The opinion of the court was delivered by: JOEL PISANO, District Judge
Diane Legreide, the Director of the Division of Motor Vehicles
("Legreide"), Peter C. Harvey, Acting Attorney General for the State of
New Jersey ("Harvey"), and the State of New Jersey (the "State," and
together with Legreide and Harvey, "Appellants" or the "State") take this
appeal from the Order and Opinion of the United States Bankruptcy Court
entered June 25, 2003, which granted summary judgment in favor of Debtor
Barbara Jean Pulley ("Pulley" or the "Debtor") and discharged motor
vehicle surcharges levied against her by the New Jersey Division of Motor
Vehicles ("DMV") under section 523(a)(7) of title 11 of the United States
Code (the "Bankruptcy Code"). This Court exercises appellate jurisdiction
in this matter under 20 U.S.C. § 158(a). See Matter of Halvajian,
216 B.R. 502, 508 (D.N.J.), aff'd, 168 F.3d 478 (3d Cir. 1998) (citing
28 U.S.C. § 158(a)(1)). For the reasons set forth below, the Court
affirms the Order and Opinion of the Bankruptcy Court, and concludes that
the DMV surcharges assessed against Pulley were properly discharged.
The basic facts are not in dispute. Based on unpaid parking violations,
Jersey City Municipal Court suspended Pulley's driver's license on June
21, 1991. 295 B.R. at 32. DMV insread allowed Pulley, a resident of
Jersey City, was subsequently involved in a car accident on July 15,
1991. Id. At the scene of the accident, Pulley was cited for driving without liability insurance, and
on September 17, 1991, was convicted in Jersey City Municipal Court of
driving without liability insurance and driving with a suspended
licence. Id. The DMV sent Pulley surcharge bills on September 1, 1992,
September 1, 1993, and September 1, 1994, which were never paid. Id. As a
consequence of her failure to pay and in accordance with state law, DMV
suspended Pulley's driver's license on both December 27, 1992 and October
17, 1993. Id. On February 25, 2000, Jersey City Municipal Court rescinded
its June 21, 1991 suspension of Pulley's driver's license, and Pulley
sought reinstatement of driving privileges. 295 B.R. at 32. DMV instead
allowed Pulley to apply for a learner's permit as a precursor to applying
for a driver's license. Id. at 33.
On March 24, 1997, Ms. Pulley filed a petition in bankruptcy under
chapter 7 of the Bankruptcy Code. Id. at 32. On her schedule of unsecured
debts, Pulley listed a debt to "NJ MVS Auto Ins Sur & Coll" for DMV
surcharges in the amount of $1,000. Id. On July 7, 1997, the Bankruptcy
Court discharged Pulley from "all dischargeable debts." Id. In December
1997, the State advised Pulley to continue payment of her DMV surcharge
because the July 1997 discharge did not apply to her in light of a 1995
bankruptcy court ruling that "surcharges are non-dischargeable civil
penalties." Id. Pulley's bankruptcy case was closed on April 2, 1998. Id.
On August 8, 2000, Pulley moved to reopen the case to initiate an
adversary proceeding to determine the dischargeability of the DMV
surcharges. Id. at 33. On September 29, 2000, the case was reopened and
Pulley filed a complaint. Id. On June 25, 2003, the Bankruptcy Court
granted summary judgment in favor of Pulley and discharged her debt for the
unpaid surcharges. Id. at 62. The State timely filed a notice of appeal,
and oral argument was heard by this Court on November 5, 2003.
B. The Bankruptcy Court's June 25, 2003 Opinion and Order
In an Opinion and Order dated June 25, 2003, the Bankruptcy Court,
Morris Stern, U.S.B.J., granted summary judgment in favor of Pulley and
discharged the DMV surcharges levied against her under Bankruptcy Code
section 523(a)(7). 295 B.R. at 62. In making
his decision, the Bankruptcy Judge considered the development and
application of DMV surcharges in the State, the historical context of
the Market Transition Facility ("MTF") and the New Jersey Automobile
Full Insurance Underwriting Association ("JUA"), whether the JUA and
MTF are governmental units, and the flow of bond proceeds. In
addition, the Bankruptcy Court examined the legislative history of
Bankruptcy Code and relevant public policy concerns, and concluded
that the DMV surcharges were dischargeable.
Judge Stern examined in detail the history of New Jersey's DMV
surcharge system, and explained that "the dischargeability in bankruptcy
of DMV surcharges is knotted with the complexity of the State's
generation-long automobile insurance dilemma." 295 B.R. at 37. In 1982,
the State enacted the New Jersey Automobile Full Insurance Availability
Act, N.J.S.A. 17:30E-1 to-24, to reform the insurance system in the
State. Id. at 33. This legislation created the JUA, and unincorporated
nonprofit organization designed to be "an insurer of last resort
organized to provide affordable automobile liability coverage" and issued
policies in its own name. Id. at 33; N.J.S.A. 17:30E-4. JUA was comprised of all insurers that would sell automobile
liability insurance in the State, and participation in the JUA was
mandatory. 295 B.R. at 33. According to the Bankruptcy Court, JUA's
mandatory membership "tends to cast JUA as a private or otherwise
nongovernmental enterprise." Id. at 41. In addition, Judge Stern noted
that the JUA was subject to state taxation. Id. Another key component to
the 1982 reforms was a system of DMV surcharges that were "were intended
to fund, in part, JUA's operation." 295 B.R. at 33. By 1990, the JUA had
$3 billion in losses and "was hopelessly insolvent." Id. at 33-34; see
also N.J.S.A. 17:33B-3(a).
In an effort to replace the JUA, in 1990, the State passed the Fair
Automobile Insurance Reform Act, N.J.S.A. 17:33B-1 to -63, which created
the MTF, another joint insurance underwriting association that had the
authority to issue its own policies. Id. at 33, 35; N.J.S.A. 17:33b-11.
The 1990 legislation created the Guaranty Fund, a funding mechanism into
which the DMV surcharges would be deposited. 295 B.R. at 34; N.J.S.A.
17:33B-5. Within the first four years of the MTF's existence, "MTF had
added $1.3 billion in losses" to the JUA's already dismal financial
condition. 295 B.R. at 33; see also N.J.S.A. 34:1B-21.2(a)(9) (projecting
MTF's losses at $1.3 billion).
At this point, the Property Liability Insurance Guaranty Association
("PLIGA") became involved. 295 B.R. at 35. PLIGA is "a private,
nonprofit, unincorporated legal entity," that is comprised of all
insurers licensed to conduct business in New Jersey, and was organized in
1974 to play claims of insolvent carriers. Id.; N.J.S.A. 17:30A-6
and -5(f). PLIGA "was compelled to make loans to the Guaranty Fund,
initially for JUA debt, at the rate of $160 million per year from 1990 through December 31, 1997." Id. see also N.J.S.A. 17:30A-8. "PLIGA has
loaned over $1 billion to fund part of JUA's and then MTF's debt." 295
B.R. at 40 (citing N.J.S.A. 17:30A-8(a)(10)).
In 1994, the State legislature adopted the Good Driver Protection Act
("GDPA"), N.J.S.A. 34:1B-21.1 to -21.15. 295 B.R. at 35. The GDPA
"provided MTF deficit funding on a bulk and immediately available basis
through New Jersey Economic Development Authority ("EDA") bonds," and the
DMV surcharges were redirected to service this bond debt. Id. at 36.
Specifically, state statute empowered the EDA to issue Market Transition
Facility bonds to secure payment of the current and anticipated
liabilities and expenses of the MTF. Id. at 36, N.J.S.A. 34:1B-21.4. "In
redirecting the DMV surcharges to pay the MTF bonds, the legislature
relegated payment of the PLIGA loans to a date uncertain, following
repayment of the bonds." 295 B.R. at 36 (citing Affiliated FM Ins. Co.
v. State, 338 N.J. Super. 540, 556-62 (N.J. Super Ct. App. Div. 2001)).
Initially, $665 million in bonds would be issued and repaid from DMV
surcharge revenues at a rate of $85 million per year. Id. at 44;
Legislative Statement following N.J.S.A. 34:1B-21.1. According to the
statute, the MTF bonds could be sold at a public or private sale, and are
not an obligation or debt of the State, or any agency or instrumentality
of the State. 295 B.R. at 36; N.J.S.A. 34:1B-21.5, -21.9.
Under current law, DMV surcharges are to be used to service MTF bonds
until the bond debt is discharged. 295 B.R. at 36 (citing N.J.S.A.
34:1B-21.4); see also N.J.S.A. 17:29A-35b(2). Funds in excess of the
amount required to be used to service the MTF bonds are remitted to the
State's General Fund. 295 B.R. at 36-37; N.J.S.A. 34:1B-21.7(b). "After
1994, the surcharges became the sole source of service of MTF bonds, and will in the future fund
repayment of more than $1 billion of PLIGA loans." 295 B.R. at 45.
The Bankruptcy Court pointed out "that this ...