Kansas ex rel. Gordon v. Oliver (In re Oliver)

Citations: 547 B.R. 423; 2016 Bankr. LEXIS 792Docket: Case No. 15-40880; Adv. No. 15-7038

Court: United States Bankruptcy Court, D. Kansas; January 20, 2016; Us Bankruptcy; United States Bankruptcy Court

Lead Opinion SummaryLead Opinion Original

EnglishEspañolSimplified EnglishEspañol Fácil

The court denied Defendant Dan Henry Oliver, Jr.'s motion to dismiss a complaint filed by the Kansas Department of Labor (KDoL), which seeks a declaratory judgment that Oliver's debt resulting from fraudulently received unemployment benefits is nondischargeable under 11 U.S.C. § 523(a)(2)(A). KDoL alleged that Oliver intentionally misrepresented his employment status, receiving approximately $5,000 in benefits over three months in 2008 while reporting $0.00 wages, despite being employed. KDoL issued a final administrative order in June 2009 determining that Oliver had fraudulently obtained these benefits, which he did not appeal. The court found that the Kansas unemployment benefit statute does not impose a statute of limitations that would bar KDoL's claim, thus rejecting the defendant’s argument regarding the expiration of the statute of limitations. KDoL's claim is now stated at $10,583.88. The court confirmed its jurisdiction to hear the matter as a core proceeding. The analysis for considering a motion to dismiss under Rule 12(b)(6) requires that sufficient facts be presented to infer that the defendant’s liability is not time-barred, with the court accepting all well-pleaded facts as true and favoring KDoL's position.

To determine if the statute of limitations bars KDoL’s complaint regarding nondischargeability under 523(a)(2)(A), the Court first assesses whether a valid debt exists. The Tenth Circuit’s ruling in Resolution Trust Corp. v. McKendry establishes two key issues: the establishment of the debt, governed by state law, and the dischargeability of the debt under bankruptcy law, which follows its own limitations. In McKendry, the court ruled that since a deficiency judgment was obtained before bankruptcy, the state statute of limitations was irrelevant to determining dischargeability.

The central question for the current case is whether KDoL’s debt was "established" before the Kansas statute of limitations expired. KDoL claims that the Kansas unemployment benefit statute does not impose a statute of limitations on recovering overpayments, suggesting that the absence of such a limitation implies an indefinite recovery period. KDoL supports this interpretation by highlighting the presence of other time limits in the statute.

Conversely, Debtor asserts that KDoL’s claim falls under the penalty provision of K.S.A. 44-719(a) for false statements to obtain benefits, which is tied to criminal theft statutes with a five-year limitation. The Court rejects this argument, clarifying that dischargeability assessments focus solely on civil liability, thus excluding the criminal statute of limitations.

Debtor further contends that KDoL is constrained by the civil statute of limitations for public bodies, as per K.S.A. 60-521, which applies to state actions arising from proprietary functions. Debtor references several cases to support this claim, asserting that KDoL's actions to recover unemployment benefit overpayments qualify as a proprietary function under this statute.

Debtor references cases that contradict their position, specifically citing State ex rel. Schneider v. McAfee, which distinguishes between governmental and proprietary functions. Governmental functions are those serving the public welfare, such as managing the unemployment benefit system in Kansas. Since the Kansas Department of Labor (KDoL) is not engaged in a proprietary function while collecting unemployment benefit overpayments, K.S.A. 60-521 does not apply, allowing KDoL to act without being constrained by the statute of limitations for civil actions. Liability for overpayments is established by an examiner under K.S.A. 44-709, whose decision is final unless appealed within sixteen days. 

K.S.A. 44-719 outlines penalties for improperly received benefits, establishing civil liability for individuals who received benefits without meeting eligibility conditions. Such individuals must either have the overpaid amount deducted from future benefits or repay the Secretary of Labor. The Secretary has discretionary authority regarding the collection of these debts, including the option to waive collection after five years under certain conditions, although this does not apply to debts resulting from fraud. 

K.S.A. 44-719(d)(3) details the Secretary's methods for debt collection, including state court actions and property seizures, without any time limitations. Thus, the separate provisions of the Kansas unemployment benefit statute do not impose a time limit on establishing liability for fraudulently obtained benefits or on the Secretary's ability to collect those debts. The complaint notes that KDoL found Debtor liable for approximately $5,000 in overpayments in June 2009, and Debtor did not appeal this order. Debtor contends that the order does not establish liability without a state court judgment, but the Court disagrees.

K.S.A. 44-717(b) grants the Kansas Department of Labor (KDoL) the authority to collect liabilities determined by an examiner without requiring a state court judgment for overpayment recipients. This includes the ability to record liens, levy, and seize property to satisfy such determinations, indicating that these determinations are equivalent to court judgments establishing debt. The first prong of the McKendry test is satisfied as KDoL’s claim is analogous to a state court judgment. The second prong requires that a nondischargeability complaint must be filed within 60 days of the first meeting of creditors; KDoL’s complaint, filed on November 28, 2015, was timely, thus satisfying this prong as well.

The court concludes that KDoL’s debt is established under state law and that the complaint was timely filed under the Bankruptcy Code, leading to the denial of the debtor's dismissal motion. The debtor also sought attorney’s fees under section 523(d), which the court denied because such fees are only available if the debt is discharged and the creditor's position is not justified. KDoL must file an answer to the complaint by February 3, 2016. The determination of the exact date of the examiner's liability finding (June 1 or June 30, 2009) is not critical to the statute of limitations issue, and the court refrains from deciding this. The outstanding balance owed by the debtor includes principal and interest totaling $5,711.88, while KDoL’s proof of claim cites a total of $24,592.73 in benefit overpayments, secured by a statutory lien on the debtor's property in Leavenworth County, Kansas. KDoL refers to two final administrative orders determining the debtor's liability for overpayments dated June 26 and June 30, 2009.

KDoL's complaint limits its relief request to actions and debt related to a June 30, 2009 letter, excluding consideration of extrinsic facts from Debtor's main case as per Thompson v. Ill. Dep’t. of Prof'l Regulation. Under Rule 12(b)(6), a motion to dismiss focuses on the pleadings, which include the complaint, exhibits, and supporting briefs. A complaint must provide sufficient factual allegations to present a plausible claim, allowing the court to infer the defendant's liability. 

The statute of limitations for theft of property valued between $1,000 and $25,000 is set at five years. K.S.A. 44-719(f)(4)(A) applies to "employing units" and does not pertain to the Debtor. The statute of limitations for civil actions in Kansas is outlined in K.S.A. 60-511 to 516, with K.S.A. 44-717 addressing liability determinations and overpayment collections, emphasizing a five-year period for determinations unless fraudulent activity is involved. The term "liability determination" refers to the administrative validation of claims, distinct from civil action collections. Additionally, damages under 11 U.S.C. 523(d) are limited to discharged consumer debts where the creditor’s position is found unjustified.