JANICE MILLER KARLIN, United States Bankruptcy Judge.
Plaintiff Kansas Department of Labor ("KDoL") seeks a declaratory judgment that its claim against Defendant/Debtor Dan Henry Oliver, Jr., arising from an administrative determination that Debtor fraudulently received unemployment insurance benefit overpayments ("unemployment benefit overpayments"), is nondischargeable. Debtor moves to dismiss KDoL's complaint under Fed. R. Civ.P. 12(b)(6)
KDoL filed its complaint on November 28, 2015, alleging that Debtor engaged in intentional and willful misrepresentations regarding his employment status, and, by doing so, obtained improper unemployment benefits from the state of Kansas. KDoL requested the Court find its claim arising from Debtor's receipt of unemployment benefit overpayments to be nondischargeable under 11 U.S.C. § 523(a)(2)(A)
According to KDoL, over a period of three months in 2008, Debtor applied for and received approximately $5000 in unemployment benefits from the state. KDoL's records reflect that during this time, Debtor reported $0.00 wages per week, when he was actually employed by Shawnee County, Kansas. Relying on Debtor's reporting, KDoL paid out $385 a week for fourteen weeks. About six months later, KDoL investigated whether Debtor had fraudulently obtained those benefits. In June, 2009, KDoL issued a final administrative order finding that Debtor willfully and knowingly failed to
KDoL then sent a letter informing Debtor of this determination and stated that Debtor would be disqualified from receiving benefits from April 12, 2009 to April 17, 2010. KDoL also informed Debtor that he had sixteen days to appeal the determination before it became final. Debtor did not appeal the determination, nor has it been reversed, modified, or set aside.
Debtor filed his bankruptcy case on September 1, 2015, over six years after KDoL's final order. During that time, KDoL took no further actions to pursue its claim against Debtor. Debtor listed KDoL on Schedule F as a nonpriority, unsecured claim, and KDoL seeks a determination that its claim (which it indicates now stands at $10,583.88)
Debtor responded to KDoL's complaint by filing a motion to dismiss alleging that the statute of limitations had run on the underlying debt. Debtor's motion does not dispute the relevant facts at issue.
The Court has jurisdiction to hear this motion under 28 U.S.C. §§ 157, 1334. The determination of dischargeability of a debt is a core proceeding under 28 U.S.C. § 157(b)(2)(I) and this district is the proper venue under 28 U.S.C. § 1409.
To survive a Rule 12(b)(6) motion to dismiss on statute of limitations grounds, a complaint must contain sufficient facts to allow a court to reasonably infer that a defendant's liability is not time-barred.
Section 523(a)(2)(A) excepts from discharge any debt for money, property, or services obtained by false pretenses, false representations, or actual fraud.
To assess whether a statute of limitations bars KDoL's complaint, the Court must first determine whether an established debt exists. The Tenth Circuit, in Resolution Trust Corp. v. McKendry (In re McKendry), formulated the issue in this way:
The question facing the Tenth Circuit in McKendry was "where a debt has been reduced to judgment in state court, can the bankruptcy court be barred by a state statute of limitations from considering the underlying nature of the debt in determining whether the debt is dischargeable."
The crux of Debtor's motion to dismiss KDoL's complaint relates to the first prong of the McKendry analysis: was the debt "established" prior to the expiration of time under the applicable Kansas statute of limitation? To answer, the Court must discern what, if any, statute of limitations applies to the collection of debt incurred by an unemployment benefit overpayment.
KDoL argues that the Kansas unemployment benefit statute does not include a "statute of limitations to time-bar the collection or recovery of UI [unemployment insurance] overpayments."
Debtor argues that KDoL's claim arises out of the penalty section for benefit overpayments in K.S.A. § 44-719(a), which reads, in pertinent part: "Any person who makes a false statement or representation knowing it to be false . . . to obtain or increase any benefit or other payment under this act, . . . shall be guilty of theft and shall be punished in accordance with the provisions of K.S.A.2013 Supp. § 21-5801. . . ." Section 21-5801 is a statute outlining the punishment for criminal theft.
Debtor's reply also argues that KDoL is barred from collecting benefit overpayments by the statute of limitations for civil actions, as applied to public bodies through K.S.A. § 60-521. Section 60-521 states that the statutes of limitation for civil actions
Liability for benefit overpayments is determined by an examiner appointed under K.S.A. § 44-709. Examiners are responsible for both the initial determination that a claim is valid and for any reconsideration of the claim.
Section 44-719 describes the penalties for unemployment benefits ineligibly received. Subsection (d)(1) establishes civil liability for "any person who has received any amount of money as benefits under this act while any conditions for the receipt of benefits . . . were not fulfilled."
Indeed, it is telling that the only restriction included in this subsection impedes the Secretary of Labor's equitable power to waive collection for those overpayments not due to fraud, misrepresentation, or willful nondisclosure: the Secretary of Labor, after five years, may waive collection of unemployment benefit overpayments so long as they were not obtained through fraud and the collection would be against
In addition, K.S.A. § 44-719(d)(3) describes the ways in which the Secretary of Labor can collect from a liable individual. This subsection refers to K.S.A. § 44-717, which describes, in detail, the manner in which the Secretary of Labor can collect employer payments.
Put together, the separate sections of the Kansas unemployment benefit statute do not limit the time in which an examiner can affix liability for unemployment benefit overpayments obtained through fraud nor do they limit, the ability of the Secretary of Labor to collect on said debt.
The complaint alleges that, in June, 2009, KDoL issued an order, pursuant to K.S.A. § 44-709(3), finding Debtor liable for approximately $5000 in unemployment benefit overpayments. Debtor declined to appeal this final order. Debtor argues that the order does not create liability for the amount owed without a state court judgment. The Court disagrees. Under K.S.A. § 44-717(b), KDoL is given the express right to collect on a liability determination by an examiner without first asking a state court for a judgment that an overpayment recipient is liable. Similarly, the legislature has authorized KDoL to record liens and levies and even seize property in order to satisfy a liability determination.
The second prong of the McKendry analysis requires a court to dismiss a non-dischargeability complaint if it is filed more than 60 days after the first scheduled meeting of creditors.
KDoL's debt is established under state law and KDoL's complaint was timely filed under the Bankruptcy Code. The Court therefore denies Debtor's motion to dismiss for failure to state a claim. In his motion to dismiss, Debtor also requests the Court assess his attorney's fees against KDoL pursuant to § 523(d). As awards for attorney's fees are only available to a debtor if the Court discharges the debt and finds that the creditor's position was not substantially justified, the Court denies Debtor's request for attorney's fees.