Beckmann v. BeckmannBeckmann v. Beckmann
- Reporters:
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- Before:
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The plaintiff and defendant were divorced in 1980. Subsequently, the defendant was discharged in bankruptcy from all of his dischargeable debts. Following a hearing on an order to show cause brought by the plaintiff in a post-divorce proceeding, the trial court ruled that the debts which the defendant was ordered in the decree of divorce to pay were in the nature of support for the plaintiff and the minor children and therefore were not discharged by his bankruptcy. Defendant appeals on the grounds that (1) the trial court had no jurisdiction under the bankruptcy code to determine the dischargeability of the debts; (2) that the bankruptcy court order discharging defendant from all dischargeable debts was res judicata; and (3) that the trial court erred in determining that the debts which he was ordered to pay in the decree of divorce were in the nature of support and thus not dischargeable.
JURISDICTION
In its ruling, the trial court found in pertinent part:
(9) That the defendant is required to pay the bills set forth in the divorce decree since they were not dischargeable in bankruptcy. That since he was ordered to save the plaintiff harmless on said bills that the payment of bills was in lieu of alimony and support.
(10) That the defendant is ordered to pay to the plaintiff the sum of $2,500 for the repair of the roof on plaintiffs home as the order to repair said roof was in lieu of support and alimony.
Defendant contends that the discharge-ability of a debt must be determined by the bankruptcy court and that the order of the trial court, a state court, in regard thereto must be vacated. He cites Brown v. Felsen, 442 U.S. 127, 99 Sup.Ct. 2205, 60 L.Ed.2d 767 (1979) and In re Warner, 5 B.R. 434 (Bkrtcy.D.Utah 1980) in support of his argument.
A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
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(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that—
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(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony,’ maintenance, or support ....
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 or arising in or related to cases under title 11.
(c) The bankruptcy court for the district court in which a case under title 11 is commenced shall exercise all of the jurisdiction conferred by this section on the district courts.
Under Rule 4007(b) of the 1983 Rules of Bankruptcy Procedure (superseding sub
Subdivision (b) does not contain a time limit for filing a complaint to determine the dischargeability of a type of debt listed as nondischargeable under§ 523(a)(1) , (3), (5), (7), (8), or (9). Jurisdiction over this issue on these debts is held concurrently by the bankruptcy court and any appropriate nonbankrupt-cy forum.
In spite of the clarity of the statutory law and committee note, considerable confusion exists as to whether a state court may determine the nature of a debt for purposes of
The divorce decree and judgment in the instant case was entered on October 14, 1980. Defendant filed his chapter 7 bankruptcy petition on May 11, 1981 and was discharged on July 27, 1981. The order of discharge in relevant part contains two orders material here:
(1) The above-named debtor is released from all dischargeable debts.
(2) Any judgment heretofore or hereafter obtained in any court other than this court is null and void as a determination of the personal liability of the debtor with respect to any of the following:
(a) Debts dischargeable under11 U.S.C. § 523 ;
(b) Unless heretofore or hereafter determined by order of this court to be nondis-chargeable, debts alleged to be excepted from discharges under clauses (2), (4), and (6) of11 U.S.C. § 523(a) ;
(c) Debts determined by this court to be discharged under11 U.S.C. § 523(d) .
(Emphasis added.)
On November 25, 1981 the plaintiff’s order to show cause was heard in the trial court. The order to show cause concerned debts the defendant had been ordered to pay and hold the plaintiff harmless from in a “property settlement agreement” entered into by the parties, the terms of which
The law is clear that state and federal courts have concurrent jurisdiction to determine issues raised under
The trial court ruled that the order to pay the debts under the divorce decree at issue here was in the nature of support. It then determined that even in light of the changes in the circumstances of the parties since the entry of the divorce decree, the payment of those debts by the defendant would fulfill present needs for support and maintenance. Both prongs of the test were thus used to determine dis-chargeability in bankruptcy court. In re Lovett, supra; In re Warner, supra. The order resulting from the state court’s findings is a binding judgment as the factual issues were actually litigated, estopping further inquiry into that issue by the bankruptcy court. In re Warner, supra. The better view, we think, is expressed in Brown v. Felsen where the court addressed the very issue before us here in dictum only:
If, in the course of adjudicating a state-law question, a state court should determine factual issues using standards identical to those of § 17 [now reincorporated with substantive changes not relevant here in§ 523 ] then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in the bankruptcy court.
Id. at 776, n. 10.
Our holding is also consonant with implicit legislative intent not to grant exclusive jurisdiction to bankruptcy courts in matters involving family law. The state court retains continuing jurisdiction over those matters. To rob it of the power to determine the nature of a spousal debt would severely undermine its ability to function in its role of ultimate arbiter over changing domestic relations.
RES JUDICATA OP DISCHARGE ORDER
Defendant’s claim that the bankruptcy court order of discharge was res judicata on the issue of spousal debts in the state court is without merit. Under paragraph 1 of the order defendant is discharged from all dischargeable debts. Under paragraph 2(b) debts under
By virtue of the permissive grant to file the complaint, and by comparison withsection 523(c) it is clear that the bankruptcy court only has jurisdiction concurrent with the local court, unless the debt falls within the coverage ofsection 523(c) . That paragraph provides that a request (complaint) to determine the dis-chargeability of debts, claimed nondis-chargeable because of clauses (2), (4), and (6) ofsection 523(a) must be filed in the bankruptcy court within the time specified, and if they are not they are deemed to be discharged. Thus, debts falling within other clauses ofsection 523(a) may have the issue of discharge-ability tried in courts other than those of bankruptcy unless a complaint is filed by either the creditor or the debtor in the bankruptcy court.
(Emphasis in original.)
There thus never was “a final judgment on the merits [that] bars further claims by parties or their privies based on the same cause of action.” Brown v. Fel-sen, supra. The nondischargeable debts were never in issue in the bankruptcy court. Defendant claims that the roof repair item owed to plaintiff was listed on the creditor’s list, but we have nothing before us to substantiate that claim and are therefore precluded from addressing that point. Nor was plaintiff collaterally estopped from presenting the issue of spousal support to the state court. That issue was not involved in the bankruptcy action; it was not actually litigated; it was not determined by a valid and final judgment; and the determination of that issue was not essential to the prior judgment. In re Pe-terman, supra.
SUFFICIENCY OF EVIDENCE
Defendant claims that his obligation to repair the roof of the plaintiffs home and to hold her harmless from all other debts was part of a property settlement and therefore discharged by his bankruptcy. He also argues that there is no evidence to support the trial court’s ruling to the contrary. Under applicable standards of review, we affirm if the judgment is supported by competent evidence. Erickson v. Beardall, 20 Utah 2d 287, 437 P.2d 210 (1968). The fact that an instrument is labeled “property settlement agreement” is not sufficient in and of itself to remove it from scrutiny beyond the four corners of the instrument. An amount may be characterized as property settlement to shield it from the grasp of the Internal Revenue Service, when in fact it is needed to maintain a family during the transition to single parent household. One bankruptcy court has expressly rejected the contractual approach to determine whether or not a debt is dischargeable as a property settlement or nondischargeable as spousal support. Instead, extrinsic evidence is required to prove the underlying nature of the debt. In re Warner, supra. The test, as we have recently had occasion to note, is that “if without the debt assumption, the spouse would be inadequately supported, the debt assumption was meant to be support.” Holt v. Holt, Utah, 672 P.2d 738, 743 (1983) and authorities there cited. To do otherwise would be to exalt form over substance. To enforce the general purpose of the bankruptcy laws in providing relief for the debtor, the test announced in Holt v. Holt, supra, must be passed at the time the debt was imposed in the divorce decree and again at the time the discharge of the debt is attempted. In re Warner, supra.
The test was applied by the trial court here. The defendant was before it on an order to show cause based on his nonpayment of the debts and his failure to repair the roof of the residence of the plaintiff and some of the minor children. The trial court heard testimony that defendant had not made any child support payments; that plaintiff was on welfare; that as a result of his failure to hold her harmless against debts incurred during the marriage, judgment liens, tax liens and employment tax liens in excess of $22,000 had been placed upon her house; and that she earned an income of $800 per month. Without further belaboring ‘the point, we believe that there was competent evidence from which the trial court could find that
The judgment is affirmed with costs awarded to the plaintiff.
HALL, C.J., and DOUGLAS L. CORNA-BY and SCOTT DANIELS, District Judges, concur. STEWART and DURHAM, JJ., do not participate herein; CORNABY and DANIELS, District Judges, sat. OAKS, J., having resigned, does not participate herein.
Notes
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