In re Jeffers, Case No. 14–52328

• Decision Date: 30 June 2017
• Docket Number: Case No. 14–52328
• Citation: 572 B.R. 681
• Parties: IN RE Mark D. JEFFERS, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

572 B.R. 681

IN RE Mark D. JEFFERS, Debtor.

Case No. 14–52328

United States Bankruptcy Court, N.D. Ohio, Eastern Division.

Signed June 30, 2017

Bruce Hall, Medina, OH, for Debtor.

MEMORANDUM DECISION ON MOTION FOR RELIEF FROM STAY

ALAN M. KOSCHIK, U.S. Bankruptcy Judge

Before the Court is the Motion for Relief From Stay to Proceed in Domestic Relations Court (Docket No. 79) (the "Motion") filed by Lisa Jeffers (the "Movant"), the former wife of debtor-respondent Mark D. Jeffers (the "Debtor"). The Movant asks the Court to lift the automatic stay, pursuant to 11 U.S.C. § 362(d), to allow her to proceed in state court to obtain a qualified domestic relations order ("QDRO") entitling her to distribution of certain funds from her former husband's retirement plans, including a "Cash Balance Plan through Hewitt Associates" and his 401(k) plan with Frontier Communications. For the reasons set forth herein, the Motion will be granted.

JURISDICTION

This Court has jurisdiction to enter a final judgment in this contested matter pursuant to 28 U.S.C. § 1334 and General Order No. 2012–7 entered by the United States District Court for the Northern District of Ohio on April 4, 2012. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G) and (O ).

FACTUAL BACKGROUND

The material facts are neither complex nor disputed.

On August 8, 2012, the Lorain County, Ohio Court of Common Pleas' Domestic Relations Division entered a final decree of divorce between the Debtor and the Movant. Among other property division provisions, that decree provided as follows:

[The Movant] shall receive a Qualified Domestic Relations Order entitling [her] to an interest in the [Debtor's] Cash Balance Plan through Hewitt Associates. This plan shall be evaluated by QDRO Consultants and any necessary Qualified Domestic Relations Order shall be prepared by QDRO Consultants .... [The Movant's] interest shall be an amount equal to the actuarial equivalent of fifty percent (50%) of the marital portion of the [Debtor's] accrued benefit under the Plan as determined by QDRO Consultants.

....

[The Debtor] shall retain as his own, free and clear from any claim of [the Movant], his 401 (K) with Frontier Communications except that there shall be transferred from the Frontier Communications 401(K) the sum of Thirty–Three Thousand Nine Hundred Twelve and 00/100 Dollars ($33,912.00) to equalize the division of [the Movant's] IRA [with Fidelity] and [the Debtor's] 401(K). [The Movant's] share of $(33,912.00) shall be credited with gains and debited with losses which occur between the date of the filing of this Judgment Entry Decree of Divorce and the date of transfer by the Plan Administrator.

While it is unclear whether any such order was ever prepared during the two years between the entry of the divorce decree and the Debtor's chapter 13 bankruptcy filing on September 4, 2014, the parties agree that no qualified domestic relations order (QDRO) was ever entered by the state court.

On October 22, 2014, the Movant filed a proof of claim that did not include amounts related to the division of the Debtor's retirement plans. The Movant's proof of claim did reference an unknown amount of "stock," apparently in reference to a separate obligation under the divorce decree to divide equally certain Frontier Communications stock options. The claims bar date passed on January 14, 2015. The Court confirmed the Debtor's chapter 13 plan on October 23, 2015.

On December 14, 2015, the Movant filed the instant motion for relief from stay authorizing her to proceed in domestic relations court for the purposes of allowing that court to enter one or more QDROs necessary to effectuate a division of the Debtor's retirement accounts, as well as to receive a share of the Frontier Communications stock options and $4,000 in connection with the sale of the marital residence. (Mot. at 2.) The Debtor filed a response that simply registering his objection. (Docket No. 82.) The Court held a preliminary hearing on January 7, 2016. At the hearing, the Court denied the motion in part, denying it to the extent it dealt with the proceeds from the sale of the marital residence, since that issue had been previously resolved by an agreed order. The Court's order (Docket No. 83) also scheduled further briefing on the issue of the Movant's request to proceed to a QDRO in domestic relations court, as well as on the issue of the Frontier Communications stock options. Pursuant to that order, and the Court's January 26, 2016 Scheduling Order (Docket No. 84), the Movant submitted a brief in support of her Motion (Docket No. 87) on February 29, 2016, and the Debtor submitted a brief in opposition (Docket No. 88) on March 31, 2016.

The Court held oral argument on the Motion on April 7, 2016. At that hearing, the Movant voluntarily withdrew the Motion with respect to the Frontier Communications stock options. The Court heard the arguments of both parties and then scheduled further supplemental briefing before taking the matter under advisement. (Docket No. 89.) The Movant filed her supplemental brief in support (Docket No. 91) on May 6, 2016. The Debtor filed his supplemental brief in opposition (Docket No. 92) on May 27, 2016. The Court then took the matter under advisement.

LEGAL ANALYSIS

A. Standard For Relief From Stay Pursuant to 11 U.S.C. § 362(d).

The Movant's Motion seeks relief from the automatic stay pursuant to Section 362(d) of the Bankruptcy Code so that she may return to the state domestic relations court and obtain a QDRO in order to obtain a share of the Debtor's retirement accounts consistent with the prepetition divorce decree in the parties' divorce action notwithstanding the Debtor's pending chapter 13 bankruptcy case. While motions for relief from stay are common before this Court, the Motion is not a typical one. Instead of a secured lender seeking relief so as to pursue its collateral during the pendency of a bankruptcy case, here the Movant argues that she has equitable rights to certain property whose legal title is held by the Debtor.

The Movant seeks relief "for cause," pursuant to 11 U.S.C. § 362(d)(1), which provides that relief from the stay may be granted "for cause, including the lack of adequate protection of an interest in property of such party in interest." "Cause" is not defined by the Bankruptcy Code. In re Bogdanovich , 292 F.3d 104, 110 (2d Cir. 2002). It may include lack of adequate protection as set forth in the statute, but that is not the only basis for finding cause to grant relief from stay. 3 COLLIER ON BANKRUPTCY ¶ 362.07[3] (16th ed. 2013). Cause may exist in a wide variety of circumstances, such as when nonbankruptcy litigation affecting multiple parties was ready for trial when the bankruptcy stay was imposed, In re Castlerock Properties, 781 F.2d 159 (9th Cir. 1986), or to allow an embezzlement victim to pursue embezzled property held by a debtor. In re Newpower, 233 F.3d 922, 935 (6th Cir. 2000) (Batchelder, J., concurring, but writing for the court on the issue of relief from stay). As noted by the Movant in her supplemental brief (Docket No. 91), the determination of cause for relief from stay in these peculiarly specific circumstances lies with the bankruptcy court's discretion on case-by-case basis. In re Laguna Associates Ltd. Partnership, 30 F.3d 734, 737 (6th Circ. 1994) ; In re J & M Salupo Development Co., Inc., 388 B.R. 809, 812 (Bankr. N.D. Ohio 2008). " ‘[C]ause’ 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 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 Combs, 435 B.R. 467, 471 (Bankr. E.D. Mich. 2010) (quotation omitted).

Here, the question of relief from stay depends ultimately on whether the Movant does or does not have a legal or equitable right to a portion of the Debtor's retirement funds superior to that of the Debtor, or whether any claims she holds against the Debtor have sufficient validity and priority so as to justify relief from stay. The answer to the Motion's ultimate question, therefore, depends on the Court's analysis of the party's substantive rights to the retirement accounts in light of the divorce decree, the bankruptcy filing, the Movant's proof of claim, and the confirmation of the Debtor's chapter 13 plan.

B. The Movant's Interest in the Debtor's Retirement Accounts are Property Rights, Not Claims of a Creditor.

While outcomes in bankruptcy cases largely depend on the provisions of the Bankruptcy Code, many aspects of bankruptcy cases, frequently critical aspects, depend on applicable state law. Most fundamental among those is that property interests are created and defined by state law and bankruptcy courts do not disturb them unless some federal interest requires a different result.

Butner v. United States , 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).

This case involving the Debtor's ex-wife's rights to portions of the Debtor's retirement accounts depends largely on the holding in In re McCafferty: McCafferty v. McCafferty, 96 F.3d 192 (6th Cir. 1992). In McCafferty , the lower courts had ruled that because the non-debtor spouse's rights under prepetition divorce decree was not a support obligation excepted from discharge pursuant to 11 U.S.C. § 523(a)(5),¹ and instead represented a "property division," the spouse's right to the debtor's retirement account was dischargeable. However, the Sixth Circuit's decision to reverse in favor of the nondebtor spouse turned on a more fundamental legal point than the dischargeability rules in 11 U.S.C. § 523 : While the debtor-husband's obligation to turn over the pension assets was not in the nature of support, under Ohio law it was also not even in the nature of a "...