Saturday, October 20th, 2012

You Don’t Stay

United States v. Colasuonno, No. 11-1188-cr (2d Cir. October 12, 2012)(Kearse, Walker, Raggi, CJJ)

Answering a question of first impression, here the circuit holds that the automatic stay provisions of the bankruptcy code does not apply to either a restitution order or a probation violation proceeding based on a failure to comply with a restitution order.

The facts are fairly straightforward. A jury convicted Colasuonno of bank fraud offenses; he then pled guilty to an unrelated tax fraud. At a consolidated proceeding the district court imposed a noncustodial sentence, which included about $781,000 in restitution to the IRS on the tax case.  Colasuonno seemed to show little enthusiasm for making restitution payments. After two years, even with district court intervention, he had paid only about $6,600, even though his monthly income during that period was more than $7,000.

In July of 2009, Colasuonno and his wife filed a Chapter 7 bankruptcy petition, without letting the court or probation department know. He made a few more restitution payments, in decreasing amounts, before stopping altogether in February of 2010. By then, he had paid just under $12,000.

During an October 2010 violation hearing, he argued that the automatic stay provision had allowed him to stop making restitution payments until the bankruptcy was resolved. He also argued that he stopped paying on the advice of his bankruptcy attorney. The district court disagreed, and concluded that Colasuonno had willfully failed to pay. The court revoked his probation and sentenced him to four months’ imprisonment.

On appeal, the circuit affirmed. The relevant provisions of the bankruptcy code provide that the filing of a bankruptcy petition “operates as a stay” of, inter alia, “the commencement or continuation” of certain judicial or administrative actions against the debtor. However, that statute contains an exception for the “commencement or continuation of a criminal action or proceeding against the debtor.”  In the district court, Colasuonno argued primarily that the bankruptcy statute meant that he did not have to make payments at all; on appeal, his argument was primarily that the automatic stay provision barred the district court from revoking his probation based on a failure to pay restitution.

The circuit disagreed, finding that “proceedings to enforce a probationary sentence” constitute the “continuation” of a “criminal action” against the debtor.  Obviously, the underlying case was a “criminal action.” And that action “did not end when the judgment of conviction became final.” It continued “through satisfaction of the judgment because all duties imposed on the defendant, as well as the court’s authority to hold [him] to account for those duties, derive from, and in that respect continue, the original criminal action.” 

To the court, this “plain meaning” resolution was “reinforced” by the statute’s legislative history, which stressed that the bankruptcy laws were not to be “a haven for criminal offenders.”

The appellate court also rejected the Colasuonno’s creative argument that a probation revocation proceeding was not a “criminal proceeding” because the defendant did not have the same procedural rights there as at a criminal trial. The circuit found nothing in the language of the bankruptcy statute to suggest that the “scope of the exception is determined by the rights afforded to a defendant in a particular proceeding.”

Finally, the district court did not abuse its discretion in rejecting Colasuonno’s “advice-of-counsel” defense. The district court found that Colasuonno had not told his bankruptcy attorney that the restitution order he was obliged to pay arose from a criminal conviction, and this finding was not clearly erroneous. Since the defense requires that the person invoking it had “fully and honestly laid all the facts before his counsel,” the defense did not apply here.

Comments are closed.