Hart v. Harnett County Department of Social Services et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
HENRY K. HART
CARRIE F. HART
DEBTORS
CASE NO.
04-00491-5-ATS
CARRIE F. HART
Plaintiff
v.
HARNETT COUNTY DEPARTMENT OF
SOCIAL SERVICES and STATE OF
NORTH CAROLINA
Defendants.
ADVERSARY PROCEEDING NO.
S-05-00079-5-AP
MEMORANDUM OPINION
The trial of this adversary proceeding to determine whether,
pursuant to 11 U.S.C. § 524(a), the Harnett County Department of Social
Services ("Harnett County DSS") and the State of North Carolina should
be enjoined from prosecuting the debtor, Carrie F. Hart, for alleged
food stamp and Medicaid fraud was held in Raleigh, North Carolina on
August 25, 2005.
This bankruptcy court has jurisdiction over the parties and the
subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157,
and 1334, and the General Order of Reference entered by the United
States District Court for the Eastern District of North Carolina on
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1 To qualify for Medicaid benefits, Ms. Hart would have to show
that her husband was not living in the home. To qualify for food
stamps, she would also have to show that there were children under the
age of 19 living in the home.
2
August 3, 1984. This is a "core proceeding" within the meaning of 28
U.S.C. § 157(b)(2), which this court may hear and determine.
Henry K. Hart and Carrie F. Hart filed a petition for relief under
chapter 7 of the Bankruptcy Code on February 9, 2004. Ms. Hart
scheduled the Harnett County DSS as an unsecured creditor for alleged
overpayment of Medicaid benefits and food stamps in the amount of
$36,405.65. Harnett County DSS did not participate in the bankruptcy
case, and Ms. Hart received her discharge on May 14, 2004. On
September 3, 2004, an arrest warrant was issued against Ms. Hart for
food stamp and Medicaid fraud. Ms. Hart brought the instant adversary
proceeding to enjoin the criminal prosecution, contending that the
prosecution was an effort to collect a discharged debt in violation of
11 U.S.C. § 524(a).
Kiki Turner, an investigator with the fraud unit of the Harnett
County DSS, testified that she initially interviewed Ms. Hart on June
10, 2003, after a referral from a Medicaid worker that there was reason
to believe that Ms. Hart’s husband was employed and living in the home.1
At the interview, Ms. Turner told Ms. Hart that she would review all of
her case files (dating back to 1998) to determine whether Ms. Hart ever
reported that Mr. Hart was living in the home and then moved out. If
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it was determined that Mr. Hart was living in the home, the DSS would
reconsider whether Ms. Hart was eligible for the benefits, and Ms. Hart
would be responsible for repaying any overpayment. Ms. Turner also
indicated that the DSS might consider criminal prosecution for welfare
fraud.
Ms. Turner completed her investigation and determined that
overpayments had been made. She wrote a letter to the Harnett County
District Attorney on October 20, 2003, setting forth the factual
allegations against Ms. Hart and inquiring whether criminal prosecution
was appropriate. By letter of February 10, 2004, the District Attorney
requested Ms. Turner to charge Ms. Hart with one count of food stamp
fraud and one count of Medicaid fraud for each period that Ms. Hart
misrepresented her situation. Ms. Turner then prepared the warrants,
which were issued in September 2004.
This court discussed the initiation of criminal prosecutions with
respect to the automatic stay and/or discharge injunction in In re
Byrd, 256 B.R. 246 (Bankr. E.D.N.C. 2000). In Byrd, the court held
that
a state may initiate or continue criminal prosecutions
regardless of the pendency of a bankruptcy case, and . . .
it may do so even when the state’s--or a complaining
witness’s--primary purpose is the collection of a debt.
However, a creditor does not have the full protection of §
362(b)(1), and an entity other than the government’s
prosecuting authority may not commence a criminal action for
the primary purpose of recovering a debt that is
dischargeable in bankruptcy. If a creditor already has
brought its grievance to the attention of law enforcement
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officials prior to the debtor’s bankruptcy filing, those
officials may proceed as they deem appropriate and may elect
to prosecute, or not.
Byrd, 256 B.R. at 251.
In this case, the Harnett County DSS notified the District
Attorney of Ms. Hart’s alleged food stamp and Medicaid fraud in October
2003, well before Ms. Hart filed her bankruptcy petition. The District
Attorney directed the DSS to issue warrants by letter of February 10,
2004. Ms. Turner testified that the District Attorney, not the
creditor/DSS, makes the decision whether the warrants are to be issued
and the case is to be prosecuted. Based on that information, it
appears to the court that the creditor brought its grievance to the
attention of law enforcement officials prior to the debtor’s bankruptcy
filing, and the officials then elected to prosecute the alleged
criminal acts.
Ms. Hart also contends that the DSS’s choice to prosecute her when
it also had a civil remedy reflects that Ms. Hart is being punished for
exercising her right to file bankruptcy and discharge her debts. Ms.
Turner testified that the DSS pursues civil collection remedies when a
person receives an overpayment due to an inadvertent error, such as a
failure to update information within the requisite time period. On the
other hand, the DSS pursues criminal prosecution when a person
affirmatively misrepresents the facts that establish eligibility. The
DSS contends that Ms. Hart repeatedly misrepresented her situation, and
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it chose to criminally prosecute her. Accordingly, the court finds
that the criminal prosecution is not solely for the purpose of
collecting a debt.
Based on the foregoing, the court concludes that there has been
no violation of the automatic stay or discharge injunction, and the
court will not enjoin the prosecution. The court expresses no opinion
on the merits of the criminal prosecution.
A separate judgment will be entered.
DATED: August 29, 2005
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