Barrett v. Barrett (In re Barrett)
| Decision Date | 16 August 2019 |
| Docket Number | Case No. 18-21501-GLT |
| Parties | IN RE: John E. BARRETT, Jr. and Sarah E. Ramirez, Debtors. Dona Barrett, Movant, v. John E. Barrett, Jr., Sarah E. Ramirez, and Ronda J. Winnecour, Respondents. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania |
Mary Bower Sheats, Bridgeville, PA, Attorney for Movant
Dai Rosenblum, Butler, PA, Attorney for Respondents
Related to Dkt. Nos. 36, 39, 62, 76, 92, & 94
Dona Barrett finds herself at odds with her former husband, John Barrett, in a fight over marital assets that has now spilled into the bankruptcy court. Dona filed a Motion for Relief from Stay (hereinafter, the "Motion") seeking the ability to return to state court to compel the release of proceeds from the liquidation of John's business interests.1 The proceeds were held in a lawyer trust fund account for several years when John and his current wife, Sarah Ramirez, commenced these bankruptcy proceedings.2 John opposes relief on the grounds that Dona holds only a dischargeable claim for equitable distribution. After considering the record and for the reasons stated herein, the Court finds the Motion to be well taken and will grant stay relief, affording Dona the ability to enforce her rights under applicable non-bankruptcy law.
The undisputed factual record is contained within the Statement of Stipulated Facts which was previously filed with the Court and is incorporated herein.3 The Court will only repeat those facts necessary to explain its opinion.
On September 4, 2014, the Court of Common Pleas of Mahoning County, Ohio (the "State Court") entered a Judgment Order (the "Divorce Order") granting John and Dona a divorce.4 The Divorce Order also incorporated and effectuated the terms of a separation agreement which provided for an equitable distribution of their property.5 Among other provisions, the Divorce Order required that John remit to Dona one-half of the proceeds he received from a buyout of his partnership interests in two entities, Ankle and Foot Care Centers ("AFCC") and Stark Real Estate LLC ("Stark").6
John's counsel, Attorney David Engler, was directed to hold John's AFCC buyout proceeds under an escrow arrangement established at Dona's request pursuant to a July 29, 2015 Order of the State Court Magistrate Judge:
By January 2016, John received full payment of his partnership buyouts from both AFCC and Stark.8 He deposited funds totaling $126,134.16 with Attorney Engler, to be held in the lawyer's IOLTA account (collectively, the "Engler Funds").9 The Engler Funds included $72,538.91 from the AFCC buyout and $44,945 from the Stark buyout, representing the one-half interest awarded to Dona by the Divorce Order .10
On January 28, 2016, the State Court entered an Order finding John in contempt of court for, among other things, "failing to pay Defendant/Dona Barrett her share of the second installment of buyout funds from [AFCC.]"11 As a sanction for his contempt, John was sentenced to 30 days in the county justice center, but the sentence was suspended pending his strict compliance with certain requirements, including the payment of $72,538.91 from the AFCC proceeds to Dona.12 Alternatively, John was ordered to instruct Attorney Engler to release $72,538.91 from the escrowed funds to Dona.13
In March 2016, Dona obtained documents via subpoena revealing that John had already received an additional $89,890 from the buyout of his interest in Stark.14 It appears that she was previously unaware these funds were paid and deposited with Attorney Engler.15 Dona thereafter filed a motion in the State Court seeking to hold John in contempt due to his failure to relinquish one-half of the $89,890 Stark distribution as required by the Divorce Order .16
In lieu of directing the release of funds held by Attorney Engler, John appealed the State Court's January 2016 ruling.17 The Court of Appeals affirmed the State Court's ruling in September of 2017, prompting John to appeal again.18 The appeal concluded in March 2018 when the Ohio Supreme Court refused to consider his case.19 On April 17, 2018, John commenced the present bankruptcy case, thereby staying any further proceedings in the State Court.20
Dona now seeks stay relief to enforce her rights to the Engler Funds under the existing State Court Orders.21 The Court has since required the funds to be deposited with the chapter 13 trustee pending final disposition of these matters.22 The ownership of, and entitlement to, these funds is now the dispositive matter presented by the Motion .
Dona contends that she holds a non-dischargeable property interest in the Engler Funds.23 She also maintains that, under Ohio law, John holds only bare legal title to the funds because they were placed in Attorney Engler's IOLTA account following the entry of the Divorce Order and are held in trust for her as their equitable owner. According to Dona, John's ownership interest in the Engler Funds extends only so far as his obligation to turn them over to her.24
John does "not contest the validity of the state court determination."25 He instead seeks to characterize the Divorce Order as having created a normal equitable distribution obligation, which is dischargeable in a chapter 13 bankruptcy.26
John also points to language in the Magistrate's Order stating that "[t]he Court recognizes that each party's rightful share of these sale proceeds is yet to be determined" as evidence that the Engler Funds were not held for the equitable benefit of Dona, and therefore should be considered property of the estate.27
The parties submitted briefs in support of their respective positions.28 Notwithstanding the multiplicity of issues and legal proceedings arising out of the same set of operative facts,29 the Court will confine itself to a determination of the issues presented in the stipulated facts and briefs as agreed by the parties at a prior hearing on this matter.30
This Court has authority to exercise jurisdiction over the subject matter and the parties pursuant to 28 U.S.C. §§ 157(a), 1334, and the Order of Reference entered by the United States District Court for the Western District of Pennsylvania on October 16, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(K).
"State law determines the nature of property rights when considering whether something constitutes bankruptcy estate property under § 541(a)."32 However, "while the nature and extent of the debtor's [property] interest are determined by state law, once that determination is made, federal bankruptcy law dictates to what extent that interest is property of the estate."33
It follows, then, that the Court must determine how the Engler Funds are treated under state property law before deciding whether they constitute part of John's bankruptcy estate. If they are property of the estate, then Dona's Motion should be denied, as the automatic stay is properly preventing her pursuit of estate assets. If they are not, then the Motion should be granted and Dona should be permitted to return to the State Court to pursue her available remedies. Of course, before it may do so, the Court must first determine which state law applies to defining the underlying property interest.
"When bankruptcy litigation involves a dispute arising from federal substantive law ... federal common law principles typically will govern" a determination of which state law should be applied.34 Federal choice of law rules require applying "the law of the jurisdiction with the most significant relationship to the action."35 Dona is currently a resident of Youngstown, Ohio.36 Although John now resides in Lawrence County, Pennsylvania, both parties lived in Ohio prior to the entry of the Divorce Order .37 The Divorce Order itself was entered by the Court of Common Pleas of Mahoning County, Ohio. Attorney Engler, who previously held the Engler Funds, is also a resident of Ohio.38 All of the parties relevant to the present action live, or lived, in Ohio, and the order of an Ohio court is at the center of the dispute. The Court accordingly finds that Ohio is the state with the most significant...
To continue reading
Request your trial