Francis v. Wallace (In re Francis)

• Decision Date: 11 March 2014
• Docket Number: Bankruptcy No. 12–11910.,Adversary No. 13–01040.,BAP No. NC–13–1300–DJuKi.
• Citation: 505 B.R. 914
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit
• Parties: In re Wallace Eugene FRANCIS, Tracy Danielle Francis, Debtors. Wallace Eugene Francis, Appellant, v. Debra Lyn Wallace, Appellee.

505 B.R. 914

In re Wallace Eugene FRANCIS, Tracy Danielle Francis, Debtors.Wallace Eugene Francis, Appellant,

v.Debra Lyn Wallace, Appellee.

BAP No. NC–13–1300–DJuKi.

Bankruptcy No. 12–11910.

Adversary No. 13–01040.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted Feb. 20, 2014.

Decided March 11, 2014.

Thomas P. Kelly, III, Santa Rosa, CA, argued for Appellant Wallace Eugene Francis; Deborah S. Bull, Santa Rosa, CA, argued for Appellee Debra Lynn Wallace.

Before: DUNN, JURY, and KIRSCHER, Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge.

Wallace Eugene Francis (“Francis”), a chapter 7 ¹ debtor, ² appeals the bankruptcy court's summary judgment determination that his obligation to “pay and hold Wife harmless” from certain credit card obligations, as provided in the stipulated marital dissolution judgment with his former spouse, appellee Debra Lyn Wallace (“Wallace”), was excepted from his discharge under § 523(a)(15). We AFFIRM.

I. FACTUAL BACKGROUND

The relevant facts in this appeal are straightforward and are not in dispute.

Francis filed a petition for relief under chapter 7 on July 12, 2012. Wallace was listed as an unsecured creditor on Francis' Schedule F. However, the amount of Wallace's claim was stated as “unknown,” and Francis specified Wallace's claim as “contingent,” “unliquidated” and “disputed.” ³

Prior to the bankruptcy filing, the parties stipulated to a marital dissolution judgment (“Judgment”) that was entered by the Sonoma County Superior Court in case no. SFL–44977 on May 26, 2009. Part C of the Judgment, titled “Property Division,” included the following preamble in Section 1.01:

Husband [Francis] will be confirmed, awarded and assigned as his separate property, those assets and liabilities as set forth below, including without limitation, those assets which are his separate property. Wife [Wallace] transfers to Husband as his separate property all of her right, title and interest in each asset. Husband will pay and hold Wife harmless from each liability.

(Emphasis added.) Section 1.01 goes on to list various property items that were recognized as the separate property of Francis and various debt obligations, including credit card debts (“Credit Card Debts”), that Francis covenanted to pay and from which, he agreed to hold Wallace harmless. Part D, Section 1.05 states that:

This [Judgment] is the result of the joint efforts of the parties. This [Judgment] and each of its provisions will be interpreted fairly, simply, and not strictly for or against either party.

The Judgment further provided that it would be “governed by, and interpreted in accordance with California law.” Part D, Section 1.07 of the Judgment.

At some point in time, Francis stopped making payments on the Credit Card Debts, and Wallace filed suit in California state court to enforce the Judgment. Francis' chapter 7 filing followed closely thereafter.

Francis filed an adversary proceeding against Wallace, seeking a determination that any obligation to pay the Credit Card Debts under the Judgment was not excepted from his discharge under § 523(a)(15). Wallace answered the adversary proceeding complaint, requesting that Francis' obligations under the Judgment “be deemed non-dischargeable and that [Wallace] be awarded the costs of defending this action, attorney's fees and such other relief as this Court determines is just and proper.” Wallace subsequently filed a motion for summary judgment (“SJ Motion”), arguing that Francis' obligation to pay the Credit Card Debts under the Judgment, along with any attorneys fees and costs incurred to enforce the Judgment, was excepted from his discharge under § 523(a)(15). Francis opposed the SJ Motion, arguing that the “hold harmless” language of the Judgment did not support a nondischargeable debt to Wallace under § 523(a)(15) because there was no explicit obligation to “indemnify” her for purposes of California law.

The bankruptcy court heard argument on the SJ Motion on May 24, 2013 and took the matter under submission. It entered its Memorandum on Motion for Summary Judgment (“Memorandum”) granting Wallace's SJ Motion on May 30, 2013. The summary judgment order and a judgment in favor of Wallace in the adversary proceeding were entered on June 12, 2013.

Francis filed a timely notice of appeal.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(1) and (b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUE

As stated by Francis, the sole issue in this appeal is, “Did the Bankruptcy Court err by failing to apply California law in granting the Appellee's Motion for Summary Judgment?”

IV. STANDARDS OF REVIEW

We review a bankruptcy court's legal conclusions, including its interpretation of provisions of the Bankruptcy Code, de novo. Roberts v. Erhard (In re Roberts), 331 B.R. 876, 880 (9th Cir. BAP 2005), aff'd,241 Fed.Appx. 420 (9th Cir.2007). We also review de novo a bankruptcy court's decision to grant a motion for summary judgment. Marciano v. Fahs (In re Marciano), 459 B.R. 27, 35 (9th Cir. BAP 2011), aff'd,708 F.3d 1123 (9th Cir.2013). De novo review requires that we consider a matter anew, as if no decision had been made previously. United States v. Silverman, 861 F.2d 571, 576 (9th Cir.1988); B–Real, LLC v. Chaussee (In re Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008).

We may affirm the decision of the bankruptcy court on any basis supported by the record. Shanks v. Dressel, 540 F.3d 1082, 1086 (9th Cir.2008).

V. SUMMARY JUDGMENT STANDARDS

Summary judgment is appropriately granted where review of the relevant record establishes that there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Civil Rule 56(a), applicable in adversary proceedings in bankruptcy under Rule 7056; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Ilko v. Cal. State Bd. of Equalization (In re Ilko), 651 F.3d 1049, 1052 (9th Cir.2011).

VI. DISCUSSION

1. Section 523(a)(15)—Its Interpretation and Application

While our consideration of issues with respect to exceptions to discharge under § 523(a), and particularly § 523(a)(15), is informed by state law, our interpretation of § 523(a)(15) is fundamentally a question of federal law. See, e.g., Taylor v. Taylor (In re Taylor), 737 F.3d 670, 676–77 (10th Cir.2013):

The nature of the obligation is not restricted to the parties' label in the settlement agreement and is a question of federal law. Sylvester [ v. Sylvester ], 865 F.2d [1164] at 1166 [ (10th Cir.1989) ];see Young v. Young (In re Young), 35 F.3d 499, 500 (10th Cir.1994) (finding that shared intent “is not limited to the words of the settlement agreement, even if unambiguous” and stating that “the bankruptcy court is required to look behind the words and labels of the agreement in resolving this issue.”). That said, state law may inform the nature of the interest.

Jodoin v. Samayoa (In re Jodoin), 209 B.R. 132, 137–38 (9th Cir. BAP 1997); Gionis v. Wayne (In re Gionis), 170 B.R. 675, 681 (9th Cir. BAP 1994):

The ultimate issue on the merits, whether a state court's award of $185,000 in connection with a marital dissolution constitutes nondischargeable alimony, maintenance, or support, is a question of federal law with respect to which the labels that were applied under state law are not binding.

Sweck v. Sweck (In re Sweck), 174 B.R. 532, 534 (Bankr.D.R.I.1994) (The Bankruptcy Code requires that the bankruptcy court “determine the nature of the debts, regardless of the labels placed on them by the parties or the family court.”).

Section 523(a)(15) sets forth an exception to a chapter 7 debtor's discharge for a debt owed “to a spouse, former spouse, or child of the debtor and [not a support obligation] 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, ....” ⁴ The legislative history of the 1994 amendments to the Bankruptcy Code, which added the initial version of § 523(a)(15), gives a strong indication of congressional intent in providing the additional exception to discharge in § 523(a)(15):

Subsection (e) [of § 304 of H.R. 5116] adds a new exception to discharge for some debts arising out of a divorce decree or separation agreement that are not in the nature of alimony, maintenance or support. In some instances, divorcing spouses have agreed to make payments of marital debts, holding the other spouse harmless from those debts, in exchange for a reduction in alimony payments. In other cases, spouses have agreed to lower alimony based on a larger property settlement. If such “hold harmless” and property settlement obligations are not found to be in the nature of alimony, maintenance, or support, they are dischargeable under current law. The nondebtor spouse may be saddled with substantial debt and little or no alimony or support....

140 Cong. Rec. H 10770 (Oct. 4, 1994) (emphasis added). We note that in Part B of the Judgment, titled “Spousal Support,” Francis and Wallace each waived and released “all right and claim to receive spousal support from the other at any time.”

Decisions of Circuit Courts of Appeals interpreting § 523(a)(15) have been consistent in recognizing its breadth. See, e.g., Short v. Short (In re Short), 232 F.3d 1018, 1020 (9th Cir.2000) (“We conclude that the debt is nondischargeable because it was incurred by the debtor as part of the division of property in the course of a judgment of dissolution.”); In re Crosswhite, 148 F.3d 879, 883 (7th Cir.1998) (§ 523(a)(15) “sets forth as nondischargeable any marital debt other than alimony, maintenance or support that is incurred in connection with a divorce or separation”); Gamble v. Gamble (In re Gamble), 143 F.3d 223, 225 (5th Cir.1998) (“Section 523(a)(15) purports to apply to ‘any debt ... [not in the nature of alimony or child support]...