
obligation to procure bankruptcy court approval of the
reaffirmation agreement relating to the "shortfall amount"
indebtedness to appellants — rendered the civil penalty
nondischargeable under Bankruptcy Code § 523(a)(7), 11 U.S.C. §
523(a)(7). Accordingly, appellants insist, the interpretation
the district court ascribed to the CWA/RIWPCA consent decree
contravened the "law of the case" doctrine, which "makes binding
upon a court a ruling made [in] the same . . . level [of court]
during prior stages of the same litigation." Lacy v. Gardino,
791 F.2d 980, 984 (1st Cir. 1986).
The district court ruling — viz., that appellants
failed either to establish or preserve their entitlement to a
judicial determination that their claim was excepted from
discharge — presents us with a mixed question of law and fact
subject to de novo review. See, e.g., Warfel v. City of
Saratoga, 268 B.R. 205, 209 (B.A.P. 9th Cir. 2001) (noting that
dischargeability exceptions under § 523(a)(7) normally turn upon
whether undisputed facts fit pertinent legal rule). Similarly,
9
a judicial interpretation of the terms of a consent decree is
subject to plenary review. See Braxton v. United States, 500
U.S. 344, 350 (1991).
Bankruptcy Code § 523(a)(7) excepts from discharge in
bankruptcy any debt "for a fine, penalty, or forfeiture payable
to and for the benefit of a governmental unit, [which] is not
compensation for actual pecuniary loss." 11 U.S.C. § 523(a)(7).
Thus, in order to establish that the instant consent decree
imposed a nondischargeable obligation upon LaRoche, appellants
needed to establish that their claim was based on (i) a "fine,
penalty, or forfeiture," (ii) "payable to and for the benefit of
a governmental unit," and (iii) "not compensation for actual
pecuniary loss." Id. Were appellants required to relitigate
the dischargeability issue de novo, there may well have been
substantial impediments to overcome. We explain.
Although Bankruptcy Code § 523(a)(7) applies both to
civil and criminal penalties, see U.S. Dep't of Hous. & Urban
Dev. v. Cost Control Mktg. & Sales Mgmt. of Va., Inc., 64 F.3d
920, 927-28 (4th Cir. 1995), in order to qualify for a
dischargeability exception under subsection 523(a)(7), normally
the particular penalty must serve some "punitive" or
"rehabilitative" governmental aim, rather than a purely
10
compensatory purpose. See Kelly v. Robinson, 479 U.S. 36, 52
(1986).
Appellants contend that these civil penalties, imposed
pursuant to Rhode Island law, see R.I. Gen. Laws § 46-12-13,
were designed to deter and remediate environmental
contamination, a particularly important governmental function
implemented under the State's police and regulatory powers.
Moreover, appellants argue, LaRoche potentially was exposed to
fines up to $25,000 per day, a sum which bears neither any
obvious nor essential correlation to the amount needed to
compensate the State for its actual response costs.
On the other hand, there can be no question but that
the consent decree itself explicitly equates the amount of these
civil penalties with the "shortfall amount," which in turn
plainly was designed to reimburse the State for its actual
losses, neither more nor less. Appellants respond, however,
that their decision to calculate the punitive fines under that
convenient methodology cannot deprive these civil penalties of
their "punitive" nature. See, e.g., State Bar of Mich. v. Doerr
(In re Doerr), 185 B.R. 533, 536-37 (Bankr. W.D. Mich. 1995).
We need not resolve these issues, however, since the CWA/RIWPCA
consent decree itself disposes of the contention that
11
appellants' claim is excepted from discharge under Bankruptcy
Code § 523(a)(7).
First, the district court erred, as a matter of law,
in ruling that appellants forfeited their rights by not
commencing a timely adversary proceeding to determine the
dischargeability of these debts while the LaRoche bankruptcy
proceeding was pending. Normally, the Bankruptcy Code enables
a debtor to obtain a discharge "from all debts that arose before
the date of the order for relief." Bankruptcy Code § 727(b);
see also id. § 524(a). Any claim for environmental
contamination asserted against LaRoche plainly arose prior to
the chapter 11 petition. See id. § 101(5) (defining "claim" as
a "right to payment, whether or not such right is reduced to
judgment, . . . fixed, [or] contingent"). Consequently, absent
exceptional circumstances not present here, any liability
incurred for environmental contamination would have been
extinguished by the discharge in bankruptcy LaRoche obtained in
1995.
On the other hand, under the terms of the consent
decree, LaRoche became liable to appellants for two distinct
debts: the "shortfall amount" and the contingent civil penalty.
Thus, as appellants correctly point out, the present case
implicates two distinct dischargeability "exceptions."
12
First, a debtor represented by counsel may reaffirm any
lawful debt by entering into a written reaffirmation agreement
which strictly comports with the criteria prescribed in
Bankruptcy Code § 524(c). The mandated criteria require that
the reaffirmation agreement (i) be executed before the
subsection 727(a) discharge has been granted; (ii) be in
consideration for a dischargeable debt, whether or not the
debtor waived discharge of the debt; (iii) include clear and
conspicuous statements that the debtor may rescind the
reaffirmation agreement at any time prior to the granting of the
general discharge, or within sixty days after the execution of
the reaffirmation agreement, whichever occurs later, and that
reaffirmation is neither required by the Bankruptcy Code nor by
nonbankruptcy law; (iv) be filed with the bankruptcy court; and
(v) be accompanied by an affidavit of the debtor's attorney
attesting that the debtor was fully advised of the legal
consequences of the reaffirmation agreement, that the debtor
executed the reaffirmation agreement knowingly and voluntarily,
and that the reaffirmation agreement would not cause the debtor
"undue [e.g., financial] hardship." Id. § 524(c).4
4
These detailed prophylactic measures were designed to
protect unwitting debtors from creditors bent on coercing
reaffirmations in relation to otherwise dischargeable
prepetition debts, see In re Turner, 156 F.3d 713, 718 (7th Cir.
1998) ("A reaffirmation agreement is the only vehicle through
13
An entirely voluntary, fully informed reaffirmation
agreement meeting the demanding requirements of Bankruptcy Code
§ 524 enables a creditor to undertake all lawful efforts to
recover a reaffirmed debt as though no petition in bankruptcy
had been filed. See Ripple v. Boston Whaler Fin. Servs. (In re
Ripple), 242 B.R. 60, 64 (Bankr. M.D. Fla. 1999). Otherwise, a
reaffirmation agreement is void and unenforceable. See Bessette
v. Avco Fin. Servs., 230 F.3d 439, 443-44 (1st Cir. 2000); see
also Bassett v. Am. Gen. Fin., Inc. (In re Bassett), 255 B.R.
747, 751 (B.A.P. 9th Cir. 2000).
The consent decree in the instant case required that
LaRoche submit a motion to reaffirm only the non-"penalty" debt
for the "shortfall amount" ("non-penalty shortfall debt").
which a dischargeable debt can survive a Chapter 7 discharge.")
(citation omitted; emphasis added), a practice which would
undermine fundamentally the central "fresh start" policy served
by the discharge in bankruptcy. See Bessette v. Avco Fin.
Servs., 230 F.3d 439, 443-44 (1st Cir. 2000), cert. denied, 121
S. Ct. 2016 (2001); In re Melendez, 235 B.R. 173, 186 (Bankr. D.
Mass. 1999); see also Airlines Reporting Corp. v. Mascoll (In re
Mascoll), 246 B.R. 697, 700-01 (Bankr. D.D.C. 2000).
Thus, it is immaterial that the CWA/RIWPCA consent decree
did not employ the term "reaffirmation agreement." Bankruptcy
Code § 524 "grew out of a long history of coercive and deceptive
actions by creditors to secure reaffirmation of discharged
debts. The subsections have been applied strictly by courts to
carry out their remedial purposes and to ensure that they are
not evaded by agreements which, though not labeled as
reaffirmations, have the effect of waiving protections of the
discharge." 4 Collier on Bankruptcy ¶ 524.04, at 524-30
(emphasis added).
14
Unlike the contingent civil penalty, which was stayed, the "non-
penalty shortfall debt" presumptively constituted a
dischargeable debt; that is, one which could not be excepted
from discharge unless LaRoche entered into a valid agreement to
reaffirm it.
Second, and altogether apart from whether a particular
reaffirmation agreement is enforceable, an eligible creditor may
be entitled to invoke any one or more among the sixteen
exceptions to discharge enumerated in Bankruptcy Code § 523(a).
In this connection, appellants once again posit that the
alternative civil penalty contemplated by the CWA/RIWPCA consent
decree came within an exception to discharge, since it "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." Bankruptcy Code § 523(a)(7); 11 U.S.C. §
523(a)(7).
Unlike motions to reaffirm, which may be filed only by
debtors, see supra note 1, either a debtor or a creditor may
commence an adversary proceeding to determine the
dischargeability vel non of a debt under subsection 523(a). See
Galbreath v. Ill. Dep't. of Rev. (In re Galbreath), 83 B.R. 549,
551 (Bankr. S.D. Ill. 1988) (citing Fed. R. Bankr. P. 4007(a)
and 7001(6)). The fundamental "fresh start" policy underlying
15
the Bankruptcy Code requires that the exceptions to discharge
prescribed in subsection 523(a) be narrowly construed by the
courts, and established by a preponderance of the evidence by
the claimant asserting the dischargeability exception. See
Grogan v. Garner, 498 U.S. 279, 286-87 (1991); Seton Hall Univ.
v. Van Ess (In re Van Ess), 186 B.R. 375, 377-78 (Bankr. D.N.J.
1994).
Although Bankruptcy Code sections 523 and 524
frequently overlap in application, each entails discrete
criteria and procedures pertinent to the instant case. The
LaRoche reaffirmation agreement purported to serve two distinct
ends: (A) LaRoche promised to submit a subsection 524(c) motion
to "confirm" (viz., reaffirm) the prepetition obligation to
reimburse appellants for the "shortfall amount," presumably
because that indebtedness (i) had not yet been converted to a
contingent civil "fine" or penalty; (ii) would not qualify for
an exception to discharge under subsection 523(a)(7); and (iii)
presumptively would be covered by a general discharge in
bankruptcy; and (B) the reaffirmation agreement explicitly
stipulated that should LaRoche default on his reaffirmation
agreement with regard to the "shortfall amount," the "shortfall
amount" would become a nondischargeable civil penalty under
subsection 523(a)(7).
16
Appellants correctly refrain from contending that the
first component of the CWA/RIWPCA consent decree (i.e., the
reaffirmation provision relating to the "shortfall amount") is
enforceable, since the consent decree did not include the
requisite clear and conspicuous statement either informing
LaRoche that he could rescind the reaffirmation agreement or
that reaffirmation was not obligatory under either the
Bankruptcy Code or applicable nonbankruptcy law. Moreover, the
debt reaffirmation provision contained no representation that
reaffirmation would not cause LaRoche "undue hardship."
Accordingly, even if a timely motion to reaffirm the "shortfall
amount" indebtedness had been submitted by LaRoche, see supra
note 3, it would not have been allowable.
Yet the district court ruled as well that appellants'
right to recover the civil penalty had been forfeited
irretrievably — after the bankruptcy court rejected the LaRoche
motion to reaffirm — due to either (i) their deliberate refusal
to intervene in the reaffirmation proceeding for the purpose of
submitting a motion to amend the bankruptcy court order
disallowing the reaffirmation, but see supra note 1, and/or (ii)
their failure to commence an adversary proceeding to obtain a
judicial determination that the contingent civil penalty
asserted against LaRoche was nondischargeable under Bankruptcy
17
Code § 523(a)(7). These district court rulings constituted
reversible error.
A creditor intent on establishing that its claim is
excepted from discharge, i.e., nondischargeable under Bankruptcy
Code § 523(a)(2), (4), (6) or (15), must commence a timely
adversary proceeding to determine dischargeability vel non;
otherwise, the nondischargeability issue is deemed waived. See
11 U.S.C. § 523(c)(1) (prescribing that creditor asserting
nondischargeability, under Bankruptcy Code § 523(a)(2), (4), (6)
or (15), must litigate issue in bankruptcy court, or else the
"debtor shall be discharged from [the] debt"); In re Walker, 195
B.R. 187, 190 n.3, 195 (Bankr. D.N.H. 1996); 4 Collier on
Bankruptcy ¶ 523.26, at 523-11.
On the other hand, creditors relying upon any of the
twelve other exceptions to discharge prescribed in Bankruptcy
Code § 523(a), including subsection 523(a)(7), may seek a
nondischargeability determination in the bankruptcy court, but
are not required to do so. See In re Walker, 195 B.R. at 195;
Fed. R. Bankr. P. 4007(a) ("A debtor or any creditor may file a
complaint to obtain a determination of the dischargeability of
any debt."). Thus, bankruptcy courts and nonbankruptcy courts
alike are vested with concurrent jurisdiction over
nondischargeability proceedings arising under Bankruptcy Code §
18
523(a)(7). Consequently, at their option, creditors seeking a
nondischargeability determination need not submit to the
jurisdiction of the bankruptcy court, but instead may invoke the
jurisdiction of any appropriate nonbankruptcy forum either
before or after the bankruptcy proceeding has been closed. See,
e.g., In re Walker, 195 B.R. at 203-04; Royal Am. Oil & Gas Co.
v. Szafranski (In re Szafranski), 147 B.R. 976, 981 (Bankr. N.D.
Okla. 1992); Fed. R. Bankr. P. 4007(b) ("A complaint other than
under § 523(c) may be filed at any time.")5
At the time the bankruptcy court disallowed LaRoche's
motion to reaffirm the indebtedness relating to the "shortfall
amount," the most extensive conceivable scope of its ruling
would have been that any attempt to reaffirm the indebtedness
for the "shortfall amount" — the one and only issue LaRoche was
contractually obligated to raise — was a nullity. Thus, the
bankruptcy court ruling stands only for the proposition that the
reaffirmation effort undertaken by LaRoche did not render the
"shortfall amount" indebtedness de facto "nondischargeable."
See In re Ripple, 242 B.R. at 64 (noting that where
reaffirmation agreement meets rigorous § 524 requirements,
5
Assuming arguendo that LaRoche might have opted to "remove"
the case from the nonbankruptcy forum to the bankruptcy court,
see In re Galbreath, 83 B.R. at 551, he did not elect to do so.
19
creditor may recover reaffirmed debt as though debtor never
filed bankruptcy petition).
As appellants correctly point out, the bankruptcy court
ruling which disallowed the motion to reaffirm filed by LaRoche
never purported to resolve the altogether distinct matter
relating to the dischargeability of the contingent civil penalty
under Bankruptcy Code § 523(a)(7). And since LaRoche commenced
no adversary proceeding relating to the dischargeability of the
contingent civil penalty, appellants were free to forego their
own adversary proceeding. Consequently, their decision not to
intervene, notwithstanding the bankruptcy court's invitation,
did not forfeit their right to litigate the subsection 523(a)(7)
nondischargeability issue at some later date in an appropriate
nonbankruptcy forum, viz., the United States District Court for
the District of Rhode Island, which had retained jurisdiction
for the purpose of monitoring the implementation of the
CWA/RIWPCA consent decree.
Accordingly, at the present juncture this appeal
reduces to two principal issues: (i) whether the CWA/RIWPCA
consent decree constituted either a binding contractual
agreement between the parties or a controlling judicial
determination — in or by a nonbankruptcy forum possessing
concurrent jurisdiction — that the contingent civil penalty
20
imposed upon LaRoche is nondischargeable under Bankruptcy Code
§ 523(a)(7); and (ii) if not, whether the district court ruling
that the civil penalty is dischargeable should be affirmed on
other grounds apparent from the record on appeal, see
Spenlinhauer v. O'Donnell, 261 F.3d 113, 117 (1st Cir. 2001),
or, (iii) whether the record on appeal is sufficiently developed
to enable a de novo determination by this court, as to whether
appellants are entitled to assert their claim to a
nondischargeability exception under subsection 523(a)(7), see
Warfel, 268 B.R. at 209, thereby obviating a remand.
The CWA/RIWPCA consent decree unambiguously expunged
whatever prospective legal entitlement LaRoche may have had to
receive a discharge from the civil penalty.6 To be sure, on rare
occasions courts have either declined on public policy grounds
to enforce prebankruptcy waivers of a discharge in bankruptcy,
or have ruled that prebankruptcy waivers must strictly comport
with the reaffirmation requirements prescribed by Bankruptcy
Code § 524(c). See, e.g., Hayhoe v. Cole (In re Cole), 226 B.R.
647, 652-53 (B.A.P. 9th Cir. 1998); In re Mascoll, 246 B.R. at
6A consent decree is a hybrid, consisting of a contractual
agreement among the parties to the dispute, as well as a
judicial imprimitur enforceable through the contempt power. See
Martin v. Wilks, 490 U.S. 755, 788 n.27 (1989). In all events,
the question as to whether LaRoche waived any contention
relating to the dischargeability of the civil penalty poses a
legal issue subject to de novo review. See id.
21
700-01; In re James, 120 B.R. 582, 585-86 (Bankr. W.D. Okla.
1990); In re Hirte, 71 B.R. 249, 250 (Bankr. D. Ore. 1986); cf.
In re Catron, 186 B.R. 194, 196 (Bankr. E.D. Va. 1995)
(extending same rule to postpetition waiver of discharge
obtained in nonbankruptcy forum, such as state court).
Nevertheless, these decisions invariably involved the
four "waivable" exceptions to discharge identified in Bankruptcy
Code § 523(a)(2), (4), (6), and (15), over which the bankruptcy
court exercises exclusive jurisdiction. See In re Cole, 226
B.R. at 649, 653, 656 (explicitly justifying its holding on
ground that "bankruptcy courts have exclusive jurisdiction to
determine the dischargeability of claims arising under §
523(a)(2)," and refusing to accord collateral estoppel effect to
stipulated judgment because state court which entered it clearly
lacked jurisdiction to determine underlying facts necessary to
resolve § 523(a) issue); In re Mascoll, 246 B.R. at 701, 706 (§
523(a)(2)); In re James, 120 B.R. at 584 (§ 523(a)(2)); In re
Hirte, 71 B.R. at 250 (noting that claimant's
nondischargeability complaint was time-barred by § 523(c)).7
7
Since the present case involved no waiver of the general
discharge, Bankruptcy Code § 727(10) — which requires that the
debtor obtain the bankruptcy court's approval to waive a general
discharge during the bankruptcy proceeding, see 11 U.S.C. §
727(10) — is inapposite.
22
Where an asserted exception to discharge relies upon
none of the four waivable exceptions to discharge, however, the
jurisdiction of the bankruptcy court is concurrent, hence
nonexclusive. And since any creditor may opt to litigate, in an
appropriate nonbankruptcy forum, its asserted entitlement to an
exception from discharge, a debtor's voluntary waiver of
objection to such a dischargeability exception in a
nonbankruptcy forum would appear to offend no established policy
fostered by the Bankruptcy Code. See Saler v. Saler (In re
Saler), 205 B.R. 737, 746-47 (Bankr. E.D. Pa. 1997) (holding
that debtor's earlier settlement of nondischargeability
litigation of § 523(a)(5) exemption did not constitute
"reaffirmation"; consequently, § 524(c), by its terms, held
inapplicable), aff'd, 217 B.R. 166 (E.D. Pa. 1998); see also
Pope v. Wagner (In re Pope), 209 B.R. 1015, 1019 (Bankr. N.D.
Ga. 1997); cf. In re Cole, 226 B.R. at 652 (distinguishing Saler
on this ground). 8 Thus, we can discern no sound reason that
LaRoche, like any other litigant who knowingly and voluntarily
8
The Saler court aptly noted that even if the provisions of
§ 523(a) were not so plain, Congress was then considering an
amendment to § 524(c), which would explicitly permit debtors to
enter into prepetition settlements of these nondischargeability
claims; the Saler court also cited relevant legislative history
relating to the current version of § 524(c), suggesting the same
congressional intent. See In re Saler, 205 B.R. at 747-48
(citing 9 Bankruptcy Law Reptr. (BNA), No. 5, 124, at 139 (Jan.
30, 1997)).
23
stipulates to judgment, should not be bound by the obligations
undertaken in the consent decree, which obligations plainly
constituted the consideration that prompted appellants to settle
their nondischargeability action against him.9
Furthermore, even assuming LaRoche may have realized
some perceived advantage had he litigated the
nondischargeability issue in the bankruptcy court, presumably he
was free in 1991 either to "remove" the nondischargeability
action to the bankruptcy court, see supra note 5, or to commence
an adversary proceeding for a declaratory judgment that the debt
did not qualify for subsection 523(a)(7) treatment, see Fed. R.
Bankr. 4007(a). Nevertheless, LaRoche did neither, preferring
instead to wait six years before complying with his promise to
provide the "expeditious" and good faith reaffirmation agreement
required under the 1991 consent decree. Cf. Richardson v.
Chrysler First Fin. Servs. Corp. (In re Richardson), 102 B.R.
254, 256 (Bankr. M.D. Fla. 1989) (determining that though
reaffirmation agreement was unenforceable under § 524(c), debtor
9
For present purposes, we need not determine whether LaRoche
was either contractually bound or judicially estopped, e.g., by
res judicata, collateral estoppel, or the "law of the case"
doctrine. See, e.g., In re Saler, 205 B.R. at 744 n.5 (noting
that earlier consent decree, whose terms were sufficiently
detailed, may have been entitled to collateral estoppel effect,
thereby barring litigation of factual matters in subsequent
nondischargeability litigation).
24
was estopped from asserting unenforceability where creditor
reasonably refrained from filing timely § 523(a)(2) adversary
proceeding in reliance on debtor's earlier waiver).
Accordingly, in the present circumstances we need not
consider whether appellants may have been entitled to a
nondischargeability determination with regard to the civil
penalty under Bankruptcy Code § 523(a)(7), nor whether any such
civil penalty qualified for a nondischargeability exception as
"compensation for actual pecuniary loss" sustained by
appellants. Consequently, we announce no sweeping rule of law
regarding the validity of prepetition waivers of discharge,
especially since these matters are almost invariably best
assessed on a case-by-case basis. Instead, we conclude that
because the district court plainly possessed concurrent
jurisdiction over the subsection 523(a)(7) dischargeability
issue in 1991, when it approved the consent decree, LaRoche
cannot now be heard to contend that the general discharge he was
granted in 1995 relieved him of liability for the civil penalty.
Accordingly, the district court judgment is vacated and
the case is remanded for the entry of judgment for appellants;
costs to be borne by appellees.
SO ORDERED.
25