Hauk v. Valdivia (In re Valdivia)

• Decision Date: 16 July 2020
• Docket Number: Case No. 19-50038,Adv. Pro. No. 19-4422
• Citation: 617 B.R. 278
• Parties: IN RE: David L. VALDIVIA, Debtor. Mary A. Hauk, Plaintiff/counter-defendant, v. David L. Valdivia, Defendant/counter-plaintiff.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

617 B.R. 278

IN RE: David L. VALDIVIA, Debtor.

Mary A. Hauk, Plaintiff/counter-defendant,

v.David L. Valdivia, Defendant/counter-plaintiff.

Case No. 19-50038

Adv. Pro. No. 19-4422

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed July 16, 2020

Patrick A. Foley, John R. Foley, P.C., Dearborn, Michigan, Attorney for Plaintiff.

Kevin C. Calhoun, Calhoun & DiPonio, PLC, Southfield, Michigan, Attorney for Defendant.

TRIAL OPINION

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

The primary issue in this adversary proceeding is whether the Defendant Chapter 13 debtor's $300,000 judgment debt to his ex-wife is nondischargeable under 11 U.S.C. § 523(a)(5), as a "domestic support obligation."

This adversary proceeding came before the Court for a bench trial, held on June 23, 2020. With the consent of the parties, the trial was held by a combination of video conference and telephone.

The Court has considered all of the evidence and arguments presented by the parties at trial. This includes the testimony of the witnesses — namely, Plaintiff Mary Hauk, Defendant David Valdivia, and Joel Valdivia. And this includes all of the exhibits that were admitted into evidence — namely, Plaintiff's Exhibits 1-3 and 13-15.¹ This Opinion states the Court's findings of fact and conclusions of law.

II. Jurisdiction

This Court has subject matter jurisdiction over this adversary proceeding, and this is in all respects a core proceeding, for the reasons stated in Paragraphs A and B of the Court's opinion regarding the parties' cross-motions for summary judgment, filed May 22, 2020 (the " Summary Judgment Opinion").²

III. Discussion

A. Preliminary matters

First, the Court reiterates and adopts, and incorporates into this Opinion by reference, everything stated in the Court's Summary Judgment Opinion.³ And the separate judgment to be entered today will reiterate, adopt, and incorporate the Court's summary judgment rulings, including the rulings that dismissed Counts I, II, IV, and VI of Plaintiff's Complaint with prejudice.

Second, the Court finds as fact, and incorporates into this Opinion by reference, the facts stipulated to by the parties in the Final Pretrial Order filed on June 8, 2020, in Section IV at page 2, labeled "Stipulation of Facts."⁴

B. Count III of Plaintiff's Complaint and the counterclaims in Defendant's "Counter-Complaint"

Count III of Plaintiff's Complaint was not fully disposed of by the Court's Summary Judgment Opinion. That count alleges that Defendant's $300,000 judgment debt to Plaintiff is nondischargeable under 11 U.S.C. § 523(a)(5), as a "domestic support obligation." And that same issue is the subject of both counts of Defendant's "Counter-Complaint."⁵ The Court granted partial summary judgment for Plaintiff on Count III, consistent with what the Court stated in Paragraphs Q through Y of its Summary Judgment Opinion.⁶

The Court defined the issue to be tried as follows:

V. Based on the foregoing, the Court concludes that under the appropriate analysis based on Sorah [v. Sorah (In re Sorah ), 163 F.3d 397 (6th Cir. 1998) ], there is no genuine dispute of any material fact, and Plaintiff is entitled to judgment as a matter of law, that all of Defendant's debt to Plaintiff is a support obligation under 11 U.S.C. §§ 101(14A) and 523(a)(5).

W. Under Sorah , therefore, Defendant has a burden of demonstrating "that although the obligation is of the type that may not be discharged in bankruptcy, its amount is unreasonable in light of the debtor spouse's financial circumstances." Schubiner [v. Zolman (In re Schubiner ) ], 590 B.R. [362,] 394-95 [ (Bankr. E.D. Mich. 2018) ] (quoting Goans v. Goans (In re Goans ), 271 B.R. 528, 533 (Bankr. E.D. Mich. 2001) (quoting Sorah , 163 F.3d at 401 )).

X. More specifically, this means, as the Sixth Circuit stated in Sorah , that:

the only response available to the debtor spouse is to demonstrate that the obligation is unreasonable in light of the debtor's financial circumstances. This is the third prong of the Calhoun test. See [ Long v. Calhoun (In re Calhoun ),] 715 F.2d [1103,] 1110 [ (6th Cir. 1983) ]. We further note that the bankruptcy court does not sit as a super-divorce court to determine the most reasonable level of support. Rather, it may consider evidence that the obligation is unreasonable and discharge it to the extent that it exceeds what the debtor can reasonably be expected to pay. Section 523 obviously places no limitation upon a state court's ability to award alimony, maintenance, or support (see Fitzgerald [v. Fitzgerald (In re Fitzgerald ) ], 9 F.3d [517,] 521 [ (6th Cir. 1993) ], and the bankruptcy court should not second-guess the state court support award absent evidence that the burden on the debtor spouse is excessive.

Sorah , 163 F.3d at 402.

Y. On the present record, and at this summary judgment stage, the Court cannot yet determine whether or to what extent Defendant can meet his burden described in paragraphs W and X above. A trial on this issue will be required.⁷

In deciding this case, the Court is mindful that " ‘unlike the other nondischargeability provisions under [ 11 U.S.C.] § 523(a) which are construed narrowly, the nondischargeability provision of § 523(a)(5) is given a broad construction so as to promote the Congressional policy that favors enforcement of obligations for spousal and child support.’ " Andrus v. Ajemian (In re Andrus ), 338 B.R. 746, 752 (Bankr. E.D. Mich. 2006) (quoting Luman v. Luman (In re Luman ), 238 B.R. 697, 704 (Bankr. N.D. Ohio 1999) ); see also Norbut v. Norbut (In re Norbut ), 387 B.R. 199, 210 (Bankr. S.D. Ohio 2008) (same).

Having conducted the trial, the Court now finds and concludes that Defendant failed to meet his burden of proving, by a preponderance of the evidence, that the judgment debt of $300,000 plus interest that Defendant owes Plaintiff (the "Debt") is to any extent "unreasonable in light of the [Defendant D]ebtor's financial circumstances," within the meaning of the Sorah case. Similarly, Defendant failed to meet his burden of proving that the Debt, to any extent, "exceeds what the [Defendant D]ebtor can reasonably be expected to pay," with the meaning of the Sorah case.⁸

Defendant failed to prove that he has no present or foreseeable future ability to pay any of the Debt. More than this, Defendant also failed to prove that he lacks the present or foreseeable future ability to pay all of the Debt.

These findings are supported by the totality of the circumstances, including the combination of the following things.

• Although the Debt is evidenced by the $300,000 consent judgment entered in the parties' divorce case by the State Court on March 25, 2019 (PX-3), all of that Debt is debt that originally arose from and under the Judgment of Divorce that was entered on May 14, 2010 (PX-2). The Debt currently owed, therefore, is essentially debt remaining from a judgment entered against Defendant over 10 years ago.

• Under these circumstances, it is appropriate to consider not only Defendant's present and likely future financial circumstances, but also Defendant's financial circumstances at the time the 2010 Judgment of Divorce was entered, and during the intervening 10 years since then. See, e.g. , Luman v. Luman (In re Luman ), 238 B.R. 697, 710 (Bankr. N.D. Ohio 1999) (emphasis added) (citations omitted):

The third step of the Calhoun test requires the Court to examine whether the amount of the now determined support provision is so excessive so as to be manifestly unreasonable under the traditional concepts of support. Calhoun , 715 F.2d at 1110.... This analysis is normally made by inquiring into whether the debt assumption substantially exceeded the debtor spouse's present and foreseeable ability to pay the support, as viewed from the time the debt was assumed .... In other words, this Court is to ask whether it is feasible that a state court could have ordered the Debtor to pay support payments in the amount of the debt assumption that was actually awarded.

• Defendant failed to present evidence sufficient to meet his burden of proving that, at the time of the 2010 Judgment of Divorce, and during the years 2010 through the present, he has never had the financial ability to pay Plaintiff any part of the Debt, other than the amounts paid in August 2010 through the State Court-appointed Receiver's liquidation of some of Defendant's assets. It is undisputed that Defendant has never paid any of the debt he owed Plaintiff under the Judgment of Divorce, except through the sums paid by the Receiver in August 2010.

• Defendant testified that he is 57 years old, and he appears to be in good health and physically able to work full time. No evidence to the contrary was presented. Nor did Defendant present any evidence suggesting that he will not be able to work full time for many years to come.

• Defendant testified that he currently works as a Property Agent for a business owned by his father, Joel Valdivia, named Rental Acosta Property Management and Construction Service ("Rental Acosta"). Defendant testified that by agreement with his father, he is paid a salary of $37,000 per year, and the Schedule I filed in Defendant's current Chapter 13 bankruptcy case shows this amount of gross annual pay. (PX-13, Schedule I, line 2).

• Defendant testified that he does not work full time in his job for his father's business, and that he does not have any other employment. He testified that he does not know how many hours per week he has worked, that there are no documents that show how many hours per week he works, that the number of hours varies, and that he does not work every day.

• Despite being underemployed in this way — i.e. , not working full time — Defendant testified that he is not looking for any other or better employment.

• Defendant testified that he used to have a Michigan builder's license, which expired, and that he is in the process of trying to get that license back.

• In his career, Defend...