—U.S. Constitution, Amendment V

uring the past decade, the U.S. Supreme Court has started to provide civil litigants with various protections in the Bill of Rights that previously had been extended only to defendants in criminal cases.² The primary area of rights receiving considerable court attention during this time frame is the double jeopardy clause. As a result of the Supreme Court’s confusing case law in this area, criminal defense counsel have started to argue that various bankruptcy pro-ceedings are sufficiently punitive to implicate the double jeopardy clause and thereby prevent law enforcement officials from prosecuting them for the same wrongful conduct with which they were charged in bankruptcy court.

While creative, such arguments are based on false assumptions and have been almost universally rejected by the courts. In addition, the court’s recent clarification of how the principle of double jeopardy applies in civil cases in Hudson v. United States³ greatly diminishes the persuasiveness of the argument made by defense counsel.

Blockburger Test

In assessing whether two proceedings implicate double jeopardy concerns, the first focus of inquiry is whether the defendant is being prosecuted for the same offense in each. The classic test for measuring the relationship between two offenses derives from the U.S. Supreme Court’s decision in Blockburger v. United States.⁴

In Blockburger, the defendant was charged with five counts of violating the Harrison Narcotics Act. Blockburger was convicted on Counts Two, Three and Five, all of which involved the illegal sale of morphine hydrochloride to the same person. Count Two charged that on a specific day, he sold to the purchaser 10 grams of the drug that were not in the original container or from the original stamped container. Count Three accused him of mailing a similar sale of eight grams to the same person on the very next day. Both of these offenses related to §1 of the Narcotic Act. Count Five charged that the sale of the eight grams was not made pursuant to a written order of the purchaser, as required by §2 of the Narcotic Act. Blockburger was sentenced to five years in prison and fined $2,000 for each count, with the terms of imprisonment to run consecutively.

On appeal, Blockburger argued: (1) that the sales involved in Counts Two and Three constituted the same offense because they involved the same person; and (2) that the sale involved in Count Three (making a sale not from the original package) and the offense in Count Five (which related to the same sale having been made without a written order of the purchaser) involved only a single offense for which only one penalty could be imposed.

Writing for the court, Justice Sutherland explained that the question of whether the defendant could be prosecuted for two offenses arising out of the same course of conduct depended on whether each of the offenses requires proof of a different element. "The applicable rule is that where the same act or transaction constitutes a violation of two distinct statutory provisions, the test to be applied to determine whether there are two offenses or only one, is whether each provision requires proof of a fact which the other does not."⁵

The Blockburger decision is a curious double jeopardy case, for it does not mention the Fifth Amendment, the U.S. Constitution or the phrase "double jeopardy" anywhere in the text. However, the precedent cited by Justice Sutherland leaves no doubt that Blockburger was based on the double jeopardy clause.

Justice Sutherland traced the origins of the principle he applied to the court’s 1911 double jeopardy decision in Gavieres v. United States,⁶ which in turn attributed the standard to Morey v. Commonwealth,⁷ an opinion written by U.S. Supreme Court Justice Horace Gray when he was a member of the Supreme Judicial Court of Massachusetts. Justice Gray wrote:

A conviction or acquittal upon one indictment is no bar to a subsequent conviction and sentence upon another, unless the evidence required to support a conviction upon one of them would have been sufficient to warrant a conviction upon the other. The test is not whether the defendant has already been tried for the same act, but whether he has been put in jeopardy for the same offense. A single act may be an offense against two statutes; and if each statute requires proof of an additional fact which the other does not, an acquittal or conviction under either statute does not exempt the defendant from prosecution and punishment under the other.⁸

In essence, the Morey/Blockburger test is best understood as a sort of "ven diagram" standard. The law permits the government to charge a defendant with more than one crime flowing from the same act or conduct as long as one element of each offense is not an element of the others.

Double Punishment

The double jeopardy clause also prohibits a person from being punished twice for the same offense. It is in this area that the Supreme Court’s interpretation of the Constitution has been problematic, beginning with the court’s 1989 opinion that a civil sanction can be so punitive in nature that it implicates the double jeopardy clause. The issue in United States v. Halper⁹ was whether a statutory civil penalty can implicate the double jeopardy clause. Writing for a unanimous court, Justice Blackmun explained that, in some situations, the answer to this question is "yes."

In Halper, the United States brought successive civil and criminal cases against Irwin Halper, manager of New York City Medical Laboratories Inc. The company provided medical services in New York to patients eligible for Medicare benefits. In the early- to mid-1980s, Halper, on behalf of the company, submitted 65 false claims for Medicare reimbursement for services rendered. On each occasion, Halper intentionally mischaracterized the nature of the service performed in order to collect a higher reimbursement fee. The 65 claims made to Medicare totaled $585.

When the federal government was made aware of Halper’s conduct, it reacted with vigor. First, it prosecuted him for violating the federal criminal false claims statute. He was convicted on all counts, as well as 16 counts of mail fraud, and sentenced to two years imprisonment and a $5,000 fine. Next, the government proceeded to sue Halper under the civil False Claims Act. The United States obtained a summary judgment on the question of liability based on the facts established in the criminal case. Problems arose, however, when it sought to secure its remedy.

Under the False Claims Act, a guilty defendant was at the time liable to the United States for a $2,000 penalty per false claim, as well as double damages, and costs of the civil action. Halper’s $585 offense thus could have subjected him to a mandatory $130,000 penalty. The district court concluded that imposing a civil penalty this large after the previous conviction would violate the double jeopardy clause. The United States took a direct appeal to the Supreme Court, where the district court’s decision was affirmed.

Writing for a unanimous court, Justice Blackmun observed that the sole question at issue was whether the statutory penalty of $130,000 for false claims totaling $585 constituted a second punishment in light of Halper’s earlier sentence of incarceration and a fine. The court concluded that the answer depends not upon the label given to the sanction by statute, but instead on "the character of the actual sanctions imposed on the individual by the machinery of the state."¹⁰ Justice Blackmun declared that a civil sanction can constitute punishment within the meaning of the double jeopardy clause if, in the individual case, the sanction serves the goals of punishment. The Halper court concluded that if a civil sanction does not serve a remedial purpose, but relates to retributive or deterrent goals, it can only be characterized as punitive and cannot be imposed if the defendant has previously been punished for the same offense.¹¹ The court was careful to note that the protections of the double jeopardy clause are not implicated in civil litigation between private parties.¹²

Double Punishment in the Post-Halper Era

After Halper, many criminal defendants tried to raise adverse decisions rendered against them in bankruptcy court as a double jeopardy shield from prosecution. For example, a defendant convicted of mail fraud and racketeering tried to use Halper to support his claim that the involuntary bankruptcy brought against him constituted a prior jeopardy. The court in United States v. Randy¹³ disagreed with the defendant’s interpretation, noting that the bankruptcy was brought by creditors, not the government, and that the creditors were attempting to recover what was owed to them, which is not punitive. In United States v. Cluck,¹⁴ the Fifth Circuit rejected a

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Hudson will make it even more difficult for those charged with bankruptcy crimes to argue successfully that civil sanctions imposed against them in bankruptcy court constitute a form of jeopardy.

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defendant’s argument that his conviction for bankruptcy fraud was precluded because his chapter 7 discharge was revoked on motion of the trustee for fraudulent concealments and fraudulent transfers. The court dismissed the argument in a brief opinion, noting simply that the revocation of the discharge was not punishment, and the debtor was not entitled to one because he did not comply with the requirements of the Bankruptcy Code.¹⁵ The consensus among federal courts is that a monetary award that has no purpose other than compensation is not punishment within the meaning of the double jeopardy clause.¹⁶ Arguing that the withholding of a discharge or other forms of equitable relief constitutes a punishment within the meaning of the double jeopardy clause also has proven unsuccessful.

The federal courts have not rejected all bankruptcy-related double jeopardy arguments made by defendants. In Department of Revenue v. Kurth Ranch,¹⁷a deeply divided court held that the double jeopardy clause prevented chapter 11 debtors from being civilly liable in bankruptcy to the state of Montana for a tax on the possession of illegal drugs after they had already been penalized criminally. However, the holding in Kurth Ranch was specifically limited to tax cases, and has no general application to other situations.

Dawn of the Hudson Era

The Halper era is over, after only eight years of existence. In Hudson v. United States, the Supreme Court "in large part" disavowed Halper. Relying on Halper, a district court dismissed charges against Hudson and his co-defendants, who were bank officers charged with misapplication of funds. The trial court concluded

that prior monetary penalties and an occupational debarment imposed on

the defendants by the Office of the Comptroller of the Currency constituted prior punishment by the government. Writing for the majority of the court, Chief Justice Rehnquist observed that Halper was a departure from prior case law, and that its test was unworkable. The court found particularly problematic the fact that Halper required a court to assess whether a civil sanction already imposed was punitive, which was inconsistent with the double jeopardy prohibition against even trying to punish a defendant a second time for the same offense. Applying a seven-part test, the court concluded that the prior civil proceedings did not constitute a barrier to the prosecution.

Hudson stands for the proposition that courts called upon to assess whether a particular punishment is civil or criminal must begin with the language of the statute involved. Even if the sanction is labeled civil, it can be considered criminal if its purpose or effect trans-forms it into a criminal punishment. In assessing whether this has occurred, the court should consider:

1) whether the sanction involves an affirmative disability or restraint;

2) whether it has historically been regarded as a punishment;

3) whether it comes into play only on a finding of scienter;

4) whether its operation will promote the traditional aims of punishment (retribution and deterrence);

5) whether the behavior to which it applies is a crime;

6) whether an alternative purpose to which it may rationally be connected is assignable to it; and

7) whether it appears excessive in relation to the alternative purpose assigned.

A defendant bears the burden of establishing by the clearest proof that the legislative intent should be overridden and the civil remedy transformed into a criminal penalty.

Conclusion

Hudson will make it even more difficult for those charged with bankruptcy crimes to argue successfully that civil sanctions imposed against them in bankruptcy court constitute a form of jeopardy. For example, sanctions such as removing a debtor-in-possession for fraud in connection with the case,¹⁸ converting a case to chapter 7 for fraud or having it dismissed,¹⁹ or even revoking a discharge for fraud²⁰ are all intended to be civil remedies, not criminal. They satisfy the first part of the Hudson test. In addition, nothing in the application of these provisions transforms the sanctions they impose into criminal punishments. They all promote the aim of ensuring that only those debtors who follow the rules of the Bankruptcy Code can be debtors-in-possession or obtain a discharge, and that the bankruptcy system is only used in a manner that promotes a fair repayment to creditors. Dismissing a case, removing a debtor-in-possession, and not granting a debtor a discharge of debts that he owes cannot be considered excessive in relation to the goals of the bankruptcy system.

While Halper may have given some bankruptcy criminals hope that they could use civil sanctions imposed against them in bankruptcy court as a bar to escape prosecution, Hudson stands as a major obstacle to the success of any such arguments. Thus, those debtors and creditors who are contemplating a scheme to defraud the bankruptcy system would do well to reconsider in light of the wide array of civil and criminal sanctions they may face if caught.

Footnotes

¹The views expressed in this article are solely those of the author. The author is indebted to Kathleen F. Brickey, James Carr Professor of Criminal Jurisprudence at Washington University, for her inspiration and support. Return to Text

²See, e.g., United States v. Halper, 490 U.S. 435 (1989) (applying double jeopardy clause, in some situations, to civil False Claims Act cases); Austin v. United States, 509 U.S. 602 (1993) (extending Excessive Fines Clause of the Eighth Amendment to civil assets forfeitures). Return to Text

³___ U.S. ___, 118 S.Ct. 488, ___ L.Ed.2d ___ (1997). Return to Text

⁴284 U.S. 299 (Sutherland, J.). Return to Text

⁵284 U.S. at 304. Return to Text

⁶220 U.S. 338, 342 (1911). Return to Text

⁷108 Mass. 433. Return to Text

⁸220 U.S. at 342, citing 108 Mass. 433. Justice Gray’s decision was also followed by the Court prior to Blockburger in Carter v. McClaughry, 183 U.S. 365, 395 (1902) (Fuller, C.J.) (applying principles to a court-martial proceeding). Return to Text

⁹490 U.S. 435 (1989). Return to Text

¹⁰ 490 U.S. at 447. Return to Text

¹¹ 490 U.S. at 448-450. Return to Text

¹² 490 U.S. at 451. Return to Text

¹³ 81 F.3d 65, 69-70 (7th Cir. 1996). Return to Text

¹⁴ 87 F.3d 138, 139-141 (5th Cir. 1996). Return to Text

¹⁵ Id. at 140 citing In re Chaplin, 179 B.R. 123, 128 (Bankr. E.D. Wis. 1995). Return to Text

¹⁶ United States v. Kunzman, 125 F.3d 1363, 1366 (10th Cir. 1997). Return to Text

¹⁷ 511 U.S. 767 (1994). Return to Text

¹⁸ 11 U.S.C. §1104(a)(1), 1204(a). Return to Text

¹⁹ 11 U.S.C. §1112(b), 1208(d), 1307(c). Return to Text

²⁰ Cf. 11 U.S.C. §1144, 1230, 1330. Return to Text