UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
DEBTORS CASE NO. 92-70295
DONALD BEGLEY and
GAYNELLE BEGLEY PLAINTIFFS
VS. ADV. NO. 92-7011
CITIZENS BANK & TRUST CO.
OF JACKSON, KENTUCKY, et al. DEFENDANTS
This matter is before the Court on the Motion of defendants Citizens Bank & Trust Company, Inc. of Jackson, Kentucky ("the Bank") and Harlan McIntosh ("McIntosh") for Summary Judgment. The Motion, filed herein on October 21, 1992, asks for dismissal of the plaintiffs' Complaint. The plaintiffs have tendered a Reply to the Motion for Summary Judgment. This Court has jurisdiction of this matter pursuant to 28 U.S.C.'1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(O).
The parties have entered into the following Joint Stipulations:
1. The Plaintiffs were indebted to the Defendant Bank on an August 15, 1991, promissory note for $4,028.40, secured by a 1971 Royal mobile home.
2. In December 1991 Kenneth Noble paid $850.00 to Donald Begley for the mobile home and Noble took possession of the mobile home.
3. The Plaintiffs filed a Chapter 13 Wage Earner Plan on June 18, 1992.
4. On June 23, 1992, Defendant Harlan McIntosh, an employee of the Bank, signed a Criminal Complaint on behalf of the Bank against Donald Begley alleging the crime of "Theft by Failure to Make Required Disposition."
5. The criminal charges are still pending against Begley.
6. The Bankruptcy Case has been converted to a Chapter 7 and Relief from Stay has been obtained by Citizens Bank.
The plaintiffs' Complaint, filed herein on July 6, 1992, seeks to have the defendants held in contempt, and to have this Court award damages and punitive damages for sanctions and injunctive relief for alleged violations of the automatic stay pursuant to 11 U.S.C.'362. These alleged violations of the automatic stay consist of the obtaining of a warrant for the arrest of plaintiff Donald Begley ("Begley") on June 24, 1992, and his subsequent arrest on June 26, 1992. The plaintiffs' Chapter 13 petition had been filed in this Court on June 18, 1992.
The defendants' Motion for Summary Judgment is supported by the Affidavits of Harlan McIntosh, Kenneth Noble, Burt Bellamy (president and CEO of the Bank), and Michael E. McGrath (the Bank's attorney). The defendants contend that the automatic stay does not affect the commencement or continuation of an action by a governmental entity to enforce its police or regulatory authority. In fact, 11 U.S.C.'362(b)(4) so provides. In addition, '362(b)(1) provides that the filing of a petition does not operate as a stay of the commencement or continuation of a criminal action or proceeding against the debtor.
The relevant criminal statute, KRS 514.070, provides:
(1) A person is guilty of theft by failure to make required disposition of property received when:
(a) He obtains property upon agreement or subject to a known legal obligation to make specified payment or other disposition whether from such property or its proceeds or from his own property to be reserved in equivalent amount and
(b) He intentionally deals with the property as his own and fails to make the required payment or disposition.
This Court agrees with the defendants that the state's right to proceed under this statute is not stayed by'362, unless the debtor can prove that the sole purpose of the criminal proceeding was to collect a civil debt or to use criminal law enforcement as a collection agency. The debtor expends a great deal of effort in arguing the criminal case, but he has not provided such proof. This Court must therefore further agree with the defendants' position concerning injunction of the criminal proceeding. As the defendants point out, the criminal proceeding has done nothing to enhance the Bank's position in the bankruptcy case. Absent a showing that the Bank used the criminal proceeding as a form of collection, or that it engaged in harassment or bad faith, this Court has no basis for issuing an injunction.
In conclusion, therefore, it is the opinion of this Court that the defendants have carried forward their burden of establishing that there is no genuine issue as to any material fact and that they are entitled to judgment as a matter of law. Their Motion for Summary Judgment will therefore be sustained by separate order.
By the Court -
John R. Hansen, Esq.
W. Thomas Bunch, Esq.