In re Ament

• Decision Date: 21 January 2020
• Docket Number: Case No.: 19-12187-j11
• Parties: In re: MICHELE GERALDINE AMENT Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico

In re: MICHELE GERALDINE AMENT Debtor.

Case No.: 19-12187-j11

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

January 21, 2020

AMENDED MEMORANDUM OPINION AND ORDER RESULTING FROM FINAL HEARING ON DEBTOR'S AMENDED DISCLOSURE STATEMENT¹

THIS MATTER comes before the Court on Debtor's Amended Disclosure Statement (Docket No. 41) filed on November 19, 2019. Creditors City Bank and New Mexico Tax and Revenue Department (NMTRD) objected to the Amended Disclosure Statement. See Docket Nos. 49, 50. A final hearing on the Amended Disclosure Statement was held on January 9, 2020. The parties and counsel who appeared at the hearing were noted in the record. The Amended Disclosure Statement related to Debtor's Plan of Reorganization filed November 19, 2019 (the "Plan").

City Bank objects to approval of the Amended Disclosure on two grounds: first that the Plan is unconfirmable on its face because it requires this Court to divide community property between Debtor and E. Ament, which, City Bank argues, is not within this Court's jurisdiction; and second, because the Amended Disclosure Statement does not contain adequate information in various respects. The Court will address each ground for the objections in turn.

A. Should approval of the disclosure statement be denied because the Plan, which divides community property, is unconfirmable on its face?

Approval of a disclosure statement may be denied if the plan to which it relates is facially unconfirmable. In re Firstenergy Solutions Corp., 606 B.R. 720, 732 (Bankr. N.D. Ohio 2019); In re Deming Hospitality, LLC, No. 11-12-13377 TA, 2013 WL 1397458, at *1 (Bankr. D.N.M. Apr. 5, 2013) (J. Thuma) (citing cases). "Patent unconfirmability is treated as a matter of law." Firstenergy, 606 B.R. at 732.

In asserting that bankruptcy courts do not have jurisdiction to divide community property, City Bank relies on the "domestic relations exception" to federal court jurisdiction. That jurisdictional exception dates to 1858, when the United States Supreme Court "disclaim[ed] altogether any jurisdiction in the courts of the United States upon the subject of divorce, or for the allowance of alimony . . . ." Barber v. Barber, 62 U.S. 582, 584 (1858). The Court disagrees that the domestic relations exception applies here.

More recently, in Ankenbrandt v. Richards, the United States Supreme Court reviewed Barber and held that "the domestic relations exception [to federal court jurisdiction] . . . divests the federal courts of power to issue divorce, alimony, and child custody decrees." 504 U.S. 689, 703 (1992). However, in doing so, the Supreme Court acknowledged that "[t]he Barber Court . . . cited no authority and did not discuss the foundation for its announcement." Id. at 694. The Ankenbrandt Court then examined why it would continue to recognize the domestic relations exception. First, it acknowledged that the domestic relations exception was not founded on the Constitution. Id. at 695.² Next, the Ankenbrandt Court determined that Barber was based on interpretation of the federal diversity jurisdiction statute in effect at the time:

Because the Barber Court did not disagree with [the dissent's] reason for accepting the jurisdictional limitation over the issuance of divorce and alimony decrees, it may be inferred fairly that the jurisdictional limitation recognized by the [Barber] Court rested on [the diversity statute] and that the disagreement between the [Barber] Court and the dissenters thus centered only on the extent of the limitation.

Ankenbrandt, 504 U.S. at 699.

See also Wigington v. McCarthy, 124 F.3d 219 (10th Cir. 1997) (unpublished) (as made clear in Ankenbrandt, the domestic relations exception exists as matter of statutory construction of the diversity jurisdiction statute).

At the time of the Barber decision, the diversity statute granted district courts jurisdiction over "all suits of a civil nature at common law or in equity." That phrase "remained a key element of statutory provisions demarcating the terms of diversity jurisdiction until 1948, when Congress amended the diversity jurisdiction provision to eliminate th[at] phrase and replace it with the term 'all civil actions.'" Ankenbrandt, 504 U.S. at 698; see 28 U.S.C. § 1332(a).³ The Supreme Court concluded that the change in the language of the diversity statute did not alter the domestic relations exception because Congress is presumed to make statutory amendments with "full cognizance of the Court's nearly century-long interpretation of the prior statutes, which hadconstrued the statutory diversity jurisdiction to contain an exception for certain domestic relations matters." Id. at 700.

Even though the Supreme Court's decisions in Ankenbrandt and Barber confirm the domestic relations exception to federal jurisdiction, those decisions do not establish a domestic relations exception to the jurisdiction of the bankruptcy court. Unlike the jurisdictional statutes at issue in Ankenbrandt and Barber, this Court's jurisdiction rests on federal bankruptcy jurisdiction granted under 28 U.S.C. § 1334, not federal diversity jurisdiction granted under 28 U.S.C. § 1332.⁴ The Ankenbrandt Court framed the issue before it as "whether the federal courts have jurisdiction . . . when the sole basis for federal jurisdiction is the diversity-of-citizenship provision of 28 U.S.C. § 1332," id. at 691 (emphasis added). See also Marshall v. Marshall, 547 U.S. 293, 307 (2006) (observing that the Ankenbrandt Court rested its conclusion that a domestic relations exception exists as a matter of statutory construction of the diversity jurisdiction provisions.).

The Supreme Court's reasoning in Ankenbrandt does not apply where the statutory basis for jurisdiction is not diversity jurisdiction. The Second, Third, Fourth, Fifth, and Ninth Circuit Courts of Appeal have all held that the domestic relations exception applies only to diversity jurisdiction, and, therefore, does not limit federal question jurisdiction under 28 U.S.C. § 1331.⁵Similarly, several bankruptcy courts have held that the domestic relations exception does not limit the bankruptcy court's jurisdiction under § 1334.⁶ On the other hand, the Seventh Circuit has held that the domestic relations exception "appl[ies] to both federal-question and diversity suits." Kowalski v. Boliker, 893 F.3d 987, 995 (7th Cir. 2018). The Tenth Circuit has not ruled on the issue. See Johnson v. Rodrigues (Orozco), 226 F.3d 1103, 1112 (10th Cir. 2000), as amended on denial of reh'g and reh'g en banc (Oct. 12, 2000) (reserving judgment on whether the domestic relations exception applies to proceedings involving an exercise of federal question jurisdiction.). This Court finds the reasoning of the Second, Third, Fourth, Fifth, and Ninth Circuit Courts of Appeal persuasive. The domestic relations exception, which applies only to diversity jurisdiction, does not limit bankruptcy jurisdiction under 28 U.S.C. § 1332.

Because the domestic relations exception to diversity jurisdiction does not apply to bankruptcy court jurisdiction under 28 U.S.C. § 1334, the jurisdiction granted to bankruptcy courts under 28 U.S.C. § 1334⁷ includes jurisdiction to divide community property that is property of the bankruptcy estate between debtor spouses or between a debtor spouse and a non-filing spouse, even where the spouses are parties to a pending divorce proceeding. Examination of 28 U.S.C. § 1334(e) and 11 U.S.C. § 541(a)(2) further supports this conclusion regardless of whether the domestic relations exception applies to federal question jurisdiction under 28 U.S.C. § 1331.

Under 28 U.S.C. § 1334(e)(1), the Court has "exclusive jurisdiction . . . of all the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate[.]" 28 U.S.C. § 1334(e)(1). This jurisdiction includes "all . . . property, . . . [including a]ll interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is . . . under the sole, equal, or joint management and control of the debtor[.]" 11 U.S.C. § 541(a)(2). By vesting exclusive jurisdiction over property of the estate in the bankruptcy courts, Congress "grant[ed] the bankruptcy court special jurisdiction" in order to "preclude the type of jurisdictional disputes evidenced in . . . cases" where jurisdiction was based on whichever court first asserted in rem jurisdiction. In re White, 851 F.2d 170, 172-73 (6th Cir. 1988). If a spouse commences a bankruptcy case during the pendency of a divorce or dissolution proceeding, "[t]he bankruptcy petition terminates the jurisdiction of the divorce or dissolution court over, at least, the non-exempt assets of the spouses until all creditors are paid in full." In re Teel, 34 B.R. 762, 764 (9th Cir. BAP 1983) (quoting 4 Collier on Bankruptcy ¶ 541.15 (15th ed.1983)). The bankruptcy court's jurisdiction over community property that is property of the bankruptcy estate is also reflected in the operation of the automatic stay, which applies to proceedings in state court that "seek[] to determine the division of property that is property of the estate." 11 U.S.C. § 362(b)(2)(A)(iv).⁸

Here, Debtor filed her chapter 11 bankruptcy case before E. Ament filed his bankruptcy case. Upon the Debtor's filing, all of the community property, including E. Ament's interest in the community property, became property of the Debtor's bankruptcy estate. See 11 U.S.C. §541(a)(1)(2) ("The commencement of a case . . . creates an estate. Such estate is comprised of . . . [a]ll interests of the debtor and the debtor's spouse in community property as of the commencement of the case . . ."). Debtor's proposed Plan divides certain community property between the Debtor and her spouse, E. Ament. Because this Court has jurisdiction to divide the Debtor's and E. Ament's interest in community property, the Court has jurisdiction to resolve the property division issues presented by Debtor's Plan....