In re Gentilini

• Citation: 365 B.R. 251
• Decision Date: 12 March 2007
• Docket Number: Bankruptcy No. 05-44584-BKC-RAM.,Adversary No. 06-1134-BKC-RAM-A.
• Parties: In re Robert N. GENTILINI, Debtor. Simon, Schindler & Sandberg, LLP, Plaintiff, v. Robert N. Gentilini, Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida

365 B.R. 251

In re Robert N. GENTILINI, Debtor.

Simon, Schindler & Sandberg, LLP, Plaintiff, v. Robert N. Gentilini, Defendant.

Bankruptcy No. 05-44584-BKC-RAM.

Adversary No. 06-1134-BKC-RAM-A.

United States Bankruptcy Court, S.D. Florida, Miami Division.

March 12, 2007.

As Amended March 13, 2006.

Jose Manuel Sanchez, Miami, FL, for Plaintiff.

Drew S. Sheridan, Esq., Roger J. Schindler, Esq., Miami, FL, for Defendant.

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

ROBERT A. MARK, Bankruptcy Judge.

The issue before the Court is whether a debt arising from a judgment ordering the debtor to pay fees owed, to his former spouse's attorney may be excepted from discharge under § 523(a)(5) of the Bankruptcy Code if the former spouse is no longer liable to her attorneys for payment of these fees. For the reasons more fully explained below, the Court holds that such a debt is not excepted from discharge under § 523(a)(5).

Factual & Procedural Background

The following facts are undisputed. On July 19, 1995, Regina Gentilini (the "Former Spouse") signed an agreement (the "Retainer Agreement") under which she retained Simon, Schindler & Sandberg, LLP (the "Law Firm") to represent her in divorce proceedings against her husband, Robert Gentilini (the "Debtor"). The Retainer Agreement provided that the Former Spouse would pay the Law Firm for legal services and costs incurred in connection with the divorce representation. A Final Judgment of Dissolution of Marriage was entered September 26, 1996. Subsequently, on the motion of the Former Spouse, the state court entered its October 31, 1996 Order on Former Wife's Motion for Attorneys' Fees, Expert Witness Fees and Court Costs (the "Order Awarding Fees") ordering the Debtor to pay $43,000 in attorneys' fees to the Law Firm. On that same day, to implement its Order Awarding Fees, the state court entered a Final Judgment for Attorneys' Fees in favor of the Law Firm and against the Debtor in the amount of $43,000 (the "Fee Judgment").

In addition to obtaining a Final Judgment against the Debtor, the Law Firm, with the Former Spouse's consent, obtained a charging lien in the amount of $40,284.38 against the Former Spouse's interest in any assets or proceeds obtained in the dissolution proceeding. This relief was set forth in an October 31, 1996 Order Establishing Attorney's Charging Lien and Entry of Final Judgment (the "Charging Lien Judgment"). The Charging Lien Judgment was not an in personam judgment against the Former Spouse, and therefore does not render the Former Spouse personally liable for legal fees owed to the Law Firm. Her personal obligation to pay fees arose solely under the Retainer Agreement.

On October 14, 2005, nearly a decade later, the Debtor petitioned this Court for Chapter 7 relief. Case No. 05-44584-BKC-RAM. The Law Firm subsequently filed its single count complaint in this adversary proceeding, seeking a judgment under § 523(a)(5) to except the Fee Judgment from discharge. The Debtor answered, alleging that the Fee Judgment was neither in the nature of support nor a "debt to" a former spouse.

Following a hearing on August 24, 2006, the Court concluded that this proceeding was ripe for resolution by summary judgment. Its September 11, 2006 Order (CP# 38) set a hearing and briefing schedule on cross motions for summary judgment. Of the two issues framed in that Order, the only one still subject of dispute is whether the Fee Judgment can be excepted from discharge under § 523(a)(5) as a "debt to a former spouse" since the Former Spouse here has no remaining enforceable obligation to pay the Law Firm under the Retainer Agreement.

In response to the Court's scheduling Order, Debtor filed his Motion for Summary Judgment (CP# 37), Plaintiff filed its Motion for Summary Judgment and Response to Debtor's Motion (CP# 52, 53), Debtor filed his Response to Plaintiff's Motion (CP# 60) and finally, Plaintiff filed its Reply to Debtor's Response (CP# 63).

On November 13, 2006, the Court conducted a hearing on the cross-motions for summary judgment. The Court considered the parties' cross-motions for summary judgment, their respective responses and replies, and the parties' exhibits. At the hearing, the parties stipulated that the Fee Judgment was in the nature of support. The parties also stipulated that at the commencement of the Debtor's bankruptcy case, the Law Firm could no longer enforce the Retainer Agreement against the Former Spouse because the statute of limitations had run. Therefore, while the Former Spouse was liable to the Law Firm for fees under the Retainer Agreement when the Fee Judgment was entered in 1996, she was no longer liable to the Law Firm in 2005, when the Debtor filed for bankruptcy.

Discussion

Summary judgment is appropriate where the moving party demonstrates that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). To defeat a motion for summary judgment, the nonmoving party must do more than simply show that there is some doubt as to the facts of the case. "The mere existence of a scintilla of evidence in support of the [opposing party's] position will not be sufficient to forestall summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, once the moving party has established his burden of proof, the party opposing the motion for summary judgment must establish the existence of a genuine issue of material fact and may not rest upon its pleadings or mere assertions of disputed facts to defeat the motion. Matsushita Elec. Ind. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Under these standards, the Debtor/Defendant is entitled to summary judgment. The Fee Judgment is a debt in the nature of support. However, it is not a debt which can be treated as a "debt to a former spouse" under § 523(a)(5). For a third party debt to be treated as a "debt to a former spouse," the former spouse must also be liable on the debt. When the Fee Judgment was entered, the Former Spouse was liable under the Retainer Agreement. This Court holds, however, that it is the bankruptcy petition date, not the Fee Judgment date, which controls the decision. Since the Former Spouse had no remaining liability under the Retainer Agreement when the Debtor filed his petition, the Fee Judgment is dischargeable.

A. Applying § 523(a)(5) to Any Third Party Debt is a Judicial Expansion of the Statute's Plain Meaning

In matters of statutory construction, "[i]t is well established that when the statute's language is plain, the sole function of the courts — at least where the disposition required by the text is not absurd — is to enforce it according to its terms." Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (internal quotation marks omitted) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000)). Section 523(a)(5) excepts from discharge "any debt to a spouse, former spouse, or child of the debtor."¹ The term "to" unambiguously limits the ambit of § 523(a)(5) relief to a certain, identifiable class. The members of that class include anyone who is the debtor's spouse, former spouse or child and exclude all others. Taking together §§ 101(5) and 101(12), the term "debt" means "liability on a right to payment."² Thus, the plain language of § 523(a)(5) excepts from discharge liability on a right to payment to the spouse, former spouse, or child of the debtor but does not except from discharge liability on a right to payment to third parties.³ Here, fidelity to the statutory language would compel the conclusion that the Fee Award is dischargeable since it is a liability on a right to payment to the Law Firm, not the Former Spouse.

B. Courts Have Appropriately Created an Exception to the Plain Meaning of the Statute Where Discharge of the Third Party Debt Would Impact the Former Spouse

Despite the clear statutory language and consistent direction from the Supreme Court to enforce such a statute according to its terms, many courts have enlarged the ambit of the § 523(a)(5) exception from discharge to include debts to third parties. See, e.g., Holliday v. Kline (In re Kline), 65 F.3d 749, 751 (8th Cir.1995); Pauley v Spong (In re Spong ), 661 F.2d 6, 11 (2d Cir.1981).

In Spong, the debtor promised as part of a settlement agreement to pay the former spouse's attorney for certain fees and costs incurred during their divorce. The plain meaning of "debt to," the debtor argued, meant that in order for a debt to be dischargeable under § 523(a)(5) the right of payment must be to the former spouse. The court disagreed and held the debt nondischargeable. Relying on Pepper v. Litton, 308 U.S. 295, 305-06, 60 S.Ct. 238, 84 L.Ed. 281 (1939), the court reasoned that whether a debt was a "debt to a former spouse" should be determined by substance rather than form. The court found that in substance the debt arose from a "paradigmatic third party beneficiary contract." Because third party beneficiary contracts are enforceable by both the third-party beneficiary and the promisee, in Spong the attorney and the former spouse, the court concluded it would be a triumph of form over substance to deny that a debt arising from such a contract was a debt to the former spouse. Thus, the court deemed a right of payment to a third party to be a right of payment to a former spouse where in light of the underlying third-party beneficiary contract the right of payment was nevertheless enforceable by the former spouse.

Subsequent cases have expanded application of the "substance over form" doctrine. In Kline, relying in part on Spong, the court held nondischargeable a debt to the attorney of the debtor's...