In re Maddigan

• Decision Date: 09 December 2002
• Docket Number: Docket No. 01-5061.
• Citation: 312 F.3d 589
• Parties: Falk & Siemer, LLP, Plaintiff-Appellee, v. Craig Maddigan, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

312 F.3d 589

Falk & Siemer, LLP, Plaintiff-Appellee, v. Craig Maddigan, Defendant-Appellant.

Docket No. 01-5061.

United States Court of Appeals, Second Circuit.

Argued August 26, 2002.

Decided December 9, 2002.

Amended December 10, 2002.

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Leonard F. Walentynowicz, Grand Island, NY, for Defendant-Appellant.

Carol D. Collard, Falk & Siemer, LLP, Buffalo, NY, on the brief, for Plaintiff-Appellee.

Before WINTER, SACK, and SOTOMAYOR, Circuit Judges.

SOTOMAYOR, Circuit Judge.

Defendant Craig Maddigan appeals from a judgment of the United States District Court for the Western District of New York (Arcara, J.) affirming the bankruptcy court's finding that Maddigan's obligation for legal fees imposed by a family court during a custody proceeding was nondischargeable in bankruptcy. We hold that the bankruptcy court (Bucki, J.) correctly read the family court's order of legal fees as creating a debt Maddigan owes to his child that is "in the nature of support." As such, this debt is nondischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(5).

BACKGROUND

Plaintiff Falk & Siemer, LLP ("Falk & Siemer") brought this action for declaratory judgment that its claim for attorney's fees against Maddigan was nondischargeable under 11 U.S.C. § 523(a)(5).

Maddigan and Lisa Grupposo, who were never married, are the parents of a child. At the end of their relationship, Maddigan and Grupposo both initiated proceedings in family court for custody of their daughter. Grupposo received custody, and Maddigan was granted liberal visitation rights.

Falk & Siemer represented Grupposo in the custody proceedings. At the end of the proceedings, Falk & Siemer moved for an award of legal fees from Maddigan. The family court directed Maddigan to pay Falk & Siemer $12,000 in fees plus interest from January 1, 2000. When payment was not made, the family court granted a money judgment to Falk & Siemer in this amount.

Maddigan subsequently filed a petition for bankruptcy relief under Chapter 7 of the Bankruptcy Code. Falk & Siemer thereafter commenced the instant action, seeking a determination that its claim for legal fees was nondischargeable under 11 U.S.C. § 523(a)(5).¹

Section 523 defines a number of exceptions to the general grant of discharge provided by § 727. Among these exceptions, § 523(a)(5) provides that a discharge under § 727 does not discharge an individual debtor from:

[A]ny debt ... to a spouse, 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, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that ... such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.

11 U.S.C. § 523(a)(5).

The bankruptcy court identified the key issue as whether the award of legal fees was "in the nature of ... support" within the meaning of § 523(a)(5). In re Maddigan, 259 B.R. 810, 810 (Bankr.W.D.N.Y. 2001). Relying on "the well-established principle of bankruptcy law that dischargeability must be determined by the substance of the liability rather than its form," id. at 811 (quoting In re Spong, 661 F.2d 6, 9 (2d Cir.1981)) (internal quotation marks omitted), the bankruptcy court evaluated the substance of the liability imposed on Maddigan by the family court to determine whether the award of counsel fees in the custody proceeding was "truly in the nature of support." Id. After a review of the family court's custody decision and order awarding legal fees, the bankruptcy court held that Maddigan's obligation to Falk & Siemer was in the nature of support for Maddigan's child, and as such was nondischargeable under § 523(a)(5). Maddigan, 259 B.R. at 812.

Maddigan appealed this determination to the United States District Court for the Western District of New York (Arcara, J.), which affirmed "[s]ubstantially for the reasons set forth in the Bankruptcy Court's opinion." In re Maddigan, No. 01-CV-328A, slip op. at 2 (W.D.N.Y. Aug. 27, 2001). This appeal followed.

DISCUSSION

I. Standard of Review

Review of an order of a district court issued in its capacity as an appellate court is plenary. In re Manville Forest Prods. Corp., 896 F.2d 1384, 1388 (2d Cir. 1990). The factual determinations and legal conclusions of the bankruptcy court are thus to be reviewed independently by this Court. Id. The bankruptcy court's findings of fact are reviewed for clear error, and its conclusions of law are reviewed de novo. Id.

II. Whether Maddigan's Debt to Falk & Siemer is Nondischargeable in Bankruptcy

In order for the debt Maddigan owes Falk & Siemer to be nondischargeable under § 523(a)(5), three statutory requirements must be met. First, the debt must be "to a spouse, former spouse, or child of the debtor." 11 U.S.C. § 523(a)(5). Second, the debt must be "actually in the nature of" (as opposed to simply designated as) alimony, maintenance, or support. Id. § 523(a)(5)(B). Third, the debt must have been incurred "in connection with a separation agreement, divorce decree or other order of a court of record." Id. § 523(a)(5). We address each element in turn.

A. Maddigan's Debt to Falk & Siemer Is a Debt to Maddigan's Child

As Maddigan and Grupposo were never married, Maddigan's debt cannot be characterized as a debt to a spouse or former spouse. The question is whether Maddigan's obligation for the legal fees Grupposo incurred during the proceeding for custody of their child can be considered a debt to that child.

The fact that the debt is payable to a third party (here, Falk & Siemer) does not prevent classification of that debt as being owed to Maddigan's child. Our case law clearly establishes that debts in the nature of support need not be payable directly to one of the parties listed in § 523(a)(5) in order to be nondischargeable. See Spong, 661 F.2d at 10-11; In re Peters, 124 B.R. 433, 435 (Bankr.S.D.N.Y. 1991) (citing cases).

A separate question is whether Maddigan's obligation for legal fees incurred by the nonspouse mother of his child can be considered a debt to his child within the meaning of § 523(a)(5). We have previously held that the legal fees of an attorney appointed to represent the interests of a child in a custody proceeding can be considered a debt to the child. In re Peters, 964 F.2d 166, 167 (2d Cir.1992) (per curiam), aff'g 133 B.R. 291 (S.D.N.Y.1991). In Peters, we endorsed the reasoning of the district court below, which had explained that "[i]t is ... generally accepted that fees incurred on behalf of a child are nondischargeable because they are deemed to be support when those fees are inextricably intertwined with proceedings affecting the welfare of a child." Peters, 133 B.R. at 295; see also Spong, 661 F.2d at 9-10. Other circuits have concurred that the debt owed to an attorney appointed to represent a child in custody or support proceedings is properly considered a debt to that child within the meaning of § 523(a)(5). See, e.g., In re Miller, 55 F.3d 1487, 1490 (10th Cir.1995) (holding that debts for a guardian ad litem and a psychologist were nondischargeable under § 523(a)(5), because "the emphasis [is to be] placed on the determination of whether a debt is in the nature of support, rather than on the identity of the payee"); In re Dvorak, 986 F.2d 940, 941 (5th Cir.1993) (holding that legal fees for a child's guardian ad litem in a custody proceeding were "clearly for [the child]'s benefit and support," and as such were nondischargeable under § 523(a)(5)).

The facts of Peters are admittedly distinguishable from those of the instant case, in that here Maddigan's child was not appointed her own legal representative in the custody proceeding. However, it is a "well-established principle of bankruptcy law that dischargeability must be determined by the substance of the liability rather than its form." Spong, 661 F.2d at 9. Looking to the substance of Maddigan's liability, it is clear that the representation in which Grupposo's legal fees were incurred was, at least in part, for the benefit of Maddigan's child, even though the child was not appointed her own attorney. In reaching this conclusion, we do not suggest that a debt for legal services incurred by a nonspouse parent as part of custody proceedings is always for the benefit of a child within the meaning of § 523(a)(5). It is possible that legal fees in a custody proceeding may be incurred solely for the benefit of the interests of a parent. In this case, however, the custody proceeding was in substance concerned with the welfare of Maddigan's child, as is apparent from, inter alia, the family court's repeated reference to the child's welfare in making its custody determination.

This conclusion is supported by the legislative history of § 523(a)(5), which reflects a general concern that parents of children born out of wedlock not be able to evade child support obligations in bankruptcy. Section 523(a)(5) was amended in 1984 to change its application to debts arising "in connection with a separation agreement, divorce decree or other order of a court of record." 11 U.S.C. § 523(a)(5) (italics indicate the additional text). This clause was added to broaden the exception from discharge to include child support debts arising from non-marital relationships. See In re Furlong, 155 B.R. 517, 518 (Bankr.W.D.Mo.1993) (citing the legislative history of the 1984 and 1986 amendments to § 523(a)(5), and noting that § 523(a)(5) was amended "to plug the loophole that allowed fathers of children born out of wedlock to escape child support obligations in bankruptcy"); cf. In re Magee, 111 B.R. 359, 360 (M.D.Fla.1990) ("[B]y its enactment of [§ 523(a)(5)], Congress intended to...