Stewart, In re

• Decision Date: 22 April 1999
• Docket Number: No. 98-5000,98-5000
• Citation: 175 F.3d 796
• Parties: Bankr. L. Rep. P 77,926, 1999 CJ C.A.R. 2431, 16 Colo. Bankr. Ct. Rep. 79 In re Jeffrey D. STEWART, Debtor. Jeffrey D. Stewart, Appellant, v. United States Trustee, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 796

175 F.3d 796

Bankr. L. Rep. P 77,926, 1999 CJ C.A.R. 2431,

16 Colo. Bankr. Ct. Rep. 79

In re Jeffrey D. STEWART, Debtor Jeffrey D. Stewart, Appellant, v. United States Trustee, Appellee.

No. 98-5000.

United States Court of Appeals Tenth Circuit.

April 22, 1999.

Richard A. Shallcross of Brewster, Shallcross & De Angelis, Tulsa, Oklahoma, for Appellant.

Edward Himmelfarb (Frank W. Hunger, Assistant Attorney General, and William Kanter, Department of Justice; Martha L. Davis, General Counsel; Jeanne M. Crouse, Executive Office for United States Trustees, with him on the brief), Washington, D.C., for Appellee.

Before BALDOCK, McKAY and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

Appellant Jeffrey D. Stewart appeals from the Bankruptcy Appellate Panel's ("the Panel") decision affirming the dismissal of his Chapter 7 bankruptcy petition. The bankruptcy court dismissed the petition pursuant to 11 U.S.C. § 707(b) for substantial abuse of the provisions of Chapter 7. In re Stewart, 201 B.R. 996 (Bankr.N.D.Okla.1996) (Stewart I). In a related decision, the bankruptcy court determined 11 U.S.C. § 707(b) is constitutional. In re Stewart, 204 B.R. 780 (Bankr.N.D.Okla.1997) (Stewart II). On appeal, Dr. Stewart challenges several rulings of the bankruptcy court as affirmed by the Panel. In re Stewart, 215 B.R. 456 (10th Cir.BAP(Okl.)1997) (Stewart III). He contends the bankruptcy judge erred in: (1) allowing the United States Trustee to commence a § 707(b) action for "substantial abuse" on the request or suggestion of his ex-wife; (2) concluding his debts constituted "primarily consumer debts;" (3) concluding the filing of his Chapter 7 petition constituted "substantial abuse" of Chapter 7 provisions; and (4) holding § 707(b) is not void for vagueness and does not violate the equal protection guarantees of the Fourteenth and Fifth Amendments of the United States Constitution. We exercise our jurisdiction under 28 U.S.C. § 158(d) and affirm.

I. BACKGROUND

Jeffery Stewart and Barbara Teichner married in 1978, and produced four children. During this time, Mr. Stewart performed various odd jobs and periodically attended college. They maintained a minimal standard of living, relying in part on money provided by Barbara's parents. Mr. Stewart also obtained student loans from commercial lenders under government-sponsored programs.

In 1988, Mr. Stewart entered medical school and became romantically involved with another medical student, Patricia Hill. In 1990, he and Barbara divorced. The marital settlement agreement required Mr. Stewart to: (1) pay Barbara $500 monthly alimony until he completed his medical residency, and $25,000 in annual alimony thereafter, with a cap of $2 million or in the event she remarried, a cap of $250,000, and (2) pay child support totaling $2,000 per month, as well as the children's medical and future college expenses. In order to meet these support obligations, Mr. Stewart borrowed over $100,000 in student loans from 1990 to 1992, of which he gave Barbara $60,000 for support and paid $3,000 toward the children's medical expenses; the rest he spent on his living expenses, tuition, and loan processing fees. Prior to, and independent from, the divorce decree and marital settlement, Mr. Stewart agreed to sign two promissory notes to Barbara's parents for $150,000 and $50,000 for loans they made to him and Barbara during their twelve-year marriage.

In 1992, after graduating from medical school, Dr. Stewart began an internship and residency program in obstetrics-gynecology. At the same time, he ceased making support payments to Barbara and began a proceeding to vacate the marital settlement agreement. Although Barbara defended the agreement and counter-sued for past support, she agreed to reduce Dr. Stewart's child support obligation to $586.82 per month. In 1993, during the pendency of that lawsuit, Barbara remarried. The same year, her father, Mr. Teichner, sued Dr. Stewart on the $150,000 note in a state court proceeding.

In 1994, Patricia Hill began her medical residency. In 1995, she successfully filed a voluntary petition for relief under Chapter 7. Later the same year, she married Dr. Stewart.

In late 1995, while Dr. Stewart remained in arrears for approximately $26,000 in past spousal support and unpaid medical bills for his children, he purchased a 1990 Range Rover for $26,466. In January 1996, the state court denied Dr. Stewart's motion to vacate the divorce decree and granted Barbara a judgment of $26,077.95 for breach of the marital settlement agreement. In April 1996, the state court granted Mr. Teichner a judgment with interest against Dr. Stewart on the $150,000 promissory note.

Just weeks after the divorce court denied his motion for a new trial, Dr. Stewart filed his voluntary petition for relief under Chapter 7 and filed bankruptcy schedules showing debt totaling $2,548,440.37. In this figure, Dr. Stewart included a sum of $2 million owed Barbara under the marital settlement agreement, rather than the $250,000 actually owed as a result of her remarriage. Dr. Stewart sought discharge of: (1) all his debt obligations to his ex-wife and her parents; (2) his children's medical expenses; (3) all future, contractual post-secondary education expenses for his four children; and (4) other incidental debts including taxes and attorney fees. Dr. Stewart listed, but did not seek to discharge, his student loan debt of $218,000. While Dr. Stewart listed himself as "married," he did not apportion his percentage of the total household expenses or list his wife's income. He listed his occupation as a "physician" at three hospitals, with his monthly income totaling $3,358. He provided captions for the legal proceedings involving Barbara and her father, but did not list the amount owed to Barbara under the judgment against him. On his petition, Dr. Stewart characterized his debts as non-business/consumer debts.

Days later, Barbara filed for relief from the automatic stay of the bankruptcy, under 11 U.S.C. § 362, to allow her to enforce the terms of the divorce decree, the marital settlement agreement and the judgment for support arrears, and to modify child support. The bankruptcy court modified the stay to allow Barbara to commence an action to collect and modify child support, and to exercise her rights to enforce the judgment and take action in connection with Dr. Stewart's appeal of that judgment.

One month after filing his bankruptcy petition, Dr. Stewart completed his residency program and opted to enter a two- to three-year fellowship program specializing in perinatology rather than begin an obstetrics/gynecology practice. His fellowship salary ranged from $34,292 to $37,000 a year. The monetary consequences of his entering a fellowship are appreciable. Had Dr. Stewart entered directly into practice rather than opting for a fellowship, his estimated starting salary as a non-board-certified, perinatology graduate would have ranged from $100,000 to $140,000--substantially more than his fellowship. However, on completing his fellowship, his estimated earning power increased substantially with the average annual earnings for board-certified obstetrics/gynecology specialists ranging between $175,000 and $325,00, and the highest salaries exceeding $500,000. Dr. Stewart forewent immediate employment as an obstetrics/gynecology physician and instead chose specialization in the treatment of high-risk pregnancies in order to "help desperately-ill and needy mothers and babies," and because he is "passionately interested in research" which he intends to pursue "regardless of remuneration." Stewart I, 201 B.R. at 1002.

In July 1996, Dr. Stewart submitted an amended petition. In amending his schedules, Dr. Stewart slightly increased his expenses and decreased the value of his assets; he also increased his liabilities to $2.6 million. He projected his average monthly income from his new fellowship position at $3,403, and his monthly expenses at $ 7,966, for a monthly deficit of $4,563. His revised monthly expenses schedule reflected his share of the total household expenses, but still did not list his wife's income. He again characterized his debts as nonbusiness/consumer debt. ¹

Based on his revised schedule and after adjusting the inaccurate $2 million alimony debt, Dr. Stewart's actual total debt reached $837,009, ² including $250,000 marital debt, ³ $218,000 in student loans from commercial lenders, $320,000 debt to his former in-laws ⁴, and $59,009 for other obligations including medical bills for his children, attorney fees for litigation of his various suits, and taxes. See Stewart III, 215 B.R. at 460. As to the debt owed to his in-laws, Dr. Stewart testified his wife received her parents' checks and used the money to support the family while he attended school; she used the money on house payments, groceries, pre-school, children's activities, moving expenses, and family vacations. Similarly, Barbara testified her parents loaned them money for living expenses to maintain a "certain life style," thus facilitating Dr. Stewart's education. She noted, however, her parents continued to support them even when Dr. Stewart did not attend college. ⁵

Ten days prior to the filing of Dr. Stewart's amended petition, the United States Trustee, through an Assistant Trustee, filed a motion to dismiss Dr. Stewart's petition under 11 U.S.C. § 707(b) as "substantial abuse" of Chapter 7. The Trustee alleged Dr. Stewart's sole purpose in filing for bankruptcy centered on discharging marital and family obligations, even though he retained the ability to pay a substantial portion of his debts.

In response, Dr. Stewart raised an affirmative defense that the motion was " 'tainted' by the request or suggestion made to the Trustee by a party-in-interest" in violation of § 707(b). To support his affirmative defense, Dr. Stewart filed interrogatories and a request for production demanding the...