On Appeal from the United States District Court for the District of New Jersey (Newark) (D.C. Civil Action No. 88-3931)
Mansmann, Scirica and Seitz, Circuit Judges.
The issue before us is whether an insurance surcharge, levied by the State of New Jersey on persons convicted of driving while under the influence of intoxicating liquor, may be discharged under Chapter 7 of the Bankruptcy Code. The district court determined that the surcharge qualified as "debt," but fell within the exception to discharge in 11 U.S.C. § 523(a)(9) for debts arising from judgments arising out of the operation of a vehicle while legally intoxicated. We will affirm.
On June 5, 1985, Roberto Lugo was convicted in the Municipal Court of East Rutherford, New Jersey of driving while under the influence of intoxicating liquor in violation of N.J.Stat.Ann. § 39:4-50(a) (West 1985). The Municipal Court imposed a $250 fine, costs, and a $100 surcharge. Lugo complied with the order. In addition, Lugo's driver's license was revoked for six months and he was required to attend a 12-hour educational program.
On January 12, 1986, the New Jersey Division of Motor Vehicles (DMV) billed Lugo $3000, payable over three years, under the New Jersey Merit Rating Plan (N.J.Stat.Ann. § 17:29A-35(b)(2) (West 1985 & Supp. 1989)),*fn1 which levies a surcharge on drivers convicted of driving under the influence of intoxicating liquor. Merit Rating Plan surcharges fund the New Jersey Automobile Full Insurance Underwriting Association (JUA),*fn2 an unincorporated, non-profit association of insurers licensed to provide automobile insurance in New Jersey. The DMV collects the surcharges, remitting at least 90% to the JUA, and retaining up to 10% for administrative expenses. The Merit Rating Plan provides that if a driver fails to pay the surcharge, the driver's license "shall be revoked forthwith until the surcharge is paid to the Division of Motor Vehicles." N.J.Stat.Ann. § 17:29A-35(b)(2).
Accordingly, Lugo's surcharge bill included a "Notice of Proposed Suspension," which stated:
This bill is a notice of proposed suspension of your driving privileges pursuant to P.L. 1983 C.65; N.J.S.A. 17:29A-33 et seq. and N.J.S.A. 39:5-30. Your payment must be received within 30 days of the bill date. Failure to pay by Feb. 11, 1986 will result in the suspension of your driver's license until full payment is made.
Lugo failed to pay the $3000 surcharge. On July 30, 1986, he filed a petition under Chapter 7 of the Bankruptcy Code, listing in his debt schedule the $3000 surcharge owed to the JUA and listing the DMV and its subdivision, Automobile Insurance Surcharge and Collections, as scheduled creditors. After learning of Lugo's bankruptcy petition, the DMV restored his driving privileges in October, 1986. On December 12, 1986, Lugo received his discharge in bankruptcy. Notice of discharge was sent to all listed creditors by the Bankruptcy Court.
Following discharge, Lugo received another surcharge bill from the DMV, which again included a notice of proposed suspension of driving privileges for failure to pay the surcharge. In response to inquiry by Lugo's attorney, a representative of the DMV stated that Lugo's driver's license would be suspended if he did not pay the surcharge notwithstanding his discharge in bankruptcy.
Consequently, on February 19, 1988, Lugo re-opened his Chapter 7 bankruptcy petition, and filed an adversary proceeding seeking to have the surcharge discharged as a pre-petition debt. The Bankruptcy Court reviewed his complaint, and, on cross motions for summary judgment, held that the surcharge was not a "debt" within the meaning of the Bankruptcy Code and therefore was not subject to discharge. Lugo v. Paulsen, No. 88-0127, slip op. (Bankr.D.N.J. 1988).
On appeal, the district court found that the surcharge was a "debt" within the meaning of the Bankruptcy Code. The district court held, however, that the surcharge was non-dischargeable under the exception to discharge in § 523(a)(9) of the Bankruptcy Code, 11 U.S.C. § 523(a)(9) (Supp. V ...