Monassebian v. MonassebianMonassebian v. Monassebian
DECISION ON DEFENDANT‘S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF‘S CROSS-MOTION FOR SUMMARY JUDGMENT
APPEARANCES:
The Frank Law Firm P.C.
333 Glen Head Road
Suite 145
Old Brookville, NY 11545
Attorney for the Plaintiff
Alan Stein, Esq.
7600 Jericho Turnpike
Suite 308
Woodbury, NY 11797
Attorney for the Defendant
NANCY HERSHEY LORD
United States Bankruptcy Judge
This matter comes before the Court on the motion of Homa Monassebian (the “Defendant“) and the cross-motion of Bijan Monassebian (the “Plaintiff“) for summary judgment in the Plaintiff‘s adversary proceeding seeking to declare debt owed to him by the Defendant nondischargeable under Section 523(a)(15) of the Bankruptcy Code.1 Section 523(a)(15) excepts from discharge non-support obligations incurred in the course of, or in connection with, a divorce or separation. The question before the Court is whether the exception applies to a judgment for damages entered against an ex-spouse for breach of a stipulation resolving the parties’ divorce proceeding. For the following reasons, this Court finds that, even though the judgment is “one step removed” from the divorce proceeding, the debt falls within the exception because the judgment stems from the terms of the stipulation.
JURISDICTION
This Court has jurisdiction over this matter pursuant to
BACKGROUND
Unless otherwise noted, the relevant material facts are undisputed or are matters of which judicial notice may be taken.
The Plaintiff is the former spouse of the Defendant. (Defendant‘s Statement Pursuant to Local Rule 7056-1 (the “Def. 7056-1 Statement“) ¶ 1, Adv. ECF 5-2; Plaintiff‘s Response (the “Pl. 7056-1 Response“) ¶ 1, Adv. ECF 9-15.)2 The parties were first married in 1969, divorced in 2000, and remarried in 2001. (Def. 7056-1 Statement ¶ 2; Pl. 7056-1 Response ¶ 2.) In 2009, the Defendant filed for a second divorce (the “Divorce Action“). (Id.)
Shortly before the 2009 divorce, in October 2009, the parties jointly agreed, inter alia, to gift an apartment owned by them, 301 East 79th Street, Condominium Unit PH-R, New York, NY (the “Continental Apartment“), to their daughter, Deborah Monassebian. (Affidavit of Bijan Monassebian
The Divorce Action was pending for several years. On August 10, 2013, the parties entered into a Stipulation of Settlement (the “Stipulation“) thereby resolving the Divorce Action and settling certain other marital disputes. (Def. 7056-1 Statement ¶ 3; Pl. 7056-1 Response ¶ 3; see also Bijan Aff. Ex. A, Adv. ECF 9-3.) In the Stipulation, the parties acknowledged Deborah‘s possible claim of ownership of the Continental Apartment and agreed to sell the property upon receipt of a general release from her. (See Bijan Aff. Ex. A, at § 4.10(C)2.) The parties also agreed, among other things, to indemnify each other on an equal basis for the cost of defending any claim asserted by Deborah against either party with respect to the transfer of the Continental Apartment. (Def. 7056-1 Statement ¶ 4; Pl. 7056-1 Response ¶ 4; see also Bijan Aff. Ex. A, at § 7.4.) Importantly, Section 7.4 of the Stipulation provided that neither party would assist, finance, or encourage Deborah in commencing litigation to obtain title to the Continental Apartment. (Bijan Aff. Ex. A, at § 7.4.) Additionally, Section 14.2 of the Stipulation provided for reimbursement of attorney‘s fees and legal expenses in connection with any legal action seeking enforcement or other remedy for a breach of the Stipulation, to be paid to the aggrieved party by the breaching party. (Bijan Aff. Ex. A, at § 14.2.)
The Divorce Action ultimately concluded with the entry of a Judgment of Divorce on April 1, 2014 (the “Judgment of Divorce“). (Bijan Aff. Ex. B, Adv. ECF 9-4.) The Stipulation was incorporated, but not merged, in the Judgment of Divorce,3 and the parties were “directed to comply with every legally enforceable term and provision of the [Stipulation], as if such term or provision were set forth in its entirety [in the Judgment of Divorce].” (Id. at 2.)
Shortly after the entry of the Judgment of Divorce, the Defendant commenced an action (the “State Court Action“) in the New York Supreme Court, Nassau County (the “State Court“) seeking to set aside the Stipulation. (Def. 7056-1 Statement ¶ 5; Pl. 7056-1 Response ¶ 5.) The Plaintiff, in turn, counterclaimed, alleging that the Defendant violated the Stipulation by assisting Deborah in a lawsuit against both parties in which she sought title to the Continental Apartment. (Def. 7056-1 Statement ¶ 6; Pl. 7056-1 Response ¶ 6.) Subsequently, the Defendant‘s action was dismissed except for the Plaintiff‘s counterclaim and, after an unsuccessful attempt to settle and the Defendant‘s then-attorney being relieved as counsel, the State Court held a trial. (Def. 7056-1 Statement ¶ 7; Pl. 7056-1 Response ¶ 7; see also Bijan Aff. Ex. G, at 1.)
On March 5, 2021, the State Court entered a decision after trial (Def. 7056-1 Statement ¶ 8; Pl. 7056-1 Response ¶ 8; see also Bijan Aff. Ex. G, Adv. ECF 9-9 (the
On May 7, 2021, the Defendant filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code, commencing Case No. 1-21-41251-nhl. (ECF 1.) On July 28, 2021, the Chapter 7 trustee issued a report of no distribution and, on August 11, 2021, the Court entered an Order of Discharge pursuant to
LEGAL STANDARD
Summary Judgment Standard
Under
While the initial burden is on the movant to demonstrate the absence of a genuine dispute of material fact with particular citations to the record, Celotex, 477 U.S. at 323; Marvel, 310 F.3d at 286, the non-moving party cannot defeat summary judgment by merely casting doubt on some of these facts. See Kulak, 88 F.3d at 71. The non-moving party must point to disputed facts whose determination would affect the outcome of the case such that a reasonable trier of the fact could find in favor of that party. Anderson, 477 U.S. at 247-48; Matsushita, 475 U.S. at 586-87.
When dealing with cross-motions for summary judgment, “[t]he court must rule on each party‘s motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard.” Braga Filho v. Interaudi Bank, No. 03 CIV. 4795 (SAS), 2008 WL 1752693, at *3 (S.D.N.Y. Apr. 16, 2008) aff‘d sub nom. Filho v. Interaudi Bank, 334 Fed. App‘x 381 (2d Cir. 2009) (citing Wright, Miller, and Kane, Federal Practice & Procedure § 2720). The court must examine each party‘s motion on its own merits, and all reasonable inferences must be drawn against the party whose motion is under consideration. Chandok v. Klessig, 632 F.3d 803, 812 (2d Cir. 2011).
Standard Under Section 523(a)(15)
to a spouse, former spouse, or child of the debtor and not of the kind described in [Section 523(a)(5)] that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.
For a debt to be determined nondischargeable under
Typically, “exceptions to discharge [are construed] narrowly, and in favor of the debtor.” Yash Raj Films (USA), Inc. v. Akhtar (In re Akhtar), 368 B.R. 120, 127 (Bankr. E.D.N.Y. 2007) (citing Cazenovia Coll. v. Renshaw (In re Renshaw), 222 F.3d 82, 86 (2d Cir. 2000)). However, despite the “fresh start” consideration being the bedrock of Chapter 7 cases, courts construe Section 523(a)(15) more liberally than other Section 523 exceptions “to encourage payment of familial obligations rather than to give a debtor a fresh financial start.” Hanson v. Brown (In re Brown), 541 B.R. 906, 911 (Bankr. M.D. Fla. 2015) (citing cases).
DISCUSSION
The parties do not dispute that the first two elements of Section 523(a)(15) are satisfied. (See Pl. Mem., at 9; see also Def. Mem., at 4.) The Judgment was entered in favor of the Plaintiff against the Defendant, who is the Plaintiff‘s ex-spouse, thereby satisfying the first element. The debt is not a domestic support obligation, as the term is defined by the Bankruptcy Code, because it is not “in the nature of alimony, maintenance, or support ... of such spouse, former spouse, or child of the debtor or such child‘s parent.” See
The parties, however, are fundamentally at odds about their interpretation of the third element and, consequently, disagree on whether this element is satisfied. Since no material fact in this case is in dispute,4 the resolution of this adversary proceeding turns on the interpretation of the relevant statute and determination of the scope of its applicability, which is a question of federal law. See Francis v. Wallace (In re Francis), 505 B.R. 914, 918 (B.A.P. 9th Cir. 2014) (citation omitted) (holding that although consideration of nondischargeability issues under Section 523(a)(15) “is informed by state law, [the] interpretation of § 523(a)(15) is fundamentally a question of federal law“).
As noted above,
Elimination of the balancing test reflects “Congress‘s strong policy in favor of protecting ex-spouses and children” and the intent “to cover any matrimonial debts that ‘should not justifiably be discharged.‘” Berse v. Langman (In re Langman), 465 B.R. 395, 405 (Bankr. D.N.J. 2012) (quoting LaVergne v. LaVergne (In re LaVergne), Bankr. No. 10-35898, Adv. No. 10-2557, 2011 WL 1878093, at *3 (Bankr. D.N.J. May 17, 2011)). Consequently, courts give Section 523(a)(15) “the full reach implicated by its plain language.” Gamble v. Gamble (In re Gamble), 143 F.3d 223, 225 (5th Cir. 1998); see also In re Francis, 505 B.R. at 919 (collecting cases). Section 523(a)(15), therefore, makes entirely nondischargeable “debts running between spouses or ex-spouses that were created under divorce decrees, decrees of separate maintenance, or any other court judgment that parses out the consequences of the breakdown of a marital relationship.” Lakeman v. Weed (In re Weed), 479 B.R. 533, 538-39 (Bankr. D. Minn. 2012).
With these policy considerations in mind, the Court now turns to the parties’ contentions.
The Defendant‘s argument essentially boils down to two points. First, the Defendant submits that the debt is “too far removed” from the scope of Section 523(a)(15) and should be discharged because the intent of the statute is “to ensure the payment of alimony and other obligations arising from a divorce degree or separation agreement” rather than render breach of contract debts nondischargeable based on the contract‘s indemnification provisions. (See Def. Mem., at 4.) Second, in the Defendant‘s view, the financial circumstances of both parties should be considered in determining whether the award of attorney‘s fees is dischargeable. (Id.)
The Defendant‘s second argument can be disposed of quickly because it is based on a mistake of law. As noted above, the resolution of a Section 523(a)(15) claim is no longer dependent upon the parties’ relative financial needs and abilities. Thus, to the extent the Defendant argues that the Plaintiff‘s failure to show his inability to pay his own counsel fees warrants summary judgment in the Defendant‘s favor, such argument must be rejected because it is irrelevant to a claim under Section 523(a)(15). See Tarone v. Tarone (In re Tarone), 434 B.R. 41, 48 (Bankr. E.D.N.Y. 2010) (“[U]nder BAPCPA, all debts owed to a spouse, former spouse, or child of a debtor are nondischargeable if incurred in the course of a divorce proceeding, notwithstanding the debtor‘s ability to pay the debt or the relative benefits and detriments to the parties.“).
In fact, review of the cases cited by the Defendant in support of this argument reveal that the Defendant conflates the requirements of Section 523(a)(15) with those of Section 523(a)(5), which deals with nondischargeability of domestic support obligations. See Galati v. Navarrete (In re Galati), Bankr. No. 8-14-73159-LAS, Adv. No. 8-14-08288-LAS, 2018 WL 2997017 (Bankr. E.D.N.Y. June 12, 2018); In re Rogowski, 462 B.R. 435 (Bankr. E.D.N.Y. 2011); and Gorelik v. Gorelik (In re Gorelik), No. 06 CIV. 08162 (SCR), No. 06 Civ. 09376 (SCR), 2010 WL 11530553 (S.D.N.Y. Mar. 30, 2010), aff‘d 443 F. App‘x 586 (2d Cir. 2011). In those cases, the courts looked at the parties’ financial circumstances while assessing the dischargeability of attorneys’ fees awarded as part of domestic relations cases, solely to determine whether those fees fell within the Bankruptcy Code‘s definition of “domestic support obligations” as being in the nature of alimony, maintenance, or support. Here, both parties agree that the subject debt is not a domestic support obligation, and the case law supports this proposition because the applicable clauses of the Stipulation “were intended to incentivize the performance by the parties under the [s]ettlement rather than to provide support.” Grinspan v. Grinspan (In re Grinspan), 597 B.R. 725, 740 (Bankr. E.D.N.Y. 2019). Thus, the above-referenced cases cited by the Defendant are inapplicable to the issue at bar.
This leaves the Court with the Defendant‘s argument that the Judgment is “too far removed” from the scope of Section 523(a)(15). In essence, the Defendant argues that the Judgment was for a breach of contract and has replaced the original obligations imposed during the Divorce Action. The Court disagrees.
First, the Defendant improperly elevates form over substance. See, e.g., Pauley v. Spong (In re Spong), 661 F.2d 6, 9 (2d Cir. 1981) (holding that a “well-established principle of bankruptcy law [is] that dischargeability must be determined by the substance of the liability rather than its form“); see also Golio, 393 B.R. at 63 (post-BAPCPA case quoting Spong). The debt owed to the Plaintiff did not automatically become dischargeable simply because it is one step removed from the Stipulation and took the form of a judgment for breach of contract, as characterized by the Decision After Trial. The Judgment does not exist in a vacuum, and the mere fact of its entry does not preclude the Court from looking at the underlying Stipulation, which created the obligations that gave rise to the Judgment. In other words, it was the Stipulation that created the nondischargeable obligation; the Judgment merely liquidated it.
Indeed, the Supreme Court addressed a somewhat similar argument in Archer v. Warner, 538 U.S. 314 (2003), in the context of the “fraud” exception under
Second, the Defendant‘s reading of Section 523(a)(15) is “too myopic.” Lustgarten v. Vann (In re Vann), Bankr. No. 13-51364, Adv. No. 13-5045, 2014 WL 505257, at *3 (Bankr. D. Conn. Feb. 6, 2014). Section 523(a)(15) is broader than the Defendant‘s interpretation because it addresses debts incurred “in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record.” Id. (quoting
In this respect, the Court agrees with the Plaintiff that Judge Eisenberg‘s analysis in Golio is on point. There, the debtor and his former spouse entered into a stipulation of settlement, which was incorporated into the divorce decree. Golio, 393 B.R. at 57. The stipulation, among other things, set forth the debtor‘s child support obligations as well as required the debtor to vacate the marital residence by a certain day or pay the plaintiff $150 per day in the event he failed to do so. Id. at 58. The parties also agreed to indemnify and hold each other harmless for any expenses and damages, including attorney‘s fees and litigation expenses, resulting from a breach of the stipulation. Id. Subsequently, the debtor breached, and the plaintiff sought to enforce the stipulation and the divorce judgment. Id. at 59. Ultimately, the plaintiff obtained two judgments—one for the child support arrearage and the distributive award pursuant to the “$150/day” provision and one for legal fees and costs in connection with the enforcement of the divorce judgment. Id. at 59-60. In finding that the judgments fell within the nondischargeability exception of Section 523(a)(15), Judge Eisenberg held that the two judgments were “clearly awarded by the state court in connection with a divorce decree and to enforce prior orders of the state court concerning the [p]laintiff‘s rights and remedies under the [d]ivorce [j]udgment” because they were awarded “as agreed upon by the parties in the [s]tipulation of [s]ettlement and as set forth in the [d]ivorce [j]udgment.” Id. at 62.
Here, the parties’ Stipulation, incorporated but not merged into the Judgment of Divorce, like Golio, imposed certain obligations on the Defendant, such as not to assist Deborah in bringing an action with respect to the Continental Apartment; to indemnify the Plaintiff for the costs if such an action is commenced; and to reimburse the Plaintiff for legal fees and expenses in the event the Defendant breaches the Stipulation. The State Court conclusively established that the Defendant breached the Stipulation by locating and paying for Deborah‘s attorney who then commenced an action against the parties. This, in turn, gave rise to the award of damages consisting of the lost equity in the Continental Apartment due to the delay caused by Deborah‘s Action, legal fees spent on defending the action, and legal fees spent on defending the State Court Action and enforcing the Stipulation. Like in Golio, the State Court awarded damages as agreed upon by the parties and as set forth in the Stipulation and the Judgment of Divorce. Id. Under these circumstances, it is clear that the Judgment, which merely assigned the dollar value to the Plaintiff‘s claim for breach of the Stipulation
Contrary to the Defendant‘s argument, the plain reading of the statute does not limit its applicability only to payments of alimony and property distribution. Rather, the statute applies to any debt in connection with such a divorce or separation agreement, which includes obligations arising out of indemnification and fee-shifting provisions. Further, this interpretation aligns with the public policy promoted by Congress. Separation agreements are often complex and include a myriad of provisions settling various domestic relations and property rights of the divorcees. All provisions should be considered jointly since even a non-support, non-proprietary promise (such as a promise to refrain from doing something) made in a separation agreement by one party could be a part of the consideration that caused the other party to agree to a certain proprietary concession. Cherry-picking which provisions of a divorce or separation settlement fall within the Section 523(a)(15) exception would go against “Congress‘s recognition that the economic protection of dependent spouses and children under state law is no longer accomplished solely through the traditional mechanism of support and alimony payments.” Golio, 393 B.R. at 61.
In fact, accepting the Defendant‘s narrow reading of the statute could lead to troubling results. Potentially, it would incentivize a party to extinguish her otherwise nondischargeable obligation by breaching it, which, under the Defendant‘s interpretation, would transform the obligation into a dischargeable one. In other words, if a judgment enforcing an obligation under a separation agreement can be discharged (since, under the Defendant‘s reading, such a judgment would be merely a breach of contract debt), a debtor-party to such an agreement would have little to no reason to perform. Such a result certainly does not align with Congress‘s intent “to cover any matrimonial debts that ‘should not justifiably be discharged.‘” LaVergne, 2011 WL 1878093, at *3 (quoting In re Crosswhite, 148 F.3d 879 (7th Cir. 1998)).
Lastly, this Court notes that the Stipulation contains various provisions relating to any future bankruptcy filing by either party and the effect such filing may have on the parties’ rights and obligations under the Stipulation. Specifically, the Stipulation provides that “[n]o claim, whether for maintenance, support, property distribution, or otherwise, arising out of this Agreement shall be dischargeable in bankruptcy, but any such claim shall survive the filing of any bankruptcy petition . . . until this Agreement is fully performed and discharged according to its terms.” (Bijan Aff. Ex. A, at § 10.1 (emphasis added).) However, “a majority of courts have held that a prepetition waiver of discharge is against public policy and cannot be enforced.” Tamasco v. Nicholls (In re Nicholls), Bankr. No. 10-70650-DTE, Adv. No. 10-8186-DTE, 2010 WL 5128627, at *2 (Bankr. E.D.N.Y. Dec. 10, 2010) (citing cases); see also EFS Inc. v. Mercer (In re Mercer), Bankr. No. 13-30006-WRS, Adv. No. 13-3031-WRS, 2013 WL 3367253, at *4 (Bankr. M.D. Ala. July 5, 2013) (“It is well established that prepetition stipulations of nondischargeability are not enforceable.“) (citing cases). On the other hand, a bankruptcy court may give effect to stipulated facts, if any, underlying the claim in the context of determining whether the debt is nondischargeable. See Nicholls, 2010 WL 5128627, at *3. In any event, this Court need not address the enforceability of Section 10.1 of the Stipulation because, as
CONCLUSION
For the foregoing reasons, the Defendant‘s motion for summary judgment is denied, and the Plaintiff‘s cross-motion for summary judgment is granted. A separate order and judgment will issue.
Dated: August 17, 2022
Brooklyn, New York
Nancy Hershey Lord
Nancy Hershey Lord
United States Bankruptcy Judge