Kay Elizabeth Aikin

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
KAY ELIZABETH AIKIN,
Debtor.
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Case No. 07-00121
(Chapter 7)
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION SETTING
HEARING ON MOTION FOR ORDER TO SHOW CAUSE WHY
THE ATTORNEY GENERAL OF MARYLAND SHOULD NOT BE HELD IN CONTEMPT
This decision assumes that the reader is familiar with the
papers the parties have filed, and will not restate the
procedural posture of the case. 	The only issue left on the
debtor’s contempt motion is whether the Attorney General has
violated the discharge injunction by pursuing restitution
remedies against the debtor.
The Consumer Protection Division (“Division”) of the Office
of the Attorney General, State of Maryland (“State”) has
proceeded against the debtor in an agency proceeding (not in a
criminal proceeding), which includes seeking restitution for
victims of the debtor’s alleged statutory violations. 	One of the
statutes upon which the Division has proceeded provides for a
The decision below is signed as a decision of
the court.
Signed: September 10, 2007.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 	Two of the statutes upon which the Division has proceeded
do not entail restitution in the agency proceeding:
• 	The Homebuilder Registration Act, Md. Code Ann., Bus.
Reg. § 4.5-101 through § 4.5-701 (2004 Repl. Vol. and
2006 Supp.), includes no restitution remedy.
• 	The Custom Home Protection Act, Md. Code Ann., Real
Prop. § 10-501 through § 10-509 (2003 Repl. Vol. And
2006 Supp.) provides in § 10-507(b)(1) that certain
violations of the statute constitute a felony and § 10-
507(b)(2) provides that upon being convicted of such a
felony, the convicted person “shall make restitution to
the purchaser as determined by the court and be subject
to a fine not exceeding. $10,000 or imprisonment not
exceeding 15 years or both.” 	Plainly any restitution
order under this provision would be nondischargeable,
but at this juncture the Division is only proceeding at
the agency level and not before a court having
jurisdiction to issue a felony conviction.
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restitution remedy in the agency proceeding. 1 	The Consumer
Protection Act, Md. Code Ann., Com. Law, provides in § 13-204(10)
that the Division has the powers and duties to “[a]ssess against
any violator of this title costs of investigation by the Division
in damages which flow from the improper, and incomplete or
untimely restitution by the violator to the consumer of money,
property, or other thing received from the consumer in connection
with a violation of this title.” 	In turn, § 13–403(b)(1)(i)
provides that upon the Division determining that the alleged
violator violated the statute, the Division “shall issue an order
requiring the violator to cease and desist from the violation and
to take affirmative action, including the restitution of money or
property.”
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The issue is whether the restitution claims the State has
pursued are not nondischargeable under 11 U.S.C. § 523(a)(7)
because the claims are not “payable to or for the benefit of a
governmental unit” within the meaning of that statute. 	The
critical features of the proceeding the Division is pursuing
regarding restitution are that (1) the proceeding is a civil
proceeding (not a criminal proceeding as in Kelly v. Robinson,
479 U.S. 36 (1986)), and (2) the statute contemplates that any
restitution will flow to the victims, not to the State. 	As the
Supreme Court noted in Kelly in holding that a criminal
restitution order was nondischargeable under § 523(a)(7), the
“criminal justice system is not operated primarily for the
benefit of the victim, but for the benefit of society as a
whole.” 	479 U.S. at 52. 	Courts have viewed restitution in a
civil proceeding differently. 	If the restitution does not flow
to the state, it is not nondischargeable under § 523(a)(7). 	In
re Towers, 162 F.3d 952 (7th Cir. 1998), cert. denied, 527 U.S.
1004 (1999); cf. In re Car Renovators, 946 F.2d 780 (11th Cir.
1991) (voluntary repayment of worthless check would be
nondischargeable as there was no state criminal sentence
requiring the restitution); In re Troff, 488 F.3d 1237 (10th Cir.
2007) (observing that in the case of state criminal restitution
orders, the courts are not free to apply § 523(a)(7) as plainly
written, and must view the deterrent and rehabilitative purposes
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2 	Here, the debtor’s motion began as one to hold the
Attorney General in contempt for violation of the automatic stay,
but once the debtor received a discharge, the debtor converted
the motion to one for violation of the discharge injunction, and
the State has now treated the motion as directed to the discharge
injunction. 	If § 362(b)(4) was applicable while the automatic
stay was in effect, the debtor’s contempt damages would be
limited to damages arising from violation of the discharge
injunction.
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of restitution, when imposed as part of a criminal sentence, as a
benefit flowing to the state within the meaning of § 523(a)(7),
but suggesting that the policy concerns of Kelly regarding
criminal sentences would not bar applying the plain language of
§ 523(a)(7), as in Tower, to civil restitution orders).
In contrast, Department of Housing & Urban Development v.
Cost Control Marketing & Sales Mngt. of Va., Inc., 64 F.3d 920,
927-28 (4th Cir. 1995), relied upon by the State, dealt with a
civil restitution order that “impose[d] no obligation on HUD to
disburse the money to anyone.” 	Moreover, the other principal
decision relied upon by the State, In re Luskin’s, Inc., 213 B.R.
107 (D. Md. 1997), dealt with 11 U.S.C. § 362(b)(4) (the
exception of the automatic stay regarding regulatory
proceedings), not § 523(a)(7). 	See Towers, 162 F.3d at 956
(despite § 523(a)(7) being inapplicable to the restitution debt,
§ 362(b)(4) had applied to permit pursuit of the restitution
proceeding). 2
The State relies upon the observation in Luskin’s that when
the Division seeks restitution it is attempting to protect the
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public interest, and thereby seeks to distinguish Towers, in
which the money was ultimately payable to the victims, not the
state. 	But Illinois was advancing the public interest in Towers
just as much as the State of Maryland is advancing the public
interest here by seeking restitution. 	The State has failed to
show how restitution here would be “payable to and for the
benefit of a governmental unit” when the money, under a civil
restitution order, will flow to the victims.
The parties have not had an opportunity to present oral
argument on this matter, and the State may be able to point to
some feature of this case that distinguishes it from Towers. 	But
at this juncture it appears necessary to hold a hearing instead
of disposing of the motion on the papers.
For all of these reasons, it is
ORDERED that the Attorney General of the State of Maryland
shall appear through counsel on October 4, 2007, at 10:30 a.m.,
to show cause why the Attorney General ought not be held in civil
contempt for violation of the discharge injunction in pursuing
restitution remedies post-discharge, and, if an adjudication of
civil contempt is appropriate, to fix the amount of attorney’s
fees incurred by the debtor, and to determine whether coercive
sanctions are appropriate (and, if so, in what form).
[Signed and dated above.]
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6	O:\Judge Temp Docs\Aikin Decsn re Mtn to Hold AG of MD in Contempt - Civil Restitution Order.wpd
Copies to: Debtor; Debtor’s attorney; and
Steven M. Sakamoto-Wengel
Assistant Attorney General
Consumer Protection Division
Office of the Attorney General
200 St. Paul Place
16 th Floor
Baltimore, MD 21202
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