In re Chamberlain

• Decision Date: 04 August 2016
• Docket Number: Bankruptcy Case No. 15–22234 TBM
• Citation: 555 B.R. 14
• Parties: In re: Stephen Drew Chamberlain, Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

555 B.R. 14

In re: Stephen Drew Chamberlain, Debtor.

Bankruptcy Case No. 15–22234 TBM

United States Bankruptcy Court, D. Colorado.

Signed August 4, 2016

Mark E. Henze, Aurora, CO, for Debtor.

OPINION AND ORDER REGARDING OBJECTION TO AMENDED PROOF OF CLAIM AND OBJECTION TO THIRD AMENDED CHAPTER 13 PLAN

Thomas B. McNamara

, United States Bankruptcy Judge

Proving the popular musical adage that “breaking up is hard to do,”¹ the Debtor, Stephen Drew Chamberlain (the “Debtor”), and his ex-wife, Judith Chamberlain (the “Creditor”), are engaged in protracted and highly-contentious litigation stemming from their 2008 divorce proceedings.² Truly a multi-jurisdictional affair, the parties litigated their disputes in the Circuit Court for Anne Arundel County (Maryland),³ the Court of Appeals of Maryland,⁴ the United States District Court for the District of Maryland,⁵ the United States Court of Appeals for the Fourth Circuit,⁶ and the United States Supreme Court.⁷ Now, the Debtor and the Creditor are continuing their bitter fight in this Court based upon the Debtor's recent petition for relief under Chapter 13 of the Bankruptcy Code.

Judith Chamberlain is the Debtor's largest unsecured creditor. The Court already conducted a trial and ruled on the contested proof of claim (Proof of Claim No. 1–2, the “Second Proof of Claim”) filed by the Creditor. The Court ordered that the Second Proof of Claim be allowed in the reduced amount of $108,085 as a “domestic support obligation” (“DSO”) under Section 101(14A)⁸ and entitled to priority under Section 507(a)(1)(A). Determining the amount and priority of the Second Proof of Claim was a necessary predicate to the Debtor's being able to propose a viable Chapter 13 plan. The Debtor appealed the Court's claim decision, but also filed an amended Chapter 13 plan based upon the Court's determination of the amount and priority of the Creditor's Second Proof of Claim.

Now, the parties have presented the Court with a new round of disputes. First, the Creditor attempted to increase her claim against the Debtor by filing an amended proof of claim (Proof of Claim No. 1–3, the “Third Proof of Claim”). Not surprisingly, the Debtor objected. Second, the Debtor sought confirmation of his most recent amended Chapter 13 plan. Naturally, the Creditor objected. The Court now issues its decision on these matters.

I. Procedural Background.

A. The Bankruptcy Filing, Creditor's Proofs of Claim, and First Claim Objection.

The Debtor filed for relief under Chapter 13 of the Bankruptcy Code on November 2, 2015. (Docket No. 1.) He filed his first Chapter 13 plan the same day. (Docket No. 2.) The Creditor filed her first proof of claim (Proof of Claim No. 1–1, the “First Proof of Claim”) on November 23, 2015, asserting that the Debtor was obligated to her, her children, and her divorce counsel, Marietta Warren, in the total amount of $91,734. She asserted that the First Proof of Claim was entitled to priority as a DSO pursuant to Sections 101(14A)

and 507(a)(1)(A). The Creditor amended the First Proof of Claim by filing the Second Proof of Claim on January 6, 2016. The Second Proof of Claim increased the amount claimed as a DSO to $116,728. (Proof of Claim No. 1–3.) The Creditor did not request an award of attorney's fees and costs for work in the bankruptcy case in either the First Proof of Claim or the Second Proof of Claim.

On January 8, 2016, the Debtor filed a “Second Amended Chapter 13 Plan” (Docket No. 32)⁹ and an “Objection to Amended Proof of Claim of Judith Chamberlain” (Docket No. 34, the “First Claim Objection”). In his First Claim Objection, the Debtor acknowledged that $6,653 of the amount claimed by the Creditor in the Second Proof of Claim was a DSO, but asserted that the remainder should be reclassified as a general unsecured claim in a reduced amount. Thereafter, the Creditor filed a “Response to Objection to Amended Proof of Claim” (Docket No. 38) wherein she defended the amount and priority of the Second Proof of Claim. The Creditor did not request an award of attorney's fees and costs.

The Court conducted an initial non-evidentiary hearing on the First Claim Objection and opposition, permitted discovery, and entertained more expansive legal briefing. (Docket Nos. 47, 51, 53, and 55.) Thereafter, on April 27, 2016, the Court conducted a full evidentiary hearing on the issues raised by the First Claim Objection and opposition. (Docket No. 58.) At trial, the Creditor did not request an award of attorney's fees and costs.

B. The Court's Final Order on the First Claim Objection.

After taking the matter under advisement, on May 6, 2016, the Court entered its final oral ruling (confirmed by a minute order) in which it sustained in part and overruled in part the Debtor's First Claim Objection to the Creditor's Second Proof of Claim. (Docket Nos. 62 and 63.) Specifically, the Court ruled that the Second Proof of Claim would be allowed in the amount of $108,085 and disallowed in the amount of $8,632.85. The Court also ruled that the allowed portion of the Creditor's claim, $108,085, was entitled to priority as a DSO under Sections 101(14A)

and 507(a)(1)(A). Neither the Debtor nor the Creditor requested an award of attorney's fees or costs within 14 days after entry of the judgment on the First Claim Objection. See Fed.R.Civ.P. 54(d) and Fed. R. Bankr.P. 9014(c) and 7054. But, on May 16, 2016, the Debtor filed a notice of appeal of the Court's final ruling, commencing an appeal in the United States District Court for the District of Colorado.

C. The Third Plan, Third Proof of Claim, Second Claim Objection, and Confirmation Objection.

All of which brings the Court to the current issues. Not long after issuing its decision on the First Claim Objection, on May 24, 2016, the Debtor filed another Chapter 13 plan titled “Second Amended Chapter 13 Plan,” which was actually a Third Amended Chapter 13 Plan, (the “Third Plan,” Docket No. 72). The Third Plan provided for payment of the Creditor's $108,085 claim as a priority claim under Section 507(a)(1)(A)

. But, the proposal was unacceptable to the Creditor. Instead, the Third Plan prompted two new contested matters between the Debtor and the Creditor.

1. The Third Proof of Claim and Second Claim Objection.

On June 21, 2016 (about six weeks after the Court's final ruling on the First Claim Objection), the Creditor filed another amended proof of claim (Proof of Claim No. 1–3), which was the Third Proof of Claim. In the Third Proof of Claim, the Creditor included the amount approved by the Court ($108,085) but then tacked on an additional unapproved $14,645 in attorney's fees and $121.66 in costs allegedly incurred in connection with the Debtor's bankruptcy filing and her post-petition efforts to establish the amount and priority of the Second Proof of Claim.

On June 28, 2016, the Debtor filed an “Objection to Second Amended Proof of Claim Submitted by Judith Chamberlain (Claim #1).” (Docket No. 89, the “Second Claim Objection.”) The Debtor argued that the attorney's fees and costs included in the Third Proof of Claim were improper. The Creditor opposed the Second Claim Objection and the Debtor replied again in support. (Docket Nos. 97 and 98.)

2. The Confirmation Objection.

Presented with the Third Plan, neither the Chapter 13 Trustee nor any creditor objected—except Judith Chamberlain. On June 22, 2016, the Creditor filed an “Objection to Confirmation of Plan” (Docket No. 87 the “Confirmation Objection”), in which she argued that the Third Plan could not be confirmed for three reasons. First, she bootstrapped on her Third Proof of Claim and argued that the Third Plan is underfunded in that it does not provide for payment of the new attorney's fees and costs asserted in the new Third Proof of Claim. Second, she objected that the payment priorities set forth in the Third Plan are not consistent with the priority scheme set forth in Sections 507(a)(1)(A) and 1322(a)(2), in that the Third Plan provided for payment of the Debtor's attorney's fees prior to the full payment of her DSO. Third, she contended that the Third Plan could not be confirmed because this case was not filed in good faith. The Debtor contested the Creditor's arguments and requested confirmation of the Third Plan. (Docket No. 92.)

3. Non–Evidentiary Hearings.

The Court conducted an initial non-evidentiary hearing on the Second Claim Objection (and opposition) and the Confirmation Objection (and opposition) on July 6, 2016. (Docket No. 94.) At the hearing, the Court raised the question of whether the Creditor could properly include amounts for attorney's fees and costs in the Third Proof of Claim even though the Creditor had failed to comply with Fed.R.Civ.P. 54(d)

and Fed. R. Bankr.P. 9014(c) and 7054. The Creditor contended that the Court's May 6, 2016 ruling was interlocutory and not a final determination of the First Claim Objection. The Court permitted (and received) further legal briefing on the issues. (Docket Nos. 97 and 98.) The Court also conducted another non-evidentiary hearing on August 3, 2016. (Docket No. 94.)

The Court has fully reviewed and considered the Third Plan, the Third Proof of Claim, the Second Claim Objection (and opposition), the Confirmation Objection (and opposition), and the full record in this case. Having considered these documents and the history of the proceedings, the Court concludes that the Second Claim Objection and two of the three arguments raised in the Confirmation Objection (the underfunding and priority objections) are ripe for decision now based upon the procedural history and law. Both the Debtor and the Creditor have received full and fair opportunities to present their respective positions in writing and orally in these issues. No evidentiary hearing is warranted or required on these matters since the issues are legal, not factual, in nature. Further, the Court concludes that additional legal argument and briefing on these issues would not materially assist the...