In re Cox

• Decision Date: 31 March 2000
• Docket Number: Bankruptcy No. 98-43413-HJB. Adversary No. 98-4212.
• Citation: 247 BR 556
• Parties: In re Nancy L. COX, Debtor. Richard Cox, Plaintiff, v. Nancy L. Cox, Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

247 B.R. 556 (2000)

In re Nancy L. COX, Debtor.

Richard Cox, Plaintiff, v. Nancy L. Cox, Defendant.

Bankruptcy No. 98-43413-HJB. Adversary No. 98-4212.

United States Bankruptcy Court, D. Massachusetts.

March 31, 2000.

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John O. Desmond, Framingham, MA, for Nancy L. Cox, defendant.

John S. Legasey, Lisa Stern Taylor, Salem, MA, for Richard E. Cox, plaintiff.

MEMORANDUM OF DECISION

HENRY J. BOROFF, Bankruptcy Judge.

Before the Court for determination is a "Motion for Summary Judgment and for Abstention as to Count III of Debtor's Counterclaim;" as well as a "Motion to Dismiss or for Relief from the Automatic Stay." Both are filed by the plaintiff Richard Cox (also the defendant in counterclaim; hereinafter, the "Plaintiff") against the debtor Nancy L. Cox (the defendant and plaintiff in counterclaim; hereinafter, the "Debtor").

In their multiple pleadings, the parties raise a number of issues arising out of the legal maneuvers surrounding their contentious divorce. The Plaintiff requests court abstention from further involvement in this case and/or that this Court impose a constructive trust. He alleges that the Debtor has made preferential and fraudulent transfers, and committed various other bankruptcy sins demonstrating her bad faith — grounds, he says, for dismissing this case. The Debtor raises multiple defenses and argues that the Plaintiff is estopped by virtue of, she says, his breach of their separation agreement.

The center of the vortex of claims and counterclaims is the effect of a Massachusetts Appeals Court decision. That decision nullified various orders of the Massachusetts Probate and Family Court ("the Probate Court"), pursuant to which certain property had been transferred from the Plaintiff to the Debtor prior to the commencement of this case. The Plaintiff seeks to realize his rights as articulated by the Appeals Court. He wants his property back. The Debtor raises the Bankruptcy Code as a shield.

I. Facts

The facts necessary to dispose of these matters are uncontested. At one time, the Plaintiff and the Debtor were husband and wife. They divorced in 1994 by decree of the Probate Court. At the time of the divorce, the Plaintiff and the Debtor entered into a separation agreement, which was incorporated into the final judgment of divorce. That separation agreement dealt, inter alia, with various issues relative to the division of their joint and individually held property. One of those issues involved a parcel of real estate located in Lynnfield, Massachusetts (the "Property") which the Plaintiff's father had transferred to the Plaintiff during the marriage. When the parties separated, the Plaintiff transferred the Property back to his father. In the divorce proceedings, the Debtor claimed that the transfer was fraudulent. The issue was settled in the separation agreement. The Property was to be transferred back to the Plaintiff and the Debtor would have no claim thereto, but the Debtor's right to increased alimony payments based on the income from the Property would be preserved.¹

Approximately one year later, the Debtor filed a motion to vacate the divorce decree (the "Motion to Vacate"). Surprisingly, she claimed, inter alia, that the Plaintiff failed to disclose his interest in the Property on his financial statement filed in the divorce proceedings. Shortly thereafter, the Plaintiff filed a motion to reduce his alimony payment to the Debtor. The Plaintiff claimed decreased income on account of an alleged loss of employment. After hearing, the Probate Court (1) vacated the portion of the divorce judgment pertaining to the division of marital assets, and ordered the Plaintiff to pay, with interest, $127,120.00 to the Debtor² and another $30,000.00 to her counsel; and (2) ordered that Qualified Domestic Relations Orders ("QDROs") in favor of the Debtor be issued with respect to certain of the Plaintiff's pensions (the "Pensions")³ (jointly the "Probate Court Orders"). Second, the Probate Court entered an order modifying the Plaintiff's alimony obligation to the Debtor. Weekly alimony was decreased from $500.00 per week to $250.00 per week (the "Modification Judgment").

The Plaintiff appealed the Probate Court Orders, but not the Modification Judgment, to the Massachusetts Appeals Court (the "Appeals Court"). The Probate Court denied his request for a stay of the Probate Court Orders pending appeal.⁴ Accordingly, the Plaintiff complied with the Probate Court Orders by making the ordered payments and executing the QDROs. However, when the Appeals Court reached the merits of the appeal, it determined that the Probate Court had erred. On March 20, 1998, the Appeals Court vacated the Probate Court Orders, declared them nullities, and ordered the parties to return to the Probate Court and seek such relief as was necessary to return the parties to status quo ante.⁵ On April 1, 1998, the Plaintiff filed a motion in the Probate Court, seeking a return of his payments to the Debtor and her counsel, nullification of the QDROs, and reimbursement of other expenses (the "Motion to Restore"). The Probate Court heard that motion on April 27, 1998, but before its decision, the Debtor filed the instant Chapter 13 case on May 7, 1998, listing the Pensions as assets in her schedules. On May 27, 1998, apparently without actual knowledge of the bankruptcy filing and the applicability of the automatic stay, the Probate Court issued an order affording the relief sought by the Plaintiff, in compliance with the instructions of the Appeals Court.

The Plaintiff began his effort in this Court by seeking dismissal of the case, or in the alternative, a declaration that the automatic stay was inapplicable to the Pensions. After a hearing on that motion, this Court directed the Plaintiff to file an adversary proceeding, the appropriate vehicle with which to seek determinations as to title (see Fed.R.Bankr.P. 7001(2)). The Plaintiff did so, and then filed the instant Motion for Summary Judgment. After further hearing, both the Motion to Dismiss and the Motion for Summary Judgment were taken under advisement.

II. Claims and Positions of the Parties

A. The Motion for Summary Judgment

The Plaintiff claims that the Debtor has no interest in the Pensions, and, therefore, the bankruptcy estate has no interest in or claim against these assets. He argues that the Appeals Court order, declaring the Probate Court order transferring the Pensions to be a nullity, eradicated the legal effect of the transfer, and stripped the Debtor of any rights in the Pensions. The Debtor, in contrast, claims that the Plaintiff is judicially estopped from claiming any interest in the Pensions because of his intentional concealment of the Property in his divorce-related financial statement; or that the Plaintiff failed to timely object to the Debtor's claim of exemptions in the Pensions. Alternatively, the Debtor argues that the Plaintiff's claim to the Pensions is dischargeable.

The Debtor has also made several counterclaims. In Count I, she alleges that the Appeals Court order nullifying the Probate Court order transferring the Pensions to her, was a transfer within the meaning of 11 U.S.C. § 101(54), and avoidable under § 547. Count II contains a claim for turnover of estate property under § 542. The Debtor alleges that the Appeals Court order vacated not only the Probate Court Orders, but also the Modification Judgment which decreased the amount of alimony the Plaintiff was to pay the Debtor weekly. She thus contends that she is entitled to a turnover of $23,833.48 in back alimony payments, representing the $250.00 per week difference between the original and amended amounts. Under Count III, the Debtor objects to the Plaintiff's proofs of claims, contending that the Plaintiff is in breach of their separation agreement by virtue of his failure to maintain life insurance for the benefit of the Debtor (or, at least, his failure to provide evidence of the same).⁶

In his answer to the Debtor's counterclaims, the Plaintiff essentially denies the Debtor's claims on the grounds of judicial estoppel, collateral estoppel, res judicata, failure to state a claim on which relief can be granted, and the Debtor's alleged lack of any property interest in the Pensions.⁷ The Plaintiff also requests that this Court abstain as to Count III of the Debtor's Counterclaim, on the basis that the issues raised therein have been addressed by the Probate Court, acting on the Plaintiff's Motion to Restore.⁸

B. The Motion to Dismiss

In his Motion to Dismiss, the Plaintiff alleges that the Debtor filed her petition in bad faith. He argues that this case represents essentially a two-party dispute, and that the Debtor's bad faith is demonstrated by a declaration of homestead which the Debtor recorded with respect to her home in violation of a Probate Court order enjoining the Debtor from encumbering her assets; by her bankruptcy petition allegedly timed to impose the automatic stay after the Appeals Court decision had been rendered, but before the Probate Court could act on that decision; and by the meritless Motion to Vacate which led to all of these problems.

In her answer to the Motion to Dismiss, the Debtor asserts that the Plaintiff is not entitled to relief from the automatic stay, that any debts she owes him are dischargeable, and that she does have equity in the Pensions.⁹ The Plaintiff responds by claiming additional alleged facts to show that the Debtor filed her petition in bad faith. He contends that the Debtor undervalued certain assets (a condominium, jewelry and a vehicle), misused her exemptions, failed to pursue a claim for legal malpractice against the attorney who brought her Motion to Vacate, and, prepetition, sold nearly $20,000.00 in stock to preferentially repay certain creditors, which transfers constitute voidable preferences. In addition, he argues...