Dragnea v. Dragnea (In re Dragnea)
| Decision Date | 29 October 2019 |
| Docket Number | Adv. Pro. No. 17-02248-C,Case No. 2010-34418 |
| Citation | 609 B.R. 239 |
| Parties | IN RE: Corina DRAGNEA, Debtor. Dumitru Dragnea, Plaintiff, v. Corina Dragnea, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of California |
Jacob Barlev, San Rafael, CA, David M. Sternberg, Walnut Creek, CA, for Plaintiff.
Stephen T. Cammack, Sacramento, CA, David Ashley Smyth, Pleasant Hill, CA, for Defendant.
Before: Christopher M. Klein, Bankruptcy Judge
The key issue in this declaratory judgment action is whether an individual's Chapter 11 plan can extinguish nondischargeable debt. The answer is yes, if the creditor agrees to the plan.
This cross-border marital dissolution, featuring property divisions in California and Romania and an attempted collateral attack on Romanian judgments, illustrates the utility of the Declaratory Judgment Act, 28 U.S.C. §§ 2201 - 02, as a procedure to address disputes regarding contractual aspects of Chapter 11 plans that are ill-suited to contempt proceedings.
The debtor contends that her confirmed chapter 11 plan extinguished her equalizing payment obligation under a marital settlement agreement (MSA) incorporated into a California dissolution judgment. Disagreeing, her former spouse argues that it is impossible as a matter of law for an individual's chapter 11 plan to lead to discharge of an 11 U.S.C. § 523(a)(15) debt.
The reality is that the chapter 11 plan, as permitted by 11 U.S.C. § 1123(b), was the vehicle the parties used bilaterally to compromise the MSA debt under nonbankruptcy law. This settlement operated as an accord and satisfaction that extinguished the original obligation as a matter of state law, thereby leaving zero to eliminate by virtue of the bankruptcy discharge.
Dumitru and Corina Dragnea fled Communist Romania, gained political asylum in the United States in 1985, settled in California, and are now United States citizens.
Dumitru, a university graduate and machinist, opened an auto repair business. Corina was employed as a lab technician.
Since 1993, they have also operated board and care homes under the name Corina Care Homes. They still separately own and operate board and care homes in Sacramento County.
They accumulated other California real estate before 2005, including five residences and various interests in land.
In Romania, they acquired at least five parcels of real estate and interests in two Romanian corporations.
Beginning in 2002, Dumitru acted as manager (Administrator) of Metalotex Corporation in Romania, a business in which they had acquired a minority interest.
All of the properties purchased in California and in Romania before 2005 were purchased jointly with community property funds. Both California and Romania are community property regimes.
In March 2005, Corina filed two divorce actions after 34 years of marriage, one in California and one in Romania.
The Romanian divorce became final as to marital status in April 2006, leaving property division to future determination.
The final California divorce judgment incorporated the MSA agreed by the parties and was entered September 13, 2007.1
Dumitru and Corina, who were self-represented, used sample MSA forms without tailoring them to reflect their actual situation and without eliminating internal inconsistencies.
Their MSA divided California, but not Romanian, property. Dumitru received: six real estate parcels (including one board and care home); all personal property associated with his auto repair business; and seven vehicles. Corina received: five real estate parcels (including two board and care homes); and two vehicles. They jointly retained five real estate parcels.
The MSA required Dumitru to pay $15,000 of a $30,000 loan from Corina's mother and half of a $100,000 equity line of credit on the residence retained by Corina.2 And, to equalize the property division, Corina agreed to pay Dumitru $150,000. All payments were due within two years, with interest thereafter. The payments achieved the status of judgment debts by virtue of incorporation into the California divorce judgment.
The MSA included a term sheet signed August 18, 2006, which states "Corina and Dumitru agreed [sic] to equally divide the community property in Romania."
Dumitru obtained recognition in Romania of the 2007 California divorce judgment under Romania's civil law exequatur procedure (recognition of foreign judgments).3 Corina then asked a Romanian court to divide Romanian marital property.
The Deva Court of Law, applying Romanian Law to Romanian assets, determined on March 4, 2008, which Romanian assets were community property, valued them, allocated them between Corina and Dumitru, and ordered Dumitru to make an equalizing ("balancing") payment to Corina.
Dumitru appealed. The Hunedoara Tribunal Civil Court decision rendered December 2, 2009, affirmed the Deva court except that it reduced Dumitru's equalizing payment from about $84,365.89 to $56,870.97.4 Further appeals have been unavailing.
Corina collected the Romanian equalizing payment from Dumitru's bank accounts in Romania.
Corina also flexed economic muscle in Romania. Using her separate property funds to purchase another block of Metalotex shares, she gained control of Metalotex and fired Dumitru.
His trial testimony lamenting how he had made Metalotex profitable reveals bitterness that animates the present dispute.
Dumitru did not pay the sums he owed under the MSA. Corina paid her mother Dumitru's $15,000 share of the $30,000 loan and paid his $55,214 half of the $100,000 equity loan, which cost $110,427.11 to extinguish when refinancing her residence.5
Corina, having succeeded to the right to receive $70,214 from Dumitru, did not pay him the $150,000 equalizing payment.
As of June 2010, the net California obligation of Corina to Dumitru was $79,786. Dumitru was still pursuing vindication in Romania. Corina threatened litigation over MSA real property transfers to Dumitru that exposed her to personal liability to undersecured creditors on Dumitru's property.
On June 1, 2010, Corina filed chapter 11 case No. 2010-34418 as a health care business operating two elder care homes. She scheduled assets of $1,251,450 and liabilities $2,094,843. Much of the debt reflects leveraged real estate squeezed by the plummet in values in the Great Recession of 2008.
She scheduled Dumitru as a creditor owed an undisputed net debt of $85,000 based on her MSA obligations.
Dumitru filed proof of claim #3 for $150,000, attaching materially misleading snippets from the MSA that omitted mention of his countervailing obligation to pay Corina $70,214.
Corina operated in Chapter 11 for nearly two years monitored by a patient care ombudsman appointed under 11 U.S.C. § 333, who regularly reported "outstanding" operation of the facilities.
Corina proposed a Chapter 11 plan on December 15, 2011, to be financed by operating profits and sale of real estate.6 An iterative process of four plan amendments placated various partially-secured creditors and yielded a consensual plan reducing unsecured debt by more than $885,000. Unsecured claims (mostly unsecured portions of secured claims) estimated at $1,062,350 would be paid $176,710 (16.6%) over 60 months.7
Dumitru's $150,000 claim became the final obstacle to plan confirmation.
The proposed plan treated Dumitru's claim as unsecured to be paid by sharing in the 60 monthly distributions to unsecured creditors, with the unpaid balance to remain as excepted from discharge by virtue of § 523(a)(15) and the Article IX that had been in the plan since first proposed in December 2011.8
But, Dumitru forced a different course. He objected to plan confirmation and hired a veteran Chapter 11 lawyer, who appeared at a hearing on June 11, 2012, persuading the court to decline to confirm the plan over Dumitru's pending objection.9
Negotiations ensued. Communications among counsel noted the various issues, including Corina's offsets and potential property liability litigation, and focused on a "global" settlement. The outcome was a final plan amendment filed July 12, 2012.
The negotiated amendment created a separate Class 11 for Dumitru, who would receive a prompt $45,000 one-time payment to satisfy his claim "in full" in exchange for which he "waived" further claims "of any kind."10
Dumitru's separate Class 11, designated as impaired, described the class and treatment:
Dumitru signed and filed a ballot accepting the plan containing the global settlement, in which he stated:
The next day, Dumitru filed a withdrawal of his objection to confirmation.13
The court confirmed the plan on July 23, 2012, in open court with oral findings of fact and conclusions of law and entered a confirmation order on July 26, 2012.14
Corina paid Dumitru the "one-time" $45,000...
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