In re Busch

• Decision Date: 04 June 2007
• Docket Number: Bankruptcy No. 02T-27006.,Adversary No. 04P-2943WTT.,BAP No. UT-06-072.,Bankruptcy No. 05T-20724.
• Citation: 369 B.R. 614
• Parties: In re Jay BUSCH, Debtor. Jay Busch, Defendant-Appellant, v. Cindy A. Hancock, formerly known as Cindy A. Busch, Plaintiff-Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

369 B.R. 614

In re Jay BUSCH, Debtor Jay Busch, Defendant-Appellant, v. Cindy A. Hancock, formerly known as Cindy A. Busch, Plaintiff-Appellee.

BAP No. UT-06-072.

Bankruptcy No. 02T-27006.

Bankruptcy No. 05T-20724.

Adversary No. 04P-2943WTT.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

June 4, 2007.

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Scott B. Mitchell, Salt Lake City, UT, for Defendant-Appellant.

Steven C. Tycksen (Chad C. Shattuck with him on the brief) of Zoll & Tycksen, Murray, UT, for Plaintiff-Appellee.

Before CORNISH, NUGENT, and BERGER¹, Bankruptcy Judges.

OPINION

CORNISH, Bankruptcy Judge.

In this Chapter 7 bankruptcy case, defendant-debtor Jay Busch ("Debtor") appeals an order of the United States Bankruptcy Court for the District of Utah denying in part his motion for relief from judgment under Federal Rules of Bankruptcy Procedure 7052 and 9024. The main underlying issue in this adversary proceeding brought by Cindy Busch Hancock, Debtor's former wife ("Ex-Wife"), is the bankruptcy court's ruling that an obligation imposed by the parties' divorce decree on Debtor to pay a second mortgage on the couple's marital residence was in the nature of support until the parties' child reached age 18, and therefore, nondischargeable. A secondary issue is the bankruptcy court's award of attorney's fees to Ex-Wife's attorney incurred in connection with both state and federal litigation. For the following reasons, 1) we affirm the bankruptcy court's finding that the second mortgage payments are nondischargeable support; 2) we affirm the bankruptcy court's award of attorney's fees incurred in connection with Ex-Wife's litigation in bankruptcy court; but 3) we reverse the bankruptcy court's award of attorney's fees incurred in state court litigation because they were not reduced to judgment in state court.

I. FACTUAL BACKGROUND

The history of this case is protracted and ugly. To say that this seemingly endless litigation has been contentious would be an understatement. It began in 1998. when the parties were still married and received a discharge of debts in a joint Chapter 7 case. Sometime thereafter, the parties separated and then reconciled. During the separation, Debtor incurred debts that the parties, after reconciling, paid by taking out a second mortgage on the marital residence. The parties then divorced in January, 2000. Among other things, the parties' divorce decree orders Debtor to: 1) pay child support in an amount pursuant to the Utah Uniform Child Support Guidelines; 2) maintain health insurance on the minor child; 3) pay alimony; and 4) "assume and pay and hold [Ex-Wife] harmless from ... the second mortgage on the parties' home." Decree of Divorce at ¶¶ 4, 6, 10 & 11, in Appellant's App. Vol. I at 20-22 (emphasis added). The second mortgage was a thirty year obligation. Debtor failed to make the second mortgage payments as directed by the divorce decree. As will become apparent, the non-payment of the second mortgage by Debtor has almost exhausted the resources of both the federal and state courts of Utah.

In July, 2000, Debtor filed his first Chapter 13 case. Ex-Wife filed a proof of claim for unsecured priority claims resulting from debts arising under the divorce decree. Judge Clark orally ruled that the second mortgage obligation was in the nature of support and therefore nondischargeable under 11 U.S.C. § 523(a)(5).² Judge Clark also ruled that attorney's fees incurred by Ex-Wife in trying to enforce the divorce decree in state court were nondischargeable.³ Unfortunately, Judge Clark's rulings were never reduced to a written order. Debtor then filed a motion in Utah state court to clarify the divorce decree regarding the character of the obligation to pay the second mortgage. The Utah state court determined that Judge Clark's ruling was res judicata as to this issue. Debtor voluntarily dismissed the first Chapter 13 case on July 2, 2001, and immediately filed his second Chapter 13 case on July 3, 2001. Debtor then appealed the Utah state court determination that Judge Clark's ruling was res judicata to the Utah Court of Appeals.

In the second Chapter 13 case, Judge Boulden ruled that Judge Clark's ruling in the first Chapter 13 case, that the second mortgage was in the nature of support, was res judicata as to the issue in the second Chapter 13 case. Judge Boulden also determined that some of Ex-Wife's attorney's fees in enforcing the divorce decree were nondischargeable.⁴ Debtor voluntarily dismissed his second Chapter 13 case on April 16, 2002.

Debtor then filed his third Chapter 13 bankruptcy case on April 13, 2002. Ex-Wife again filed a proof of claim for unsecured priority claims from debts arising under the divorce decree. The bankruptcy court entered an order lifting the automatic stay so that Ex-Wife could seek other remedies against Debtor in state court for failure to pay the second mortgage obligation.⁵ Debtor appealed the bankruptcy court's order lifting the stay to the Tenth Circuit Bankruptcy Appellate Panel ("BAP").

On February 13, 2003, the bankruptcy court confirmed a Chapter 13 plan which provided for payment in full of Ex-Wife's priority claims, including the second mortgage obligation. In May, 2003, the Utah Court of Appeals reversed and remanded the state trial court's decision that Judge Clark's oral bankruptcy court ruling was res judicata in the state litigation to clarify the divorce decree. The appellate court determined that the oral ruling was insufficient for purposes of establishing res judicata. The BAP then affirmed the bankruptcy court's order lifting stay in June, 2003.

Upon remand by the Utah Court of Appeals, of the litigation to clarify the divorce decree, the state trial court entered an order in June, 2004, concluding the payment of the second mortgage was an allocation of marital debt based on the principles of equitable distribution. On July 28, 2004, Debtor voluntarily converted his Chapter 13 case to a Chapter 7 case. Ex-Wife filed an adversary complaint objecting to discharge of debts pursuant to § 523(a)(5). The bankruptcy court subsequently denied Debtor's discharge as to debts because of the Debtor's previous discharge in the parties' joint 1998 Chapter 7 case.

On January 18, 2005, Debtor filed this Chapter 7 case, and Ex-Wife's adversary proceeding filed under the previous Chapter 7 case was deemed to be open and applicable to this case. On December 20, 2005, the bankruptcy court conducted a trial to determine whether the second mortgage obligation, and attorney's fees associated with litigation enforcing the same, were in the nature of nondischargeable support under § 523(a)(5). Debtor argued the obligation was in the nature of alimony, and such obligation terminated upon Ex-Wife's remarriage.⁶

The bankruptcy court determined the mortgage obligation was in the nature of support, and therefore nondischargeable, to the extent it allowed the parties' minor child to remain in the former marital home until age 18 (which occurred in August, 2004). Memorandum Decision Granting in Part and Denying in Part Debtor's Motion for Relief from the Judgment Under Rules 7052 and 9024 ("Memorandum Decision') at 9-10, in Appellant's App. Vol. I at 143-44. The bankruptcy court also determined that $7,000 in direct payments made by Debtor to Ex-Wife on the second mortgage obligation were to be applied to that portion of the obligation that was dischargeable.⁷ Memorandum Decision at 6, in Appellant's App. Vol. I at 140. Additionally, the court awarded Ex-Wife attorney's fees and costs in connection with litigating the characterization of the second mortgage as support in state court; enforcing the second mortgage as nondischargeable in bankruptcy court; and the previous BAP appeal.

Debtor then requested relief from the bankruptcy court's judgment under Federal Rules of Bankruptcy Procedure 7052 and 9024. Debtor made four arguments for relief under Rule 7052: 1) Ex-Wife did not present evidence to support the court's determination that the second mortgage obligation was in the nature of nondischargeable child support; 2) the previous BAP appeal was unrelated to the nature of the second mortgage obligation, therefore, Ex-Wife was not entitled to attorney's fees expended in connection therewith; 3) Debtor was clearly the prevailing party in state court litigation so the court should not have awarded any attorney's fees to Ex-Wife; and 4) the court did not properly credit certain payments Debtor previously made on the second mortgage obligation.

The bankruptcy court granted relief in part under Rule 7052 by determining the BAP appeal was unrelated to the nature of the second mortgage obligation and amended its decision to decrease the attorney's fees award to Ex-Wife by the amount of the BAP appeal fees. The bankruptcy court also revisited the amount Debtor had already paid on the second mortgage for proper credit. Memorandum, Decision at 12, in Appellant's App. Vol. I at 146. Thus, only arguments one and three above remain viable on appeal.

Debtor also requested relief from the judgment under Rule 9024 based on the grounds of "surprise." Debtor sought to reopen the record to introduce a letter from his counsel to Ex-Wife that appears to instruct her on how the $7,000 in payments on the second mortgage obligation directly to her were to be allocated. The bankruptcy court denied Debtor any relief under Rule 9024. Memorandum Decision at 15-17, in Appellant's App. Vol. I at 149-51. Debtor now appeals.

II. APPELLATE JURISDICTION

This Court has jurisdiction to hear timely-filed appeals from "final judgments, orders, and decrees" of bankruptcy `courts within the Tenth Circuit, unless one of the parties elects to have the district court hear the appeal. 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr.P. 8002. Neither party elected to have this appeal heard by the United States District Court for the ...