Case No. 00-70850, Adversary No. 00-7104.United States Bankruptcy Court, C.D. Illinois
March 6, 2001
O P I N I O N
LARRY LESSEN, UNITED STATES BANKRUPTCY JUDGE.
The issue before the Court is whether certain penalties or demolition costs assessed or to be assessed against the Debtors by a state court in a city ordinance violation proceeding are dischargeable under 11 U.S.C. § 523(a)(7).
The Defendants, Daniel and Ida Mae McWilliams, owned certain real estate in San Jose, Illinois. The Farmer’s Inn restaurant, a two-story masonry and timber structure built in the late 1800s, was located on the property. A portion of the roof had collapsed, and most of the timber in the building was saturated with water. The building was uninhabitable. The Plaintiff, the Village of San Jose, wanted the building repaired or demolished.
On January,10 1999, the Plaintiff served the Defendants with a Notice of Abatement and Report of the Health Officer. The Notice advised the Defendants that the building was dangerous and unsafe and should be demolished. The Plaintiff filed a Petition to Demolish Building on March 26, 1999, and on June 22, 1999, the Circuit Court entered an order authorizing the Plaintiff to demolish the building and recover the costs of the demolition. The building was demolished by the Plaintiff on August 24 and 25, 1999.
The Plaintiff filed a claim in the Defendants’ bankruptcy case for $29,699.04. This amount included $2,055 in engineering services, $22,800 for demolition services, $4,707.25 for attorneys fees related to the enforcement and implementation of the demolition proceedings, and $136.79 in court costs and expenses. The Court allowed Plaintiff’s general unsecured claim in the amount of $23,699.04 after deducting $6,000 for the value of the Plaintiff’s collateral.
In addition to the costs associated with the demolition of the building, the Plaintiff also seeks to impose a fine on the Defendants for violation of certain ordinances. A state court complaint alleges the following:
That on or about January 24, 1999, and each day thereafter until the building was demolished on or about August 25, 1999 at or near the intersection of Second and Vine streets on the Northeast corner at San Jose, Illinois, County of Mason, State of Illinois said Defendants, DANIEL McWILLIAMS AND IDA MAE McWILLIAMS of San Jose, Illinois, committed the offense of maintaining and owning a dangerous and unsafe building in excess of 20 days in violation of San Jose Village Ordinance 4-4-1 et seq. entitled Dangerous Buildings . . . as well as Ordinance # 321. . . .
WHEREFORE, the VILLAGE OF SAN JOSE requests that an Order or Orders of Court imposing a fine pursuant to Village Ordinance 4-4-1 of the Village Code of San Jose for each such offense as defined in 4-4-5 and that a separate offense shall be deemed committed on each day during which the violation occurred or continued as provided by such Ordinance and any amendments thereto.
(emphasis in original)
The Plaintiff have not proceeded with their complaint in light of the automatic stay which commenced when the Defendants filed their petition pursuant to Chapter 7 of the Bankruptcy Code on March 17, 2000.
The Plaintiff filed a Complaint to Determine Dischargeability of Debt on June 16, 2000. The Complaint is based on 11 U.S.C. § 523(a)(7) which provides as follows:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt —
(7) 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(.)
Under § 523(a)(7) of the Bankruptcy Code, a debt which is in the nature of a “fine, penalty, or forfeiture, payable to or for the benefit of a governmental unit” is nondischargeable if it is not “compensation for actual pecuniary loss. . . .” Thus, for a debt to be nondischargeable, the debt must be for the benefit of a governmental unit and must be penal in nature. Kelly v. Robinson, 479 U.S. 36, 51-52, 107 S.Ct. 353, 362 (1986); Betts v. Attorney Registration and Disciplinary Commission, 165 B.R. 870, 872 (N.D. Ill. 1994), aff’d 51 F.3d 275 (7th Cir. 1995), cert. denied 516 U.S. 1012, 116 S.Ct. 571 (1995). It is not disputed in this case that the subject debts are payable to a governmental unit. Thus, characterization of the debt as compensatory or punitive is determinative of its dischargeability in this case.
In In re Burnes, No. 97-72921, Adv. No. 97-7260 (Bankr. C.D. Ill. Sept. 4, 1998), a case involving demolition costs and ordinance violations, this Court stated as follows:
The Court sees some similarities between this case and an analogy set forth by the Fourth Circuit in U.S. Department of Housing Urban Development v. Cost Control Marketing Sales Management of Virginia, Inc., 64 F.3d 920, 928 (4th Cir. 1995):
(A) person drives recklessly and collides with a city garbage truck. A city policeman issues him a traffic ticket, and the city attorney files a negligence suit and obtains a judgment for the amount of damage to the garbage truck. The person can discharge the judgment for damaging the truck, but he cannot discharge his reckless driving fine.
In this case, the court finds the penalties for ordinance violations to be analogous to the reckless driving fine and, as such, are nondischargeable under 11 U.S.C. § 523(a)(7). Contrary to Debtors’ contention, there are purposes to be served by excepting these fines from discharge other than depriving Debtors of their fresh start, and those purposes are to punish Debtors for engaging in quasi-criminal conduct, to uphold the dignity and authority of the court, and to deter others from engaging in similar conduct. In other words, the primary purpose of these fines is punitive, not compensatory.
With respect, however, to the demolition costs, this debt is analogous to the judgment for damage to the garbage truck. Springfield hired a contractor to demolish two parcels and became contractually obligated to the contractor for these costs. Springfield subsequently assessed said costs against Debtors. While there was certainly some penal effect in levying these costs against Debtors, the primary purpose of the assessment was to reimburse Springfield for the costs incurred. Although the assessment may have had the effect of vindicating the dignity and authority of the court, as suggested by Springfield, clearly this was not the primary purpose in the assessment. Accordingly, the demolition costs are dischargeable in Debtors’ bankruptcy.
The Plaintiff concedes that the demolition costs are dischargeable. See In re Scott, 233 B.R. 32, 42 (Bankr. N.D. N Y 1998). The Plaintiff stated at the hearing on this matter that it only intended to pursue the fine for the Debtors’ conduct in maintaining an unsafe building. For the reasons stated in Burnes, supra, fines or penalties for ordinance violations are nondischargeable under § 523(a)(7).
For the foregoing reasons, the Complaint to Determine Dischargeability of Debt is allowed.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
O R D E R
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that the fines for ordinance violations assessed or to be assessed against the Defendants are hereby determined to be nondischargeable pursuant to 11 U.S.C. § 523(a)(7).
IT IS FURTHER ORDERED that the costs assessed against the Defendants for the demolition of the building at the intersection of Second and Vine streets on the Northeast corner at San Jose, Illinois are hereby determined to be dischargeable.