In re Monsour

• Decision Date: 19 July 2007
• Docket Number: Adversary No. 04-00071.,Bankruptcy No. 96-03575.
• Citation: 372 B.R. 272
• Court: U.S. Bankruptcy Court — Western District of Virginia
• Parties: In re Franklin MONSOUR, Debtor. Franklin Monsour, Plaintiff, v. Martha Monsour, Defendant.

372 B.R. 272

In re Franklin MONSOUR, Debtor Franklin Monsour, Plaintiff, v. Martha Monsour, Defendant.

Bankruptcy No. 96-03575.

Adversary No. 04-00071.

United States Bankruptcy Court, W.D. Virginia, Roanoke Division.

July 19, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Jesse S. Shelor, Michael Dean Hart, Michael D. Hart P.C., Roanoke, VA, for Plaintiff.

Evelyn K. Krippendorf, The Krippendorf Firm, Roanoke, VA, for Defendant.

DECISION AND ORDER

ROSS W. KRUMM, Bankruptcy Judge.

The matter before the court is the Plaintiffs Complaint to Determine Dischargeability. The Complaint seeks a declaration that the Plaintiff received a discharge of certain debt owed to the Defendant as well as damages for violation of the discharge injunction. After due consideration of the evidence and authorities and for the reasons stated herein, the relief sought by the Plaintiff is denied.

BACKGROUND

The Plaintiff and Defendant married on July 10, 1970. The Defendant filed for divorce on December 7, 1994, in Franklin County Circuit Court (herein Circuit Court). On November 20, 1995, the Circuit Court entered a Decree of Reference, which referred all matters pertaining to spousal support and equitable distribution¹ to a Commissioner in Chancery (herein Commissioner) for recommendation.² On April 3, 1996, the Circuit Court entered a Final Decree of Divorce (herein Decree of Divorce). Because the Commissioner had yet to make his recommendations, the Decree of Divorce preserved for its final resolution all matters pertaining to spousal support and equitable distribution for later determination.

On October 23, 1996, the Plaintiff filed a voluntary petition for relief pursuant to Chapter 7 of the Bankruptcy Code. The Plaintiff listed the Defendant as a co-debtor on various joint debts. The Plaintiff did not list the Defendant as a creditor. The bankruptcy estate contained no distributable assets. The Plaintiff received a discharge on January 22, 1997. The bankruptcy case closed that same clay.

After conducting hearings on March 7, 1996, and September 5, 1996, the Commissioner filed his report on July 11, 1997. The report recommended a permanent spousal support award to the Defendant in the amount of $1,000.00 per month. The report also recommended the transfer of all marital assets and joint debt to the Plaintiff because of the existence of few marital assets and the "undisputed fact that the [Plaintiff] disposed of many marital assets." (Comm.Rep.4) The Commissioner also recommended the Plaintiff pay a lump sum of $249,071.00 to the Defendant "as alimony in order to pay the joint debt for which [the Defendant] remains responsible," if Plaintiff's bankruptcy prevented "the smooth transfer of these debts." (Comm.Rep.4-5).

On July 23, 1997, the Plaintiff filed certain exceptions to the Commissioner's report.³ On November 19, 1997, the Plaintiff filed a Plea in Bar.⁴ In both, the Plaintiff asserted that he received a discharge of the lump sum obligation, arguing that the lump sum obligation constituted a property settlement and not spousal support. On March 11, 1998, the Circuit Court entered a decree adjudicating the issues which it had previously referred to the Commissioner.⁵ The March 11, 1998 Decree (herein Decree) took into consideration the exceptions to the Commissioner's report and the other argument presented by counsel. The Decree overruled the exceptions, ordered the Plaintiff to pay to the Defendant the sum of $1,000.00 in periodic spousal support, pay $249,071.00 in "a lump sum of spousal support ... [which] is in addition to the periodic payment," and affirmed all other recommendations set forth in the report.⁶

On more than one occasion the Defendant has sought to enforce the Decree, causing the Plaintiff to appear Circuit Court on several occasions to show cause why he should not be held in contempt of court for failing to comply with the Decree. The Plaintiff has been found in contempt several times.

On October 6, 1998, the Defendant a voluntary petition for relief pursuant to Chapter 7 of the Bankruptcy Code and later received her discharge. Defendant contends Plaintiff's failure to regularly make period support payments and her resulting inability to pay the joint debts caused her to file for bankruptcy.

On July 15, 2004, the Plaintiff filed a motion to reopen his bankruptcy case and filed a Complaint to Determine Dischargeability that same day. The Complaint seeks to determine the dischargeability of the lump sum obligation. After a lengthy pre-trial and discovery period, the court set a trial date of December 12, 2006. Prior to trial, the parties agreed to submit the determination of the complaint on brief.

DISCUSSION

This court has jurisdiction over the parties and the subject matter of this proceeding under 28 U.S.C. §§ 151, 157, and 1334. This is a case filed under title 11, and this court may hear and determine such proceeding under 28 U.S.C. § 157(b)(I). Venue is proper in this District under 28 U.S.C. § 1409(a).

Plaintiff argues that he received a discharge of the lump sum obligation, because it constitutes a property settlement award and not spousal support, which is excepted from discharge. As such, the Plaintiff argues that Defendant violated the discharge injunction by attempting to enforce the Decree and collect on the lump sum obligation.

Conversely, the Defendant argues that the principles of res judicata bar this current action. Alternatively, the Defendant argues that Plaintiff did not receive a discharge of the lump sum obligation because (i) the claim arose post-petition and (ii) the debt is of the kind excepted from discharge under 523(a)(5).

Any violation of the discharge injunction turns on the issue of dischargeability. Therefore, the issue of dischargeability, including its potential preclusion, will be addressed first.⁷

I. Claim Preclusion Bars Plaintiff's Relitigation of Dischargeability

Under the doctrine of res judicata, or claim preclusion, "[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Pueschel v. United States, 369 F.3d 345, 354-55 (4th Cir.2004) (quoting Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 69 L.Ed.2d 103, (1981) and Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979)) (other citations omitted). In order for claim preclusion to apply, three elements must be shown: (1) a final judgment on the merits in prior litigation; (2) an identity of the cause of action in both the earlier and the later litigation; and (3) an identity of parties or their privies in both sets of litigation. Pueschel, 369 F.3d at 355; Meekins v. United Transp. Union, 946 F.2d 1054, 1057 (4th Cir.1991); Nash County Bd. of Educ. v. Biltmore Co., 640 F.2d 484, 486 (4th Cir.1981).

Here, the Circuit Court's Decree, which overruled the Plaintiffs exceptions to the Commissioner's report and ordered the payment of permanent and lump sum awards, constitutes a final judgment on the merits. Sovran Bank N.A. v. Jacob, 15 Va. Cir. 110, 116 (1988) (ruling that the affirmation of a commissioner's report is a final judgment). The identity of the parties also exists, because the parties in both sets of litigation are identical. Therefore, the only issue remaining is whether an identity of cause of action exists.

The Fourth Circuit employs a transactional approach in determining the identity of cause of action, which inquires whether the claims "`arise out of the same transaction or series of transactions or the same core of operative facts.'" Pueschel, 369 F.3d at 355 (quoting In re Varat Enters., Inc., 81 F.3d 1310, 1316 (4th Cir. 1996)). Claims need not be identical in order to arise out of the same transaction. Pueschel, 369 F.3d at 355 ("Were we to focus on the claims asserted in each suit, we would allow parties to frustrate the goals of res judicata through artful pleading and claim splitting given that [a] single cause of action can manifest itself into an outpouring of different claims, based variously on federal statutes, state statutes, and the common law.'" (quoting Kale v. Combined Ins. Co. of Am., 924 F.2d 1161, 1166 (1st Cir.1991))).

An identity of the cause of action exists. The Plaintiff argued before the state court, and now argues before this court, that he received a discharge of the lump sum obligation. Because the Plaintiff makes the same legal argument based upon the same facts in both sets of litigation, an identity of the cause of action exists.

In his pleadings, the Plaintiff submits that no action seeking to determine the dischargeability of debt had been instituted in the state court proceedings and, therefore, the discharge order enjoined the Defendant from recovering or seeking to recover the lump sum obligation. However, whether any party initiated any proceedings to determine the dischargeability of debt is not determinative of whether an identity of cause of action exists, because res judicata bars claims that were or could have been litigated in the prior proceeding. Pueschel, 369 F.3d at 355 (citing Federated Dep't Stores, Inc., 452 U.S. at 398, 101 S.Ct. 2424 ("A final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.")); Meekins, 946 F.2d at 1057 (stating that res judicata `prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding" (quoting Peugeot Motors of Am. v. E. Auto Distribs., Inc., 892 F.2d 355, 359 (4th Cir.1989))).

Bankruptcy courts and state courts share concurrent jurisdiction over several of the exceptions to discharge enumerated in Section 523(a). In re Carter, 156 B.R. 768, 772 (Bankr.E.D.Va.1993); Douglas v. Douglas, 17 Va.App. 380, 437...