In re Beardslee, Bankruptcy No. 94-21490
| Decision Date | 19 June 1997 |
| Docket Number | Adversary No. 95-6089.,Bankruptcy No. 94-21490 |
| Citation | 209 BR 1004 |
| Court | U.S. Bankruptcy Court — District of Kansas |
| Parties | In re Clarence Ernest BEARDSLEE, Debtor. Clarence Ernest BEARDSLEE, Plaintiff, v. Margery A. BEARDSLEE, Defendant. |
Roger L. Sherman, Overland Park, KS, for Plaintiff.
Richard C. Wallace, Evans and Mullinix, P.A., Lenexa, KS, for Defendant.
When Clarence and Margery Beardslee divorced in 1993, the court awarded Clarence the marital residence and assigned him joint unsecured debts for payment. After Clarence filed Chapter 7 bankruptcy, exempted the residence, and received a discharge, Margery obtained a state court ruling ordering Clarence to sell the residence and pay the unsecured debts from the sale proceeds. Clarence appealed, claiming the ruling was tantamount to collecting a discharged debt as a personal liability. Having lost the appeal, Clarence now mounts a collateral attack on the ruling, but under the Rooker-Feldman doctrine, this Court lacks subject matter jurisdiction.
The adversary issues are addressed in the Final Pretrial Order, and cross motions for summary judgment have been filed on undisputed facts.2
The Hon. James W. Bouska of the District Court of Johnson County, Kansas, granted the parties a divorce on July 1, 1993, and a Decree of Divorce was filed on August 16, 1993. Judge Bouska divided property and assigned debt in the decree by referring to a proposed Division of Assets and Liabilities suggested by Clarence, the respondent in the divorce case:
5. That the parties\' property and debts are divided and assigned as reflected in the respondent\'s proposed Division of Assets and Liabilities (attached hereto as Exhibit "A"), at the values and sums there shown. . . . All debts shown as "joint liabilities" on page 2 of said proposal are assigned to the respondent.3
The proposal, consisting of two pages, is attached to this opinion as Appendix A.
Page 1 of the proposal lists the residence among those assets awarded to Clarence. Capitol Federal Savings Association held the first mortgage on the residence securing $62,200. Household Finance Corporation held the second mortgage securing $22,279. These joint mortgage liabilities were assigned to Clarence by the language of the Decree of Divorce. Although neither the proposal nor the decree place a value on the residence, Clarence's later filed bankruptcy schedules list its worth as $105,000, indicating that Clarence's equity in the property was approximately $21,000.
Page 2 of the proposal itemizes the unsecured joint liabilities the divorce court assigned to Clarence. These unsecured debts total $22,385.51 or $25,051.56, depending on which number is used for Household Finance's claim:
IRS $ 688.00
Household Finance Corporation $ 3,726.95
(now 6,393.00
CNB Mastercard $ 2,794.63
CNB Visa $ 3,372.91
MBNA $11,803.02
__________
$22,385.51
A footnote on page 2 of the proposal indicates Clarence had offered to assume all joint debts if he were awarded the marital residence:
*Husband\'s proposal to assume all joint debts is contingent upon being awarded the marital residence. If the real estate is set aside to Wife, Husband proposes to equally divide the joint liability.4
Shortly after the divorce, Margery filed a Motion to Reconsider the decree and Clarence filed a Motion to Restore Possession. In response to these motions, Judge Bouska modified the Decree of Divorce on September 23, 1993. Under this modification, Margery would remain in the residence until October 31, 1993, when she would relinquish possession to Clarence. Clarence would begin making monthly payments toward the first and second mortgages on November 1, 1993, and he would pay Margery an additional $4,500. Clarence would also be required "to refinance the subject real estate on or before January 1, 1994, or in the alternative, to arrange for the release of all obligations of the petitioner on said first and second mortgages on or before said date."5
On August 15, 1994, one day short of a year after entry of the decree, Clarence petitioned for relief under Chapter 7 of the Bankruptcy Code. In his bankruptcy schedules, Clarence listed the assigned debts to the IRS, Household Finance Corporation, CNB Mastercard, CNB Visa, and MBNA. He also listed Margery as a creditor with the notation: "Divorce Marital Joint Debts $23,337.50."6
Upon receiving the Chapter 7 petition, the Clerk of the Bankruptcy Court mailed to creditors and the debtor the customary Notice of Commencement of Case Under Chapter 7 of Bankruptcy Code, Meeting of Creditors, and Fixing of Dates. This notice set the date for the First Meeting of Creditors for September 14, 1994, at 9:30 a.m. and set the date for the Discharge Hearing for December 19, 1994, at 10:30 a.m.
On September 22, 1994, Margery filed a Motion for Relief from Automatic Stay and gave notice using the bankruptcy procedure of "notice with opportunity to object."7 In her motion, Margery asked for permission to apply to the divorce court for "reconsideration" of the terms of the decree in regard to the exempt homestead. Having no basis for objection, Clarence did not oppose the motion, and Margery's counsel submitted a proposed order, which the Court entered on October 18, 1994:
IT IS HEREBY ORDERED that Margery A. Beardslee is relieved from the automatic stay and that the same is hereby lifted so that Margery A. Beardslee may take such legally cognizable acts as are necessary to apply to the District Court of Johnson County, Kansas for reconsideration of the terms of the above referenced Divorce Decree in regards to the homestead, on sic exempt assets of the debtor, and not property of this estate.8
With the stay relief order in hand, Margery returned to state court where she filed a Motion to Reform the Decree of Divorce under KAN.STAT.ANN. § 60-260(b) on December 15, 1994.9 On December 19, 1994, at 10:30 a.m., as previously scheduled in the bankruptcy Notice of Commencement, a discharge hearing was held. At that time, there having been no objections, this Court granted Clarence his discharge. On February 27, 1995, the Clerk of the Bankruptcy Court filed the Order of Discharge in Clarence's Chapter 7 case.
Judge Bouska ultimately heard Margery's Motion to Reform Decree of Divorce on April 19, 1995, by which time Clarence had been discharged from his prepetition debts for more that one and a half months.10 Nevertheless, on that date Judge Bouska ordered Clarence to sell his homestead, to pay the mortgages against it from the sale proceeds, and to pay the joint unsecured debts out of the sale proceeds. The formal Journal Entry memorializing the judge's ruling was filed on May 23, 1995.
Clarence appealed the decision to the Court of Appeals of the State of Kansas on May 31, 1995. In his appeal, he claimed that the bankruptcy discharge extinguished any legal obligation he owed to Margery under the decree of divorce. He argued that Judge Bouska's decision requiring him to sell the residence and pay the $22,385.51 joint unsecured debt out of his unencumbered equity was contrary to the bankruptcy discharge injunction and tantamount to collection of a discharged debt as a personal liability.
While pursuing his state court appeal, Clarence also proceeded in bankruptcy court. He filed this adversary proceeding on June 5, 1995, calling it a Motion for Contempt and to Enjoin Defendant. The pleading, captioned in Clarence Ernest Beardslee vs. Margery A. Beardslee, Adv.Proc. No. 95-6089, has been treated as an adversary complaint, although it was designated a motion. It asks that Margery be enjoined from collecting debts discharged in bankruptcy, Judge Bouska's judgment notwithstanding, and that she be found in contempt for having proceeded before Judge Bouska after Clarence's discharge. Margery answered Clarence's action on August 2, 1995.
At a pretrial conference on October 4, 1995, Clarence advised this Court, through his counsel, that he had appealed Judge Bouska's ruling to the Kansas Court of Appeals. He also announced that he intended to pursue that appeal while the adversary proceeding moved toward a motion for summary judgment. At a subsequent pretrial conference on September 10, 1996, Clarence advised the Court that on August 16, 1996, the Court of Appeals had issued an opinion affirming Judge Bouska's decision and that he (Clarence) had filed a Petition for Review in the Kansas Supreme Court. The result of that petition was communicated to this Court at a pretrial conference on December 4, 1996, when Clarence reported that the Kansas Supreme Court had denied review on September 26, 1996.
As of April 1, 1997, the state court order remained unexecuted. To maintain the status quo, this Court stayed Margery from taking any action to sell the residence pending this decision.
Although often used interchangeably, the terms discharge and dischargeability have different meanings. The term discharge refers to the operation of the Bankruptcy Code provision (§ 727 in a Chapter 7 case) that effects a general discharge of the debtor's prepetition debts. The term dischargeability refers to the operation of the Code provision, § 523, that excepts particular debts from the general discharge provision of the Code. Under § 523, certain kinds of debts are delineated as being nondischargeable, meaning that those debts are not operated on by the general discharge and therefore remain collectable outside of bankruptcy. This case involves questions about the general discharge and whether it has operated to extinguish a particular debt that does not fall within any of the...
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