In re Duffy, U.S.D.C. No. 06-0169(CLB)

• Court: U.S. District Court — Southern District of New York
• Writing for the Court: Brieant
• Citation: In re Duffy, 344 B.R. 237 (S.D. N.Y. 2006)
• Decision Date: 05 June 2006
• Docket Number: Bankruptcy No. 04-23560(ASH).,Adversary No. 04-8855.,No. U.S.D.C. No. 06-0169(CLB),U.S.D.C. No. 06-0169(CLB)
• Parties: In re James Lincoln DUFFY, Debtor. James Lincoln Duffy, Debtor/Appellee v. Laura Mayer Taback, Creditor/Appellant.

344 B.R. 237

In re James Lincoln DUFFY, Debtor James Lincoln Duffy, Debtor/Appellee v. Laura Mayer Taback, Creditor/Appellant.

No. U.S.D.C. No. 06-0169(CLB)

Bankruptcy No. 04-23560(ASH).

Adversary No. 04-8855.

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

June 5, 2006.

COPYRIGHT MATERIAL OMITTED

David Larry Tillem, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, New York, NY, for Appellant.

Rosemarie E. Matera, Kurtzman, Matera, Gurock, Scuderi & Karben, LLP, Spring Valley, NY, Sidney Turner, Sidney Turner, PC, White Plains, NY, for Appellee.

Memorandum and Order

BRIEANT, District Judge.

Appellant Laura Mayer Taback appeals a Judgment of the Bankruptcy Court (Adlai S. Hardin, B.J.) entered in favor of Appellee James Duffy ("Debtor") on September 29, 2005, in this Chapter 7 Adversary Proceeding.¹ The Judgment held that Duffy's debt designated as "spousal maintenance" was not truly in the nature of alimony or maintenance within the scope of Section 523(a)(5) of Title 11, and determined it rather to be a property settlement of the value of Debtor's medical degree acquired during the marriage; concluded that Debtor was unable to pay the remaining $74,000 debt on the obligation; and concluded finally that discharging the obligation would confer a benefit on Debtor that outweighed the detriment to Appellant Taback.

Background

The parties were married in July 1984 and have two children, born in 1986 and 1989. During the course of the marriage, Duffy obtained his medical degree, although his studies began prior to the marriage. Taback is disabled to some degree by a long-term physical ailment known as horn cell disease, which has at times prevented her from working in her field of occupational therapy. Taback argues that she is totally disabled from working in contrast to Judge Hardin's finding that she is somewhat disabled and has "chosen" not to work. Between the years 1981 and 1997, Taback underwent several surgeries on her arms and hands, and she received her first Social Security Disability payment in October 1999. She submitted at the bankruptcy trial an affidavit by Dr. Mark Belsky, dated August 2005, which includes an assessment that despite her surgeries, "Taback was 100% impaired from working since 1995" and that "Taback remains disabled and 100% impaired from working." Exh. I — RR.² Appellant argues that the Bankruptcy Court failed to consider this unrefuted testimony.

In 1994 Appellant Taback commenced an action for divorce. After several years, the divorce action finally came on for trial before the Honorable Fred Shapiro, Justice of the Supreme Court in the 9th Judicial District on June 27, 1997. On that date, with the participation of Justice Shapiro, the parties stipulated to a settlement of what the Bankruptcy Court found to be the single issue on which they went to trial, that of the equitable distribution of the value of the medical degree. Appellant adamantly disputes Judge Hardin's finding that the single issue at the divorce proceeding was the equitable distribution of the medical license and practice, arguing that many other issues were also unsettled such as custody and child support.

The judgment of divorce states in relevant part:

ADJUDGED AND DECREED that the Defendant [Duffy] shall pay monthly spousal maintenance to the Plaintiff [Taback] commencing July 1, 1997 in the sum of $2,000 per month payable in monthly installments which shall be made on the first day of each month for the term of ten (10) consecutive years, which payment shall be non-dischargeable in bankruptcy and paid unconditionally to the Wife irrespective of her cohabitation or remarriage.

Plaintiff's Exh. I-A at 3.

For several years Debtor complied with the decree and made the monthly $2,000 payments, as well as child support payments of $2,000 per month, and extras like medical bills and extracurricular expenses. In May 2002, Duffy admitted to several professional misconduct allegations and relinquished his license to practice medicine. The Bankruptcy Court found that Debtor thereafter tried in good faith to obtain new employment to support himself and honor his financial obligations, but was unable to earn meaningful income and fell into arrears in his divorce judgment obligations. He sent Appellant several letters noting his lack of income, apologizing to her for his inability to pay, alimony, and noting in each letter the cumulative sums of overdue payments. See Pl.'s Exhs. I-D-K, M-O.

In the Spring of 2004, Appellant Taback moved in the state court for sanctions to enforce her rights under the divorce judgment. On May 26, 2004, the state court, having found that a garnishment or wage reduction would be futile, ordered Duffy to pay the sum of $42,600 on or before 11:00 a.m. on June 1, 2004 on pain of incarceration. The sum combined the child support and spousal maintenance due. Duffy's father provided him the money to be paid to Taback, but Duffy again fell into arrears, being unable again to comply with his $2000-plus monthly child support and $2000 "spousal maintenance" obligations under the divorce judgment.

On October 12, 2004, Duffy filed a voluntary petition under Chapter 7 of the Bankruptcy Code and in that same month commenced an adversary proceeding against his ex-wife, Appellee Laura Taback, seeking a determination of the dischargeability under Section 523(a)(5) and (15) of the Bankruptcy Code of a $74,000 debt remaining on the state court judgment of divorce, which required Debtor to pay a total of $240,000 in spousal maintenance over ten years of monthly payments of $2000. The adversary proceeding was tried without a jury. Following a bench trial, the Bankruptcy Court held, in relevant part:

I conclude as a matter of fact and law that the provision in the divorce judgment for ten-year payments designated "spousal maintenance" aggregating $240,000 in point of fact constituted the settlement of a dispute between the parties concerning solely equitable distribution of the debtor's property interest in his medical license and practice. Since the dispute which was tried in the state court on June 27, 1997 concerned only equitable distribution, and since Taback made no claim for alimony/maintenance at or prior to the trial in the divorce action the liability to pay $240,000 over ten years although designated as "spousal maintenance" was not "actually in the nature of alimony, maintenance, or support" ... [and accordingly] cannot be deemed alimony, maintenance or support within the scope of Section 523(a)(5).

. . .

I conclude as a matter of fact and law that Duffy did not have the ability to pay the arrears in his matrimonial obligations as they accrued either before or after the May 26, 2004 contempt hearing, and that Duffy does not have the ability to pay the $74,000 remaining unpaid on his $240,000 "spousal maintenance" obligation under the divorce judgment. I further conclude as a matter of fact and law under Section 523(a)(15)(B) that discharging the $74,000 spousal maintenance obligation would confer a benefit on Duffy that far outweighs any detriment to Taback. Accordingly, the $74,000 spousal maintenance obligation is discharged.

Opinion at 20-21.

Appellant states the following issues raised on this appeal:

I. Were the monies at issue improperly discharged by the Bankruptcy Court as a property settlement where they emanated from a professional license and are thus, as a matter of law, in the nature of support and non-dischargeable?

II. Under the Bankruptcy Code 11 U.S.C. § 523(a)(5), was a debtor's obligation characterized as maintenance/alimony in the oral Stipulation of Settlement which was incorporated into a Divorce Judgment improperly re-characterized as a distributive award by the Bankruptcy Court and thus dischargeable, when (I) the debtor maintained throughout the matrimonial litigation that his medical license had no value; (ii) the parties in the Oral Stipulation confirmed their understanding that the monies were alimony/maintenance; (iii) the Judgment characterized the payments as alimony/maintenance; (iv) the parties' subsequent conduct and actions since the Judgment confirmed their intent that the monies were alimony/maintenance?

III. Whether the Bankruptcy Court made certain clearly erroneous statements of fact and/or omitted certain salient facts which affected its decision, and evidenced a bias against the nondebtor spouse?

IV. Under Bankruptcy Code 11 U.S.C. § 523(a)(15), whether the Bankruptcy Court erred, as a matter of law, in discharging the re-characterized award?

V. By transforming the agreed-upon alimony into a property distribution, did the Bankruptcy Court improperly stand in the place and stead of the state's matrimonial court, and without any expert testimony, value debtor's medical license, distribute it, and discharge it, thus interfering improperly with and acting in the nature of a state appellate court, with respect to the state court proceedings?

Appellant's Brief at 2.³

A district court reviews the Bankruptcy Court's findings of fact under the "clearly erroneous" standard. Federal Rules of Bankruptcy Procedure ("FRBP") Rule 8013. It reviews conclusions of law de novo. In re AroChem Corp., 176 F.3d 610, 620 (2d Cir.1999).

In relevant part, Section 523(a)(5) of the Bankruptcy Code excepts from discharge any debt:

(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that —

(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise ... or

(B)such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support....