In re: Myrvang v. Graves

• Decision Date: 21 November 2000
• Docket Number: No. 99-35328,99-35328
• Parties: (9th Cir. 2000) In re: STEVE P. MYRVANG and JOANNE L. MYRVANG, Debtors, JUNE COTNER GRAVES, Appellee, v. STEVE P. MYRVANG; JOANNE L. MYRVANG, Appellants
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1116

232 F.3d 1116 (9th Cir. 2000)

In re: STEVE P. MYRVANG and JOANNE L. MYRVANG, Debtors,

JUNE COTNER GRAVES, Appellee, v. STEVE P. MYRVANG; JOANNE L. MYRVANG, Appellants.

No. 99-35328

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted October 4, 2000

Filed November 21, 2000

[Copyrighted Material Omitted]

Alan J. Wenokur, Seattle, Washington, for the appellants.

Lawrence K. Engel, Seattle, Washington, for the appellee.

Appeal from the United States District Court for the Western District of Washington William L. Dwyer, District Judge, Presiding. D.C. No. CV-98-01035-WLD

Before: Alfred T. Goodwin, Arthur L. Alarcon, and M. Margaret McKeown, Circuit Judges.

OPINION ALARCON, Circuit Judge:

Steve Myrvang and Joanne Myrvang (collectively "the Myrvangs") appeal from the district court's order affirming the bankruptcy court's ruling that Mr. Myrvang's debt to his former spouse June Cotner Graves is nondischargeable. The Myrvangs contend that the bankruptcy court's determination of nondischargeability was erroneous as a matter of law. They further maintain that the district court erred in affirming the bankruptcy court's imposition of a five-year debt repayment plan and in granting a partial discharge of Mr. Myrvang's debt. The Myrvangs also object to the bankruptcy court's mandatory penalty for late payment. We conclude that the bankruptcy court properly interpreted 11 U.S.C.S 523(a)(15). We also conclude that the bankruptcy court acted within its equitable powers in ordering a five-year repayment plan and the partial discharge of Mr. Myrvang's debt to Ms. Graves. We reverse the imposition of the penalty provision for late payment because it exceeded the bankruptcy court's equitable powers.

I

Mr. Myrvang and Ms. Graves divorced in 1994. Under the terms of their divorce decree, Mr. Myrvang received, inter alia, his architectural practice and the couple's marital residence subject to two mortgages, the first to Bank of America (in the amount of approximately $350,000) and the second to Seafirst Bank (in the amount of approximately $70,000). Ms. Graves received a second home subject to a mortgage a judgment in the amount of $174,188, and spousal maintenance to run for five years. The future royalties from two books written by Mr. Myrvang and Ms. Graves during their marriage were divided. The state court ordered that Ms. Graves receive 57% and Mr. Myrvang 43% of the royalties.

Mr. Myrvang subsequently married Joanne L. Jurgich ("Ms. Myrvang") in 1995. On December 30, 1996, the Myrvangs filed for bankruptcy under Chapter 13. Five months later they converted their case to a Chapter 7 petition. On the date the petition was filed, Mr. Myrvang had not paid approximately $120,000, including interest, of the amount he was ordered to pay Ms. Graves under the terms of the divorce decree. Ms. Graves filed an adversary complaint in the bankruptcy court against the Myrvangs for a determination that the debts set forth in the divorce decree were nondischargeable pursuant to 11 U.S.C. S 523(a).

Before trial on Ms. Graves's adversary complaint, the trustee of Mr. Myrvang's estate sold his home and used the proceeds to pay off the mortgage owed by Mr. Myrvang to Bank of America. Mr. Myrvang's second mortgage to Seafirst Bank, however, remained outstanding.¹

Following trial, the bankruptcy court reached several conclusions. First, Mr. Myrvang was obliged to pay the sums listed in the divorce decree. Second, the Myrvangs had failed to satisfy their burden of proof as to the two affirmative defenses of inability to pay and "greater benefit " under S 523(a)(15).² Mr. Myrvang had the ability to pay his obligations based upon the disposable income test normally utilized in Chapter 13 proceedings, and the benefit to the Myrvangs of discharging these obligations would not outweigh the detrimental impact that discharge would have on Ms. Graves.

The bankruptcy court ordered that the Myrvangs pay the sum of $102,000 to Ms. Graves over a five year period. The court ordered that the remainder of Mr. Myrvang's debt to Ms. Graves be discharged. The bankruptcy court's judgment also provided that if the Myrvangs failed to make the payments as provided in its order, judgment would be entered against them in the full amount of Mr. Myrvang's indebtedness to Ms. Graves and a penalty of $73,000 would be assessed against them. The district court affirmed that portion of the bankruptcy court's order holding that Mr. Myrvang's debt to Ms. Graves was nondischargeable under S 523(a)(15). Upon the stipulation of the parties, however, the district court reversed that portion of the bankruptcy court's judgment imposing individual liability against Ms. Myrvang in her separate capacity. The Myrvangs timely filed this appeal. We have jurisdiction pursuant to 28 U.S.C. S 158(d). The Myrvangs seek reversal of that portion of the district court's order affirming the bankruptcy court's judgment that Mr. Myrvang is individually liable for the unpaid balance of the debt owed to Ms. Graves pursuant to the divorce decree.

II

A.

The Myrvangs attack the bankruptcy court's decision on the grounds that it determined Mr. Myrvang's present ability to pay under S 523(a)(15)(A) by improperly considering his past financial condition. The Myrvangs base their argument on the bankruptcy court's finding that the "[d]efendants have consistently made maintenance payments to [p]laintiff as called for under the decree." They contend that the court should have made an estimate of Mr. Myrvang's prospective future income in considering whether he would be able to pay his debt.

In reviewing a bankruptcy court's judgment we conduct "de novo review of legal conclusions and clear error review of factual findings" while "[m]ixed questions [of law and fact] presumptively are reviewed . . . de novo because they require consideration of legal concepts and the exercise of judgment about the values that animate legal principles." Murray v. Bammer (In re Bammer), 131 F.3d 788, 792 (9th Cir. 1997) (en banc). We give no deference to the decision of the district court. See Wolkowitz v. American Research Corp. (In re DAK Indus., Inc.), 170 F.3d 1197, 1199 (9th Cir. 1999). Because the question whether S 523(a)(15)(A) requires a forward or backward calculation of income is a legal one, we review the bankruptcy court's analysis de novo.

Contrary to the Myrvangs's contention, the bankruptcy court made clear that it was taking into account both Mr. Myrvang's past payment history and future income stream. The court found that Mr. Myrvang had the ability to pay because his maintenance payments to Ms. Graves would be reduced and then ended altogether in the near future, leaving him more disposable income. Similarly, the court determined that Mr. Myrvang's educational expenses would be reduced within two years when his son graduated from college, again increasing his future disposable income. We reject as baseless the Myrvangs's claim that there "was simply no effort undertaken[by the bankruptcy court] . . . to reach a conclusion as to [how much money] was available going forward." ³

B.

The Myrvangs contend that, even if the bankruptcy court correctly determined that Mr. Myrvang was able to pay the amount awarded in the divorce decree, it erred in concluding that the balance of the equities under S 523(a)(15)(B) favors Ms. Graves. Because the "balance of the equities " test required the bankruptcy court to reach an equitable conclusion rather than a factual or legal one, we review the decision for an abuse of discretion. See Bank of Honolulu v. Anderson (In re Anderson), 833 F.2d 834, 836 (9th Cir. 1987) (per curiam) (appellate courts use the abuse of discretion standard to review bankruptcy court's equitable actions); Terex Corp. v. Metropolitan Life Ins. Co. (In re Terex Corp.), 984 F.2d 170, 172 (6th Cir. 1993) (bankruptcy court's exercise of its equitable powers reviewed for abuse of discretion).

The Myrvangs maintain that "it was not by any means obvious from the evidence at trial that one party or the other had the weight of equity, let alone that the detriment to . . . [Ms.] Graves substantially outweighed the Myrvangs'[s] fresh start." This argument misapprehends the proper test for determining dischargeability under S 523(a)(15)(B). It is the debtor and not the creditor who has the burden of persuading the bankruptcy court that a nondischargeable debt under S 523(a)(15) nonetheless qualifies for discharge. See In re Jodoin, 209 B.R. 132, 141 (B.A.P. 9th Cir. 1997); cf. Hill v. Smith, 260 U.S. 592, 595 (1923) (holding that the party claiming the exception to a statutory provision is required to prove the exception). The bankruptcy court determined that Mr. Myrvang failed to satisfy his burden of persuasion. It did not abuse its discretion in weighing the equities.

C.

The Myrvangs assert that the bankruptcy court erred in compelling Mr. Myrvang to repay his debt over a five year period. While conceding that S 523(a)(15)(A) does not specify the period of time over which payments should be made, the Myrvangs contend that the bankruptcy court should have adopted the three-year limitation on payment set forth in Chapter 13. They maintain that a five-year payment period is unreasonable as a matter of law. They point out that, had they not converted their Chapter 13 petition into a Chapter 7 petition, Mr. Myrvang's payment plan would have been limited to three years. The Myrvangs further assert that because the disposable income test used by the bankruptcy court in determining Mr. Myrvang's ability to pay is derived from Chapter 13, the bankruptcy court should have, for the sake of doctrinal consistency, also applied the preference of Chapter 13 for three-year repayment plans as codified in 11 U.S.C.S 1322(d).⁴ Because the question of whether S 523(a)(15) permits the imposition of five-year repayment plans is a legal one, we review the bankruptcy court's...