ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE D.C. No. 81-0522.
Adams, Hunter, and Becker, Circuit Judges.
This appeal presents the question whether a bankruptcy court erred in declining to enjoin pending state criminal prosecutions because of their possible impact on federal bankruptcy proceedings. Because of the traditional concerns of equity and comity implicated when a federal court considers a request to enjoin state criminal proceedings, we conclude that the district court properly upheld the denial of the injunction in this case.
Chapter 7 of the Bankruptcy Code authorizes the liquidation of the assets of an insolvent debtor to pay creditors at least a portion of what they are owed. When a petition is filed in a Chapter 7 case, a trustee is appointed by the court; the debtor then submits to the trustee schedules listing his debts and assets; the trustee then distributes the property of the estate; and the debts are eventually discharged.*fn1
Marvin and Linda Davis, the appellants in this proceeding, purchased goods by check at various times from each of the four appellees. These checks were dishonored by the Davises' bank. Dana Lane, one of the appellees, instituted a criminal complaint against Mr. Davis on April 13, 1981, for issuing a bad check. The next day, the Davises filed a Chapter 7 petition in the bankruptcy court. Their initial schedule of unsecured creditors did not list the other three appellees. After the filing, these appellees instituted criminal bad check complaints against Mr. Davis.*fn2
Issuing bad checks is a Class A misdemeanor under Delaware law. 11 Del. C. § 900. The Delaware criminal code appears to require that a defendant convicted under § 900, in addition to other sanctions, must make restitution to the person or persons to whom bad checks were issued. 11 Del. C. § 4206(a). The criminal actions at issue here were originally brought in a justice of the peace court, but were transferred at the request of Marvin Davis to the Court of Common Pleas of Delaware, where cases are prosecuted by the Attorney General of the State of Delaware, rather than by the complaining witnesses.
On June 24, 1981, the bankruptcy judge issued, at the request of the Davises, a temporary restraining order enjoining the State of Delaware and the individual claimants from proceeding with the criminal charges. None of the claimants exercised his right to object in the bankruptcy court to the discharge of his debt and the Davises were granted a discharge on July 28, 1981. On August 19, the bankruptcy judge held a hearing to determine whether the state court criminal proceedings should be permanently enjoined on the ground that, because of the restitution requirement upon conviction, such proceedings would subvert the bankruptcy court's grant of a discharge of those debts. The bankruptcy judge refused, on November 10, 1981, to issue the injunction, and the Davises appealed to the district court.*fn3 The district court, 18 B.R. 701, affirmed the decision of the bankruptcy court and the Davises filed the present appeal.*fn4
The bankruptcy court denied the request for an injunction for two reasons: First, a bankruptcy court "should rarely, if ever, issue a permanent injunction against the enforcement of the criminal law." Davis v. Sheldon, (In re Davis), 15 Bankr. 442, 443 (Bankr. D. Del. 1981). Second, "the mere possibility that a creditor may recover all or part of a discharged debt . . . after a debtor's conviction does not thwart the purposes of the bankruptcy laws." Id. at 43. On appeal, the district judge upheld the bankruptcy court, but based his decision on the Supreme Court's opinion in Younger v. Harris, 401 U.S. 37, 27 L. Ed. 2d 669, 91 S. Ct. 746 (1971). The judgment of the district court will be affirmed. Because of the importance of the issue that has been presented, we have set forth the reasons for our decision in some detail.
II. Considerations in Enjoining State Criminal Proceedings
Under most circumstances, a federal court has no power to enjoin state court proceedings. The Anti-Injunction Act, 28 U.S.C. § 2283, provides:
A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its ...