[Bankr. No. 99-17406 (GB)] [Bankr. No. 99-14723 (JW)] [Bankr. No. 99-57744 (RTL)] [Bankr. No. 99-59194 (KCF)]
The opinion of the court was delivered by: Simandle, District Judge
HONORABLE JEROME B. SIMANDLE
These consolidated Chapter 13 bankruptcy appeals present a single interesting issue: whether insurance surcharges imposed upon drivers by the State of New Jersey Division of Motor Vehicles pursuant to N.J.S.A. 17:29A-35 are "excise taxes" entitled to priority status upon the filing of Chapter 13 bankruptcy. Under sections 523(a)(1)(A) *fn1 and 507(a)(8)(E)(ii) *fn2 of the Bankruptcy Code, 11 U.S.C. §§ 523(a)(1)(A) & 507(a)(8)(E)(ii), excise taxes are non-dischargeable for bankruptcy purposes. The four bankruptcy courts in this District to have considered this question all concluded that the surcharges at issue are penalties, not excise taxes, and that debts owed under N.J.S.A. 17:29A-35 should be categorized as general unsecured claims subject to discharge upon completion of the debtors' Chapter 13 plans. See generally In re DeJesus, 243 B.R. 241 (Bankr. D.N.J. 1999) (Wizmur, U.S.B.J.); In re Marcucci, Slip Op., 99-17406 (Bankr. D.N.J., Dec. 29, 1999) (Burns, U.S.B.J.); In re Hines, Order, 99-57744 (Bankr. D.N.J. Dec. 29, 1999) (Lyons, U.S.B.J.); In re Grimes, Order, 99-59194 (Bankr. D.N.J. Feb. 22, 2000) (Ferguson, U.S.B.J.).
The State of New Jersey appeals for an Order reversing the bankruptcy courts' rulings in these cases. This Court must construe New Jersey's statutory scheme for motor vehicle insurance surcharges and determine whether these charges are "taxes" and more specifically "excise taxes" under the Bankruptcy Code. For reasons now discussed, this Court finds that New Jersey's system of motor vehicle insurance surcharges does not impose an "excise tax" entitled to heightened priority upon bankruptcy, and will affirm the Orders of the bankruptcy courts.
I. JURISDICTION, ISSUE PRESENTED, AND STANDARD OF REVIEW
This Court has subject matter jurisdiction to hear these consolidated appeals of final orders of bankruptcy courts pursuant to 28 U.S.C. § 158(a). The sole issue in this appeal is whether the vehicle surcharge debts owed by Nicholas J. Marcucci, Anibal DeJesus, Gerald H. Hines, and Anthony Grimes ("debtors") owed to the New Jersey Division of Motor Vehicles ("DMV") are "excise taxes" for the purposes of the bankruptcy code. Because this issue requires interpretation and application of legal statutes and principles, this Court's review is plenary. See Ram Constr. Co. v. American States Ins. Co., 749 F.2d 1049, 1053 (3d Cir. 1984); Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98 (3d Cir. 1981).
II. PROCEDURAL AND FACTUAL HISTORY
The facts in this case are not in dispute and require only a brief summary here. The debtors in the cases appealed from all filed petitions for Chapter 13 relief, listing DMV as a general unsecured creditor in their bankruptcy petition and schedules. The DMV subsequently filed a priority proof of claim, providing that the unpaid motor vehicle surcharges are "excise taxes" entitled to be paid in full as a priority claim. According to the State, the debtors became indebted to the DMV upon being convicted of one or more of the motor vehicle offenses as set forth in N.J.S.A. 17:29A-35 (driving while intoxicated and related offenses). Upon filing for Chapter 13 bankruptcy, these debtors had failed to pay off all or part of their surcharges, and proposed in their bankruptcy plans to discharge the surcharges as general unsecured debts.
DMV, a creditor in each of the consolidated cases, filed proofs of claim listing the motor vehicle surcharges assessed within three years of the Chapter 13 filings as priority claims. The surcharges assessed more than three years before the Chapter 13 filings were listed as general unsecured claims. The debtors filed objections to DMV's proofs of claim and sought to have the claims reclassified as general unsecured claims. After oral argument, in each case the bankruptcy judge sustained debtors' objections and reclassified the DMV proofs of claim from priority claims to unsecured claims. Judge Burns set forth the basis for her ruling in In re Marcucci in a comprehensive 36-page unpublished opinion, and Judge Wizmur issued an opinion in In re DeJesus published at 243 B.R. 241 (Bankr. D.N.J. 1999). In the remaining cases, the bankruptcy courts simply issued orders rejecting the state's excise tax arguments for the reasons discussed in DeJesus. The State timely appealed, and this Court consolidated the four cases by Order dated June 21, 2000, and heard oral argument on November 3, 2000.
In their opinions, Judges Burns and Wizmur found that the DMV surcharges were more akin to civil penalties than excise taxes, and thus were not properly listed as priority claims. In reaching this conclusion, both courts applied a fact-driven functionality approach to determine whether the assessments were taxes as set forth by the Supreme Court in United States v. Reorganized CF&I Fabricators, 518 U.S. 213 (1996), City of New York v. Feiring, 313 U.S. 283 (1941), and New Jersey v. Anderson, 203 U.S. 483 (1906).
The State does not contend that the bankruptcy courts chose the wrong law, but rather that they misapplied it. The State's argument here is the same as that advanced in the bankruptcy courts; that its claims for motor vehicle surcharges are non-dischargeable in bankruptcy under § 523(a)(1)(A) and must be paid in full as provided in § 507(a)(8)(E)(ii).
A. New Jersey Motor Vehicle Surcharges
In order to determine whether New Jersey's motor vehicle surcharges are indeed "excise taxes", it is instructive to begin with a discussion of the New Jersey statutory scheme at issue here. Because the Court can little improve upon Judge Burns' thorough discussion of the history of the New Jersey DMV insurance surcharge program, the Court will quote at length from In re Marcucci:
Prior to the effective date of New Jersey*s Insurance Reform Act of 1982, insurance rates varied dramatically throughout the state depending on the insurance carrier*s set percentage rates and on a driver*s individual characteristics and the primary location of the automobile. In re Christensen, 95 B.R. 886, 890 (Bankr. D.N.J. 1988); State v. Bigham, 119 N.J. 646, 652 (1990). Further, New Jersey drivers were often unable to obtain insurance coverage, despite a good driving record, if insuring a particular driver appeared to lack profitability for the insurance carriers in New Jersey.
In re Christensen, 95 B.R. at 890. As the New Jersey legislature recognized, this Assigned Risk Plan, which was often the only insurance available for "high risk" drivers resulted in serious inequities. Bigham, 119 N.J. at 871. For example, there were male drivers living in New Jersey who paid $1,795.00 per year for automobile insurance while their twin sisters living in another part of the state, with the same insurance coverage and the same good driving record, paid $245.00. Id. (citing Ad Hoc Committee Report on Automobile Insurance Reform in the State of New Jersey, Chairman*s Report, 23-25 (January 3, 1979)). Under this system, an individual convicted of a drunken driving offense was subject to criminal penalties imposed by the State including fines, points on the driver*s license, license suspension or revocation, or imprisonment. In re Christensen, 95 B.R. at 890 (citing N.J.S.A. 39:4-50 et seq. (West Supp. 1984-85)). The individual was further required by his or her insurance carrier to pay an insurance surcharge for a period of three years in order to compensate the carrier for the added risk imposed by the driver*s history of drinking and driving. Id.
Additionally, surcharges were imposed by private insurers on drivers in both the voluntary and residual market and were levied for motor vehicle violations in a seemingly ad hoc manner. Id. The Chairman of the Ad Hoc Committee explained that:
There are two inequities in the present surcharge system. Insurance points are levied for minor violations or accidents, and surcharges are levied haphazardly in the voluntary market. For example, some companies surcharge in the voluntary market for very minor violations and accidents, and others charge only for major violations or accidents. This creates a situation in which two drivers with the same accident and violation record might be ...