In Re Ernest Kent Combs

• Decision Date: 03 September 2010
• Docket Number: No. 09-72986.,09-72986.
• Citation: 435 B.R. 467
• Parties: In re Ernest Kent COMBS, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

435 B.R. 467

In re Ernest Kent COMBS, Debtor.

No. 09-72986.

United States Bankruptcy Court,E.D. Michigan,Southern Division.

Sept. 3, 2010.

COPYRIGHT MATERIAL OMITTED.

Robert P. Dewitt, Jr., Troy, MI, for Debtor.

Tammy L. Terry, Detroit, MI, Trustee.

AMENDED OPINION REGARDING THE MOTION FOR RELIEF FROM STAY FILED BY PAMELA L. MYTNICK ^**

THOMAS J. TUCKER, Bankruptcy Judge.

The Debtor in this Chapter 13 case, Ernest Combs, is a retired police officer and is receiving a monthly pension benefit. The case is before the Court on the motion for relief from stay filed by the Debtor's ex-wife, Pamela Mytnick. ¹ Ms. Mytnick claims to have an interest in Debtor's pension. She seeks stay relief for two purposes: (1) to seek from the state court an Eligible Domestic Relations Order (“EDRO”), as contemplated in the parties' consent judgment of divorce; and (2) to try to collect her past due share of the pension benefits received by the Debtor.

Mytnick's motion contends that she obtained a property interest in Debtor's police pension in 1999 upon entry of the parties' consent judgment of divorce. Debtor argues that Mytnick never obtained a property interest in the pension, because Michigan law requires that an EDRO be entered by the state court and filed with the pension plan, and that this be done before the pension comes into pay status. According to Debtor, his pension was already in pay status when the consent judgment of divorce was entered, so no valid EDRO could ever be entered. And, Debtor points out, no EDRO has ever been entered.

The Court concludes that under Michigan law, the entry of the 1999 consent judgment itself transferred to Mytnick a property interest in Debtor's pension. This transfer occurred even though an EDRO has never been entered. Mytnick's motion for relief from the automatic stay will be granted, to permit Mytnick to pursue appropriate relief in the state court.

I. Facts

The relevant facts are undisputed. The Debtor was a police officer for the City of Ferndale, Michigan. He was married to Ms. Mytnick, but the parties divorced in 1999. The Oakland County Circuit Court entered a consent judgment of divorce, on November 9, 1999. ² Sometime before that judgment was entered, Debtor had retired from his job as police officer, and began receiving a monthly pension benefit.

The consent judgment awarded Mytnick “as her sole and separate property ... [o]ne-half [the] marital interest” in Debtor's pension with the City of Ferndale, to “be transferred to [Mytnick] pursuant to an EDRO.” ³ The consent judgment recited that the pension was “in pay position....” ⁴ The consent judgment ordered the parties to “share the cost of preparation of the EDROs required.” And Debtor was further ordered to pay Mytnick $855 per month “until such time as the EDRO takes effect....” ⁵

No EDRO was ever prepared or entered. Instead, Debtor simply paid Mytnick $855 per month from his monthly pension benefit, for more than nine years. Debtor stopped making these monthly payments on March 1, 2009, ⁶ even though he has continued to receive his full monthly pension benefit. Debtor filed his Chapter 13 petition on October 26, 2009. ⁷ In Schedule F, Debtor listed Mytnick as an unsecured, nonpriority creditor. ⁸ According to Debtor's Schedule I, Debtor receives a pension benefit of $3,000 per month. ⁹

The Court held a hearing on Mytnick's stay-relief motion, then ordered further briefing. ¹⁰ The Court then held a second hearing, during which the Court granted Mytnick's request to file supplemental citations, and permitted Debtor to respond. ¹¹ The motion is now ready for decision.

II. Jurisdiction

The Court has jurisdiction under 28 U.S.C. §§ 1334(b), 157(a), 157(b)(1), and E.D. Mich. LBR 83.50(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(G).

III. DiscussionA. Stay-relief standard

Mytnick seeks relief from stay under 11 U.S.C. § 362(d)(1), for “cause.” Under this section, “ ‘courts must determine whether discretionary relief is appropriate on a case by case basis.’ ” In re J & M Salupo Dev. Co., Inc., 388 B.R. 809, 812 (Bankr.N.D.Ohio 2008) (quoting Laguna Associates L.P. v. Aetna Cas. & Surety Co. (In re Laguna Associates L.P.), 30 F.3d 734, 737 (6th Cir.1994)). “As used in § 362(d)(1), the term ‘cause’ is a broad and flexible concept which permits a bankruptcy court, as a court of equity, to respond to inherently fact-sensitive situations.” In re Indian River Estates, Inc., 293 B.R. 429, 433 (Bankr.N.D.Ohio 2003) (citation omitted). “In determining whether cause exists, the bankruptcy court should base its decision on the hardships imposed on the parties with an eye towards the overall goals of the Bankruptcy Code.”

In re Plastech Engineered Products, Inc., 382 B.R. 90, 106 (Bankr.E.D.Mich.2008)(quoting In re C & S Grain Co., 47 F.3d 233, 238 (7th Cir.1995)).

B. The merits

The general rule in bankruptcy cases is that “[u]nless a federal interest is at issue, property rights are defined by state law.” French v. Frey (In re Bergman), 467 F.3d 536, 538 (6th Cir.2006) (citing Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)). The parties agree that Michigan law governs Mytnick's claim that she has a property interest in Debtor's police pension. The issue is whether Mytnick obtained a property interest in Debtor's pension, in the absence of any EDRO. Mytnick argues that the consent judgment itself granted her a property interest in Debtor's pension benefits. Mytnick asks this Court to lift the automatic stay, in part, so she can now obtain entry of an EDRO in the state court, as contemplated by the consent judgment of divorce.

Debtor contends that under Michigan law, Mytnick does not have an interest in Debtor's pension because Mytnick did not obtain entry of an EDRO. And, Debtor argues, no EDRO could ever be entered because Debtor's pension was already in pay status when the consent judgment of divorce was entered in 1999.

For the following reasons, the Court holds that the entry of the 1999 consent judgment, in and of itself, transferred a property interest in Debtor's pension to Mytnick, notwithstanding Mytnick's failure to obtain an EDRO. Moreover, each time Debtor received his monthly pension benefit, he held Mytnick's $855 share of that monthly benefit under a constructive trust, for Mytnick's benefit, until he paid it to Mytnick. This is so with respect to the time periods both before and after the filing of Debtor's bankruptcy petition.

1. Under Michigan law, the entry of the consent judgment of divorce, without more, transferred to Mytnick a separate ownership interest in Debtor's pension.

Under Michigan law, a spouse's right to vested pension benefits that accrued during marriage “shall be considered part of the marital estate” and distributed by a state court upon divorce. Mich. Comp. Laws Ann. § 552.18(1). “Each judgment of divorce ... shall determine all rights, including any contingent rights, of the husband and wife in and to ... “[a]ny vested pension ... benefits.” Mich. Comp. Laws Ann. § 552.101(4)(a). Furthermore, “pensions may be distributed through ... [a] property division [.]” Pickering v. Pickering, 268 Mich.App. 1, 706 N.W.2d 835, 840 (2005) (citation omitted).

Under Mich. Comp. Laws Ann. § 552.401, a state court “may include in any decree of divorce ... appropriate provisions awarding to a party ... a portion of property, either real or personal, owned by his or her spouse” in an equitable manner, and that “decree, upon becoming final, shall have the same force and effect as a ... bill of sale of the personal property[.]” The Michigan Supreme Court recently held that under § 552.401, “[a] court may provide for the distribution of property in a divorce judgment, and when it enters, the judgment has the same effect as a deed or a bill of sale.” Estes v. Titus, 481 Mich. 573, 751 N.W.2d 493, 497 (2008). For this reason, Estes held that for purposes of Michigan's Uniform Fraudulent Transfer Act, ¹² a divorce judgment “effectuates a transfer” of property upon entry. Id. [6] Under § 552.401 and Estes, therefore, when a divorce judgment purports to transfer a separate ownership interest in a pension from one spouse to the other, that ownership interest transfers when the divorce judgment is entered.

That is what happened in this case. The 1999 consent judgment stated the following:

IT IS FURTHER ORDERED that Wife is awarded as her sole and separate property, free and clear of any interest, right, title or claim of Husband, the following:

...

(7) One-half of marital interest (including the years purchased during the marriage) of Husband's pension from the City of Ferndale currently in pay position with the City of Ferndale, which shall be transferred to Wife pursuant to an EDRO. Both parties shall be entitled to 100% of the survivor benefits payable under the Plan, their share of all post-retirement increases, and any other standard provisions. The parties shall share the cost of preparation of the EDROs required in this Judgment.

...

IT IS FURTHER ORDERED that until such time as the EDRO takes effect which pays to Wife her share of the City of Ferndale pension, Husband shall pay to Wife the amount of $855 per month on the first day of every month commencing October 1, 1999. For income tax purposes, said payments shall be treated as tax deductible to Husband and taxable to Wife. ¹³

Under the terms of the consent judgment, therefore, Mytnick obtained the following ownership interests in Debtor's pension:

• effective immediately upon entry of the divorce judgment: $855 of each monthly pension payment Debtor received thereafter, until an EDRO was entered and became effective; and then,

• effective when (and if) an EDRO was entered and became effective, and replacing the $855 per month ownership interest: one-half of the Debtor's marital interest in the pension, including one-half of the marital interest of the monthly periodic pension payments owing

...