In re Kerzner, Bankruptcy No. 97-B-44473(BRL). Adversary No. 97-8738A.

• Court: U.S. Bankruptcy Court — Southern District of New York
• Writing for the Court: BURTON R. LIFLAND
• Citation: In re Kerzner, 250 B.R. 487 (Bankr. S.D.N.Y. 2000)
• Decision Date: 17 July 2000
• Docket Number: Bankruptcy No. 97-B-44473(BRL). Adversary No. 97-8738A.
• Parties: In re Stuart J. KERZNER, Debtor. Stuart J. Kerzner, Plaintiff, v. Rina Yakuel Kerzner, Defendant-Counterclaimant.

250 B.R. 487 (2000)

In re Stuart J. KERZNER, Debtor Stuart J. Kerzner, Plaintiff, v. Rina Yakuel Kerzner, Defendant-Counterclaimant.

Bankruptcy No. 97-B-44473(BRL). Adversary No. 97-8738A.

United States Bankruptcy Court, S.D. New York.

July 17, 2000.

COPYRIGHT MATERIAL OMITTED

Gabriel Del Virginia, Gabriel Del Virginia, New York City, for the Plaintiff.

Tracy L. Klestadt, Tracy L. Klestadt & Associates, New York City, for the Defendant-Counterclaimant.

MEMORANDUM DECISION DENYING RINA YAKUEL KERZNER'S MOTION FOR SUMMARY JUDGMENT AND GRANTING STUART KERZNER'S CROSS-MOTION FOR SUMMARY JUDGMENT

BURTON R. LIFLAND, Bankruptcy Judge.

Previously, a settlement (the "Settlement Agreement") designated as a global compromise and settlement of all the litigation in this court in which the chapter 7 trustee is a party, resulted in a cash payment to the estate of $1.5 million, a partial discharge to the debtor, Stuart Kerzner, effective to all creditors but his former spouse, Rina Yakuel Kerzner. With respect to Mrs. Kerzner, $3.7 million in claims were acknowledged as nondischargeable. Mrs. Kerzner also holds an additional $1.8 million claim which she now seeks summary judgment as to the issue of dischargeability. Mrs. Kerzner contends that the $1.8 million distributive award is "actually in the nature of alimony, maintenance, or support," and therefore nondischargeable under section 523(a)(5)(B) of the Bankruptcy Code. Stuart Kerzner opposes the motion, and in addition, cross-moves for summary judgment, finding the $1.8 million award dischargeable under section 523(a)(5).

Background

On January 21, 1997, Mr. Kerzner filed a voluntary petition for reorganization pursuant to chapter 11 of the Bankruptcy Code in the Southern District of Florida (the "Florida Bankruptcy Court"). On February 4, 1997, Mr. Kerzner initiated this adversary proceeding by filing a complaint to determine, among other things, dischargeability of debt under section 523(a)(15) of the Bankruptcy Code. On May 22, 1997, the Florida Bankruptcy Court converted Mr. Kerzner's chapter 11 case to one under chapter 7 of the Bankruptcy Code. On June 27, 1997, Mrs. Kerzner filed a counterclaim to Mr. Kerzner's complaint, seeking to bar dischargeability of debt under sections (a)(5) and (a)(15) of the Bankruptcy Code. Upon motion of Mrs. Kerzner, the entire case was then transferred to this court and a trustee was appointed.

Almost ten years ago, Mrs. Kerzner commenced divorce proceedings against Mr. Kerzner in the Supreme Court, State of New York (the "Divorce Court"). The Divorce Court conducted a 53-day trial to determine child support, maintenance, and equitable distribution issues. Pursuant to the decision and judgment entered in the Divorce Proceeding, see Kerzner v. Kerzner, 170 Misc.2d 1006, 653 N.Y.S.2d 219 (N.Y.Sup.Ct.1996) (hereinafter the "Divorce Decision"),¹ the marital assets were distributed between Mrs. Kerzner and Mr. Kerzner. Justice Saxe awarded Mrs. Kerzner the Kerzners' real estate in New York and Tel Aviv, as well as half the value of profit sharing/pension plan and IRA accounts. Mr. Kerzner received all of the stock in several companies (the "K & K Entities"), in which he was the sole shareholder, the ownership interest in another company, Action Distributors, a house in Pennsylvania, and all cash holdings. The K & K Entities alone were valued by the court at $5.2 million. Because the property awarded to Mrs. Kerzner was valued at approximately $2 million, Justice Saxe awarded Mrs. Kerzner an additional $1.8 million distributive award to compensate for the award of K & K Entities to Mr. Kerzner. In this way, Mrs. and Mr. Kerzner were awarded equal shares of the marital estate.

The Divorce Decision directed that a receiver be appointed for the K & K Entities. In addition the Divorce Court awarded Mrs. Kerzner an increased maintenance award until the distributive award was paid, realizing that:

. . . a receivership will not always successfully protect the non-titled spouse. Particularly since K & K is a one-man operation, . . . the business may in any case become defunct and this form of protection useless.

An additional threat to Mrs. Kerzner\'s collecting the sums due to her is the possibility that Mr. Kerzner could declare bankruptcy, an eventuality he has mentioned more than once. A distributive award could be deemed discharged in bankruptcy citing cases . . . Because spousal maintenance and child support obligations are not dischargeable in bankruptcy (see, 11 U.S.C. § 523(a)(5)), Mrs. Kerzner may be better protected in another way. That is, the maintenance award can be increased to cover the full extent of her expenses as reflected in the parties\' former lifestyle; maintenance would then be reduced once the distributive award is paid.

Divorce Decision, 653 N.Y.S.2d at 220

In order to implement his plan, Justice Saxe included on page 20 of the Judgment of Divorce the following language:

ORDERED AND ADJUDGED, that, until such time as the distributive award is made in full, defendant, shall pay to the plaintiff . . . the sum of $21,000 per month in maintenance for her support, commencing on the date that this judgment is entered and continuing for a period of eight years. Upon defendant\'s payment in full of the $1,819,780.25 distributive awarded sic provided herein, this maintenance obligation shall be reduced to $9,000 per month, and shall end at the end of eight years from entry of this judgment. . . .

Justice Saxe also directed Mr. Kerzner to pay Mrs. Kerzner $4350 per month in child support for their three children, the children's tuition and medical expenses, and the mortgage on the 95th Street brownstone home.

It remains undisputed that, as of this date, the $1.8 million distributive award has not been paid, and that Mr. Kerzner owes more than the sum of $1.7 million in nondischargeable outstanding maintenance and support arrears.

Discussion

Federal Rule of Civil Procedure 56(c), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7056, provides that summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c); See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Gallo v. Prudential Residential Servs., 22 F.3d 1219, 1223 (2d Cir.1994). On a summary judgment motion, the moving party has the burden of demonstrating the absence of any genuine issue of material fact, and all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); United States v. Certain Funds on Deposit in Scudder Tax Free Inv. Account No. 2505103, 998 F.2d 129, 131 (2d Cir.1993); Thomson McKinnon Sec. Inc. v. Leasure (In re Thomson McKinnon Sec. Inc.), 132 B.R. 9, 11 (Bankr.S.D.N.Y.1991). Once the movant has made its showing, the burden of production shifts to the non-movant who must "go beyond the pleadings and by its own affidavits, or by the depositions, answers to interrogatories, and admissions on file, establish that there is a specific and genuine issue of material fact warranting a trial." Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (quoting Fed.R.Civ.P. 56).

In the present case, the issue before the Court is whether, based on Justice Saxe's Divorce Decision and Judgment of Divorce, the Debtor's obligation to pay his former wife an award of $1.8 million should be excepted from discharge as being in the nature of support or maintenance. As such, it is a legal issue, turning on this Court's interpretation of the Divorce Decision, and does not involve a genuine issue of material fact.

Under the Bankruptcy Code, a debt owed to a former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, is not dischargeable. 11 U.S.C. § 523(a)(5). Property settlements, on the other hand, are dischargeable in bankruptcy. See Brody v. Brody (In re Brody), 3 F.3d 35, 38 (2d Cir.1993).

An obligation's status as alimony, maintenance or support exempted from discharge by section 523(a)(5) is a question of federal bankruptcy law separate and distinct from state law, and any label given the obligation, whether by the parties or the state court, is not dispositive. Id. at 39, (citing Forsdick v. Turgeon, 812 F.2d 801, 802 (2d Cir.1987)); H.R.Rep. No. 595, 95th Cong., 2d Sess. 364 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5963. See also Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). A bankruptcy court must assess the intention and effect of a state court's domestic relations award to determine whether that award is well calculated to further the support or maintenance of the former spouse, or whether it effectuates some other purpose, such as a division of property. Cook v. Bieluch (In re Bieluch), 219 B.R. 14, 20 (Bankr.D.Conn.1998)

The party opposing the discharge of the particular debt has the burden of establishing that such obligation is nondischargeable on the ground that it is actually in the nature of alimony, maintenance or support, because the concept of dischargeability under section 523 must begin with the assumption that dischargeability is favored under the Bankruptcy Code. Vittorini v. Vittorini (In re Vittorini), 136 B.R. 632, 634-35 (Bankr.S.D.N.Y.1992) (citing Tilley v. Jessee, 789 F.2d 1074, 1077 (4th Cir.1986)); see also Calhoun v. Calhoun (In re Calhoun), 715 F.2d 1103, 1111 (6th Cir.1983.); In re Bieluch, 219 B.R. at 18. Mrs. Kerzner has failed to meet that burden.

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