In re Miller
| Decision Date | 16 October 2001 |
| Docket Number | Bankruptcy No. 99-41132. Adversary No. 00-4019. |
| Citation | 268 BR 826 |
| Parties | Russell Dean MILLER, Debtor. Millie Nelson (aka Mildred Nelson), Plaintiff, v. Russell Dean Miller, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
Kimberly Gilbert, James Schrier, Lafayette, IN, for plaintiff.
Joseph Bartlett, Lafayette, IN, for defendant/debtor.
DECISION
Plaintiff and the Debtor/Defendant were formerly husband and wife. Their marriage was dissolved by the Tippecanoe Circuit Court. Although their marriage was dissolved, issues concerning the division of their marital property and the apportionment of their debts were not decided. Those issues remained under advisement with a court appointed arbitrator when the debtor filed his bankruptcy petition on November 3, 1999.1 Plaintiff filed this adversary proceeding in order to obtain a declaration concerning the dischargeability of any obligations that might be imposed upon the debtor by the state court. The complaint is based upon § 523(a)(15) of the United States Bankruptcy Code.
In that any domestic relations decree involving the Plaintiff and Defendant would be entered by the state court after the date of the debtor's petition, this court questioned whether such an obligation would constitute a pre-petition debt to which § 523(a)(15) could be applied. The parties filed briefs addressed to the issue, the court then heard oral arguments, and the issue was taken under advisement. The court now decides that, regardless of the outcome of the divorce proceeding, any obligations that the state court might impose upon the debtor in its eventual decree do not represent debts that are subject to being discharged in this bankruptcy case.
A Chapter 7 discharge is effective only as to "debts that arose before the date of the order for relief. . . ." 11 U.S.C. § 727(b). In a voluntary case, the order for relief occurs at the moment of filing. 11 U.S.C. § 301. Consequently, "debts arising after the bankruptcy case has commenced are not discharged." Matter of Rosteck, 899 F.2d 694, 696 (7th Cir.1990). The question before the court is whether obligations imposed upon a debtor by a state court decree dividing marital assets and liabilities between a debtor and its former spouse arise before or after the date of the petition, where no decree has been entered as of the date the debtor filed bankruptcy.
The Bankruptcy Code defines "debt" as "liability on a claim." 11 U.S.C. § 101(12). A claim is "a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. § 101(5)(A).
By defining a debt as a liability on a claim, Congress gave debt the same broad meaning it gave claim. . . . The concepts of debt and claim are coextensive: a creditor has a claim against the debtor; the debtor owes a debt to the creditor. . . . In other words, when a creditor has a claim against a debtor — even if the claim is unliquidated, unfixed, or contingent—the debtor has incurred a debt to the creditor. In re Energy Coop., Inc., 832 F.2d 997, 1001 (7th Cir. 1987) (citations and internal quotation marks omitted).
Through these definitions, the current Bankruptcy Code establishes an extraordinarily broad definition for debts and claims. This language was a departure from the prior Bankruptcy Act and signaled an intent to create the broadest possible definition of claim, so that "all legal obligations of the debtor, no matter how remote or contingent, would be dealt with in the bankruptcy case." See, In re Kewanee Boiler Corp., 198 B.R. 519, 527 (Bankr.N.D.Ill.1996).
Both parties point to the Congressional intent behind the breadth of these definitions to argue that any obligations which might be imposed upon the debtor by the state court's yet to be issued decree are contingent debts. See, In re Emelity, 251 B.R. 151 (Bankr.S.D.Cal.2000). The court disagrees. Despite the breadth with which debts and claims have been defined, logic dictates that the concept cannot be limitless. See, e.g., Fogel v. Zell, 221 F.3d 955, 960 (7th Cir.2000). For courts, the conundrum has been to identify or articulate just where these limits lie.
Various approaches have been devised in an attempt to solve this puzzle. One approach emphasizes the "right to payment" language of § 101(5)(A) and equates a claim solely with a right to payment under non-bankruptcy law. Until the right to payment has accrued under state law, there is no bankruptcy claim. See, e.g., In re Frenville, 744 F.2d 332 (3rd Cir.1984). Under this approach, given the absence of a decree, Plaintiff would not have a claim because it does not seem that Indiana law recognizes an obligation under a domestic relations decree until the decree has been entered. Until then, the former spouses are joint tenants of marital property, see, e.g., Poulson v. Poulson, 691 N.E.2d 504, 506 (Ind.App.1998); Smith v. Smith, 131 Ind.App. 38, 169 N.E.2d 130 (1960); I.C. 32-4-1.5-15, and their obligations to one another with regard to joint debts would seem to be established by the same rules that govern the rights and responsibilities of any co-obligor who is called upon to pay a joint debt. See, e.g., I.C. 26-1-3.1-419(e); 18 Am.Jur.2d, Contribution §§ 31-34; 74 Am.Jur.2d, Suretyship §§ 1, 24-25; 12 Am.Jur.2d, Bills and Notes §§ 439-440.
A second approach focuses upon a debtor's pre-petition conduct. It holds that so long as the conduct giving rise to the creditor's right to payment occurs prior to the petition, the resulting right to payment is a claim, assertable, and thus dischargeable, in bankruptcy. In re Edge, 60 B.R. 690, 705 (Bankr.M.D.Tenn.1986). See also Grady v. A.H. Robins Co., Inc., 839 F.2d 198 (4th Cir.1988). Under this approach, Plaintiff would have a claim because the underlying conduct giving rise to the debt — which could be either the parties' marriage, with its consequent accumulation of property and liabilities that now needs to be divided, or the initiation of the divorce — occurred prior to the petition.
A third approach, the "fair contemplation" test, holds that where the possibility of the event triggering the right to payment is within the fair contemplation of the creditor at the time the petition is filed, the creditor has a bankruptcy claim. This approach has frequently been employed to determine when an environmental claim arises. For example, when a polluter files for bankruptcy, are the post-petition environmental cleanup and containment costs incurred in restoring the debtor's site contingent claims subject to discharge, or post-petition claims that the creditor may attempt to recover from the debtor? The Ninth Circuit faced this issue in In re Jensen, 995 F.2d 925 (9th Cir. 1993). In addressing whether the state environmental agency held a contingent claim, that circuit highlighted the agency's pre-petition knowledge of the debtors' deteriorating storage tank containing environmentally hazardous fungicide. This knowledge was held to be sufficient to bring the future response costs and natural resource damages within the agency's "fair contemplation" at the time the petition was filed, and, thereby, qualify those costs as a contingent claim for bankruptcy purposes. Jensen, 995 F.2d at 930-31.
Yet another methodology was articulated by the Eleventh Circuit when it addressed whether a representative could be appointed to represent and assert claims on behalf of all the future victims of plane crashes which would be caused by a debtor's defectively designed and manufactured airplanes. See, Epstein v. Official Comm. of Unsecured Creditors (In re Piper Aircraft Corp.), 58 F.3d 1573 (11th Cir. 1995). The court concluded that the determination of whether there is a bankruptcy claim depends upon the extent of the pre-confirmation relationship between the debtor and the putative class of creditors.
An individual will have a § 101(5) claim against the debtor . . . if (i) events occurring before confirmation create a relationship, such as contact, exposure, impact or privity . . . and (ii) the basis for the liability is the debtor\'s prepetition conduct in designing, manufacturing and selling the allegedly defective or dangerous product. Piper, 58 F.3d at 1577.
Furthermore, the claimant must also be identifiable or part of an identifiable group. Id. Because the class of future claimants in Piper was so broadly defined —including all persons who might assert a claim against Piper based upon events occurring after confirmation arising out of or relating to aircraft or parts manufactured or sold, designed, distributed or supported by Piper prior to confirmation— the court found the class did not have the necessary "preconfirmation exposure to a specific identifiable defective product or any other preconfirmation relationship" with Piper. Id. It therefore found that the future claimants failed to have contingent bankruptcy claims.
Although never in the context facing this court, the Seventh Circuit has examined the issue of contingent claims in bankruptcy on several occasions, observing that the uncertainty of when a party has such a claim "is amplified by the fact that the determination . . . seems to hinge on the nature of the claim and the posture of the case." In re Chicago, Milwaukee, St. Paul & Pacific R.R. Co., 974 F.2d 775, 781 (7th Cir.1992). This observation explains why its decisions seem to employ somewhat different standards. Compare Fogel v. Zell, 221 F.3d 955 (7th Cir.2000) with AM International, Inc. v. Datacard Corp., 106 F.3d 1342 (7th Cir.1997) and In re UNR Industries, Inc., 20 F.3d 766 (7th Cir.1994) and In re Chicago, Milwaukee, St. Paul & Pacific R.R.Co., 3 F.3d 200 (7th Cir.1993) and In re Chicago, Milwaukee, St. Paul & Pacific R.R. Co., 974 F.2d 775 (7th Cir.1992). In Datacard, 106 F.3d 1342, Chicago...
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