In re Ellis
| Decision Date | 15 August 1989 |
| Docket Number | Adv. No. 88 A 739.,Bankruptcy No. 83 B 7311 |
| Citation | 103 BR 977 |
| Parties | In re Martin J. ELLIS, Debtor. Martin J. ELLIS, Plaintiff, v. Linda ELLIS, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Neil P. Gantz, for debtor.
Gregory K. Stern, for defendant.
This matter comes before the Court on the adversary complaint brought by the Plaintiff, MARTIN J. ELLIS. This is a core proceeding over which the Court has jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(I) as a proceeding to determine the dischargeability of a debt. The following constitutes the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. For the reasons contained herein, the Court finds the debt dischargeable.
Martin Ellis Plaintiff and Linda Ellis Defendant were married on March 4, 1967. The parties did not have children. During the course of the marriage, the Plaintiff was a promoter of antique and fitness shows, under the name of Stratford Manor Productions. The Defendant worked as a schoolteacher for eight years during the marriage. In June, 1978, she quit her teaching position in order to travel with the Plaintiff whose business demanded a great deal of travel.
The parties' marriage was not without problems, and in May, 1982, the parties separated and amicably divided their personal property. At this time, the Plaintiff's business was experiencing severe losses. Although the Defendant did not return to teaching after the separation, she worked various part-time jobs. The Plaintiff continued in the operation of his fledgling business.
In December, 1982, the Defendant retained Evan James Mammas to represent her in her dissolution of marriage proceedings. In mid-January of 1983, the Plaintiff and the Defendant met at Mr. Mammas' residence to discuss a settlement of the marital estate. The Plaintiff was not represented by counsel. Prior to the meeting, Mr. Mammas reviewed the Plaintiff's assets and liability statement. Mr. Mammas learned that the Plaintiff was in poor financial health.
On February 14, 1983, the Plaintiff and the Defendant executed a "Memorandum of Agreement" (settlement agreement). Among other things, the settlement agreement provided that both parties waived their rights to alimony and maintenance. However, the agreement did provide that the Defendant was to receive from the Plaintiff a "property settlement" in the sum of $700.00 per month for 36 months, for a total of $25,200.00. These monthly payments were to commence after the sale of the marital residence. In addition, the agreement provided that the Plaintiff would hold the Defendant harmless on all debts arising from Stratford Manor Productions. The settlement agreement also granted the Defendant exclusive use and occupancy of the marital home until it was sold.1 The agreement further recited that the Plaintiff was responsible for the mortgage payments on the marital residence, until it was sold. At the time of the settlement agreement, the Defendant was employed at a shoe store earning $200.00 per week against commissions. Meanwhile, the Plaintiff's income fluctuated with the success or failure of his businesses. On January 27, 1983, the Defendant filed her petition for dissolution of marriage; and on February 21, 1983, a divorce decree was entered, incorporating the agreement.
On February 24, 1983, the Plaintiff and the Defendant executed a "Reaffirmation Agreement." Essentially, the reaffirmation agreement provided that in the event the Plaintiff declared bankruptcy, he would reaffirm his debt to the Defendant, arising from the settlement agreement. The reaffirmation agreement was executed because the Defendant and her attorney, were concerned that the Plaintiff might file a bankruptcy petition.
The Defendant's concerns proved well-founded. On June 10, 1983, the Plaintiff filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code Code. Subsequently, the Chapter 11 case was converted to a Chapter 7 case on July 19, 1983. The Defendant also filed a Chapter 7 petition on June 10, 1983.2 The parties were represented by the same law firm in their separate bankruptcy proceedings. The Plaintiff did not list in his schedule of debts a debt to the Defendant arising from the settlement agreement. Similarly, the Defendant did not list the Debtor's debt to her as an asset on her schedule. On January 17, 1984, the Defendant received a discharge in her bankruptcy case and on February 21, 1984, a discharge order was entered in the Plaintiff's Chapter 7 case. After the discharge, no monies were paid by the Plaintiff to the Defendant pursuant to the divorce decree. Several months later, the Defendant wrote a letter to the Plaintiff, wherein she requested to meet with him in order to discuss his debt to her. Apparently, this meeting never took place. Subsequently, the Plaintiff relocated to Los Angeles, California. Several years later, the Defendant's uncle, an attorney, wrote to the Plaintiff and advised him to either commence making the payments called for in the settlement agreement, or face legal proceedings. Although the Plaintiff received the letter, he did not make any payments to the Defendant. In 1988, the Defendant commenced an action in the Superior Court of the State of California for the County of Los Angeles, wherein she sought enforcement of the divorce decree against the Plaintiff.
Thereafter, the Plaintiff moved to reopen his Chapter 7 case in order to add the Defendant as a creditor to be discharged along with his remaining creditors. This Court granted the Plaintiff's Motion to Reopen and the Plaintiff instituted this adversary proceeding seeking an order declaring that the debt due to the Defendant is dischargeable. The Defendant filed her answer to the Debtor's complaint, objecting to the dischargeability of said debt.
As a preliminary matter, the Court must address a procedural issue raised by the parties. Ordinarily, when a complaint to determine the dischargeability of a debt is filed, the debtor's creditor is the plaintiff and the debtor is the adverse party. In this case, however, the roles are reversed. Here, it is the debtor who brought the complaint to determine dischargeability of the debt, thus making the creditor the defendant. This alignment is unusual but not unheard of. It has raised the question as to which party has the burden of proof on the issue of nondischargeability. The Plaintiff contends that notwithstanding the fact that he brought this action, the burden to prove nondischargeability rests upon the defendant. The Defendant, on the other hand, claims that once an objecting creditor has produced prima facie evidence that the debt is nondischargeable, the burden shifts to the debtor to prove that it is entitled to a discharge.
The first issue before the Court is whether the ultimate burden of proof in an action to determine the dischargeability of a debt rests with the plaintiff.
It is well settled that the party seeking to establish an exception to the discharge of a debt bears the burden of proof. In re Belfry, 862 F.2d 661, 662 (8th Cir.1988); In re Long, 794 F.2d 928, 931 (4th Cir.1986); In re Black, 787 F.2d 503, 505 (10th Cir. 1986); In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986). But once the objecting party establishes a prima facie case of nondischargeability, the burden of going forward shifts to the debtor to rebut that evidence.3 See, In re Gans, 75 B.R. 474, 482 (S.D.N.Y.1987). The ultimate burden of persuasion, however, remains with the objecting party.4 See, In re Martin, 698 F.2d 883, 887 (7th Cir.1983). Moreover, although the Code is silent on the matter, the objecting party must prove the nondischargeability of a debt by clear and convincing evidence. In re Bogstad, 779 F.2d 370, 372 (7th Cir.1985); In re Iaquinta, 98 B.R. 919, 922 (N.D.Ill.1989); see also, In re Kimzey, 761 F.2d 421, 424 (7th Cir.1985); but see, Combs v. Richardson, 838 F.2d 112, 116 (4th Cir.1988) (). In re Slingerland, 87 B.R. 981 (S.D.Ill.1988) The clear and convincing standard of proof is defined as "that which establishes in the mind of the trier of fact the firm belief or conviction as to the obligation sought to be established." In re Krause, 44 B.R. 159, 161 (N.D.Ill.1984). This more exacting burden of proof is consistent with the Code policy that exceptions to discharge must be strictly construed against a creditor and liberally in favor of a debtor, in order to effectuate the Congressional intent of a "fresh start" for debtors. See, In re Rahm, 641 F.2d 755, 756-57 (9th Cir.1981) cert. denied 454 U.S. 860, 102 S.Ct. 313, 70 L.Ed.2d 157 (1981).
Accordingly, in this case, it is the Defendant who bears the burden of establishing by clear and convincing evidence that the settlement award was in the nature of maintenance, and therefore nondischargeable.
Before addressing the nature of the Plaintiff's obligation, the Court must first consider whether the reaffirmation agreement executed by the parties is enforceable.5
A reaffirmation agreement is enforceable only if: 1) the agreement was made in advance of the debtor's discharge; 2) the agreement contains a clear and conspicuous statement advising the debtor that the agreement may be rescinded any time prior to discharge or within 60 days after the agreement is filed with the court, whichever occurs later; 3) the agreement has been filed with the court; 4) the debtor has not rescinded the agreement; 5) the debtor has been warned by the judge as to the effects of the agreement; 6) the court finds that the agreement does not impose an undue hardship on the debtor; and 7) the court finds that the agreement is in the debtor's best interest. 11 U.S.C. § 524(c). These measures are necessary to prevent the debtor from being coerced into signing a reaffirmation agreement and to enable the...
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