In re French
| Citation | 9 BR 464 |
| Decision Date | 12 March 1981 |
| Docket Number | Complaint No. C81-0026-M.,Bankruptcy No. 80-02793-K |
| Parties | In re James FRENCH, Debtor. James FRENCH, Plaintiff, v. Stafford W. PRANTE, Defendant. Stafford W. PRANTE, Cross-Complainant, v. James FRENCH, Cross-Defendant. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Southern District of California |
Stafford W. Prante, San Diego, Cal., for defendant/cross-complainant.
Shain B. Haug, San Diego, Cal., for debtor/plaintiff/cross-defendant.
To resolve this controversy, the Court has been asked to determine whether an award of attorneys fees to counsel for the debtor's former spouse constitutes a nondischargeable obligation under the United States Bankruptcy Code ("Code"). The debtor petitioned for relief under Chapter 7 of the Code on October 7, 1980. In doing so, he sought to discharge his obligation to pay $400 in attorneys fees to Mr. Stafford W. Prante, Esq. ("Prante"). The fees were previously awarded by a state court in connection with Prante's representation of the debtor's former spouse in the dissolution of their marriage.1
In December of 1980, Prante filed two motions in state court which attempted to compel payment of the attorneys fees by the debtor. The debtor resisted by filing, on January 8, 1981, a complaint for a temporary restraining order and preliminary injunction in this Court. On January 12, 1981, a temporary restraining order was issued by this Court restraining Prante from any further collection activities in state court. Prante then answered the debtor's complaint, and filed a "cross-complaint" which seeks a determination that the obligation for attorneys fees owed him is a nondischargeable debt.2
On January 21, 1981 a hearing was held, at which time the Court considered the debtor's request for a preliminary injunction. This hearing culminated in a stipulation being entered into by the parties, whereby they agreed to treat their existing pleadings as if they had been filed in support of cross motions for summary judgment on Prante's "cross-complaint". It was agreed that the determinative legal question would be whether the debt owed Prante was dischargeable under Section 523 of the Code. 11 U.S.C. § 523.3
The parties were granted leave to file supporting memoranda subsequent to the hearing. These have now been received and considered, and the Court has concluded that the debt created by the state court award of attorneys fees is nondischargeable. This opinion is filed in support of that decision.
On November 5, 1978, the debtor instituted an action for dissolution of his marriage in state court. This action proceeded apace for almost a year, during which time the debtor's spouse was represented by counsel other than Prante. On October 2, 1979 Prante began representing the debtor's wife. At this time, it was agreed that she would pay Prante a retainer of $350 and would later pay him for any further services rendered at the rate of $75 per hour. It was further understood that she was solely and personally liable on this obligation, however, her account would be credited with any attorneys fees which the state court ordered the debtor to pay on her behalf.
On September 12, 1980, the state court rendered its interlocutory judgment of dissolution of marriage. As part of the judgment, the debtor's former spouse was given custody of their children. This award, as the state trial judge noted, put her financial status on an unequal footing as compared to the debtor's.4 To remedy that imbalance, the judgment ordered that various payments were to be made by the debtor to his wife, these payments being termed either "support" or for "support and maintenance".
On the subject of attorneys fees, however the judgment states: "As and for contribution to Respondent's attorneys fees, the debtor shall pay the sum of $400 directly to attorney for Respondent, Stafford W. Prante, Esq. . . .". The debtor has never paid Prante any of these fees. Now the Court must determine if the obligation to pay Prante is preserved, as the debtor has sought to have the obligation discharged as an unsecured debt.
The parties' dispute centers on differing constructions of Section 523(a)(5) of the Code. This section provides:
11 U.S.C. § 523.
Prante argues that under this provision, an award of attorneys fees payable directly to the attorney is a nondischargeable debt, if equivalent to support or alimony awarded in a domestic relations proceeding. He suggests further that the award in this case did not involve an assignment "to another entity. . . ." under Section 523(a)(5)(A). See 11 U.S.C. § 523(a)(5)(A). With respect to this point, Prante asserts that the state court judge was aware of the fact that the debtor's wife was in financial need, and that the arrangement for payment directly to Prante was simply done as a matter of convenience.
Initially, the debtor admits that the obligation in question would be nondischargeable under the former Bankruptcy Act. See e.g., In re Chrisman, 6 B.R. 339 (W.D. Okl.1978). This admission does not trouble the debtor, however, as Section 523(a)(5) purportedly effects a substantial change in this area of the law. Principally, the debtor argues that to be nondischargeable under the Code, payments, regardless of their characterization, must be paid directly to the "spouse, former spouse, or child of the debtor. . . ." See 11 U.S.C. § 523(a)(5). Here, the debtor notes this qualification is not met as the debt in question is payable to Prante and not the debtor's former spouse. The debtor also contends that even if the payments were made to the debtor's former wife (and then to Prante), such payment would in effect involve an assignment of the debt to "another entity" under Section 523(a)(5)(A) thereby making the debt dischargeable.5
Section 523(a)(5) has clearly brought about a change in the law by narrowing the spectrum of nondischargeable obligations arising out of domestic relations cases. See e.g., In re Daiker, 5 B.R. 348, 350-51, (Bkrtcy., Minn.1980). Existing caselaw under the Code has generally focused on two areas of inquiry regarding the section.
First of all, the Court must assess the fact that payment of the debt here is made to a third party, the former spouse's attorney. Several decisions have strictly construed the language of the section, and held this type of obligation to be dischargeable. See Matter of Spong, 3 B.R. 619, 6 B.C.D. 604 (Bkrtcy., W.N.Y.1980); In re Brown, 7 B.R. 268 (Bkrtcy., W.N.Y.1980); In re Daiker, supra, 5 B.R. 348; In re Delillo, 5 B.R. 692, 7 B.C.D. 38, (Bkrtcy., Mass.1980).
On the other hand, most courts have held that such an obligation is nondischargeable even though the debt is owed directly to a third party. See In re Knabe, 8 B.R. 53 (Bkrtcy., S.Ind.1980); Matter of Sturgell, 7 B.R. 59 (Bkrtcy., S.Ohio 1980); In re Bell, 5 B.R. 653, 6 B.C.D. 833 (Bkrtcy., W.Okl. 1980); In re Pelikant, 5 B.R. 404, 6 B.C.D. 758 (Bkrtcy., N.Ill.1980); In re Diers, 7 B.R. 18, 6 B.C.D. 983 (Bkrtcy., S.Ohio 1980); Matter of Tope, 7 B.R. 422, 425-26 (Bkrtcy., S.Ohio 1980); In re Demkow, 8 B.R. 554 (Bkrtcy., N.Ill.1981); In re Cleveland, 7 B.R. 927 (Bkrtcy., S.Dak.1981); In re Wells, 8 B.R. 189 (Bkrtcy., N.Ill.1981).
A review of the legislative history of Section 523, however, demonstrates that this latter class of cases have correctly applied the statute. The continuing theme in the legislative history on this section is that a joint obligation to a third party "assumed" by the debtor, in one way or another, is nondischargeable if it is in the nature of alimony or support and maintenance. In the early legislative comments this point was made clear by reference to "an agreement by the debtor to hold the debtor's spouse harmless on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support. . . ." H.Rep.No.95-595, 95th Cong., 1st Sess. 364 (1977) ("House Report"), U.S.Code Cong. & Admin.News 1978, 5787, 5963, 6320. See also S.Rep.No.95-989, 95th Cong., 2d Sess. 79 (1978), U.S.Code Cong. & Admin.News 1978, 5787, 5865. Such an agreement was envisioned as creating a nondischargeable obligation even though the debt was owed to a third party.
In the concluding legislative remarks on this subject, the intent of Congress takes on a slightly different cast, but the effect remained the same. For example, in the joint explanatory statement covering the compromise legislation arrived at by the House and Senate it is said that:
Section 523(a)(5) is a compromise between the House bill and the Senate amendment. The provision excepts from discharge a debt owed to a spouse, former spouse or child of the debtor, in connection with a separation agreement, divorce decree, or property settlement agreement, for alimony to, maintenance for, or support of such spouse or child but not to the extent that the debt is assigned to another entity. If the debtor has assumed an obligation of the debtor\'s spouse to a third party in connection with a separation agreement, property settlement agreement, or divorce proceeding, such debt is dischargeable to...
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