Dudley v. Simmons (In re Dudley)

• Decision Date: 26 February 2014
• Docket Number: BAP No. AZ-12-1631-KuDPa,Bk. No. 07-04223
• Parties: In re: DAVID HARRY DUDLEY, Debtor. DAVID HARRY DUDLEY, Appellant, v. RITA ANN SIMMONS, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

In re: DAVID HARRY DUDLEY, Debtor.DAVID HARRY DUDLEY, Appellant, v. RITA ANN SIMMONS, Appellee.^**

BAP No. AZ-12-1631-KuDPa

Bk. No. 07-04223

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

Filed: February 26, 2014

NOT FOR PUBLICATION

MEMORANDUM^*

Submitted Without Argument

on January 23, 2014^***

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable Redfield T. Baum, Sr., Bankruptcy Judge, Presiding Appearances: Harold E. Campbell of Campbell & Coombs, P.C., on brief, for appellant David Harry Dudley.^****

Before: KURTZ, DUNN and PAPPAS, Bankruptcy Judges.

INTRODUCTION

Debtor David Harry Dudley appeals from an order granting the motion filed by his ex-wife, Rita Ann Simmons, seeking dismissal of his chapter 13¹ bankruptcy case.

Dudley's arguments ignore that, at the time of dismissal, the full sixty-month term of his confirmed chapter 13 plan had elapsed, and that he had materially defaulted on his plan obligation to pay Simmons' secured claim. Moreover, Dudley admitted that he had no ability to cure this default, or to otherwise propose a legally permissible plan modification.

Not being entitled to a chapter 13 discharge and having run through all of the time afforded to him under his confirmed sixty-month chapter 13 plan, no legitimate bankruptcy purpose would have been served by the preservation of his chapter 13 bankruptcy case. Accordingly, dismissal was appropriate, and we AFFIRM.

FACTS

The relevant facts are not in dispute. Dudley and Simmons were parties to contentious divorce proceedings in the Maricopa County Superior Court (Case No. FN2005-091838). The divorceproceedings led to a dissolution decree issued on May 3, 2007. The dissolution decree contained provisions dividing the parties' marital assets and, in relevant part, awarded the parties' former family residence to Dudley as his sole and separate property. In turn, the decree awarded Simmons a lien on the residence to secure Dudley's obligation to pay Simmons $208,000, which was Simmons' share of the equity in the residence.²

Dudley appealed the dissolution decree, and the Arizona Court of Appeals affirmed the decree in part and reversed it in part. See Simmons v. Dudley, 2009 WL 936886 (Ariz. Ct. App. 2009). Among other things, Dudley challenged on appeal Simmons' entitlement to the $208,000 lien against the residence, claiming that the trial court erred when it characterized the residence as community property. But the Court of Appeals affirmed this aspect of the decree. See id. at 3-5.

In August 2007, shortly after the state court issued the dissolution decree, Dudley commenced his chapter 13 bankruptcy case. According to Dudley's initial bankruptcy schedules,Simmons held an undisputed general unsecured claim in the amount of $212,904, as well as a $208,000 claim secured by her judgment lien against the residence. Dudley's initial schedules further reflected that, aside from Simmons, Dudley had only a handful of other unsecured creditors, and that the unsecured debt owed to Simmons was almost ten times the amount of all of Dudley's other unsecured debt combined. Furthermore, the chapter 13 trustee later reported, at one of the hearings on Simmons' case dismissal motion, that Simmons was Dudley's only remaining unsecured creditor, all others having had their claims disallowed.

In the initial version of Dudley's chapter 13 plan, Dudley attempted to partially avoid Simmons' $208,000 judgment lien under § 522(f). Both Simmons and the chapter 13 trustee objected to this provision of the plan, pointing out that it was improper for the debtor to attempt to avoid a lien by plan provision. In response, Dudley filed a motion to avoid the judgment lien under § 522(f). The bankruptcy court denied this motion based on Farrey v. Sanderfoot, 500 U.S. 291 (1991). Dudley did not appeal this ruling.

Debtor filed a first amended plan and a second amended plan, both of which provided for Simmons to retain her lien. But neither plan provided any payment to Simmons on account of her secured claim over the course of the plan. Simmons objected, arguing that § 1325(a)(5) required Dudley to pay Simmons' secured claim during the course of the plan. After the parties fully briefed the issue, the bankruptcy court entered an order sustaining Simmons' objection. Dudley did not appeal this ruling either.

Dudley's third amended plan finally provided for both Simmons' lien and for the payment of her secured claim during the course of the plan, as follows:

Rita Ann Simmons has a divorce judgment lien of $208,000.00 secured by the real property to secure the payment of her share of the equity in the real property. She will retain this lien on the real property until the payment of the underlying debt under nonbankruptcy law. Debtor will refinance the real property between months 48-60 of the Plan and pay this debt in full. Due to the falling value of the real property, Debtor cannot refinance the house for enough to pay this debt until house values appreciate again, which is not expected until at least month 48 of the Plan.

Third Amended Plan (Feb. 9, 2009) at p. 3 of 5.

Shortly after the filing of the third amended plan, the Arizona Court of Appeals issued its decision affirming in part and reversing in part the dissolution decree. In re Marriage of Simmons v. Dudley, 2009 WL 936886 (Ariz. Ct. App. 2009). Because the Court of Appeals decision effectively relieved Dudley from the duty to pay certain priority domestic support obligations, Dudley filed his fourth amended plan to address the impact of the Court of Appeals decision on these obligations. The Court of Appeals decision did not alter Simmons' lien and secured claim, and the fourth amended plan generally provided for the same treatment of them. Nonetheless, the fourth amended plan contained a new, additional sentence regarding the parties' rights and duties in the event that Dudley was unable to refinance the residence, as follows:

In the event Debtor cannot refinance the house, he retains the option to sell the house (in months 48-60) and pay Rita Simmons her $208,000; if the house does not sell for enough to pay her the $208,000, any remaining debt to her will be a general unsecured debt.

Fourth Amended Plan (July 7, 2009) at p. 3 of 5.

Simmons objected to this new contingency provision. According to Simmons, this was just another improper attempt by Dudley to evade the dictates of § 1325(a)(5), which required Dudley to obtain Simmons' consent to the plan, to surrender the residence to Simmons, or to provide for Simmons' retention of her lien and the payment of her secured claim.

The bankruptcy court sustained Simmons' objection, and Dudley filed a motion for reconsideration arguing that, by not allowing Dudley to retain the residence during the course of the plan without providing for payment in full of Simmons' secured claim, the court effectively was declaring the secured debt nondischargeable. Simmons countered that Dudley was not being denied his discharge so long as he presented and fully consummated a confirmable chapter 13 plan - something Dudley so far had been unwilling or unable to do.

Before the bankruptcy court ruled on the reconsideration motion, the parties reached agreement on the language regarding the treatment of Simmons' lien and her secured claim, which language was included in a stipulated order confirming Dudley's fourth amended chapter 13 plan. That language was almost identical to the language in Dudley's third amended plan, except that the following additional sentence was added:

By virtue of this paragraph, Debtor is not waiving his right to seek modification of the plan later under 11 U.S.C. 1329, if appropriate.

Stipulated Order (May 9, 2010) at p. 2 of 4. In essence, Dudley had capitulated on his attempt to include in the plan a contingency provision in the event he was unable to pay offSimmons' secured claim by refinancing the residence.

The bankruptcy court entered the stipulated confirmation order in May 2010. In February 2011, Dudley filed a motion seeking to modify his confirmed chapter 13 plan. In the motion Dudley advised the court that, on remand from the Arizona Court of Appeals, the trial court entered another judgment in favor of Simmons and against Dudley, this one for $45,000 in attorney fees incurred by Simmons in the dissolution proceedings. Dudley asserted that the $45,000 judgment, along with the $212,904 he originally scheduled as unsecured debt owing to Simmons, all constituted prepetition divorce-related debt covered by § 523(a)(15) that was dischargeable in chapter 13 pursuant to § 1328(a)(2).

Simmons objected to the plan modification motion, arguing that the $45,000 judgment constituted a domestic support obligation within the meaning of § 523(a)(5) and hence was nondischargeable under § 1328(a)(2). Simmons also contended that at least a portion of the $45,000 in attorney fees was incurred postpetition.

The chapter 13 trustee also filed a response to the motion to modify the plan, pointing out that the confirmed plan required Dudley to turn over to the trustee copies of his 2008, 2009 and 2010 tax returns, and also turn over any net tax refunds associated with those returns. At the time, the trustee only had received copies of Dudley's 2008 tax returns, and Dudley had never paid over to the trustee his 2008 tax refunds in the aggregate amount of $7,382.

The parties reached agreement on language modifying thefourth amended chapter 13 plan, which language was incorporated into a stipulated order confirming the modified chapter 13 plan. In relevant part, the agreed-upon modification language required Dudley to pay to Simmons, within 90 days, $3,000 of the $45,000 judgment, which $3,000 the parties agreed constituted postpetition attorney fees ("Postpetition Fee Award"). The agreed-upon modification language further required Dudley to pay over to the trustee before the end of month 60 of his chapter 13 plan the $7,382 owed to the trustee on...