In re Aurre

• Decision Date: 05 May 1986
• Docket Number: Bankruptcy No. 81 B 10736,Adv. No. 85-6516A.
• Citation: 60 BR 621
• Parties: In re Gregory AURRE, Jr., Debtor. Gregory AURRE, Jr., Plaintiff, v. Kathryn Ruth KALAIGAN, formerly known as Kathryn Aurre, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

60 B.R. 621 (1986)

In re Gregory AURRE, Jr., Debtor Gregory AURRE, Jr., Plaintiff, v. Kathryn Ruth KALAIGAN, formerly known as Kathryn Aurre, Defendant.

Bankruptcy No. 81 B 10736, Adv. No. 85-6516A.

United States Bankruptcy Court, S.D. New York.

May 5, 1986.

Harvis & Zeichner by Abraham Backenroth, New York City, for plaintiff.

Sylvor, Schneer, Gold & Morelli by Richard C. Gold, New York City, for defendant.

DECISION AND ORDER

HOWARD C. BUSCHMAN, III, Bankruptcy Judge.

The defendant seeks an order granting summary judgment pursuant to Rule 7056 of the Rules of Bankruptcy Procedure (1983), which incorporates Rule 56 of the Federal Rules of Civil Procedure ("F.R.C.P.") (1983). She further requests that sanctions be imposed against the plaintiff and his attorneys pursuant to Rule 9011 of the Bankruptcy Rules. Alternatively she demands that security for costs be posted pursuant to Local Rule 39 of the Civil Rules of the United States District Court for the Southern District of New York. Upon a motion for summary judgment, the issue is whether there is a genuine issue of material fact requiring trial. E.g., Heyman v. Commerce & Industry Insurance Co., 524 F.2d 1317 (2d Cir.1975). In re Euro-Swiss Int'l Corp., 33 B.R. 872 (Bankr.S.D.N.Y.1983). Here there is no such issue. The plaintiff's cause of action is barred by res judicata. As also discussed below, the motion for sanctions is to be denied. Accordingly, the request for security for costs is moot.

I.

The following facts are undisputed.¹ Plaintiff and defendant were formerly married. They entered into a separation agreement (the "Separation Agreement") on November 11, 1974 and were subsequently divorced. The Separation Agreement obligated the plaintiff to make certain payments to defendant.

Plaintiff filed a petition seeking an order for relief pursuant to § 301 of the Bankruptcy Code, 11 U.S.C. § 301 (1984) (the "Code") on April 7, 1981. He obtained a discharge pursuant to § 524 of the Code on September 22, 1981. When he filed his petition, plaintiff was in arrears in making payments under the Separation Agreement. During the bankruptcy proceeding, plaintiff's former counsel and counsel to defendant entered into a letter agreement dated June 18, 1981. It provided that plaintiff would withdraw his assertion that the debt to defendant attributable to alimony and support is dischargeable.

After plaintiff received his discharge, the parties resorted to the type of litigation unfortunately so typical of heated matrimonial proceedings. The defendant brought on a motion in the divorce proceeding before the Supreme Court of the State of New York, County of New York seeking payment of sums owed pursuant to the Separation Agreement. Plaintiff defaulted and judgment was entered. His motion to vacate the default was granted on May 5, 1982 and two questions were referred to a referee: (i) the amount of arrears due and (ii) whether the change in plaintiffs financial condition warranted downward modification of the sum he owed defendant pursuant to the Separation Agreement. After plaintiff's direct testimony was taken before the referee, he again defaulted. His motion to vacate that default was denied by order of March 10, 1983 and judgment was entered on April 26, 1983 in the sum of $55,622.52. Plaintiff's motion for reargument was denied by order entered July 14, 1983. By order, defendant's attorneys were granted judgment in the sum of $5,000. The judgment and order were affirmed by the Appellate Division, First Department on January 3, 1985 (Defendant's Exhibit H).

In the interim, plaintiff had moved to Commonwealth of Kentucky. Defendant and her attorney thereupon brought an enforcement proceeding. The Muhlenberg Circuit Court granted summary judgment in their favor, holding that the New York judgments were entitled to full faith and credit. It was further held that plaintiff's counterclaims, based on two promissory notes apparently signed by defendant in January 1975 and made payable to plaintiff, were plead in and part of the New York proceedings and could not be asserted. On October 18, 1985, the Kentucky Court of Appeals affirmed (Id., Exhibit J).

While that appeal was pending, plaintiff obtained an order of this Court reopening the bankruptcy petition. Shortly thereafter a minor child residing with plaintiff brought a motion to intervene in the New York divorce proceeding. The motion was denied in an order of the state court filed October 7, 1975 (Id., Exhibits K and L).

In his complaint in the instant proceeding before this Court, plaintiff alleges that the judgment in favor of defendant obtained in the New York Supreme Court concerns a pre-petition debt which is dischargeable on the ground that the Separation Agreement "was in the character of a property settlement rather than one of support" (¶ 11(a)). It is further asserted that payment of debt was not reasonably necessary for the support and maintenance prior to filing the bankruptcy petition or at discharge, that subsequent changes have occurred in the relative financial circumstances of the parties, that defendant's new husband has assumed responsibility for support of the children of the former marriage and that "defendant's financial condition was much greater than plaintiff's prior to the filing of the petition." (¶ 11(c)(iii)). While it is also alleged that plaintiff is entitled to a set-off on the basis of $34,000 owed pursuant to the two promissory notes, the sole relief demanded is that judgment be entered declaring the pre-petition debt discharged.

In opposition to the motion for summary judgment, plaintiff submitted an affidavit stating that the Separation Agreement contained "a silent provision" whereby defendant transferred considerable property to him. He also asserts that the June 18, 1981 letter agreement of counsel was agreed to by his attorney "unbeknownst to me" and constituted a reaffirmation agreement. It is undisputed on this motion that, if the letter constituted a reaffirmation agreement, it was not presented to the Court and the admonitions required by § 524(d)(1) of the Code were not given by the former bankruptcy judge to whom this case was assigned.

Plaintiff thereupon asserts that he and defendant thereafter proceeded "on the assumption" that the Separation Agreement was enforceable and for that reason he failed to raise, before the New York Supreme Court, the issue of whether the debt owed defendant was actually the nature of alimony, maintenance or support.

II.

Section 523(a)(5) of the Code generally provides an exception to discharge of unassigned debts owed to a spouse, former spouse or child of the debtor that are "actually in the nature of alimony, maintenance or support" and that arise "in connection with a separation agreement. . . ." Unlike debts arising out of fraud, obtaining property through false pretenses and willful and malicious injury, as set forth in §§ 523(a)(2), (a)(4) and (a)(6), no action by the bankruptcy court is necessary to trigger the exception. See § 523(c).² The bankruptcy courts and state courts thus have concurrent jurisdiction to determine whether a debt is excepted from discharge under § 523(a)(5). Aldrich v. Imbrano (In re Aldrich), 9 C.B.C. 2d 1073, 1078, 34 B.R. 776 (B.A.P. 9th Cir.1983). Cf. L. King, R. Babbitt, A. Herzog, R. Levin, 3 Collier on Bankruptcy, ¶ 523.06 (15th Ed.1985). Although the test of whether an obligation to a former spouse is one of federal law, e.g., Boyle v. Donovan, 724 F.2d 681 (8th Cir. 1984); Pauley v. Spong (In re Spong), 661 F.2d 6 (2d Cir.1981), "state courts of general jurisdiction have the power to decide cases involving federal . . . rights where . . . neither the Constitution nor statute withdraws such jurisdiction." Boston Stock Exchange v. State Tax Commission, 429 U.S. 318, 319, n. 3, 97 S.Ct. 599, 602, n. 3, 50 L.Ed.2d 514 (1977); accord e.g., Texaco Inc. v. Pennzoil Co., 784 F.2d 1133, 1144 (2d Cir.1986).

In the application of that test, the labels affixed to an obligation by state law or by a divorce decree or separation agreement are not at all binding. Stout v. Prussell, 691 F.2d 859 (9th Cir.1982); Melichar v. Ost, 661 F.2d 300 (4th Cir.1981); In re Bell, 47 B.R. 284 (Bankr.E.D.N.Y.1985); In re Migliarese, 38 B.R. 978 (Bankr.E.D.N.Y. 1984). In rendering the divorce decree, the state court does not have before it the federal issue. Nor does it in enforcing a separation agreement or divorce decree prior to bankruptcy. Thus, res judicata and collateral estoppel issues only arise from post bankruptcy actions to enforce a prepetition debt. If they actually concern alimony, maintenance or support, the debtor's discharge, as § 523(a)(5) provides is no bar; nor is the automatic stay a bar to actions during the pendency of the bankruptcy case to the extent recovery is sought against property that is not property of the estate. § 362(b)(2).

Thus, it has been held that a judgment entered in post-bankruptcy state court proceeding precludes, under the doctrine of res judicata, relitigation in the bankruptcy court of whether a debt owed to a spouse or former spouse was actually in the nature of alimony, maintenance or support as required by § 523(a)(5). In re Mattern, 33 B.R. 566 (Bankr.S.D.Ala.1983); In re Peterman, 5 B.R. 687 (Bankr.E.D.Pa.1980); Cf. Goss v. Goss, 722 F.2d 599, 604 (10th Cir. 1983) (applying collateral estoppel). In applying res judicata to post-bankruptcy judgments, those decisions are consistent with the leading case of Fidelity & Casualty & Co. v. Golombosky, 133 Conn. 317, 322-34, 50 A.2d 817, 819-20 (1946). There the court refused to apply res judicata to pre-bankruptcy judgments in determining the dischargeability of the debts thereby reflected.

Whether those holdings are determinative is, however, arguable. Res judicata, or claim preclusion, "prevents litigation of a matter that could have been raised and decided in a previous suit, whether or not it was raised."...