Under Kelly, in order for a debt to be excepted from discharge under ยง 523(a)(7), that debt "must satisfy two requirements: (1) [it] must be to and for the benefit of a governmental unit; and (2) [it] must be penal, rather than pecuniary, in nature." Cisneros v. Cost Control Marketing and Sales Management of Virginia, Inc., et al., 862 F. Supp. 1531, 1534 (W.D.Va. 1994) (citing Kelly). The first prong of this test is satisfied because Defendant's restitution obligations are for the benefit of the government.
The defendants objected to the report, but the district court adopted the recommended disposition in a memorandum opinion. Cisneros v. Cost Control Marketing and Sales Management of Virginia, 862 F. Supp. 1531 (W.D.Va. 1994). The final judgment makes the individual defendants jointly and severally liable for $8.65 million, payable to HUD.
Thus, the court reads nothing into the district court's order suggesting that the district court desires that the bankruptcy court refrain from addressing these issues. The Commission next argues that Cisneros v. Cost Control Marketing Sales Management of Virginia, Inc., 862 F. Supp. 1531, 1533 (W.D.Va. 1994), supports abstention by the bankruptcy court when the district court action was filed first. Such a broad reading of Cisneros would mean that the bankruptcy court would always defer its determination of the applicability and scope of the automatic stay to another court if that court had jurisdiction over an earlier filed action against the debtor, a very common factual scenario. If such were the case, abstention would indeed be the rule rather than the exception.
The State does not seek relief from stay to enforce any money judgment it may obtain. In fact, it expects that such payment as it may exact will be obtained through Nelson's Chapter 13 plan. See, e.g., Cisneros v. Cost Control Mktg. and Sales Management of Virginia, Inc., 862 F. Supp. 1531, 1534 n. 3 (W.D.Va. 1994); Maritan, 203 B.R. at 744. See also Eddleman, 923 F.2d at 791 (observing that the debtors' back-pay claimants would not achieve "any extra priority" as the result of the DOL's unstayed action because the collection of the back-pay claims would "proceed according to normal bankruptcy procedures").
Although that issue has not been resolved in the First Circuit, the only two courts to address it have found that tendering service of process under similar circumstances does not waive a plaintiff's right to remand. See Todd v. DSN Dealer Service Network, Inc., 862 F.Supp. 1531 (S.D.N.Y.1994) ; Gratz v. Murchison, 130 F.Supp. 709 (D.Del.1955). As such, plaintiff's concern is unfounded.
Smith v. McIver, 22 U.S. (9 Wheat.) 532, 535 (1824); see also Cisneros v. Cost Control Mktg. and Sales Mgmt. of Virginia, Inc., 862 F. Supp. 1531, 1533 (W.D. Va 1994) (holding that longstanding principles of comity suggest it is appropriate for the court to decide a particular issue because the proceeding was first filed in that court). The first to file rule "rests on principles of both comity and sound judicial administration."
Although Kelly specifically dealt with state criminal restitution orders, "[p]ost -Kelly, every court to consider the scope of this statute has held that a federal restitution order is nondischargeable in Chapter 7 as well." In re Soderling, 998 F.2d 730, 732 (9th Cir. 1993) (emphasis in original) (citations omitted); see also, Cisneros v. Cost Control Mktg. Sales Mgmt. of Virginia, Inc., 862 F. Supp. 1531, 1534 (W.D.Va. 1994). The defendant cites to In re Wright, 87 B.R. 1011 (Bankr.D.S.D. 1988), to support the proposition that each individual case must be analyzed to determine whether discharge is appropriate under ยง 523(a)(7).
In seeking to avoid discharge in bankruptcy, government agencies, including the S.E.C., have sometimes asked courts to classify disgorgement awards as non-dischargeable penalties. In this context, courts have focused on the potential deterrent effects of disgorgement, and have classified disgorgement awards as non-dischargeable penalties under ยง 527 of the Bankruptcy Code. See e.g., Cisneros v. Cost Control Marketing Sales Management of Virginia, Inc., 862 F. Supp. 1531 (W.D.Va. 1994). The bankruptcy cases cited by the defendants stand for the limited proposition that the deterrent effects of disgorgement, whatever these may be, implicate the non-dischargeability provisions of the bankruptcy code.
Other courts have recognized a similar non-exclusivity concept with regard to interpretation and enforcement of the discharge under sections 524 and 727. See In re Watson, 192 B.R. 739, 746 (B.A.P. 9th Cir. 1996), aff'd U.S. App. LEXIS 14663 (9th Cir., June, 16, 1997), and Cisneros v. Cost Control Marketing & Sales Management, 862 F.Supp 1531, 1533 (W.D. Va. 1994), aff'd 64 F.3d 970 (4th Cir. 1995), cert. denied, 517 U.S. 1187 (1996). (There is a caveat to this case law, at least as applied in the Second Circuit, which is that while courts other than the bankruptcy court have concurrent jurisdiction over disputes pertaining to Section 362 of the Bankruptcy Code, the automatic stay provision, and Section 524, if they are erroneous their decision may be viewed as void ab initio as being in violation of the stay or the discharge.
In re Baldwin-United Corporation Litigation (Erti v. Paine Webber Jackson Curtis), 765 F.2d 343, 347 (2nd Cir. 1985); NLRB v. Edward Cooper Painting, Inc., 804 F.2d 934 (6th Cir. 1986); In re Bona, 110 B.R. 1012 (Bankr. S.D.N.Y. 1990), aff'd 124 B.R. 11; Cisneros v. Cost Control Marketing an Sales Management of Virginia, Inc., 862 F. Supp. 1531 (W.D.Va. 1994), aff'd 64 F.3d 920, cert denied 116 S.Ct.1673, 517 U.S. 1187, 134 L.Ed.2d 777; Picco. v. Global Marine Drilling Co., 900 F.2d 846 (5th Cir. 1990). The debtor in Gruntz failed to make child support payments as required by the divorce decree between the debtor and his ex-spouse.